House of Representatives

Explanatory Memorandum

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

General outline and financial impact

Company Law Review

Amends the Income Tax Assessment Act 1936 and associated tax laws to ensure that the share capital tainting provisions are not triggered in inappropriate circumstances. Broadly speaking, this is achieved by ensuring that:

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a share capital account does not become tainted by the merger of tainted share premiums with share capital unless the share capital account ceases to be more than the total of the tainted share premium account immediately before the merger;

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all debt for equity swap arrangements which should qualify for the exception to the tainting rule do so; and

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the delayed crediting of share capital to the share capital account does not trigger the share tainting rule.

Date of effect: The amendments will apply from 1 July 1998.

Proposal announced: Assistant Treasurer's Press Release No. 43 on 20 November 1998.

Financial impact: The amendments are designed to prevent an unintended gain to the revenue that is not capable of being quantified.

Compliance cost impact: Compliance costs will be negligible.

Summary of Regulation Impact Statement

Policy objective:

To ensure that a company's share capital account is not tainted by the compulsory merger of tainted share premiums with the share capital account under recent company law changes.

Impact: Low.

Main points:

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There is only one option to implement the policy objective a company's share capital account will not be tainted upon its merger with a tainted share premium account under section 1446 of the Company Law Review Act 1998 .

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Companies' compliance costs will be kept to a minimum because:

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the provisions simply require companies to record the extent to which they have a tainted share premium account, if any; and

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the legislation implementing the measure is not complex.

Taxation relief for managed investment schemes

Amends the Income Tax (Transitional Provisions) Act 1997 to provide relief from any unintended tax consequences arising on a managed investment scheme (the scheme) restructuring to become a registered scheme in accordance with the Managed Investments Act 1998 . These amendments give effect to the Assistant Treasurer's Press Releases No. 37 on 27 July 1998 and No. 10 on 12 March 1999.

Date of effect: 1 July 1998.

Proposal announced: Assistant Treasurer's Press Releases No. 37 on 27 July 1998 and No. 10 on 12 March 1999.

Financial impact: None.

Compliance cost impact: The net impact of these measures will reduce compliance costs.

Summary of Regulation Impact Statement

Impact: Low.

Main points:

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The measure will provide taxation relief to schemes operating on 1 July 1998, which restructure in accordance with the Managed Investments Act 1998 during the period 1 July 1998 to 30 June 2000.

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Schemes described above and their members will benefit from the taxation relief.

Policy objective: To provide eligible schemes, and their members, relief from any unintended taxation consequences caused by changing the scheme's two tier manager and trustee structure to a single responsible entity structure as required under the Managed Investments Act 1998 .