House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Housing and Assistant Treasurer the Hon Michael Sukkar MP)

General outline and financial impact

Hybrid mismatch rules

Schedule 1 to the Bill amends the hybrid mismatch rules in the ITAA 1997 to:

•

clarify the operation of the hybrid mismatch rules for trusts and partnerships;

•

clarify the circumstances in which an entity is a deducting hybrid;

•

clarify the operation of the dual inclusion income rule;

•

clarify the operation of provisions that refer to corresponding foreign hybrid mismatch rules;

•

clarify that, for the purpose of applying the hybrid mismatch rules, foreign income tax generally does not include foreign municipal or State taxes;

•

clarify that the hybrid mismatch rules apply to MEC groups in the same way as they apply to consolidated groups;

•

ensure that the hybrid mismatch integrity rule can apply appropriately to financing arrangements that have been designed to circumvent the operation of the hybrid mismatch rules; and

•

where distributions made on Additional Tier 1 capital instruments give rise to a foreign income tax deduction:

-

allow franking benefits on those distributions; and

-

include an amount equal to the amount of the deduction in the assessable income of the entity that makes the distribution.

Date of effect: The amendments to ensure that the hybrid mismatch integrity rule can apply appropriately to certain arrangements apply to assessments made for income years starting on or after 2 April 2019.

The amendments to clarify the meaning of foreign hybrid mismatch rules apply to assessments made for income years starting on or after 1 July 2020.

The amendments relating to distributions made on Additional Tier 1 capital instruments apply to distributions made on or after 1 January 2019.

The remaining amendments to clarify the operation of the hybrid mismatch rules apply to assessments made for income years starting on or after 1 January 2019

Proposal announced: This Schedule fully implements:

•

the measure Tax Integrity - clarifying the operation of the hybrid mismatch rules from the 2019-20 Budget; and

•

the measure Tax Integrity - improving the operation of the hybrid mismatch rules from the 2019-20 Mid-Year Economic and Fiscal Outlook.

Financial impact: The measure is estimated to have a minor unquantifiable revenue impact over the forward estimates period.

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 7.

Compliance cost impact: Minimal.

Schedule 2 - Single Touch Payroll reporting - child support information

Schedule 2 to the Bill amends the TAA to broaden the amounts that employers can voluntarily report under the Single Touch Payroll rules to include employer withholding of child support deductions from salary or wages and child support garnishee amounts from salary or wages that are paid to the Child Support Registrar.

Schedule 2 also amends the CSRCA to ensure that if employers choose to report under Single Touch Payroll to the Commissioner of Taxation, they do not also have to report the amounts to the Child Support Registrar.

Date of effect: 1 July 2020.

Proposal announced: This Schedule partially implements the measure "Single Touch Payroll - expansion" from the 2019-20 Budget.

Financial impact: Nil.

Human rights implications: This Schedule engages human rights but does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 7.

Compliance cost impact: This Schedule is estimated to have a minor ongoing reduction in regulatory impact.

Deductible gift recipient status for community sheds

Schedule 3 to the Bill amends the ITAA 1997 to introduce a new general category of DGR for community sheds. The new DGR category applies to public institutions that are registered charities and satisfy the definition of a community shed.

To be a community shed a public institution must:

•

have the dominant purposes of advancing mental health and preventing or relieving social isolation;

•

principally advance these purposes through providing a physical location at which individuals are supported to work on projects or undertake other activities in the company of others; and

•

have membership that is open to members of the public.

Date of effect: The measure applies to gifts made on or after 1 July 2020.

Proposal announced: This Schedule fully implements the measure 'Philanthropy - extending deductible gift recipient status to Men's Sheds and Women's Sheds' from the 2019-20 Budget.

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

- Nil

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 7.

Compliance cost impact: Low. If an organisation chooses to seek DGR endorsement in this general category, it will need to register with the Australian Charities and Not-for-profits Commission and comply with ACNC reporting obligations and governance requirements.

Schedule 4 - Funding capital increases for the World Bank Group

Schedule 4 to the Bill amends the IMA Act 1947 and IFC Act 1955 to facilitate Australia making additional capital contributions to the International Bank for Reconstruction and Development (IBRD), and the International Finance Corporation (IFC) of the World Bank Group.

To achieve this, the amendments streamline the existing legislative processes under which Australia enters into agreements to fund capital increases to the IBRD and revise the way the existing 'Articles of Agreement' of the IFC are incorporated into the IFC Act 1955. The amendments also establish appropriations to facilitate payments that Australia is required to make under an agreement with the IBRD or the Articles of Agreement of the IFC.

Date of effect: The amendments take effect from the time they commence.

Proposal announced: This Schedule implements the legislative amendments required to facilitate the measure 'World Bank Group - capital increase' from the 2018-19 MYEFO.

Financial impact: Australia's capital contributions will have no direct impact on underlying cash as the payment will be classified as an equity investment in financial assets.

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 7.

Compliance cost impact: Nil

Deductible gift recipients

Schedule 5 to the Bill amends the ITAA 1997 to allow the following entities to be deductible gift recipients under the income tax law:

•

Governor Phillip International Scholarship Trust;

•

High Resolves;

•

Australian Academy of Law;

•

Superannuation Consumers' Centre Ltd;

•

Motherless Daughters Australia Limited;

•

The Headstone Project (Tas) Inc.;

•

Foundation Broken Hill Limited;

•

C E W Bean Foundation.

Date of effect: The following listings apply to gifts made between 1 July 2018 and 30 June 2025 (inclusive):

•

Governor Phillip International Scholarship Trust;

•

High Resolves;

•

C E W Bean Foundation.

The following listings apply to gifts made between 1 July 2019 and 30 June 2025 (inclusive):

•

Australian Academy of Law;

•

Superannuation Consumers' Centre Ltd;

•

Motherless Daughters Australia Limited;

•

The Headstone Project (Tas) Inc.;

•

Foundation Broken Hill Limited.

Proposal announced: This Schedule completes the implementation of the measure 'Philanthropy - updates to the list of specifically listed deductible gift recipients' from the 2018-19 MYEFO and partially implements the measure of the same name from the 2019-20 Budget.

The extension of deductible gift recipient status of these entities to 30 June 2025 (inclusive) was not previously announced.

Financial impact: The component of the MYEFO measure being implemented by this Schedule was estimated to have a cost to revenue of $0.6 million over the forward estimates period at the time of the MYEFO. The component of the Budget measure being implemented by this Schedule was estimated to have a cost of revenue of $0.1 million over the forward estimates period at the time of the Budget.

The extension of the deductible gift recipient status of these entities to 30 June 2025 (inclusive) has no financial impact over the current forward estimates period.

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 7.

Compliance cost impact: Nil.

Tax secrecy

Schedule 6 to the Bill makes amendments to the tax secrecy provisions in the TAA to allow protected information relating to the JobKeeper scheme to be disclosed to the Fair Work Commission and the Fair Work Ombudsman for the purposes of the administration of the Fair Work Act 2009.

Date of effect: Schedule 6 to the Bill will commence on the day after the day on which the Bill receives Royal Assent.

Proposal announced: This schedule has not previously been announced.

Financial impact: Nil.

Human rights implications: This Schedule raises human rights issues but is compatible with human rights. See Statement of Compatibility with Human Rights - Chapter 7.

Compliance cost impact: An exemption from Regulation Impact Statement requirements was granted by the Prime Minister as there were urgent and unforeseen circumstances.