House of Representatives

Explanatory Memorandum

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

General outline and financial impact

Alienation of real property through interposed entities

This Bill amends the International Tax Agreements Act 1953 by inserting section3A to clarify the meaning of terms used in the Alienation of Property Article in Australia's tax treaties.

The amendment ensures that the Alienation of Property Article in the double tax agreements and conventions (DTAs) is read to cover alienations of shares or other interests in companies, and in other entities, whose assets consist principally of Australian real property, whether held directly or indirectly through a chain of interposed companies or other entities.

The amendment will protect Australia's taxing rights over income, profits or gains arising from effective sales of Australian real property, including mining rights. It is designed to address substantial risks to the revenue and tax planning opportunities exposed by the decision in 1997 of the Full Federal Court in Commissioner of Taxation v. Lamesa Holdings BV (1997) 77 FCR 597.

Date of effect: The new section applies to all DTAs containing the identified provision covering alienation of property where the provision came into force domestically before 27 April 1998 and affects transactions occurring after 12 noon Australian Eastern Standard Time on 27 April 1998.

Proposal announced: This measure was announced in the Treasurer's Press Release No. 39 of 27 April 1998.

Summary of Regulation Impact Statement

The Office of Regulation Review has advised that a Regulation Impact Statement is not required for these changes.

Extension of period for certain gifts

This Bill amends the income tax law to extend the period of time within which gifts to the Australian National Korean War Memorial Trust Fund, the St Patrick's Cathedral Parramatta Rebuilding Fund and the Shrine of Remembrance Restoration and Development Trust are tax deductible.

Date of effect: Applies to gifts made to:

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the Shrine of Remembrance Restoration and Development Trust before 1 July 2005;

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the St Patrick's Cathedral Parramatta Rebuilding Fund before 25 February 2002; and

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the Australian National Korean War Memorial Trust Fund before 2 September 2000.

Proposal announced: The Shrine of Remembrance Restoration and Development Trust was announced in the Assistant Treasurer's Press Release No. 54 on 16 November 1999.

The St Patrick's Cathedral Parramatta Rebuilding Fund was announced in the Assistant Treasurer's Press Release No. 58 on 24 November 1999.

The Australian National Korean War Memorial Trust Fund was announced in the Assistant Treasurer's Press Release No. 34 on 20 July 1999.

Financial impact: Negligible.

Compliance cost impact: Negligible.

Summary of Regulation Impact Statement

A Regulation Impact Statement is not required for the amendments.

Income of non-resident sports persons, clubs and associations

This Bill amends the income tax law to remove income tax exemptions, currently available to certain non-resident sportspersons and sporting clubs or associations. The amendments ensure that the income of all non-resident athletes and their related clubs or associations, earned in Australia, is taxed consistently.

Date of effect: The amendments will apply to income derived after 30 June 2000.

Proposal announced: Not previously announced.

Financial impact: It is not possible to estimate the financial impact of this amendment because these people and organisations have been exempt from income tax and have not previously interacted with the tax system.

Compliance cost impact: The compliance cost is expected to be minimal.

Summary of Regulation Impact Statement

A Regulation Impact Statement is not required for this amendment.

Technical amendments

Capital gains tax minor amendments

This Bill amends the Income Tax Assessment Act (ITAA 1997) by correcting unintended consequences made by the rewrite of provisions of the Income Tax Assessment Act (ITAA 1936) that were inserted in the ITAA 1997 by Act No. 46 of 1998. These amendments will make technical changes to these rewritten provisions to more accurately reflect the effect of the ITAA 1936. None of the amendments change the policy reflected in the ITAA 1936.

Date of effect: The amendments will apply to assessments for the 1998-1999 income year and later income years. However, an amendment to the record keeping requirements will only apply from the date of Royal Assent so that taxpayers will not be disadvantaged.

Proposal announced: The amendments augment the rewritten provisions of the ITAA 1936 that were inserted in the ITAA 1997 by Act No. 46 of 1998.

Financial impact: None.

Compliance cost impact: There are no additional compliance costs associated with the corrections.

Summary of Regulation Impact Statement

A Regulation Impact Statement is not required for the amendments.

Minor corrections

This Bill amends the ITAA 1997 by improving the readability of some provisions of the ITAA 1936 that have been rewritten as part of the Tax Law Improvement Project. The amendments correct references, insert additional signposts and make slight changes that improve the wording of the rewrite. There will also be some minor technical amendments to the Income Tax (Transitional Provisions) Act 1997 , the ITAA 1997 and the ITAA 1936. None of the amendments change the meaning of the law and many merely delete inappropriate asterisks or insert them where required.

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

Proposal announced: The amendments augment the rewritten provisions of the ITAA 1936 that have been rewritten as part of the Tax Law Improvement Project.

Financial impact: None.

Compliance cost impact: There are no additional compliance costs associated with the corrections.

Summary of Regulation Impact Statement

A Regulation Impact Statement is not required for the amendments.