Senate

Revised Explanatory Memorandum

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

General outline and financial impact

AMENDMENT OF THE INCOME TAX ASSESSMENT ACT 1997 AND INTERNATIONAL TAX AGREEMENTS ACT 1953

Spectrum licences

Amends the income tax law to:

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allow taxpayers to amortise, over the period of the licence, expenditure incurred in acquiring a spectrum licence;

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ensure that Australia is able to assert its taxing rights over income from the use of spectrum where a spectrum licence is owned by a non-resident; and

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amend the definition of royalty to include payments for use of spectrum licences.

Date of effect : The amendments will apply to spectrum licences obtained from 11 March 1998.

Proposal announced :Treasurers Press Release No. 26 of 11 March 1998.

Financial impact : The revenue cost has been estimated as $8 million per annum.

Cost of compliance impact : The compliance cost is expected to be minimal.

Summary of the Regulation Impact Statement

Impact : Low

Main points : The measure will increase taxpayers compliance costs marginally. The imposition of the permanent establishment condition would affect those foreign residents who may have wished to purchase or use spectrum without a permanent establishment in Australia. Only those companies that breach the condition of their licence under the Radiocommunications Act1992 will trigger the tax penalty regime.

Policy objective : The Government announced on 11 March 1998 its intention to amend the Income Tax Assessment Act 1997 to allow for the amortisation of the acquisition cost of domestic spectrum licences issued pursuant to the Radiocommunications Act 1992 , over the licences effective life. In addition, the Government also proposed measures to ensure that Australia is able to assert its taxing rights over income from the use of spectrum where a spectrum licence is owned by a non-resident.

The amendments will improve the equity of the taxation system by aligning the cost of the right to use the spectrum to the income it generates and by introducing parity with the taxation treatment of spectrum licences in overseas jurisdictions.

Tax Law Improvement Project (TLIP) technical corrections

Makes technical corrections to income tax and other legislation to correct minor errors made in the first two instalments of TLIP's rewrite of the Income Tax Assessment Act 1936 (ITAA 1936).

Date of effect : Applies to assessments for the 1997-1998 income year and later income years.

Proposal announced :These amendments were previously introduced on 2 April 1998 as Schedules 6, 7 and 8 to the Taxation Laws Amendment Bill (No. 4) 1998 which lapsed on 31 August 1998.

Financial impact : Nil

Compliance cost impact :None

Tax Law Improvement Project update amendments

Amends income tax legislation to ensure that the rewrite of the income tax law reflects recent legislation. This will comprise a rewrite of the ITAA 1936 provisions that exempt certain education and training payments as amended by the Taxation Laws Amendment Act (No.1) 1997 and the Social Security Legislation Amendment (Youth Allowance Consequential and Related Measures) Act 1998 .

Date of effect : Applies to assessments for the 1998-1999 income year and later income years.

Proposal announced : These amendments were previously introduced on 2 April 1998 as Schedule 9 to the Taxation Laws Amendment Bill (No. 4) 1998 which lapsed on 31 August 1998.

Financial impact : Nil

Compliance cost impact :None

Provisional tax uplift factor

The amendments make a technical change to the section in the Income Tax Assessment Act 1936 which prescribes the method of calculation of the provisional tax uplift factor. They take account of a change in the presentation of the National accounts published by the Australian Bureau of Statistics which took effect for the September 1998 quarter.

Date of effect : The amendments will apply to provisional tax payable for the 1999-2000 income year and later income years.

Proposal announced :Not previously announced.

Financial impact : Nil in 1999-2000. Unquantifiable in later income years.

Compliance cost impact :Nil

Youth allowance and austudy payment

Amends the Income Tax Assessment Act 1936 to correct a technical error as a result of amendments contained in the Social Security Legislation Amendment (Youth Allowance Consequential and Related Measures) Act 1998 . The Income Tax Assessment Act 1997 is also amended to ensure that the rewritten provision is correct.

Date of effect : The amendments will apply to assessments for the 1998-1999 income year and later income years.

Proposal announced : Not previously announced.

Financial impact : Nil

Compliance cost impact : Nil