House of Representatives

Explanatory Memorandum

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

General outline and financial impact

Reforming the taxation of employee share schemes

Schedule 1 to this Bill and the Income Tax (TFN Withholding Tax (ESS)) Bill 2009 reform the taxation of employee share schemes by:

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replacing the current Division 13A of Part III of the Income Tax Assessment Act 1936 ;

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inserting a new Division 83A into the Income Tax Assessment Act 1997 dealing with employee share schemes; and

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inserting a new Subdivision 14-C in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) dealing with the employee share scheme withholding tax, and a new Division 392 in Schedule 1 to the TAA 1953 dealing with employee share scheme reporting.

Date of effect : The changes apply to shares, rights and stapled securities acquired on and after 1 July 2009.

In order to simplify the law and improve the interaction of the employee share scheme rules with other areas of the law, shares, rights and stapled securities acquired before this time will also be brought within the new rules. However, transitional arrangements will be provided to ensure the effect of the existing law is maintained for securities acquired before 1 July 2009.

Proposal announced : This measure was first announced in the 2009-10 Budget and in the Treasurer's Media Release No. 065 of 12 May 2009. Final details of the measure were announced in the Assistant Treasurer's Media Release No. 011 of 1 July 2009.

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

Compliance cost impact : Low.

Non-commercial losses

Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 to tighten the application of the non-commercial losses rules in relation to individuals with an adjusted taxable income of $250,000 or more. These amendments will prevent high income individuals from offsetting deductions from non-commercial business activities against their salary, wage or other income.

Date of effect : These amendments apply to the 2009-10 income year and later income years.

Proposal announced : This measure was announced in the 2009-10 Budget and in the Treasurer's Media Release No. 067 of 12 May 2009.

Financial impact : This measure will have these revenue implications:

Compliance cost impact : Low.

Superannuation - Payment of lost member accounts to the Commissioner of Taxation

Schedule 3 to this Bill amends the Superannuation (Unclaimed Money and Lost Members) Act 1999 to require superannuation providers to transfer the balance of a lost member's account to the Commissioner of Taxation (Commissioner) where: the balance of the account is less than $200; or the account has been inactive for a period of five years and the provider is satisfied it will never be possible to pay an amount to the member.

Date of effect : These amendments apply in relation to the last unclaimed money day occurring before 1 July 2010 and later unclaimed money days.

Proposal announced : This measure was announced in the 2009-10 Budget.

Financial impact : These amendments result in a gain to revenue estimated at $238 million over the forward estimates period. These amendments are also expected to increase government expenditure by $8.4 million over this period.

These amendments are expected to have a moderate ongoing financial impact in subsequent years.

Compliance cost impact : Low to medium. Superannuation funds will need to ensure their systems can enable eligible lost member accounts to be transferred to the Commissioner. There should be long term savings for funds as they will no longer need to administer or apply member protection to those accounts transferred to the Commissioner.