Senate

Explanatory Memorandum

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

Chapter 1 - Income tax deductions

Income tax measures

1.1 This chapter deals with two measures that amend the Income Tax Assessment Act 1997 (the Act). The first measure deals with the deductibility of expenses incurred in seeking election as a delegate to the Constitutional Convention. The second measure deals with the deductibility of donations made to the National Nurses' Memorial Trust.

Part 1: Constitutional convention

Overview

1.2 The amendments will provide for the tax deductibility of election expenses incurred by taxpayers seeking election as delegates to the Constitutional Convention.

Summary of the amendments

Purpose of the amendments

1.3 The amendments in Part 1 of Schedule 1 will amend the Act to:

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insert a new provision to provide a one-off deduction for expenses incurred in contesting the election, with a limit of $1000. The provision will be operative for the 1997-98 year of income only; and

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make the new provision subject to the application of section 25-70 of the Act for the purpose of excluding deductions for entertainment expenses incurred in the course of contesting the election.

Date of effect

1.4 The amendments commence on the date of Royal Assent and apply to the 1997-98 year of income only.

Background to the legislation

1.5 In the 1997-98 Budget, the Government announced the introduction of a limited tax deduction for expenses incurred in the course of contesting election to the Constitutional Convention.

1.6 The Constitutional Convention was held in February 1998 for ten days. The Convention comprised 152 delegates of which fifty per cent were elected through a non-compulsory, secret postal, ballot conducted by the Australian Electoral Commission. The other fifty per cent were appointed. The elected delegates were divided between the States and Territories, broadly in line with the composition of the Commonwealth Parliament.

1.7 The contesting delegates will be allowed a tax deduction of up to $1000 for expenses incurred in contesting election to the Constitutional Convention. The deduction will only be available in the 1997-98 year of income.

1.8 Section 25-60 provides a deduction for expenditure incurred by parliamentary candidates in contesting an election. Section 25-70 denies a deduction for expenditure incurred under section 25-60 to the extent to which that expenditure represents the provision of entertainment, except:

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entertainment provided to the public; and

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meal expenses, except where the expense has a purpose of providing entertainment to someone else.

1.9 The combined effect of sections 20-20 and 20-35 provides that the reimbursement of any expense which has been allowed or is allowable as a deduction is to be included in the taxpayer's assessable income in the year the reimbursement is made. For example, if a person claims a deduction for expenses incurred in contesting election to the Constitutional Convention in their 1997-98 income tax return and is reimbursed some of that expenditure in the 1998-99 year that reimbursement will need to be included as assessable income in the person's 1998-99 income tax return.

Explanation of the amendments

1.10 The proposed amendment inserts a new subsection in section 25-60 to provide a one-off deduction of up to $1000 for expenses incurred in contesting the Constitutional Convention. This provision will be operative for the 1997-98 year of income only. [Items 3, 4 and 5]

1.11 The new provision will be subject to section 25-70 (entertainment) and sections 20-20 and 20-35 (reimbursements). These sections are explained in paragraphs 1.8 and 1.9 above.

1.12 The proposed amendment refers to expenses incurred in contesting an election under the Constitutional Convention (Election) Act 1997 . [Item 3]

1.13 The table in section 20-30 will be amended to remove its limitation to Commonwealth and State elections for the 1997-98 year. The limitation will be replaced for the 1998 and subsequent years. [Items 1 and 2]

1.14 A commencement provision will be inserted to ensure that the amendment to the Act commences on the date on which these amendments receive the Royal Assent, but with application to the 1997-98 year of income only. [Item 5]

Part 2: Gifts to the National Nurses' Memorial Trust

Overview

1.15 The amendment will provide for the tax deductibility of donations of $2 or more to the National Nurses' Memorial Trust.

Summary of the amendment

Purpose of the amendment

1.16 The amendment will insert a reference to the National Nurses' Memorial Trust (the Trust) in the table in subsection 30-50(2) of the Income Tax Assessment Act 1997 (the Act) to provide for income tax deductions for donations to the Trust. Donations of $2 or more to the Trust will be tax deductible. The provision will operate for a period of two years commencing on 4 September 1997.

Date of effect

1.17 The amendment commences on the date of the Royal Assent and will apply to donations made after 3 September 1997 and before 4 September 1999.

Background to the legislation

1.18 The National Nurses' Memorial Trust was founded by the Royal College of Nursing, Australia. The primary object of the Trust is to support the commemoration of nurses and their achievements relevant to the history of Australia. In particular, the Trust has been established to raise moneys to construct an Australian Nurses' National Memorial on Anzac Parade in Canberra. The Memorial will commemorate nurses who have served in war and otherwise in the service of Australia.

1.19 The Treasurer announced in the 1997-98 Budget that income tax deductions would be allowable for donations to the trust once the trust had satisfied the public fund requirements. On 4 September 1997 the Treasurer announced that the trust had satisfied the public fund requirements and that donations of $2 or more will be deductible from that day.

Explanation of the amendment

1.20 The amendment in Part 2 of Schedule 1 will allow income tax deductions for donations of $2 or more to the National Nurses' Memorial Trust. The period for deductibility will be 2 years from 4 September 1997. This will be done by listing the National Nurses' Memorial Trust in the table in subsection 30-50(2) of the Act. [Item 6]