SENATE

Explanatory Memorandum

TO THE BILL AS INTRODUCED (Circulated by authority of the Treasurer,the Hon Ralph Willis, MP)

CHAPTER 5 - Infrastructure borrowings

Overview

5.1 Part 6 of Schedule 1 of the Bill will amend the Income Tax Assessment Act 1936 (the Act) to increase the infrastructure borrowings tax rebate from 33 per cent to 36 per cent. The change in the infrastructure borrowings tax rebate corresponds to the increase in the company tax rate from 33 per cent to 36 per cent.

5.2 The increase in the infrastructure borrowings tax rebate will align the benefits of the two tax concessions for companies provided by the Act for certain infrastructure borrowings. These tax concessions provide eligible lenders with the option of:

•

excluding from assessable income interest and other receipts derived from infrastructure borrowings; or

•

obtaining an infrastructure borrowings tax rebate where a lender includes infrastructure borrowing amounts in assessable income.

Summary of the amendments

Purpose of the amendments

5.3 To increase the infrastructure borrowings tax rebate.

Date of effect

5.4 The increase in the infrastructure borrowings tax rebate will apply to the 1995-96 and subsequent income years.

Background to the legislation

5.5 Division 16L of Part III of the Act contains tax concessions designed to encourage private investment in the construction of certain public infrastructure projects.

5.6 These provisions provide eligible lenders with the option of:

•

excluding from assessable income the interest and other receipts derived from infrastructure borrowings (section 159GZZZZE); or

•

obtaining an infrastructure borrowings tax rebate where a lender includes infrastructure borrowing amounts in assessable income (section 159GZZZZG).

5.7 The infrastructure borrowings tax rebate is currently set at a rate that results in the tax benefit for companies of non-assessability of interest and other receipts being the same as the tax benefit that is conferred by the infrastructure borrowings tax rebate. Accordingly, the infrastructure borrowings tax rebate is currently set at 33 per cent for the 1994-95 year of income.

5.8 Following the increase in the company tax rate to 36 per cent for taxable income of the 1995-96 and subsequent years of income, the infrastructure borrowings tax rebate is to be increased to 36 per cent. This will maintain the equivalent tax benefit for companies between non-assessability of interest and other receipts and assessability of these receipts with the benefit of the infrastructure borrowings tax rebate.

Explanation of the amendments

5.9 Subsection 159GZZZZG(1) of the Act provides the rate of the infrastructure borrowings tax rebate for:

•

natural persons;

•

companies;

•

corporate unit trusts;

•

public trading trusts;

•

approved deposit funds;

•

superannuation funds; and

•

pooled superannuation trusts.

Section 94J of the Act ensures that the rebate also applies to corporate limited partnerships.

5.10 This rate is to be increased from 33 per cent to 36 per cent, effective in respect of assessable income for 1995-96 and subsequent income years. [Item 45; amended paragraph 159GZZZZG(1)(d)]

5.11 Similarly, the infrastructure borrowings tax rebate is to be increased from 33 per cent to 36 per cent for:

•

beneficiaries of trust estates [item 46; amended paragraph 159GZZZZG(2)(e)] ;

•

trustees of trust estates [item 47; amended paragraph 159GZZZZG(3)(e)] ; and

•

partnerships [item 48; amended paragraph 159GZZZZG(4)(e)] .

5.12 These increases are also to apply in respect of assessable income for the 1995-96 and subsequent income years.