House of Representatives

Explanatory Memorandum

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

General outline and financial impact

Small business relief

This Bill amends the ITAA 1997 to:

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streamline existing CGT concessions for small businesses; and

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provide a further concession for small businesses where an active asset of the business, held for at least 15 years, is disposed of because either the taxpayer is to retire on account of being at least 55 years old or is incapacitated.

Date of effect: The small business CGT concessions will apply to CGT events occurring after 11.45 am AEST on 21 September 1999.

Proposal announced: The proposal was announced in Treasurer's Press Release No. 58 of 21 September 1999 (in particular refer to Attachments E and F of that Press Release) and Treasurer's Press Release No. 59 of the same date.

Financial impact: There is no data available to prepare a reliable revenue estimate for this measure. There is expected to be a small cost to revenue.

Compliance cost impact: This measure will reduce compliance costs, particularly through the streamlining of the current small business concessions. These concessions are complex to apply. As a result of the amendments, small business taxpayers will no longer need to choose which of the concessions they will apply.

Scrip for scrip roll-over

This Bill amends the ITAA 1997 to provide for a CGT roll-over (meaning that any capital gain will be deferred) where shareholders in companies, unitholders in unit trusts or beneficiaries of fixed trusts, exchange these membership interests for comparable interests in an acquiring entity as part of a takeover.

Date of effect: CGT events that happen on or after the date of Royal Assent of this Bill.

Proposal announced: The proposal was announced in Treasurer's Press Release No. 58 of 21 September 1999 (in particular refer to Attachment G of that Press Release) and Treasurer's Press Release No. 59 of the same date.

Financial impact: The financial impact of this measure is set out in the following table:

Compliance cost impact: The measure will reduce compliance costs, as relevant shareholders, unitholders and beneficiaries will not need to work out a capital gain or a capital loss when they exchange their membership interests in the course of a takeover.

Venture capital exemption

This Bill amends the ITAA 1997 and the PDFA 1992 to:

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allow certain non-resident tax exempt superannuation funds (venture capital entities) an exemption on gains made on the disposal of particular Australian venture capital investments; and

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provide that venture capital entities register with, and lodge information with, the PDF Board in order to be entitled to the exemption.

Date of effect: The issue or allotment of venture capital equity in a resident investment vehicle on or after the date of Royal Assent of this Bill.

Proposal announced: The proposal was announced in Treasurer's Press Release No. 58 of 21 September 1999 (in particular refer to Attachment H of that Press Release) and Treasurer's Press Release No. 59 of the same date.

Financial impact: The measure will have no impact between the 1999-2000 and 2003-2004 financial years inclusive, with a revenue cost of $5million in the 2004-2005 financial year.

Compliance cost impact: The measure will reduce compliance costs, as venture capital entities will not be required to work out gains on the eligible venture capital investments for Australian tax purposes.

In order to be eligible for the exemption, certain information will need to be provided to the PDF Board. However, the information required would be collected in the ordinary course of business and will assist in evaluating the overall effectiveness of the measure in 5 years time.

Summary of Regulation Impact Statement

Regulation Impact on Business

Impact: The measures in this Bill are part of the Government's broad ranging reforms which will give Australia a New Business Tax System. These reforms are based on the Recommendations of the Review that the Government established to consider reforms to Australia's business tax system.

The New Business Tax System is designed to provide Australia with an internationally competitive business tax system that will create the environment for achieving higher economic growth, more jobs and improved savings, as well as providing a sustainable revenue base so the Government can continue to deliver services for the community.

The CGT reforms contained in this Bill are a critical component of the New Business Tax System. These reforms will remove impediments to efficient asset management, improve capital mobility, reduce complexity and compliance costs and make Australia's CGT regime internationally competitive.

Main points:

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The potential compliance, administrative and economic impacts of the measures contained in this Bill have been carefully considered, by both the Review and the business sector. The Review focused on the economy as a whole and concluded that there would be net gains to business, Government and the community generally from business tax reform.

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The measures in this Bill will reduce compliance costs as part of providing a more consistent and easily understood business tax system.

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The measures relating to venture capital relief and scrip for scrip roll-over relief will be evaluated 5 years after their commencement in order to assess their effectiveness.

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There will be some reporting requirements imposed on entities seeking venture capital relief. However, the information required is collected in the ordinary course of business and will be important in assessing the overall effectiveness of the measure.

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Administration costs are not expected to significantly increase as a result of the implementation of the measure in this Bill.