Senate

Further Supplementary Explanatory Memorandum

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

Chapter 1 - Philanthropy

Overview

1.1 Schedule 5 to the Taxation Laws Amendment Bill (No. 8) 1999 amends the Income Tax Assessment Act 1997 (ITAA 1997) and Income Tax Assessment Act 1936 (ITAA 1936) to implement the Government's response to the report on philanthropy in Australia by the Business and Community Partnerships Working Group on Taxation Reform.

1.2 The amendments will allow the apportionment of deductions for certain gifts made to environmental and heritage organisations over a period of up to 5 income years in a similar manner to the apportionment of deductions proposed by the Bill for donations made under the Cultural Gifts Program.

Summary of the amendments

Purpose of the amendments

1.3 The purpose of the amendments is to further encourage corporate and personal philanthropy in Australia by allowing the apportionment of deductions for certain gifts made to environmental and heritage organisations over a period of up to 5 income years.

Date of effect

1.4 The amendments will apply to deductions for certain gifts made to environmental and heritage organisations on or after 1 July 1999.

Background to the legislation

1.5 Schedule 5 to this Bill amends the ITAA 1997 and ITAA 1936 to encourage greater corporate and personal philanthropy in Australia by:

•

allowing an income tax deduction for a gift of property, worth more than $5,000, to certain funds, authorities and institutions and to political parties regardless of when or how the property was acquired;

•

providing a capital gains tax (CGT) exemption for testamentary gifts of property to certain funds, authorities and institutions and to political parties, unless the property is reacquired for less than market value by the estate, a beneficiary of the estate or an associate;

•

providing a CGT exemption for gifts of property made under the Cultural Gifts Program, unless the property is reacquired for less than market value by the donor or an associate;

•

allowing concessional taxation treatment for specified private funds which will not be required to seek donations from the public but will be subject to the other requirements applying to public funds; and

•

allowing the apportionment of deductions for donations made under the Cultural Gifts Program over a period of up to 5 income years.

1.6 Item 1 of the table in section 30-15 provides that certain donations to a fund, authority or institution set out in any of the tables in Subdivision 30-B is a deductible gift. Item 2 of the table in section 30-15 provides that certain donations to a public fund established and maintained under a will or instrument of trust solely for the purpose of providing money, property or benefits to a fund, authority or institution set out in any of the tables in Subdivision 30-B, or for establishing such a fund, authority or institution, is a deductible gift.

1.7 Subdivision 30-B contains tables of various types of funds, authorities or institutions to which deductible gifts or contributions may be made. Section 30-55 sets out general and specific environment recipients of deductible gifts; for example, the Australian Conservation Foundation Incorporated is listed at item 6.2.1 in subsection 30-55(2).

1.8 Item 6 of the table in section 30-15 provides that the National Trust of each State and Territory in Australia and the National Council of National Trusts can be the recipient of a deductible gift. The gift must be of a place listed in the Register of the National Estate.

Explanation of the amendments

Apportionment of environmental and heritage gift deductions

Amendment 2

1.9 New Subdivisions 30-DC and 30-DD are inserted in Division 30 (gifts or contributions) of the ITAA 1997 to allow apportionment of deductions for certain gifts to environmental and heritage organisations over a maximum of 5 income years [item 16] . The apportionment applies to deductions for gifts made on or after 1 July 1999 [item 26] .

1.10 New subsections 30-249A(1) and 30-249D(1) provide that a taxpayer may elect to spread a deduction for a gift in the following circumstances:

(a)

The deduction is for a gift to an environmental recipient where:

(i)

the gift is made to a fund, authority or institution that is listed in section 30-55 (other than under items 6.2.13 to 6.2.21 of the table in subsection 30-55(2)) as either a general or specific environment recipient;

(ii)

the gift is deductible in accordance with either item 1 or 2 of the table in section 30-15; and

(iii)

the gift is property valued by the Commissioner at more than $5,000. [New subsection 30-249A(1)]

(b)

The deduction is for a gift to a heritage recipient where either:

(i)

(A)

the gift is made to a fund, authority or institution that is listed in items 6.2.13 to 6.2.21 (State and Territory National Trusts and Australian Council of National Trusts) of the table in subsection 30-55(2);

(B)

the gift is deductible in accordance with either item 1 or 2 of the table in section 30-15; and

(C)

the gift is property valued by the Commissioner at more than $5,000; or

(ii)

the gift is made in accordance with item 6 of the table in section 30-15 to the National Trust of a State or Territory in Australia or the National Council of National Trusts. [New subsection 30-249D(1)]

1.11 When a taxpayer makes an election, they must specify the percentage, if any, to be deducted in each income year. [New subsections 30-249A(2) and 30-249D(2)]

1.12 The election must be made before the taxpayer lodges the income tax return for the income year in which the gift was made. [New subsections 30-249A(3) and 30-249D(3)]

1.13 Where the deduction is for an environmental gift, a copy of the election must be given to the Environment Secretary by the taxpayer prior to lodging the income tax return for the year in which the gift was made [new subsection 30-249A(4)] . Likewise where the deduction is for a heritage gift, a copy of the election must be given to the Heritage Secretary by the taxpayer prior to lodging the income tax return for the year in which the gift was made [new subsection 30-249D(4)] . See paragraphs 1.17 and 1.18 respectively for definitions of Environment Secretary and Heritage Secretary.

1.14 New subsections 30-249A(5) and 30-249D(5) provide that the taxpayer may vary the election at any time. The variation will apply to the percentage of the original deduction that is to be claimed in income years for which an income tax return has not yet been lodged. The taxpayer must give a copy of the variation to:

•

the Environment Secretary where the deduction is for a gift to an environmental recipient; or

•

the Heritage Secretary where the deduction is for a gift to a heritage recipient;

before lodging the income tax return for the first income year to which the variation applies.

1.15 Under new subsections 30-249A(6) and 30-249D(6) the election and any variation must be made in a form approved in writing by the Secretary to whom the documents must be given.

1.16 The effect of the election is that the taxpayer must claim the deduction in the manner specified by the election. By making an election, the taxpayer forgoes the opportunity to claim the full amount of the deduction in the income year in which the donation was made. [New sections 30-249B and 30-249E]

Amendment 4

1.17 A definition of 'Environment Secretary' is inserted in subsection 995-1(1) of the ITAA 1997. 'Environment Secretary' is defined to mean the Secretary of the Department that administers the Environment Protection and Biodiversity Conversation Act 1999 . Currently this is the Secretary of the Department of Environment and Heritage. [Item 23A]

Amendment 5

1.18 A definition of 'Heritage Secretary' is inserted in subsection 995-1(1) of the ITAA 1997. 'Heritage Secretary' is defined to mean the Secretary of the Department that administers the Australian Heritage Commission Act 1975 . Currently this is the Secretary of the Department of Environment and Heritage. [Item 23B]

Amendments 1 and 3

1.19 Section 30-5, which provides a guide to Division 30, is amended to include a reference to the apportionment of certain gifts under Subdivision 30-DB, as inserted by this Bill, and new Subdivisions 30-DC and 30-DD . [Item 1]

1.20 An amendment is made to the index to Division 30 in section 30-315 to include a reference to Subdivision 30-DB, as inserted by this Bill, and new Subdivisions 30-DC and 30-DD . [Item 17]