Bills Digest No. 73 2001-02
Taxation Laws Amendment Bill (No. 5) 2001
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
Endnotes
Contact Officer & Copyright Details
Taxation Laws Amendment Bill (No. 5)
2001
Date Introduced: 23 August 2001
House: House of Representatives
Portfolio: Treasury
Commencement: Royal Assent. However, refer to
the main Provisions section for the application dates of the
measures discussed below.
To:
-
- Ensure that the full value of the 50 per cent capital gains tax
discount available to individuals and certain other entities will
be fully passed on where the payment passes through more than one
trust before being received by the final recipient, and
-
- Clarify the taxation treatment of pastoral and similar duties
performed by a religious practitioner.
As there is no central theme to the Bill the
background to the various measures will be discussed below.
Capital Gains Tax (CGT) and Chains of
Trusts
As part of the implementation of the Review of
Business Taxation (Ralph Report) a 50 per cent reduction in CGT was
available to certain entities who have held the asset for at least
12 months and which do not use an indexed cost base. The entities
to whom the concession is available include individuals, complying
superannuation funds, trusts and life insurance companies in
respect of certain assets. The concession is not generally
available to companies.
It was announced in the 2001-02 Budget that the
concessional treatment would be extended to investors in managed
investment companies (MICs), largely to place them in the same tax
position as other managed funds, most of which work through a trust
basis. This measure will be implemented by the Taxation Laws
Amendment Bill (No. 6) 2001.
The Assistant Treasurer announced on 31 July
2001 that the concessional treatment in regard to trusts would be
extended to situations where the gain is passed through more than
one trust before being received by an individual.(1)
Such a situation is likely to result where, for example, an
individual invests in a managed trust which in turn invests in a
wholesale investment trust. The changes in treatment are designed
to place investments in the various types of managed investment
vehicles in the same position regarding CGT discounts.
CGT liability arises when one or more of the
events listed in Division 104 of the Income Tax Assessment Act
1997 (ITAA97) occurs. One of these events is E4 which applies
where a trust makes a payment and part of the payment is not
assessable in the hands of the recipient, such as would occur where
the payment is made to another fixed trust, as the components would
be taxed in the hands of the ultimate recipient. However, one of
the consequences of event E4 applying is that there will be a part
reduction in the cost base of the asset. A reduction in the cost
base has the effect of increasing the size of the capital gain and
so reducing the value of the 50 per cent discount which would arise
if the trust paid the amount directly to the ultimate investor
rather than through a chain of trusts.
Item 1 of Schedule 3 of the
Bill will substitute a new sections 104-70 and
104-71, dealing with the non-assessable part of a capital
gain, into the ITAA97. Proposed subsection 104-70
provides that in determining which part of a non-assessable amount
for the application of CGT event E4 any distribution subject to the
discount is to be disregarded therefore effectively excluding
amounts paid through a chain of trusts from the reduction in cost
base described above.
Application: From 1 July 2001.
However, transitional provisions also mean that the above will
apply to distributions made between 21 September 1999 (the time the
discount came into force) and 1 July 2001 (items 4 and
5).
Religious Practitioners
Determining if a person is an employee at common
law is dependent on a number of matters, with the degree of control
of the 'employee' over how they perform their functions being the
major determining matter. In relation to this a number of matters
are to be considered, including whether the 'employee' can delegate
another to perform the function, who determines the hours of work,
whether payment is for hours worked or completion of a task being
amongst the indicative factors. The difficulties in determining the
difference between 'pure contractors' and employees can be seen in
the recent attempts to formulate the tax law regarding what is
personal services income.(2)
For religious practitioners the distinction
becomes more difficult with the aspect that they are engaged for a
spiritual service also being included in the factors to be taken
into consideration. However, as with other determinations of
whether a person is an employee the determination will ultimately
depend on having regard to all the circumstances of a particular
case. While it may be practicable to determine the status of a
religious practitioner after a dispute has arisen in some
circumstances, eg has there been an unfair dismissal, the lack of
certainty gives rise to many potential problems relating to the
application of taxation law:
-
- Are they required to register and obtain an Australian Business
Number (ABN) for purposes of the GST (employees are not required to
be registered but contractors with a turnover above the threshold
amount are required to be registered)
-
- If a religious practitioner is an employee the employing
religious institution will be required to deduct PAYG amounts
-
- If a religious practioner is not an employee, payers will be
required to withhold an amount from a payment if an ABN is not
produced.
In June 2000 the Assistant Treasurer announced
measures to clarify the tax treatment of religious practitioners.
Principally, the Assistant Treasurer announced that:
'that religious practitioners will not need to
apply for an ABN and will not come within the GST law for their
pastoral and related duties.', and that
A PAYG withholding event will be introduced to
cover payments to religious practitioners for the performance of
pastoral and related duties.'(3)(In relation to the
latter point, it should be noted that if a religious practitioner
is classified as an employee they will be subject to a withholding
tax event but will be taxed at a zero rate in relation to pastoral
and related duties. The above change will bring non-employee
religious practitioners within the regime but also apply a zero tax
rate for pastoral and related duties.)
Item 4 of Schedule 1 of the
Bill will introduce a new Division 50, dealing
with the GST treatment of religious practitioners, into the A
New Tax System (Goods and Services) Tax Act 1999.
Proposed section 50-5 provides that where a
religious practitioner performs an activity in pursuit of their
vocation as a religious practitioner and as a member of a religious
institution and they are not performing that activity as an
employee, GST law will apply as if the activity was performed by
the religious institution (effectively, GST law will not apply to
such activities in relation to the religious practitioner
regardless of whether they are an employee or not but will apply as
if the service was performed by the institution).
Application: To activities done
on or after 1 July 2000 (item 6).
In relation to PAYG withholding, amendments
contained in Schedule 1 provide that payments made
to a religious practitioner in relation to an enterprise will be
subject to PAYG withholding (proposed section
12-47 of the Taxation Administration Act 1953 and
associated amendments to the ITAA97). Effectively this means that
regardless of the employment status of a religious practitioner
PAYG withholding will apply in relation to an enterprise they
conduct.
Application: Payments made on
or after 1 July 2002 (item 25).
-
- Assistant Treasurer, Press Release, 31 July 2001.
- Refer to the Bills Digest no. 52, 2001-02, Taxation
Laws Amendment Bill (No. 6) 2001.
- Assistant Treasurer, Press Release, 28 June 2000.
Chris Field
26 September 2001
Bills Digest Service
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ISSN 1328-8091
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