Bills Digest No. 178  1999-2000Taxation Laws Amendment Bill (No. 6) 2000


Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details

Passage History

Taxation Laws Amendment Bill (No. 6) 2000

Date Introduced: 11 May 2000

House: Representatives

Portfolio: Treasury

Commencement: Royal Assent

Purpose

The amendments contained in this Bill are:

  • measures to provide the Community Development Employment Projects (CDEP) Scheme Participant Supplement with the same tax treatment as the equivalent payment made to Newstart and Youth Allowance recipients (Schedule 1) , and
  • measures to exempt income attributable to GST direct assistance certificates from income tax (Schedule 2).

Background

As this Bill contains no central theme the background to the various measures is included in the discussion of the main provisions.

Main Provisions

CDEP Scheme Participant Supplement (Schedule 1)

The measures in Schedule 1 will provide the CDEP Scheme Participant Supplement with the same tax treatment as the equivalent payment made to Newstart and Youth Allowance recipients involved in labour market programs.

Background

The Further 1998 Budget Measures Legislation Amendment (Social Security) Act 1999 provided CDEP scheme participants with a new supplement. The supplement is paid at the rate of $20 per fortnight and corresponds to a similar payment received by Newstart and Youth Allowance recipients involved in labour market programs. The CDEP supplement is ordinary income and assessable under section 6-5 of the Income Tax Assessment Act 1997 (the 1997 Act).

Proposed measures

Existing subsection 160AAA(1) of the Income Tax Assessment Act 1936 (the 1936 Act) will be amended to make the CDEP Scheme Participation Supplement eligible for a rebate under subsection 160AAA(3) (Items 1 and 2). This measure will make the CDEP Scheme Participation Supplement qualify for the tax rebates available to corresponding Newstart and Youth Allowance payments.

The CDEP Participant Supplement will be subject to the current PAYE and the new PAYG withholding requirements. Proposed paragraph (h) in the definition of salary and wages in subsection 221A(1) of the 1936 Act will make the CDEP Participant Supplement subject to the PAYE scheme (Item 5). Proposed paragraph 12-110(1)(d) of Schedule 1 to the Taxation Administration Act 1953 will make the CDEP Participant Supplement subject to the PAYG withholding scheme (Item 7).

As a consequence of the withholding arrangements applying to the CDEP Scheme Participation Supplement, the rules on the Tax File Number (TFN) system will be amended (Items 3 and 4). This will bring the TFN rules for the CDEP Scheme Participation Supplement into line with the current rules applying to Newstart and Youth Allowance recipients.

Application

  • The amendments made by items 1, 2 and 6 apply to assessments for the 1999-2000 income and subsequent income years (Subitem 8(1)).
  • The amendment made by items 3 and 4 apply in relation to the quotation of TFNs on or after 11 November 1999 (Subitem 8(2)).
  • The amendment made by item 5 applies to payments made on or after 11 November 1999 (Subitem 8(3)).
  • The amendment made by item 7 applies to payments made on or after 1 July 2000 (Subitem 8(4)).

Exempting value received from GST Direct Assistance Certificates

The measures in Schedule 2 will exempt income attributable to GST direct assistance certificates from income tax. Income may arise from the receipt or redemption of certificates.

Background

The Government is providing redeemable direct assistance certificates to small and medium businesses and community sector groups to assist the implementation of GST. The maximum value of the certificates is $200. The certificates are issued by the GST Start-Up Assistance Office to eligible enterprises which have registered for GST by 31 May 2000. Recipients of certificates may redeem the certificates with a registered supplier in exchange for goods and services that will assist the implementation of the GST for that enterprise.

An amount received by a taxpayer may be assessable as either ordinary income (section 6-5 of the 1997 Act) or statutory income (section 6-10 of the 1997 Act). A requirement of ordinary income is that if a benefit is received it must be convertible to cash. If the benefit is not convertible to cash the benefit is not ordinary income. If the benefit a taxpayer receives from the redemption of a certificate, such as software, can be sold to another person, the benefit is convertible to cash. This will result in the taxpayer being assessable on the value of the benefit. A benefit may, however, be statutory income if it is expressly made assessable by a specific provision. The redemption of a GST certificate will give rise to a capital gains tax liability. The redemption of a certificate would be a CGT event C2 under section 104-25. Under CGT event C2 a taxpayer will be assessable on the capital proceeds from ending the CGT asset. It would appear that GST a certificate will generally result in the value of the certificate being assessable in the hands of the recipient enterprise.

Exempt income is defined in section 6-20 of the 1997 Act as an being an amount of ordinary or statutory income that is exempt income because it is made tax exempt by a provision of the 1997 Act or another Commonwealth law. Exempt income is not included in a taxpayer's assessable income.

Proposed measures

The aim of the measures is treat the GST direct assistance certificate as exempt income. Proposed section 51-60 of the 1997 Act will treat a GST direct assistance certificate as exempt income for the 1999-2000 and 2000-01 income years (Item 2). The capital gains provisions will also be amended to make gains from the redemption of GST direct assistance certificates exempt from tax. Proposed section 118-14 of the 1997 Act will exempt from capital gains tax any gains in the 1999-2000 or 2000-01 income years that are attributable to the redemption of a GST direct assistance certificate (Item 3).

Application

The measures in Schedule 2 apply for the 1999-2000 and 2000-01 income years (Items 2 and 3).

Concluding Comments

The GST assistance certificate system has been controversial because it viewed as being inadequate and merely a token gesture.(1) The GST compliance costs for business were estimated by accounting firm, Arthur Andersen, to be $24 billion. The Australian Labor Party was arguing that the compliance costs imposed on small business rendered the $200 GST assistance certificates as meaningless.(2) Small businesses have reported that they have incurred significant costs to implement the GST. The Government was reported as stating that the GST assistance certificates were merely part of a comprehensive assistance program.(3) The same article stated that businesses are entitled to an immediate tax deduction for information technology equipment acquired for implementing the GST, before 1 July 2000. The article stated that the Government was of the view that small business was compensated for its compliance burden.

Endnotes

  1. The Australian, 'Advisers Ride the Wave', 29 May 2000.
  2. The Financial Review, 'Bureaucratic bungle causes a stir', 15 February 2000.
  3. ibid.

Contact Officer and Copyright Details

Michael Kobetsky
2 June 2000
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 2000

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 2000.

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