House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer the Hon John Dawkins, M.P.)

GENERAL OUTLINE AND FINANCIAL IMPACT

The Taxation (Deficit Reduction) Bill (No. 1) 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

Excess Domestic Travel

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Amends the Fringe Benefits Tax Assessment Act 1986 to create an Excess Domestic Travel Allowance Fringe Benefit. Denies a deduction for travel expenses in excess of a reasonable amount. Both measures relate only to travel within Australia.

Date of effect: 1 April 1994

Proposal announced: 1993-94 Budget, 17 August 1993

Financial Gain:

Non-deductible Expenses

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Allows deductions for expenses relating to the provision of entertainment, club fees, leisure facilities, travel expenses of accompanying relatives, Higher Education Contribution Scheme payments and Student Financial Supplement Scheme payments incurred by employers in providing fringe benefits to their employees.

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Makes reciprocal amendments to the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to ensure those fringe benefits provided to the employees are subject to fringe benefits tax under the FBTAA.

Date of effect: 1 April 1994

Proposal announced: 1993-94 Budget, 17 August 1993

Financial Gain:

Car Parking deductions

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Denies a deduction for car parking expenses for certain non-employees.

Date of effect: 1 July 1994

Proposal announced: 1993-94 Budget, 17 August 1993

Financial Gain:

Unused annual leave and unused long service leave payments

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Removes the concessional tax treatment that applies to lump sum payments of unused annual leave and unused long service leave made on termination of employment.

Date of effect: Payments in respect of unused annual leave made on or after 18 August 1993 and payments in respect of unused long service leave accrued on or after 18 August 1993.

Proposal announced: 17 August (1993-94 Budget), and 30 August 1993

Financial Gain:

Credit Unions - Removal of exemption for interest received from non-corporate members and taxation as co-operatives or companies

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Provides for the phasing out of the exemption for income in the nature of interest received by credit unions from their non-corporate members on loans made to those members and allows credit unions to be taxed as co-operatives.

Date of effect: For large credit unions (those with total assets in excess of $30 million), the exemption will be removed with effect from the 1994-95 year of income ( subject to a concessional rate of 20% for the 1994-95, 1995-96 and 1996-97 years of income); and for all other credit unions, the exemption will be removed with effect from the 1995-96 year of income (subject also to a concessional rate of 20% for the 1995-96 and 1996-97 years of income). All credit unions will be liable for the full corporate rate of tax with effect from the 1997-98 year of income and all later years of income.

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

Financial Gain:

Income Tax Rates Act 1986

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Provides for credit unions to be taxed at the concessional rate of 20% following the removal of the exemption from tax of income in the nature of interest received by credit unions from their non-corporate members on loans made to those members.

Date of effect: For large credit unions (those with total assets in excess of $30 million), the concessional rate will apply for the 1994-95, 1995-96 and 1996-97 years of income; and for all other credit unions, the concessional rate will apply for the 1995-96 and 1996-97 years of income. The full corporate rate of tax will apply to all credit unions for the 1997-98 year of income and all later years of income.

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

Changes to the Medicare levy threshold levels

Medicare Levy Act 1986

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Amends the Medicare Levy Act 1986 to increase the taxable income levels below which persons are exempt from the levy.

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The new levels compare with the old as follows:

Taxpayer	1992-93	1993-94
Individuals	$11,887	$12,688
Married couples/sole parents	$20,070	$21,366

Date of effect: 1 July 1993

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

Financial Cost: