House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan MP

General outline and financial impact

Improving fairness and integrity in the tax system: distributions to entities connected with a private company

Schedule 1 to this Bill amends the non-commercial loan rules in Division 7A of the Income Tax Assessment Act 1936 to prevent a shareholder of a private company (or an associate of the shareholder) accessing tax-free dividends from the provision of company assets, for less than their market value.

Other technical amendments have also been made to strengthen the non-commercial loan rules to ensure that they operate in accordance with their original policy intent and cannot be circumvented by the use of a closely held corporate limited partnership or interposed entities.

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

Proposal announced: This measure was announced jointly in the Treasurer's and the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs' Media Release No. 067 of 12 May 2009.

Financial impact: This measure will have the following revenue implications:

Compliance cost impact: Low. This measure will affect only a small proportion of individuals and businesses. There is a low ongoing compliance cost impact and a low transitional impact, reflecting the need for some taxpayers to be aware of the amendment.

Extending the tax file number withholding arrangements to closely held trusts, including family trusts

Schedule 2 to this Bill amends the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997 and the Taxation Administration Act 1953 to extend the existing arrangements for tax file number (TFN) withholding to cover closely held trusts, including family trusts. The information collected by the Australian Taxation Office (ATO) under these amendments will facilitate data-matching and allow the ATO to check whether the assessable income of beneficiaries of these trusts correctly includes their share of the net income of the trust.

Date of effect: This measure applies from 1 July 2010.

Proposal announced: This measure was announced jointly in the Treasurer's and the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs' Media Release No. 067 of 12 May 2009.

Financial impact: This measure will have the following revenue implications:

Compliance cost impact: Low. Trustees will be required to obtain the beneficiary's TFN or withhold the required amount under the TFN withholding arrangements. Additionally, there will be some associated reporting requirements.

Beneficiaries that do not have a TFN need to apply for one.

Income tax treatment of the HECS-HELP benefit

Schedule 3 to this Bill amends the Income Tax Assessment Act 1997 to exempt from income tax the Higher Education Contribution Scheme-Higher Education Loan Programme benefit (HECS-HELP benefit).

The HECS-HELP benefit was an initiative first introduced in the 2008-09 Budget. The benefit gives eligible recipients a reduction in their compulsory HECS debt repayment and/or their HELP debt repayment or, in some cases where a repayment is not required due to low income, a direct reduction in their HELP debt.

Date of effect: This measure applies to assessments for the 2008-09 income year and later income years.

Proposal announced: Not previously announced.

Financial impact: Nil.

Compliance cost impact: Negligible.

Deductible gift recipients

Schedule 4 to this Bill amends the Income Tax Assessment Act 1997 to update the list of deductible gift recipients (DGRs) to include two new entities, and extend the period for which another DGR may collect deductible gifts.

Date of effect: The changes generally apply to gifts received after the day the organisation is notified of its specific listing.

Proposal announced: The listing of the Bali Peace Park Association Inc. was announced in the Assistant Treasurer's Media Release No. 115 of 17 December 2009. The listing of the other organisation has not previously been announced.

Financial impact: This measure will have the following revenue implications:

Compliance cost impact: Nil.

Income tax exemption: Global Carbon Capture and Storage Institute Limited

Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 to make the Global Carbon Capture and Storage Institute Limited (the Institute) income tax exempt for a four-year period.

The central objective of the Institute is to accelerate the commercial deployment of carbon capture and storage projects to contribute to reducing carbon dioxide emissions.

The information and expertise developed by the Institute is to be disseminated broadly and globally to the benefit of both the Australian and global carbon capture and storage communities.

Date of effect: The exemption applies to income received on or after 1 July 2009 and before 1 July 2013.

Proposal announced: This measure was announced on 2 November 2009 in the 2009-10 Mid-Year Economic and Fiscal Outlook.

Financial impact: Nil.

Compliance cost impact: Low.

Repeal of certain unlimited periods for amending assessments

Schedule 6 to this Bill amends various taxation laws to repeal over 100 unlimited amendment periods. As result, a number of provisions which provide the Commissioner of Taxation with an indefinite time to amend taxpayers' assessments are replaced with the existing amendment provisions that have certain finite periods. The removal of these unlimited amendment periods will improve certainty for taxpayers in their taxation affairs and contribute to reducing the volume of unnecessary provisions in the taxation laws.

Date of effect: This measure removes the specified unlimited amendment periods the day after this Bill receives Royal Assent.

Proposal announced: This measure was announced in the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs' Media Release No. 048 of 12 May 2009.

Financial impact: Unquantifiable, but thought to be minimal (less than $1 million per year).

Compliance cost impact: Nil.