House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon Wayne Swan MP)

General outline and financial impact

Lift the expenditure cap for eligibility to the Research and Development Tax Offset

Schedule 1 to this Bill increases the research and development (R & D) expenditure cap for eligibility to the R & D Tax Offset from $1 million to $2 million.

Date of effect : This amendment applies from 1 July 2009.

Proposal announced : This measure was announced in the Treasurer's Media Release No. 062 of 12 May 2009.

Financial impact : This measure is estimated to have the following revenue impact over the forward estimates period:

Compliance cost impact : Low.

Prescribed private funds

Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 , the Taxation Administration Act 1953 and the A New Tax System (Australian Business Number) Act 1999 to improve the integrity of prescribed private funds (PPFs). The amendments among other things:

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rename PPFs as private ancillary funds;

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move the full administration of those funds under the authority of the Commissioner of Taxation (Commissioner);

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give the Treasurer the power to make legislative guidelines about the establishment and maintenance of private ancillary funds; and

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give the Commissioner the power to impose administrative penalties on trustees that fail to comply with the guidelines and to remove or suspend trustees of non-complying funds.

Date of effect : These amendments will apply from 1 October 2009.

Proposal announced : These amendments were announced in the 2008-09 Budget by the Treasurer in Media Release No. 052 of 13 May 2008.

Financial impact : Nil.

Compliance cost impact : Low.

Demutualisation of friendly societies

Schedule 3 to this Bill amends the Income Tax Assessment Act 1997 to provide relief from capital gains tax to members and insured entities of friendly societies that have a life insurance business and/or a private health insurance business and the friendly society demutualises to a for-profit entity.

Date of effect : These amendments apply to demutualisations that occur on or after 1 July 2008. This will ensure that friendly societies that demutualise on or after this date but prior to the amendments receiving Royal Assent may qualify for this relief.

Proposal announced : These amendments were announced in the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs' Media Release No. 086 of 24 October 2008.

Financial impact : These amendments are expected to have a small but unquantifiable revenue impact.

Compliance cost impact : Low. This comprises a low implementation impact and a low decrease in ongoing compliance costs relative to the affected group.

Consolidation: Application of losses with nil available fraction

Schedule 4 to this Bill amends the Income Tax Assessment Act 1997 to ensure losses transferred to the head company of a consolidated group or a multiple entry consolidated group by a joining entity that is insolvent at the joining time can be used by the head company in certain circumstances.

Date of effect : 1 July 2002 - this measure is beneficial to taxpayers.

Proposal announced : This measure was announced jointly by the Treasurer and the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs in Media Release No. 053 of 13 May 2008.

Financial impact : This measure will have an unquantifiable (but minimal) cost to revenue over the forward estimates.

Compliance cost impact : Low.

Minor amendments

Schedule 5 to this Bill makes technical corrections and other minor amendments to the taxation laws. These amendments are part of the Government's commitment to the care and maintenance of the tax system.

Date of effect : These amendments commence from Royal Assent unless otherwise stated in this explanatory memorandum.

Proposal announced : These amendments were all foreshadowed by release in draft form on the Treasury website on 20 May 2009.

Financial impact : The amendments proposed by items 329 to 336 to the capital gains tax (CGT) small business concessions are expected to result in an unquantifiable but small cost to revenue.

The amendments proposed by items 337 and 338 to the CGT provisions as they apply to foreign residents are expected to result in an unquantifiable potential gain to revenue.

The other minor amendments are expected to have a nil to minimal revenue impact.

Compliance cost impact : Nil to low.