House of Representatives

Supplementary Explanatory Memorandum

Amendments to be moved on behalf of the Government (Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Net capital losses of earlier income years

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Inserts items 10A and 28A into Parts 1 and 3 of Schedule 9 to the Taxation Laws Amendment Bill (No. 8) 1999 (TLAB 8) to include non-resident information gathering rules for the concessional tracing rules for carrying forward net capital losses of earlier income years in the Income Tax Assessment Act 1936 (ITAA 1936).

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Amends the application rules contained in items 16 and 36 of Parts 1 and 3 of Schedule 9 to TLAB 8 so that the concessional tracing rules for carrying forward net capital losses of earlier income years operate consistently between the ITAA 1936 and the Income Tax Assessment Act 1997 (ITAA 1997).

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Amends item 19 of Part 2 of Schedule 9 to TLAB 8 (which amends the trust loss measures contained in Schedule 2F to the ITAA 1936) to provide another circumstance where a company owned by a non-resident discretionary trust(s) will be liable for family trust distribution tax.

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Amends item 3 of Schedule 10 to TLAB 8 to allow a trust to make a family trust election for the 1996-1997 and 1997-1998 income years so that a company will be able to use the family trust concession to apply a net capital loss incurred in the 1996-1997 income year against a net capital gain derived in the 1997-1998 income year.

Alternative condition

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Amends the alternative condition in items 23, 28 and 35 in Part 3 of Schedule 9 to the TLAB 8 to ensure that it is available to companies on the same basis that it is available to fixed trusts under the trust loss measures.

Technical amendments

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Makes other technical amendments to items 14, 16 and 36 of Parts 1 and 3 of Schedule 9 and an amendment to Schedule 10 to correct minor drafting errors.

Date of effect : These amendments do not affect the date of effect of the TLAB 8 concessional tracing rules.

Proposal announced : The original proposal was announced in the 1996-1997 Budget and the Treasurers Press Release No. 79 of 20 August 1996.

Financial impact : These amendments do not affect the original estimates as contained in the Regulation Impact Statement (RIS).

Cost of compliance impact : The compliance costs for taxpayers and administrative costs to the Australian Taxation Office will increase if the consequential amendments to the net capital loss rules are not made. The amendment to the alternative condition will have no compliance cost impact.

Summary of Regulation Impact Statement

Impact : The consequential amendments to the net capital loss rules will affect companies owned by discretionary trusts that wish to apply a net capital loss incurred in the 1996-1997 income year against a net capital gain derived in the 1997-1998 income year. The amendment to the alternative condition will ensure that the measures will operate as intended.

Main points : The amendments do not change the RIS contained in the Explanatory Memorandum to the TLAB 8.

Policy Objective : The amendments also do not change the RIS contained in the Explanatory Memorandum to the TLAB 8.