House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 3 Consequential amendments to the Income Tax Assessment Acts

Overview

3.1 The Franchise Fees Windfall Tax (Consequential Amendments) Bill 1997 sets out consequential amendments to the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 as a result of the proposed windfall tax.

Summary of the provisions

Purpose of the provisions

3.2 The purpose of the Franchise Fees Windfall Tax (Consequential Amendments) Bill 1997 is to make amendments to the Income Tax Assessment Acts as a result of the windfall tax.

Date of effect

3.3 The proposed amendments to the Income Tax Assessment Acts will apply from the date of Royal Assent. The amendments of the Income Tax Assessment Act 1936 (ITAA 1936) are to apply to the 1996-97 year of income. The amendments of the Income Tax Assessment Act 1997 (ITAA 1997) are to apply for the 1997-98 year of income and all subsequent years. It is necessary to amend both Income Tax Assessment Acts because the ITAA 1997 only applies to the 1997-98 year and subsequent years. The ITAA 1936 needs to be amended to cover amounts which may arise for a late balancing company whose balancing date for the 1996-97 year is after 5 August 1997. [Clause 4]

Explanation of the provisions

Title and application

3.4 When the Bill is enacted, it will be called the Franchise Fees Windfall Tax (Consequential Amendments) Act 1997 [Clause 1] .

3.5 The Act is to commence on the day it receives Royal Assent [Clause 2] .

3.6 Schedule 1 of the Bill sets out the amendments to the two Income Tax Assessment Acts. The references in this explanatory memorandum to particular items are references to items in that Schedule. [Clause 3] .

Amendments to the Income Tax Assessment Act 1936

3.7 Section 23 of the ITAA 1936 sets out amounts which are exempt from income tax. Section 23 is to be amended to exempt taxable amounts, within the meaning of the Franchise Fees Windfall Tax (Collection) Act 1997, which are derived by a taxpayer. Therefore, if a taxpayer is subject to windfall tax on a refund of franchise fees from a State, the refund will be exempt from tax to the extent to which the refund is subject to windfall tax. [Item 1 - new paragraph 23(kf)]

3.8 Section 51 of the ITAA 1936 allows a deduction for losses or outgoings incurred in deriving assessable income or in carrying on a business for the purpose of gaining or producing assessable income. The section also sets out specific amounts which are not allowable as a deduction. Section 51 is to be amended to deny a deduction for payments of windfall tax imposed under the Franchise Fees Windfall Tax (Imposition) Act 1997. [Item 2 - new subsection 51(10)]

Amendments to the Income Tax Assessment Act 1997

3.9 Section 11-10 of the ITAA 1997 lists the amounts of income which are exempt, no matter who derives the income. Taxable amounts subject to the franchise fees windfall tax are to be added to the list. [Item3] These amounts will be specifically exempt from income tax. Therefore, if a taxpayer is subject to windfall tax on a refund of franchise fees from a State, the refund will be exempt from tax to the extent to which the refund is subject to windfall tax. [Item 6 - new section 51-48]

3.10 Section 12-5 of the ITAA 1997 lists the provisions in the ITAA 1997 which contain rules about specific types of deductions. Franchise fees windfall tax will be added to the list. [Item 4] The ITAA 1997 is to be amended to deny a deduction for payments of windfall tax imposed under the Franchise Fees Windfall Tax (Imposition) Act 1997. [Item 5 - new section 26-15]