House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP)

General outline and financial impact

Commissioner's Remedial Power

Schedule 1 to this Bill establishes a Remedial Power for the Commissioner of Taxation (Commissioner) to allow for a more timely resolution of certain unforeseen or unintended outcomes in the taxation and superannuation laws.

The power allows the Commissioner to make, by disallowable legislative instrument, one or more modifications to the operation of a taxation law to ensure the law can be administered to achieve its intended purpose or object. The power can only be validly exercised where:

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the modification is not inconsistent with the intended purpose or object of the provision;

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the Commissioner considers the modification to be reasonable, having regard to both the intended purpose or object of the relevant provision and whether the costs of complying with the provision are disproportionate to achieving the intended purpose or object; and

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the Department of the Treasury or the Department of Finance advises the Commissioner that any impact on the Commonwealth budget would be negligible.

Before exercising the power, the Commissioner must be satisfied that any appropriate and reasonably practicable consultation has been undertaken. This is consistent with section 17 of the Legislation Act 2003. This allows an opportunity to identify and consider all implications from the exercise of the power and to ensure that the exercise of the power is appropriate in the circumstances. This is consistent with the approach to amendments of primary legislation, which are subject to public consultation. In addition, the Commissioner will consult with a technical advisory group (which will include private sector experts) and the Board of Taxation prior to any exercise of the power.

The power is limited in its application and an entity (the first entity) must treat a modification made under the power as not applying to it and any other entity if the modification would produce a less favourable result for the first entity.

Date of effect: This measure commences on the day after Royal Assent. This allows the Commissioner to make legislative instruments from that date to modify the operation of a taxation law.

Proposal announced: This measure was announced by the then Assistant Treasurer in a Media Release titled 'Providing more certainty and better outcomes for taxpayers' on 1 May 2015 and on 12 May 2015 as part of the 2015-16 Budget.

Financial impact: This measure has no impact on revenue over the forward estimates period.

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 1, paragraphs 1.79 to 1.87.

Compliance cost impact: Low. It is anticipated that the Remedial Power may be used to reduce compliance costs where the compliance cost imposed by a taxation law is disproportionate to achieving the purpose or object of the law. However, entities will need to refer to legislative instruments made under the Remedial Power to understand any modification made to the operation of a taxation law.

The compliance cost impact associated with individual uses of the Remedial Power will be considered as part of the process of developing any legislative instruments made under this Power.

Regulation impact on business

Impact: Small. The Remedial Power will benefit entities by delivering an alternative option for the resolution of unintended outcomes, providing greater certainty, reducing risks for entities and promoting confidence in the taxation system.

Main points: The Remedial Power will provide a timelier and more efficient mechanism for resolving smaller unintended outcomes in the taxation laws that are expected to deliver net benefits for entities when it is used. The instruments made under the Remedial Power, not the power itself, will generate benefits for entities. The precise benefits delivered by the power will depend on the frequency and circumstances of its use.

Where the Remedial Power is used to resolve an unintended outcome, entities will be spared from seeking clarification or advice on the operation of the law. Further, use of the power (rather than legislative change) will avoid any risks associated with uncertain tax outcomes that can arise from announced changes that do not eventuate.

The Remedial Power will also deliver regulatory costs, including small costs for entities and advisers to familiarise themselves with the power and instruments made under it.

Primary producer income averaging

Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to allow primary producers to access income tax averaging 10 income years after choosing to opt out, instead of that choice being permanent.

This assists primary producers as averaging only recommences when it is to their benefit (they receive a tax offset) and they can still opt out if averaging no longer suits their circumstances.

Date of effect: This change applies to the 2016-17 income year and later income years.

Proposal announced: This measure was announced as part of the Government's Agricultural Competitiveness White Paper by the former Prime Minister and the Minister for Agriculture on 4 July 2015.

Financial impact: This measure has the following revenue impact:

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - paragraphs 2.23 to 2.27.

Compliance cost impact: The annual compliance burden has been costed at around $1196 (total impact on individuals).

Cars for display by public institutions

Schedule 3 to this Bill amends the A New Tax System (Luxury Car Tax) Act 1999 to provide relief from luxury car tax to certain public institutions that import or acquire luxury cars for the sole purpose of public display. The changes apply to public museums, galleries, and libraries that are registered for goods and services tax and that have been endorsed as deductible gift recipients.

Date of effect: These amendments apply to luxury cars that are imported or acquired from the day after the Bill receives Royal Assent.

Proposal announced: This measure was announced on 12 May 2015 as part of the 2015-16 Budget.

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

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights -paragraphs 3.72 to 3.76.

Compliance cost impact: This measure is expected to result in a negligible change to compliance costs as its operation is relatively straightforward

Miscellaneous amendments

Schedule 4 to this Bill makes a number of miscellaneous amendments to the taxation, superannuation and other laws. These amendments are part of the Government's commitment to the care and maintenance of the taxation and superannuation systems.

These amendments include style and formatting changes, the repeal of redundant provisions, the correction of anomalous outcomes and corrections to previous amending Acts.

Date of effect: These amendments have various commencement and application dates. Most amendments commence from the first quarter beginning on or after the day this Bill receives Royal Assent. This explanatory memorandum details the commencement and application dates of amendments that commence or apply from a different time. Where amendments have retrospective application, the effect of that retrospectivity is also explained.

Proposal announced: These amendments have not been previously announced.

Financial impact: These amendments have a nil revenue impact.

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.93 to 4.97.

Compliance cost impact: Negligible.