senate

Explanatory Memorandum

(Circulated by the authority of the Treasurerthe Hon John Dawkins, M.P.)This Memorandum takes account of amendments made by the House of Representatives to the Bill as introduced.

General Outline and Financial Impact

The Taxation Laws Amendment Bill (No.3) 1993 will amend various Acts (unless otherwise indicated all amendments refer to the Income Tax Assessment Act 1936 ) by making the following changes:

Fringe Benefits Tax - Amendment to definition of 'stand-by value'

Amends the definition of 'stand-by value' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 ('the FBTAA') as it is no longer appropriate to base the stand-by value on the economy air fare of a particular airline. The 'stand-by value' is used in section 33 of the FBTAA which sets out the taxable value of an airline transport fringe benefit

Date of effect: Royal Assent

Proposal announced: Not previously announced

Financial impact: The amendments are not expected to have any significant impact to the revenue

Fringe Benefits Tax - Tax agent's certification

Appeals subsection 71(3) of the Fringe Benefits Tax Assessment Act 1986.

Date of effect: Royal Assent

Proposal announced: Not previously announced

Financial impact: Nil

Amendments to the petroleum mining provisions

Corrects a technical defect in the provisions that authorise deductions for capital expenditure incurred in petroleum mining activities. Contrary to intention, the existing rules allow deductions for expenditure incurred in certain tax-exempt operations. The defect is to be remedied by requiring expenditure to have been incurred for the purpose of producing assessable income.

Date of effect: The amendments apply to expenditure incurred after 7-30pm (by standard time in the ACT) on 21 August 1990, the time from which the defect has existed.

Proposal announced: Announced by the Assistant Treasurer on 4 August 1993.

Financial impact: It is estimated that the amendments will prevent an unintended cost to the revenue not exceeding:

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in the case of exploration expenditure - $365 million over a minimum of 3 years; and

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in the case of development expenditure - $693 million over a minimum of 12 years.

Income tax deductions for life assurance companies

Amends the formulas by which some income tax deductions are calculated and apportioned to the various classes of income of life assurance companies. Deemed income under paragraph 275(2)(a) will be excluded from the formulas in section 111C, subsection 113(2) and subsection 116CF(2). Superannuation premiums and the investment component of life assurance policies to which sections 111A and 111AA apply will be included in the formula in subsection 116CF(2).

Date of effect: 1 June 1993.

Proposal announced: Treasurer's Press Release No.48 of 31 May 1993.

Financial impact: There will be a revenue cost in relation to the exclusion of section 275 amounts and a revenue gain in relation to the inclusion of the section 111A and 111AA amounts. However, these amounts cannot be quantified.

Amendments relating to life assurance policies and capital gains

Amends the capital gains tax provisions so that they do not apply to capital gains and losses realised on the disposal of policies of life assurance, or rights under policies of life assurance, by a complying superannuation fund, complying approved deposit fund or a pooled superannuation trust.

Date of effect: The amendments will apply to disposals taking place during or after the year of income in which 1 July 1988 occurred.

Proposal announced: Treasurers Press Release No.76 of 5 July 1993

Financial impact: The impact on revenue is not expected to be substantial.

Provisional tax uplift factor

Amends the definition of provisional tax uplift factor so that the factor of 8% used to calculate 1992-93 provisional income is retained for the purpose of calculating 1993-94 provisional income. For later income years a factor of 10% will apply.

Date of effect : The amendment applies to the calculation of provisional tax for the 1993-94 year of income, and for all later years of income.

Proposal announced : Treasurer's press release No 67 of 27 June 1993.

Financial impact : Nil.

Gift provisions - Technical amendment

Reinstates the condition that donations to the Shrine of Remembrance Restoration and Development Trust will be tax deductible only if made before 1 July 1995.

Date of effect: The amendment applies to gifts made on or after 25 November 1992 and before 1 July 1995.

Proposal announced: Not previously announced.

Financial impact: Nil.

Amendments to the imputation system

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Replaces, as a result of the reduction in the company tax rate from 39% to 33 %, the single franking account in the imputation system with dual franking accounts. This will allow companies to frank dividends with either 39% or 33% imputation credits attached, depending on the rate at which the tax that gave rise to the imputation credit was paid.

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Amend the Income Tax (Franking Deficit) Act 1987 to reimpose FDT as calculated under section 160AQJ of the Principal Act.

Date of effect: The amendments will apply from the commencement of a company's 1994-95 franking year.

Proposal announced: Prime Minister's 'Investing in the Nation Statement' of 9 February 1993 and confirmed by Treasurer's Press Release No.21 of 25 March 1993.

Financial impact: The estimated overall cost to revenue of the reduction in the company tax rate, with which this measure is associated, is $440m in 1993-94, $1,830m in 1994-95, $1,620m in 1995-96 and $1700m in 1996-97.

Tax concessions for grape growing

Provides a four year write-off for capital expenditure on establishing grape vines in Australia.

Date of effect: The amendments apply to expenditure incurred on or after 1 July 1993 on the establishment of grape vines.

Proposal announced: Not previously announced.

Financial impact: The cost of the amendments is estimated to be

$1.5 million in 1994-95, $3 million in 1995-96 and $4.5 million in 1996-97.

Amendment of the International Agreements Act 1953

Takes a technical correction to Schedule 38 of the Income Tax (International Agreements) Act 1953 to reflect the amended text of subparagraph 1.(b) of Article 4 of the Australia-Vietnam comprehensive double taxation agreement.

Date of effect: The amendment will apply to assessments for the 1992-93 income year and subsequent income years.

Proposal announced : Not previously announced.

Financial impact: Nil.

Amendment of the Occupational Superannuation Standards Act 1987

Amends the Occupational Superannuation Standards Act 1987 (OSS Act) to allow payments of shortfall components prescribed in the Superannuation Guarantee (Administration) Act 1992 to be accepted by complying approved deposit funds.

Date of effect: Royal Assent

Proposal announced: Not previously announced.

Financial impact: No significant impact on the revenue.

Petroleum Resource Rent Tax amendments

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Amends the Petroleum Resource Rent Tax Assessment Act 1987 as follows:

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Extends the time for lodgment of a PRRT return and expenditure transfer notices.

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Treats transfers of part of a taxpayer's interest in a project in the same way as transfers of a taxpayer's whole interest.

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Enables transfer of exploration expenditure incurred in the financial year a person abandons a petroleum project to be absorbed by receipts from other projects.

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Enables transfer of exploration expenditure incurred in the financial year a person farms into a project to be absorbed by receipts derived by them, or by another company in the same wholly-owned company group, from other projects.

Date of effect: The first three amendments will apply from 1 July 1993, the other will apply from 1 July 1990.

Proposal announced: 1993-94 Budget, 17 August 1993.

Financial impact: This amendment will have a small but unquantifiable cost to the Revenue.

Sales Tax: Application of penalties

The proposed amendment will clarify the extent to which penalties can apply to acts or omissions that happen after the introduction of amendments of the sales tax law in the Parliament but before they receive the Royal Assent.

Date of effect: 26 October 1993

Proposal announced: By Assistant Treasurer's Press Release on

21 October 1993.

Financial impact: Nil, as the amendment makes no change to the effect of the existing law.

Sales Tax exemption for the RSPCA and child care services

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Provides exemption from sales tax for goods used mainly in inspectorial and shelter activities for the Royal Society for the Prevention of Cruelty to Animals (RSPCA).

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Provides a credit for sales tax paid on goods purchased and used mainly in the inspectorial and shelter activities of the RSPCA on or after 13 March 1993 and before the receipt of the Royal Assent for this Bill.

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Provides exemption from sales tax for goods used mainly by certain providers of child care services (other than employers sponsored centres), if the providers of the care are eligible to receive child care funding from a Commonwealth, State or Territory government or are approved by the Minister for Family Services.

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Provides exemption from sales tax for goods used mainly be bodies which coordinate family day care, if the bodies are eligible to receive child care funding from a Commonwealth, State or Territory or are approved by the Minister for Family Services.

Date of effect: Royal Assent.

Proposals announced:

RSPCA : 1993-94 Budget, 17 August 1993

Child care services : Prime Minister's "Investing in the Nation Statement" of 9 February 1993.

Financial impact:

RSPCA: The cost of the amendments is estimated to be approximately $0.5 million per annum. In addition, there will be refunds of tax paid from 13 March 1993 to 30 June 1993.

Child care services: The cost of the amendments is estimated to be $10 million per annum.

Superannuation Guarantee shortfalls

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Amends the Superannuation Guarantee (Administration) Act 1992 to allow a superannuation guarantee shortfall component to be paid into a complying approved deposit fund (ADF).

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Amends the Income Tax Assessment Act 1936 to ensure that any shortfall component received by a complying ADF is a taxable contribution

Date of effect: Royal Assent.

Proposal announced: Not previously announced.

Financial impact: Nil.

Amendment of the Superannuation Industry (Supervision) Act 1993

Amends the Superannuation Industry (Supervision) Bill 1993 (SIS Bill) to allow payments of shortfall components prescribed in the Superannuation Guarantee (Administration) Act 1992 to be accepted by complying approved deposit funds.

Date of effect: On commencement of Part 3 of the SIS Bill, or the day after this Bill receives the Royal Assent, whichever is the later.

Proposal announced: Not previously announced.

Financial impact: No significant impact on the revenue.

Deferral of initial payments of company tax for 1993-94

Defers the initial payment of income tax for the 1993-94 income year for companies, superannuation funds, approved deposit funds and pooled superannuation trusts (all referred to as companies), for two months to the 28th day of the third month following balance date.

Date of effect: The initial payment of income tax of affected companies for the 1993-94 income year.

Proposal announced: 1993-94 Budget, 17 August 1993.

Financial impact: There will be no long term impact on revenue. However, revenue of approximately $10m from the initial payments of company tax (for companies which balance in April and May), will be deferred from the financial year ending 30 June 1994.

Amendments related to tourism industry organisations

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Amends the Income Tax Assessment Act 1936 so that the income of a non-profit society or association established for the purpose of promoting the development of tourism will be exempt from income tax.

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Amends the Fringe Benefits Tax Assessment Act 1986 to enable such a non-profit society or association to obtain a rebate of a portion of its fringe benefits tax liability.

Date of effect: Income tax amendments apply to income derived on or after 1 July 1993. Fringe benefits tax amendments commence on 1 April 1994.

Proposal announced: 11 March 1993 (income tax amendments); and

17 August 1993 (fringe benefits tax amendments).

Financial impact: Nil.

Minor technical amendments

Makes consequential amendments to the Income Tax Assessment Act 1936 , the Taxation (Interest on Overpayments) Act 1983 and the Crimes (Taxation Offences) Act 1980 which are required following the simplification of the Prescribed Payments System and the removal of the Commissioner's priority in respect of debts for unremitted amounts.

Date of effect : Varied.

Proposal announced : Not announced.

Financial impact : The financial impact of the amendments is not significant.