House of Representatives

Explanatory Memorandum

Circulation with the authority of the Parliamentary Secretary to the Prime Minister, the Hon Christian Porter MP)

Schedule 6 - Treasury

Outline

Schedule 6 will repeal redundant Acts and provisions in the Treasury portfolio. This schedule will also make a number of consequential amendments to other Acts to remove references to inoperative Acts.

Part 1 - Repeal of Acts

Outline

Part 1 will repeal redundant Acts from the Treasury portfolio.

Notes on Clauses

Income Tax (Withholding Tax Recoupment) Act 1971

Item 1: The whole of the Act

Item 1 will repeal the Income Tax (Withholding Tax Recoupment) Act 1971 (the ITWTR Act).

The ITWTR Act imposes a special tax on interest from borrowings that received an exemption from withholding tax on the basis the borrowing was made by an Australian owned and controlled entity, for use in a substantially Australian enterprise, but which have subsequently ceased to be eligible for that exemption, consistent with the requirements of section 128N of the Income Tax Assessment Act 1936 (the ITAA 1936).

Due to changes to the tax law, in particular the repeal of section 128N of the ITAA 1936 on 14 September 2006, such borrowings can no longer arise. The ITWTR Act is now redundant.

International Monetary Agreements Act 1959

Item 2: The whole of the Act

Item 2 will repeal the International Monetary Agreements Act 1959 (the IMAA 1959).

The IMAA 1959 relates to an increase in Australia's quota in the International Monetary Fund (IMF) an increase in the capital stock of the International Bank for Reconstruction and Development. These transactions have been completed and therefore the legislation is no longer required.

Occupational Superannuation Standards Regulations Application Act 1992

Item 3: The whole of the Act

Item 3 will repeal the Occupational Superannuation Standards Regulations Application Act 1992 (OSSRA Act).

The OSSRA Act modified the time at which the Occupational Superannuation Standards Regulations 1987 were taken to have commenced. As these regulations were repealed in 2013, the OSSRA Act has no ongoing effect and is no longer required.

States Grants (Aboriginal Advancement) Act 1972

Item 4: The whole of the Act

Item 4 will repeal the States Grants (Aboriginal Advancement) Act 1972 (the SGAA Act).

The SGAA Act provided for the payment of tied grants to the states and territories in the 1972-1973 financial year.

All grants under the Act have been paid. The Act has no ongoing effect and is redundant.

Taxation Laws (Clearing and Settlement Facility Support) Act 2004

Item 5: The whole of the Act

Item 5 will repeal the Taxation Laws (Clearing and Settlement Facility Support) Act 2004 (the TLCSFS Act).

The TLCSFS Act was introduced following amendments to the Corporations Act 2001 (the CP Act) to allow for the transfer of responsibility for providing financial backing for the parts of the clearing and settlement support system from the National Guarantee Fund (the NGF) to ASX Clear Pty Ltd.

The TLCSFS Act was intended to ensure that no income tax or GST consequences arose from transfer payments from the NGF under section 891A of the CP Act. The transfer of responsibility, including all payments from the NGF, has now been completed. The TLCSFS Act is therefore redundant.

Part 2 - Other amendments

Outline

This part will repeal various provisions in the tax law as well as references to these provisions in other Acts.

Notes on Clauses

Financial Corporations (Transfer of Assets and Liabilities) Act 1993

Item 6: Paragraphs 15(1)(a)

Item 7: Paragraph 15(3)(a)

Items 6 and 7 will repeal references to section 26C of the ITAA 1936 in paragraphs 15(1)(a) and 15(3)(a) of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993. These references will become inoperative following the repeal of section 26C of the ITAA 1936 (Item 10 below).

Income Tax Assessment Act 1936

Item 8: Sections 23E and 23J

Item 8 will repeal sections 23E and 23J of the ITAA 1936 which provide tax concessions for certain securities.

The ITAA 1936 contains a number of provisions providing modified tax treatment for specific types of securities, generally those issued by the Commonwealth.

Most types of securities that receive special treatment are no longer issued. Specifically, section 23E of the ITAA 1936 provides that an amount received by a person upon the redemption of a Commonwealth security that is a 'special bond', other than an amount paid as accrued interest, is not assessable income and not exempt income. The Commonwealth no longer issues 'special bonds' and all 'special bonds' that were issued have matured. Similarly, section 23J of the ITAA 1936 provides similar special treatment for many types of securities issued at a discount before 1982.

Consequently, neither of these provisions has any ongoing operation.

Item 9: paragraph (c) of the definition of traditional security in Subsection 26BB(1)

Item 9 will repeal a reference to section 26C of the ITAA 1936 in the definition of traditional security in subsection 26BB(1) of the ITAA 1936. This reference will become inoperative following the repeal of section 26C of the ITAA 1936 (Item 10 below).

Item 10: Section 26C

Item 10 will repeal section 26C of the ITAA 1936 which provides a tax concession for certain securities.

The ITAA 1936 contains a number of provisions providing modified tax treatment for specific types of securities, generally those issued by the Commonwealth.

Section 26C of the ITAA 1936 provides that where a taxpayer disposes of or redeems a non-interest bearing security issued by the Commonwealth (or an interest in such a security) and the amount received exceeded the cost of the security to the taxpayer, they must include an amount equal to the excess in their assessable income.

The only non-interest bearing securities now issued by the Commonwealth are Treasury notes, a form of short-term discount security used to assist with within-year financing, generally with a term of less than six months.

Given the term of Treasury notes, this 'special treatment' is no different to the treatment that would apply to such a disposal or a redemption under the general tax law, at least since the introduction of capital gains tax in 1985.

As a result, section 26C, like sections 23E and 23J, no longer has any ongoing practical effect. The 'special rules' it provides give the same outcome as the general law for the securities currently being issued to which they can apply.

Item 11: Subdivision CB of Division 3 of Part III

Item 11 will repeal Subdivision CB of Part III of the ITAA 1936, which allows eligible companies to seek a determination from the Treasurer that they are regional headquarters, entitling them to deductions relating to pre-establishment expenditure they may incur.

In 1999, the rules around pre-establishment expenditure were amended to, among other things, make deductions for pre-establishment expenditure generally available to all taxpayers. Since this time, no entity has sought to have the Treasurer make a determination under Subdivision CB of Division 3 of Part III. Further, no prior determinations remain in effect.

Given this, the provisions are redundant and no longer required.

Item 12: the definition of interest in subsection 128A(1AB)

Item 13: paragraph (b) of the definition of qualifying security in subsection 159GP(1)

Item 14: Subsection 265B(3)

Item 15: Subsection 57-25(6) of Schedule 2D (table item 2)

Items 12 to 15 will repeal references to section 26C of the ITAA 1936 in various provisions of the ITAA 1936. This reference will become inoperative following the repeal of section 26C of the ITAA 1936 (Item 10 above).

Income Tax Assessment Act 1997

Item 16: Section 10-5 (table item headed 'investments')

Item 17: Section 11-55 (table item headed 'securities')

Items 16 and 17 will repeal references to section 26C of the ITAA 1936 in various provisions of the Income Tax Assessment Act 1997 (ITAA 1997). These references will become inoperative following the repeal of section 26C of the ITAA 1936 (Item 10 above).

Item 18: Section 12-5 (table item headed 'regional headquarters (RHQs)')

Item 18 will repeal references to Subdivision CB of Part III of the ITAA 1936 in the guide to deductions in the income tax law set out in section 12-5 of the ITAA 1997. These references will become inoperative following the repeal of Subdivision CB of Part III of the ITAA 1936 (Item 11 above).

Part 3 - Applications and savings provisions

Division 1 - Application provisions

Item 19: General application provision

Item 19 will provide a general application rule for the repeals and amendments made by Schedule 6, specifying that they will apply to assessments for the 2015-16 income year and later income years or, for other purposes, to things done or existing after the date of the repeal. This provides clarity about which tax years and actions will be affected by the repeals and amendments.

Item 20: Application of items 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16 and 17

Item 20 will set out a specific application rule for the repeals of sections 23E, 23J and 26C of the ITAA 1936, providing that this repeal applies for the purposes to securities issued on or after commencement. This ensures any taxpayers with existing securities to which the provisions apply will not be adversely affected.

Division 2 - Savings provisions

Item 21: Object

Item 22: Making and amending assessments, and doing other things, in relation to past matters

Item 23: Saving of provisions about effect of assessments

Item 24: Repeals disregarded for the purposes of dependent provisions

Item 25: Schedule does not limit operation of section 7 of the Acts Interpretation Act 1901

Items 21 to 25 will provide for transitional and savings provisions in respect of the repeals made by Schedule 6. The transitional and savings provisions, which are standard when there are repeals of tax legislation that has become inoperative, preserve the rights and obligations of taxpayers and the Commissioner of Taxation in relation to past years. This ensures that the repeal can have no effect on liabilities and entitlements in prior income years, even where these liabilities or entitlements are not identified until after the repeal commences.