Senate

Explanatory Memorandum

(Circulated by the authority of the Treasurer,the Honourable Ralph Willis, 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 (Infrastructure Borrowings) Bill 1994 will amend the Income Tax Assessment Act 1936 (the Tax Act) and the Development Allowance Authority Act 1992 (the DAA Act) to extend the range of eligible sectors and introduce the new taxation and administrative arrangements relating to the category of borrowings known as "infrastructure borrowings".

Date of Effect: The new arrangements will apply to infrastructure borrowings undertaken on or after the date the Bill receives Royal Assent.

Proposal announced: "Working Nation" Statement of 4 May 1994.

Financial Impact: The cost to revenue is expected to be nil for 1994-95, $9 million for 1995-96, $18 million for 1996-97 and $34 million for 1997-98.

Clauses Involved in Proposed Amendments

Clause 1: Specifies the short title of this Act.

Clause 2: Provides for this Act to commence on the date the Bill receives Royal Assent.

Clause 3: Specifies the Principal Act, which is the subject of the amendments in Clauses 4 to 17, as the DAA Act.

Clause 4: Specifies the omission of the Heading to Part 1 of the Principal Act and the substitution of a new heading.

Clause 5: Inserts new headings after Section 2 of the Principal Act.

Clause 6: Amends Section 6 of the Principal Act by omitting definitions of "AAT", "documentation certification provision", "prosecution provision", "reviewable decision" and "State taxation officer disclosure provision".

Clause 7: Inserts a new chapter after Part 10 of the DAA Act. The new chapter is titled "Chapter 3 - Infrastructure Borrowings". This includes parts on:

the interpretation of the criteria and conditions relating to infrastructure borrowings;

the application to the DAA for certificates and the issue, variation, transfer and cancellation of certificates by the DAA; and

the provision of information to the DAA.

Clause 8: Defines a number of expressions for the purposes of the DAA Act, including "document certification provision", "prosecution provision", and "State taxation officer disclosure provision" with reference to the Taxation Administration Act 1953, and defines "partnership" as having the same meaning as in section 6 of the Tax Act.

Clause 9: Repeals section 98 of the DAA Act. This section has provided that there will be no substantive appointment of the DAA on or beyond 1 January 1997. In effect this section has provided the Government with the ability to wind up the operations of the DAA. The infrastructure borrowing measure will operate on an ongoing basis and the DAA's new role in administering the concession will continue beyond 1 January 1997. Therefore, section 98 of the DAA Act is repealed.

Clause 10: Amends section 106 of the DAA Act, which provides for the appointment by the Minister of an acting DAA in certain circumstances, including the period after 31 December 1996 and before 1 July 2002, and the period after 1 July 2002. This section is amended by omitting subsections (2), (3) and (4) which provide for acting DAA arrangements during the phasing-out periods.

Clause 11: Amends section 111 of the DAA Act to extend the provision relating to applications for protection of commercial-in-confidence information .

Clause 12: Amends section 113 of the DAA Act, which provides the circumstances by which the DAA can revoke the commercial-in-confidence status previously granted to information and/or documentation supplied to the DAA. The term "entity" is replaced with "person".

Clause 13: Amends section 114 of the DAA Act. The term "the entity" is replaced with "the person".

Clause 14: Amends section 115 of the DAA Act, which requires the DAA to provide the Minister with quarterly reports about registrations under the development allowance. The amendment broadens the scope to include the requirement for the DAA to report on the number and type of certificates granted for infrastructure borrowings in each quarter.

Clause 15: Amends section 117 of the DAA Act, which requires the DAA to submit annual reports to the Minister. Subsection 117(3), which limits the application of this provision to financial years ending before 1 July 1997, will be omitted.

Clause 16: Amends section 119 of the DAA Act, which provides for an applicant to request the DAA to reconsider a reviewable decision, by substituting "an entity" with "a person", and "entity" with "person". This broadens the scope of application of this provision to include the reconsideration of reviewable decisions taken by the DAA in relation to infrastructure borrowings

Clause 17: Amends section 121 of the DAA Act by replacing "an entity" with "a person", and "entity" with "person" wherever occurring. This broadens the scope of application of this provision to include the reconsideration of reviewable decisions taken by the DAA in relation to infrastructure borrowings.

Clause 18: Specifies that further amendments to the DAA Act are set out in the Schedule to this Bill.

Clause 19: Specifies the Principal Act, which is the subject of the amendments in Clauses 20 to 26, as the Tax Act.

Clause 20: Amends section 16 of the Tax Act by inserting "Chapter 4 of" before "that Act" in paragraph (4)(hba). This amendment will allow the Commissioner of Taxation to disclose certain information to enable the DAA to discharge its administrative responsibilities and to take prosecution action to provide for the administration of infrastructure borrowings.

Clause 21: Repeals Subdivision A of Division 16L of the Tax Act for infrastructure borrowings raised on or after the date the Bill receives Royal Assent. Subdivision A of Division 16L of the Tax Act contains the interpretation provisions in the income tax law that define infrastructure borrowings and related concepts.

Clause 22: Omits the heading to Subdivision B of Division 16L of the Tax Act as a consequence of repealing Subdivision A of Division 16L of the Tax Act.

Clause 23: Inserts section 159GZZZZD before section 159GZZZZE of the Tax Act. The new section introduces the definitions of "certificate", "DAA", "DAA Act", "direct infrastructure borrowing", "exemption period", "IB amount", "indirect infrastructure borrowing", "infrastructure borrowing" and "refinancing infrastructure borrowing".

Clause 24: Amends section 159GZZZZE of the Tax Act, so that it will not apply to interest, payments in the nature of interest and accrued interest in a year of income if the taxpayer exercises the rebate option.

Clause 25: Inserts new section 159GZZZZG after section 159GZZZZF of the Tax Act. Section 159GZZZZG allows a taxpayer who derives interest income from infrastructure borrowings, whether from a direct investment or indirectly through a partnership or trust, the option of claiming a rebate, rather than treating the interest income as exempt. Inserts new section 159GZZZZH to provide that where the DAA cancels a IB certificate a tax may be payable.

Clause 26: Specifies that Subdivision A of Division 16L of the Tax Act will continue to apply to a refinancing infrastructure borrowing raised on or after the date the Bill receives Royal Assent to repay a direct or indirect infrastructure borrowing raised before that date.

Clause 27: Specifies the Principal Act, which is the subject of the amendments in Clauses 28 and 29, as the Taxation Administration Act 1953 (the Administration Act).

Clause 28: New paragraphs 93ZC(b) and (c) of the DAA Act will allow the DAA to make written requests for documents and certified copies of documents from a person who is applying for a certificate or is a certificate holder. Paragraph 8J(2)(ga) of the Administration Act will be amended to ensure that, in the event that a statement made in a document furnished to the DAA under these paragraphs is false or misleading in a material particular, it will not give rise to an offence for the purposes of the Administration Act. This approach is consistent with that adopted under the various taxation statutes in relation to documents that taxpayers furnish under notices to the Commissioner of Taxation.

Clause 29: Where a court is satisfied that a false or misleading statement or incorrectly kept accounting records has resulted in a decreased tax liability, section 8W of the Administration Act enables the court to order a person convicted of offences under Part III of the Administration Act to pay an amount to the Commissioner of Taxation that is in addition to the penalty imposed upon the person for the offences. The Bill will amend section 8W to enable a court to have regard to a decision made by the DAA in relation to the issue, variation or transfer of a certificate (Division 1 of Part 3 of Chapter 3 of the DAA Act) as if that decision were part of the process of making an income tax assessment of a taxpayer.