Bills Digest No. 166 2004–05
Tax Laws Amendment (2005
Measures No. 2) Bill 2005
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
Glossary
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Glossary
The following abbreviations and acronyms are used throughout
this Digest.
|
Abbreviation
|
Definition
|
|
ATO
|
Australian Taxation
Office
|
|
CGT
|
capital gains tax
|
|
Commissioner
|
Commissioner of
Taxation
|
|
DGR
|
deductible gift
recipients
|
|
domestic IRUs
|
indefeasible rights to use
domestic telecommunications cables
|
|
FBT
|
fringe benefits tax
|
|
FBTAA 1986
|
Fringe Benefits Tax
Assessment Act 1986
|
|
GST
|
goods and services tax
|
|
GST Act
|
A New Tax System (Goods
and Services Tax) Act 1999
|
|
international IRU
|
indefeasible rights to use
international telecommunications cables
|
|
IRU
|
indefeasible rights to use
domestic and international telecommunications cables
|
|
ITAA 1936
|
Income Tax Assessment
Act 1936
|
|
ITAA 1997
|
Income Tax Assessment
Act 1997
|
|
member spouse
|
is defined in section 90MD
of the Family Law Act 1975 to mean, in relation to a
superannuation interest, the spouse who has the superannuation
interest
|
|
non-member spouse
|
is defined in section 90MD
of the Family Law Act 1975 to mean, in relation to a
superannuation interest, the spouse who is not the member spouse in
relation to the superannuation interest
|
|
PAYG
|
pay as you go
|
|
payment split
|
is defined in section 90MD
of the Family Law Act 1975 to mean the application of
section 90MJ of that Act, or a splitting order, in relation to a
splittable payment
|
|
RSE
|
registrable superannuation
entity
|
|
SIS Act
|
Superannuation Industry
Supervision Act 1993
|
|
SSA Act
|
Superannuation Safety
Amendment Act 2004
|
|
TAA 1953
|
Taxation Administration
Act 1953
|
Passage
History
Tax Laws Amendment (2005
Measures No. 2) Bill 2005
Date Introduced: 17 March 2005
House: House of
Representatives
Portfolio: Treasury
Commencement: This Act commences on Royal Assent as stated by
clause 2 of the Tax Laws Amendment (2005 Measures No. 2) Bill
2005 (the
Bill). The application dates for various measures in the Bill
will be indicated in the Main Provisions section of this
Digest.
There
are eight schedules to the Bill. The main purpose of each schedule,
as stated in the General outline and financial impact section of
the
Explanatory Memorandum to the Bill, is set out
below.(1)
Schedule 1 to this Bill amends the simplified
imputation system to ensure that, in certain situations, private
companies that pay franked distributions will not have their
franking deficit tax offset reduced in respect of the income year
in which they first incur an income tax
liability.(2)
Schedule 2 to this Bill amends the Income Tax
Assessment Act 1997 to provide an automatic capital gains tax
(CGT) roll-over for the transfer of assets of registrable
superannuation entities that merge during the transitional period
to comply with licensing requirements under superannuation safety
reforms.
The CGT roll-over ensures that the capital gain or
capital loss that would otherwise be recognised when the transfer
of assets occurs is disregarded and that the recognition of the
accrued capital gain or loss is deferred until later disposal of
the assets by one or more successor registrable superannuation
entity trustees.(3)
Schedule 3 to this Bill amends the Income Tax
Assessment Act 1997 to provide appropriate taxation treatment
of expenditure incurred on acquiring certain telecommunications
rights.(4)
Schedule 4 to this Bill amends the Taxation
Administration Act 1953 to simplify the movement of taxpayers
from paying annual pay as you go (PAYG) instalments to paying
quarterly PAYG instalments where they become ineligible to pay
annual instalments in certain cases. The amendments apply in cases
where ineligibility is the result of registering or becoming
required to register under the goods and services tax law or
becoming a member of an instalment group. Taxpayers who become
ineligible to pay annual instalments during an income year in these
circumstances will commence paying quarterly instalments from the
first instalment quarter of the following income year for which
they are required to pay an instalment under the quarterly payment
rules.(5)
Schedule 5 to this Bill amends the Income Tax
Assessment Act 1997 to update the lists of deductible gift
recipients (DGRs).(6)
Schedule 6 to this Bill amends the A New Tax
System (Goods and Services Tax) Act 1999 to prevent entities
from reducing or eliminating their goods and services tax (GST)
liability on supplies of real property through unintended outcomes
arising from the interaction of a number of special rules in the
Act. It also clarifies the operation of the margin scheme and
ensures entities joining a GST group have appropriate adjustments
to input tax credits.(7)
Schedule 7 to this Bill amends the Income Tax
Assessment Act 1936 (ITAA 1936) to provide appropriate tax
treatment for superannuation annuities that have been split upon
marriage breakdown. The broad aim of these amendments is to ensure
that where a superannuation annuity is split upon marriage
breakdown then the taxation consequences will be the same as those
that currently apply where an equivalent benefit in a
superannuation fund is split.
Schedule 7 also amends the ITAA 1936 to correct
minor anomalies in relation to how the taxation law applies when
superannuation benefits are split on marriage
breakdown.(8)
Schedule 8 to this Bill amends the Fringe
Benefits Tax Assessment Act 1986 to remove the condition that
contributions to approved worker entitlement funds must be required
under an industrial instrument in order to be eligible for an
exemption from fringe benefits tax (FBT).(9)
As
there is no central theme to the Bill, the background to the
various measures in each schedule will be discussed under the Main
Provisions section below.
The imputation system was introduced
into the Australian tax system in 1987. Its objectives are to pass
on to resident shareholders of a company the benefit of the tax
paid by the company and to avoid the double taxation of the income
of a company in the hands of a company and when distributed in the
hands of shareholders. The imputation system allows corporate
entities to pass on credits for income tax paid on corporate income
to their members and allows the Australian members to claim a tax
offset for that credit. In some circumstances, taxpayers can claim
a refund if they are unable to utilise the tax offset fully.
A franking account is an account that
a corporate tax entity maintains to keep track of the income tax
credits that it can pass on to its members. The franking account is
credited with franking credits and debited with franking debits. A
franking credit arises when a corporate tax entity pays income tax
and a franking debit arises when a corporate tax entity makes a
distribution.
A simplified imputation system (SIS) was introduced with effect
from 1 July 2002 and the rules for its operation are contained in
Part 3-6 of the Income Tax Assessment Act 1997 (ITAA
1997). The key features of SIS are as follows:
-
entries in the franking account are recorded on a tax-paid
basis
-
the franking account will operate as a rolling balance
account
-
franking deficit tax will be imposed on a corporate entity if a
franking account is in deficit at the end of the income year; or at
30 June for certain late balancing corporate tax entities
under the New Business Tax System (Franking Deficit Tax) Act
2002
-
franking deficit tax will be creditable against income tax
payable by the corporate entity under section 205-70 of the ITAA
1997, but
-
to discourage corporate entities paying franked distributions in
excess of relative franking credits arising in an income year,
subsection 205-70(2) provides for a reduction of the franking
deficit tax offset by 30 per cent if it exceeds 10 per cent of the
total amount of franking credits that arose in the relevant year.
This reduction in the franking deficit tax offset is generally
referred to as a franking deficit tax penalty or limited offset
rule .
This franking deficit tax penalty has been a disincentive to
private companies in declaring dividends in the year in which they
first make profits after incurring losses in previous years because
it will give rise to a franking deficit and attract the franking
deficit tax penalty. There will be no countervailing franking
credit if the losses of the previous years are fully set off
against the profits of the first profitable year.
On 11 May 2004, the Treasurer in a
joint press release with the Minister of Small Business
indicated that the Government will provide greater flexibility to
private companies by allowing them, in certain situations, to make
franked distributions in their first profitable year of operation.
This will be facilitated by waiving the franking deficit tax
limited offset rule where the private company anticipates franking
credits based on a reasonable estimate of the company s expected
tax liability for that income year.(10)
Item 2 of Schedule 1 inserts
proposed subsection 205-70(5) to provide relief to
a private company from the franking deficit tax penalty under
certain conditions.
Proposed subsection 205-70(5) states that the
30 per cent reduction will generally not apply to the private
company s first year of tax liability, the relevant year, if:
-
taking into account tax offsets (other than the tax offset under
section 205-70) the company would have had an income tax liability
for the relevant year (proposed paragraph
205-70(5)(b)), and
-
this income tax liability is at least 90 per cent of the deficit
in the company s franking account at the end of the relevant year
(proposed paragraph 205-70(5)(d)), and
-
the company has not had an income tax liability for an earlier
income year (proposed paragraph 205-70(5)(c))
The reader is referred to
the relevant Australian Taxation Office (ATO) publications for
further details of certain aspects of the imputation system which
apply to measures in Schedule 1.(11)
Item 3 of
Schedule 1 provides that the amendments made by
Schedule 1 apply to assessments for the income
year in which the amendments commence and later income years. Under
clause 2 of the Bill, the amendments will commence
on Royal Assent, so that the amendments made by Schedule
1 apply to the income year in which the proposed Act
receives Royal Assent and later years.
The Superannuation Safety Amendment Act 2004 (the SSA
Act) amended the Superannuation Industry (Supervision) Act
1993 (the SIS Act) to provide new superannuation safety
arrangements to modernise and strengthen the prudential regulation
of superannuation funds with effect from 1 July 2004. It set a
transitional period of 2 years ending on 30 June 2006. Under these
arrangements, a trustee of a registrable superannuation entity
(RSE) is required to meet new licensing requirements for the better
management and protection of member benefits. If the trustee is
unable to meet these new licensing requirements, the SSA Act allows
that RSE to transfer its assets (or merge with) one or more RSEs
with a licensed trustee.
Trustees of self-managed superannuation funds regulated by the
ATO and public sector superannuation schemes are exempt from these
requirements. All superannuation entities other than those
self-managed superannuation funds regulated by the ATO and exempt
public sector superannuation schemes are required to be registered.
The Australian Prudential Regulation Authority (APRA) is
responsible for the licensing and registration of RSEs and has
issued an
Explanatory guide on licensing and
registration.(12)
In a
press release on 11 May 2004, Senator Helen Coonan, the then
Minister for Revenue and Assistant Treasurer indicated that CGT
taxing points or CGT events are likely to occur when superannuation
funds merge in response to measures in the SSA Act. In consequence
capital gains or losses would be realised earlier than would have
been the case if the funds did not merge. Senator Coonan announced
that changes will be made to the CGT regime to provide an automatic
roll-over to ensure that superannuation entities that merge as a
consequence of complying with the new licensing requirements in the
SSA Act will not have a CGT liability at the time of the merger.
However, the CGT liability will arise on the subsequent disposal of
the assets by the successor entity. Senator Coonan also indicated
that the proposed changes will ensure that no CGT consequences
arise for members of the superannuation entities that
merge.(13)
Item 2 of Schedule 2 inserts
proposed Subdivision 126 F into the ITAA 1997 to
provide a roll-over for the transfer of assets of a superannuation
fund to one or more other superannuation funds that is made between
30 June 2004 and 1 July 2006 because the trustee of the first fund
will not be licensed by 1 July 2006 and the other funds have
licensed trustees.
An example is given after proposed subsection
126-210(4) in the Bill to illustrate of how the roll-over
of a block of land and units in a unit trust from the first RSE
trustee to a successor RSE trustee will operate.
Proposed paragraphs 126-210(1)(a) and
(b) state that there is a roll-over if one or more
CGT events happen because the trustee of a RSE ceases to hold all
its CGT assets after 30 June 2004 and before 1 July 2006 because of
an inability to obtain a licence and a successor RSE trustee with a
licence takes over those assets.
The amendments made by Schedule 2 will
therefore apply to mergers taking place after 30 June 2004 and
before 1 July 2006.
In a
press release on 11 May 2004 in connection with the 2004 05
Budget, Senator Helen Coonan, the then Minister for Revenue and
Assistant Treasurer announced that the Government will allow
capital allowance tax deductions for indefeasible rights to use
(IRUs) domestic telecommunications cables and telecommunications
site access rights (indefeasible rights cannot be forfeited or
cancelled). Senator Coonan added that this measure will remove the
inconsistent taxation treatment of domestic and international IRUs.
At present no capital allowance deduction is available for a
domestic IRU and the cost of purchasing a domestic IRU or
telecommunication site access right may be allowable as a capital
loss on expiry of that right.
The current definition of an IRU in
subsection 995-1(1) of the ITAA 1997 is that it is an indefeasible
right to use an international telecommunications submarine cable
system.
The uniform capital allowance regime
is contained in Division 40 of Part 2-10 of the ITAA 1997 and its
purpose is to allow the deduction of an amount equal to the decline
in value of depreciating assets in working out taxable income.
Subsection 40-30(1) defines what is a depreciating asset and
provides that intangible assets specified in subsection 40-30(2)
are depreciating assets. IRUs are included in paragraph 40-30(2)(e)
and are therefore depreciating assets. It will thus be seen that
domestic IRUs are not at present included in the definition of a
depreciating asset.
Item 3 of
Schedule 3 amends the definition of IRU in
subsection 995-1(1) by replacing the words an international
telecommunications submarine in that definition with the words a
telecommunications . This proposed amendment effectively extends
the definition of IRU to cover both international and domestic
IRUs.
Item 2 of
Schedule 3 will similarly amend subsection
40-95(9) to ensure that the effective life of an IRU is the
effective life of the underlying telecommunications cable over
which the IRU is granted, whether it is a domestic or international
IRU.
Sub-item 5(1) of Schedule 3
provides that the capital allowance deduction for domestic IRUs
will apply in relation to expenditure incurred on or after 12 May
2004, the day after the announcement of this measure.
Sub-item 5(2) of Schedule 3
provides that if an IRU was purchased before 12 May 2004 and in
consequence of consolidation under the
consolidation regime, the IRU is taken to have been purchased
on or after 12 May 2004 because of subsection 701-55(2) of the ITAA
1997, the capital allowance deductions do not apply to the
expenditure on such IRUs.(14)
Consolidation allows wholly-owned corporate groups to operate as a
single entity for income tax purposes from 1 July 2002. The
Commonwealth Government introduced consolidation to reduce
compliance costs for business, remove impediments to the most
efficient business structures and improve the integrity of the tax
system.
Sub-tem 5(3) of Schedule 3
precludes any claim for capital allowance deduction on expenditure
replacing IRUs that existed prior to 12 May 2004 over a cable
system:
-
with IRUs over the same cable system granted on or after 12 May
2004, and
-
where the right under the new IRU covers the same level of
capacity over that cable system as the previous IRU covered.
The reader is referred to an example of an application of
sub-item 5(3) on page 22, paragraph 3.17 of the
Explanatory Memorandum.
Part 2 Grant of capital allowance
deduction to telecommunications site access rights
The amendment to the ITAA 1997 by
item 9 of Schedule 3 will provide
that telecommunication site access rights will be an intangible
asset eligible for the capital allowance deduction. Item
9 inserts proposed paragraph 40-30(2)(h)
into subsection 40-30(2).
Item 11 of
Schedule 3 will amend the dictionary in subsection
995(1) to define a definition of telecommunication site access
right as a right (except an IRU) of a carrier (as defined in
section 7 of the Telecommunications Act 1997):
(a) to share a facility (as defined
in section 7 of the Telecommunications Act 199), or
(b) to install such a facility at a
particular location or on a particular structure, or
(c) to enter or cross premises for
the purposes of installing or maintaining such a facility that is
on the premises, or is at a location, or on a structure, that is
accessible by way of the premises.
The term carrier is defined in
section 7 of the Telecommunications Act 1997 to mean the
holder of a carrier licence granted under section 56. Facility as
defined in section 7 means:
(a) any part of the infrastructure of a
telecommunications network; or
(b) any line, equipment, apparatus, tower, mast,
antenna, tunnel, duct, hole, pit, pole or other structure or thing
used, or for use, in or in connection with a telecommunications
network.
Item 10 of
Schedule 3 amends the table in subsection 40-95(7)
to provide that the effective life of a telecommunications site
access right is the term of the right.
Item 9 of
Schedule 3 inserts proposed paragraph
40-70(2)(e) to include a telecommunications site access
right among the assets where a person cannot use the diminishing
value method to work out the decline in value of the asset.
Therefore the prime cost method must be used to work out the
decline in value of a telecommunications site access right. The
diminishing value method would enable a higher deduction to be
claimed in the initial years of the term of the right, while the
prime cost method will spread the claim equally over the term of
the right.
Sub-item 12(1) of Schedule 3
provides that the capital allowance deduction for
telecommunications site access rights will apply in relation to
expenditure incurred on or after 12 May 2004, the day after the
announcement of this measure.
Sub-item 12(2) of Schedule 3
provides that if a telecommunications site access right was
purchased before 12 May 2004 and in consequence of consolidation
the telecommunications site access right is taken to have been
purchased or after 12 May 2004, the capital allowance deductions do
not apply to the expenditure on such telecommunications site access
right.
Sub-item 12(3) of
Schedule 3 provides that where an entity holds a
telecommunications site access right prior to 12 May 2004 and that
right ends prior to the date it would normally have ended under the
contract under which it was granted, and a right of the same kind
is entered after that date, no deduction is allowed in respect of
the new right.
The reader is referred to examples of
the application of sub-item 12(3) on page 24,
paragraph 3.30 of the Explanatory Memorandum.
In the 2004 05 Budget the Treasurer announced that the
Government will simplify the movement from annual to quarterly Pay
As You Go (PAYG) instalments to reduce compliance costs and
increase certainty to taxpayers. Currently, taxpayers must commence
quarterly instalments from the quarter in which they become
ineligible to pay annual instalments, for example, because they
register for the GST, under section 45-150 of Schedule 1 of the
Taxation Administration Act 1953 (TAA 1953). It
was proposed to allow such taxpayers to commence paying quarterly
instalments from the first quarter of the following income
year.(15)
Item 4 of Schedule 4 of the
Bill repeals current section 45-150 and substitutes a revised
section 45-150 to give effect to the above
proposal.
Item 5 of Schedule 4 read with
clause 2 of the Bill provides that the
proposed section 45-150 will commence for income
years starting on the day on which this Act receives Royal
Assent.
Item 5 of Schedule 4 also
saves the application of the current section 45-150 (which is
repealed by this Schedule) for income years that start prior to the
day on which this Act receives Royal Assent.
Income tax law allows taxpayers to claim income tax deductions
for certain gifts to the value of $2 or more to deductible gift
recipients (DGRs). To be a DGR, an organisation must fall within a
category of organisations set out in Division 30 of the
ITAA 1997 and be endorsed by the ATO, or be specifically
listed under that Division. The amendments in items
1 to 5 of Schedule 5
include as DGRs the funds and organisations specified in the table
below.
|
Name of fund
|
Date of
effect
|
Special
conditions
|
|
Freedom Across
Australia
|
8 November 2004
|
The gift must be made
before 8 November 2006.
|
|
Rotary Leadership Victoria
Australian Embassy for Timor-Leste Fund Limited
|
8 November 2004
|
The gift must be made
before 8 November 2006.
|
|
National Police
Memorial
|
8 November 2004
|
The gift must be made
before 8 November 2006.
|
|
Page Research Centre
Limited
|
13 January 2005
|
None
|
|
Russian Welfare Aid to
Russia Fund
|
23 December 2004
|
The gift must be made
before 23 December 2006.
|
The reader is referred to page 32 of the Explanatory Memorandum
for a brief background of the funds listed in the above
table.(16)
The amendments by items 1 to 5
of Schedule 5 apply from the dates of effect shown
in the above table.
In the
second reading speech, the Minister for Revenue and Assistant
Treasurer stated that Schedule 6 to the Bill
amends the GST law to uphold the original policy intent that GST is
payable on the value added to real property once it enters the GST
system.(17) These measures, which are designed to
enhance the integrity of the GST provisions dealing with real
property, were not announced prior to the introduction of this
Bill.
The Explanatory Memorandum to the Bill sets out the context to
the amendments in paragraphs 6.2 to 6.10 on pages 35 and
36.(18) Paragraph 6.2 states as follows.
The Australian Taxation Office (ATO) has
identified a number of arrangements used by entities to reduce or
eliminate their GST liabilities on the supply of real property.
Some arrangements involve manipulating the interaction of
provisions of the GST Act such as supplies of GST-free going
concerns or GST-free farm land, associates, GST groups, and GST
joint ventures with the margin scheme to avoid paying GST on the
full value added to the real property. Other arrangements include
using the grouping or joint venture provisions in an attempt to
avoid paying GST on the sale of new residential property by
transforming taxable sales of new residential premises into input
taxed sales.(19)
The tax minimisation arrangements to avoid paying GST on the
full value added to real property, to which the proposed amendments
in Schedule 6 are directed, according to paragraph
6.2, involve manipulating the interaction of provisions in the
A New Tax System (Goods and Services Tax) Act 1999 (the
GST Act) such as:
-
GST-free going concerns,(20)
-
GST-free farm land,(21)
-
GST groups and associates,(22) and/or
-
GST joint ventures(23)
with the provisions in the GST Act dealing with the margin
scheme for real property.
Division 75 of the GST Act allows a taxpayer to use a margin
scheme to bring within the GST system taxable supplies of freehold
interests in land, of stratum units and of long-term leases.
Under the margin scheme, the amount of the GST payable on a
taxable supply of real property is 1/11th of the margin
on the supply, as provided for in section 75-10 of GST Act. The
margin is the amount by which the consideration for the supply
exceeds the consideration for the acquisition of the interest, unit
or lease in question.
This contrasts with the basic rule that GST is payable on
1/11th of the GST- inclusive price which applies
generally to the supply of goods and services.
Real property as defined in
section 195-1 of the GST Act, includes:
(a) any interest in or right over land
(b) a personal right to call for or be granted any interest in or
right over land, or
(c) a licence to occupy land or any other contractual right
exercisable over or in relation to land.
Purchasers of real property on the margin scheme are not
entitled to claim input tax credits for GST supplied by the
supplier because acquisitions under the margin scheme are not
creditable acquisitions under section 75-20.
There are special rules at present for determining the margin
for real property acquired before 1 July 2000(24) (the
date the GST came into operation), and for real property acquired
on or after 1 July 2000.(25)
A brief description of the proposed changes to the margin
scheme, to prevent the tax minimisation practices which the ATO has
identified, is given below.
Item 10 of Schedule 6
repeals current subsection 75-5(1) and substitutes revised
subsection 75-5(1) which requires the supplier and the recipient of
the supplier to agree in writing that the margin scheme is to apply
in working out the amount of the GST on a taxable supply of real
property. Currently, under subsection 75-5(1) it is left to the
supplier to choose to apply the margin scheme without any written
agreement with the recipient of the supply.
Item 10 of Schedule 6 also
inserts proposed subsection 75-5(1A), which
requires that the agreement between the supplier and the recipient
is to be made on or before the making of the supply or within such
further period as the Tax Commissioner allows.
Currently, under subsection 75-5(2) the
supplier cannot choose to apply the margin scheme if the freehold
interest, stratum interest or long-term lease was acquired through
a taxable supply on which GST was worked out without applying the
margin scheme.
Item 11 of
Schedule 6 repeals current subsection 75-5(2) and
substitutes revised subsection 75-5(2) which
states that the margin scheme does not apply if the freehold
interest, stratum unit or long-term lease was acquired through a
supply that was ineligible for the margin scheme as defined in
proposed subsection 75-5(3).
The three categories of supplies that are
ineligible for the margin scheme under proposed subsection
75-5(3) are:
-
a taxable supply on which GST was worked out without applying
the margin scheme
-
a supply of a thing that was inherited from a deceased person
and the deceased person had acquired it through a supply that was
ineligible for the margin scheme, because of one or more previous
applications of proposed subsection 75-5(3),
and
-
in the case of a member of a GST group(26), it is a
supply to which all of the following apply:
(a) the supplier was a member of a GST group at
the time the interest, unit or lease was acquired,
(b) the entity from whom the person acquired it was a
member of the GST group at that time, and
(c) the last supply of the interest, unit or
lease by an entity who was not a member of the GST group to an
entity who was such a member was a supply, which because of one or
more previous applications of proposed subsection
75-5(3) was ineligible for the margin scheme.
Basically, the margin scheme is only available to a member of a
GST group if the member who originally acquired it could have used
the margin scheme if that member had supplied the property to an
entity outside the group.
Item 16 of Schedule 6 inserts
proposed section 75-11 to work out margins for
supplies of real property in particular circumstances:
-
margin for supply of real property acquired from a fellow member
of GST group (proposed subsections 75-11(1) and
(2))
-
margin for supply of real property acquired from deceased estate
(proposed subsections 75-11(3) and
(4))
-
margin for supply of real property acquired as a GST-free going
concern (proposed subsection 75-11(5))
-
margin for supply of real property acquired on GST-free farm
land (proposed subsection 75-11(6)), and
-
margin for supply of real property acquired from an associate
(proposed subsection 75-11(7)).
The reader is referred to the Explanatory Memorandum paragraphs
6.12 to 6.38 on pages 40 to 52 for a detailed explanation of the
proposed law and examples of its application.
A summary of the effect of the proposed law, as set
out in paragraph 6.11 on pages 36 and 37 of the Explanatory
Memorandum, is set out below.
6.11 These amendments:
-
provide that the margin must be calculated with reference to the
GST-inclusive market value of the property at 1 July 2000 if the
property were acquired as a GST-free going concern or GST-free farm
land
-
ensure that the grouping and joint venture provisions cannot be
used to re-open eligibility to the margin scheme
-
ensure the grouping and joint venture provisions cannot be used
to avoid paying GST on new residential premises by converting
otherwise taxable sales of new residential premises into input
taxed sales
-
introduce increasing and decreasing adjustments for a change to
the extent of creditable purpose caused by an entity entering or
exiting a GST group
-
calculate the margin under the margin scheme with the
GST-inclusive market value as the consideration for a supply to an
associate and the GST-inclusive market value as the consideration
for an acquisition from an associate
-
ensure that property that has been inherited is not subject to
unintended tax consequences under the margin scheme
-
allow entities to use the margin scheme even though they are
selling amalgamated real property, providing those entities have an
adjustment for input tax credits entitlements in respect of that
part of the property that was purchased under the basic rules
-
clarify that for the purposes of the margin scheme,
consideration for the acquisition of the property does not include
any consideration for costs incurred in developing or improving the
real property, including legal costs, renovation costs and
statutory fees
-
require that the use of the margin scheme be agreed in writing
by the supplier and recipient, and
-
ensure that when an entity sells a property on which they have
not paid full consideration, the margin should be calculated with
reference to the amount of consideration actually paid, rather than
the sale price.
Item 28 of Schedule 6 provides
for the application of the amendments as follows.
Subject to what is stated below, the amendments apply, in
relation to supplies made on or after 17 March 2005 (that is the
day the Bill was introduced into the Parliament)(sub-item
28(1)).
The amendments made by items 3 to
7 of Schedule 6 to the provisions
treating GST groups as single entities for certain purposes apply
in relation to adjustments arising under Division 129 of the GST
Act on or after 17 March 2005 (the day the Bill was introduced into
Parliament). Division 129 deals with adjustments that may need to
be made to the net amount of GST payable or refundable for each tax
period, when the extent of a creditable purpose is changed by
subsequent events (sub-item 28(2)).
The amendments made by items 9 and
10 of Schedule 6 to the
conditions for applying the margin scheme and in particular, the
need for a written agreement, take effect in relation to supplies
made on or after the day on which this Act receives Royal Assent
(sub-item 28(3)).
Part VIIIB of the Family Law Act 1975 (the Family Law
Act), which was inserted by the Family Law Legislation
Amendment (Superannuation) Act 2001, commenced on 28 December
2002. It enables couples separating on breakdown of marriage to
split their superannuation interests either by agreement or court
order.
Consequential amendments were also made to relevant taxation
legislation by the Family Law Legislation Amendment
(Superannuation) (Consequential Provisions) Act 2001 to ensure
that appropriate tax treatment is applied to superannuation
interests split as a consequence of marriage breakdown.
The Family Law Amendment (Annuities) Act 2004 allows
eligible annuities to be split between separating couples on
breakdown of marriage in the same way as other superannuation
interests. Eligible annuity for the purposes of Part VIIIB of the
Family Law Act means an annuity purchased out of rolled-over
amounts. The reader is referred to the Bills Digest on the Family
Law Amendment (Annuities) Bill 2004 for the history of Part VIIIB
of the Family Law Act and the changes in relation to the inclusion
of eligible annuities in the definition of superannuation interest
for the purposes of Part VIIIB of the Family Law
Act.(27)
The amendments proposed in Schedule 7 are
intended to provide tax treatment for eligible annuities that have
been split on marriage breakdown similar to the tax treatment of
other superannuation interests that are split on marriage
breakdown.
Item 14 of Schedule 7 inserts
proposed subsection 27ACB(1A) into the ITAA 1936
to deal with the tax treatment of the split of an eligible annuity
on the breakdown of a marriage in either of two circumstances.
First, proposed paragraph 27ACB(1A)(a) covers
the situation where an annuity is created for the non-member spouse
in circumstances prescribed by the regulations.
Second, proposed paragraph 27ACB(1A)(b) covers
the situation where an amount is transferred to a superannuation
fund in circumstances prescribed by the regulations for the benefit
of the non-member spouse.
If either of these conditions exist, the proposed
subsection 27ACB(1A) provides:
-
an eligible termination payment (ETP) is taken to be created for
the non-member spouse equal to the amount split (or created) for
the benefit of the non-member spouse or the amount transferred, as
the case may be (proposed paragraph
27ACB(1A)(c))
-
an ETP is taken to be created for the member spouse equal to the
value of the eligible annuity of the member spouse before the split
less the ETP created for the non-member spouse (proposed
paragraph 27ACB(1A)(d)), and
-
there is taken to be a roll-over of those ETPs
(proposed paragraph 27ACB(1A)(e)).
Item 15 of Schedule 7 provides
that eligible annuity has the same meaning as in Part VIIIB of
the Family Law Act.
It will be seen that the above measure ensures that the
concessional tax treatment that applies to ETPs will be available
to the non-member spouse as well as the member spouse after the
split. In addition, amendments to subsections 140M(1A) and 140M(1C)
ensure that eligible annuity splits are treated in the same manner
for tax purposes as superannuation pension splits (items
29 to 38 of Schedule
7).
The reader is referred to the Explanatory Memorandum for further
details of amendments relating to the splitting of eligible
annuities as well as amendments to correct minor anomalies in
relation to how the taxation law applies when superannuation
benefits are split on marriage breakdown.(28)
Schedule 7 does not specify an application
date. In the circumstances, clauses 2 of the Bill
means that the amendments in Schedule 7 apply from
the date the Act receives Royal Assent.
However, the amendments in relation to the splitting of
annuities will depend on the commencement of the Family Law
Amendment (Annuities) Act 2004, which is to commence on
proclamation, which is yet to be made, or 15 June 2005 (whichever
occurs first).
Currently, certain contributions to approved worker entitlement
funds, as defined in section 58PB of the Fringe Benefits Tax
Assessment Act 1986 (FBTAA 1986), are exempt from fringe
benefits tax (FBT) under section 58PA.
The transitional provisions in section 58PC, under which certain
contributions made to existing worker entitlement funds were exempt
from FBT, ended on 31 March 2005 and these funds were required to
seek endorsement as approved worker entitlement funds for the
purpose of qualifying for the FBT exemption under section 58PA.
In a
press release on 1 April 2004, Senator Helen Coonan, the then
Minister for Revenue and Assistant Treasurer, when announcing that
the transitional period would be extended to 31 March 2005,
foreshadowed that Government would consult with industry to find
solutions to address concerns that the emerging interpretation of
the law would deny many employers access to the FBT
exemption.(29)
It would appear from the Explanatory Memorandum to the Bill that
the measures in Schedule 8 are intended to address
the concerns of industry.(30)
As mentioned, section 58PA of the FBTAA 1986 sets out the
conditions for contributions to an approved worker entitlement fund
to qualify for the FBT exemption. The condition in paragraph
58PA(b) is as follows:
(b) the person is required to contribute under an
industrial instrument
Industrial instrument is defined in subsection 136(1) of the
FBTAA 1986 as follows:
industrial instrument means a law of the
Commonwealth or of a State or Territory or an award, order,
determination or industrial agreement in force under any such
law.
Thus currently, to qualify for the FBT exemption the
contribution to an approved worker entitlement fund must be
mandatory under an industrial instrument.
Item 1 of Schedule 8 amends
paragraph 58PA(b) by substituting the words the person is required
to make the contribution with the contribution is made . The
amended paragraph 58PA(b) will then read as follows:
(b) the contribution is made under an industrial instrument
The Explanatory Memorandum in paragraphs 8.9 and 8.10 on page 67
attributes the need for this amendment to industrial instruments
not always making it mandatory that leave or redundancy payments
for employees be paid into approved worker entitlement funds to
meet these employer obligations. Industrial instruments may give
employers the option of meeting these obligations by providing for
the payments themselves, or by way of making contributions to a
worker entitlement fund .(31) The proposed
amendment will therefore meet the concerns of industry that under
the current law, worker entitlement funds may not qualify for the
FBT exemption if the employer can choose to make leave and
redundancy payments direct to employees, even though the employer
must do so under an industrial instrument.
Item 2 of Schedule 8 amends
sub-paragraph 58PA(c)(i) by omitting required and substituting it
with made . The amended paragraph 58PA(c)(i) will read as
follows:
(c) the contribution is
(i)
made for the purposes of ensuring that an obligation under the
industrial instrument to make leave payments (including payments in
lieu of leave) or payments when an employee ceases employment is
met
The Explanatory Memorandum in paragraph 8.12 on page 67 states
that the amendment allows related legal instruments to be used to
determine the quantum and other relevant matters regarding the
contributions to be made to meet an obligation under an industrial
instrument.(32)
Item 3 of Schedule 8 states
that the amendments made by this schedule apply in respect of the
FBT year beginning on 1 April 2005 and in respect of all later FBT
years.
Concluding Comments
The comments made in the Explanatory Memorandum on pages 3 to 7
as to the financial impact of the measures in the Bill are set out
in the following table.(33)
|
Measures in the Bill
|
Financial impact
|
|
Schedule 1 Simplified
imputation system
|
Nil
|
|
Schedule 2 CGT roll-over
for transfer of assets to superannuation funds with licensed
trustees
|
Nil
|
|
Schedule 3 Providing
capital allowance deductions for certain telecommunications
rights
|
These amendments are estimated to pose a cost to revenue of:
2004 05 $ 1.1 million
2005 06 $ 3.2 million
2006 07 $ 4.5 million
2006 07 $ 5.5 million
|
|
Schedule 4 Changing from
annual to quarterly payment of PAYG
|
Nil
|
|
Schedule 5 Deductible gift
recipients
|
The DGR listings have the
following cost to revenue:
Rotary
Leadership Victoria Australian Embassy for Timor-Leste Fund
Limited: $100,000 per year.
National
Police Memorial: $100,000 for the life of the project.
The cost to revenue of the
remaining listings in unquantifiable but is likely to be
insignificant.
|
|
Schedule 6 Goods and
services tax and real property
|
These amendments are
expected to result in an unquantifiable gain to revenue.
|
|
Schedule 7 Superannuation
and family law
|
The cost to revenue over
the forward estimates period is expected to be very small.
|
|
Schedule 8 Fringe benefits
tax: worker entitlement funds
|
The financial impact is
unquantifiable but expected to be insignificant.
|
Broadband communications services are a driver of cable
provision for the distribution of high volume, digital information,
be it voice, data or multimedia. With broadband access a vital
factor in economic growth, the provision of support infrastructure
is crucial as high-speed use of the Internet in particular spreads.
Fibre-to-the-home provision will most likely be the best technology
for metropolitan areas.
However, this requires telecommunications carriers, cable
operators and other service providers to commit themselves to
providing suitable infrastructure at a reasonable price to users.
Experience to date in this regard has been piecemeal, with for
instance a long stalled rollout of fibre-to-the-home in major
cities and, instead, reliance by carriers on the dated copper wire
based public switched telecommunications network.
While inner-city areas may have much cable in the ground, access
to it is hampered by lack of competition to drive innovative new
services to businesses, and a lack of proper interconnect
arrangements between the incumbent provider and network
competitors.(34) In this respect, cable rollout may be
viewed as a natural monopoly and there are arguments that all
service providers should have access rights to single cable
systems. Such infrastructure sharing appears to be an intention of
this Bill.
Note that the cost of installing a new wire or cable link to a
building, including the neighbourhood linkage and actual
connection, averages around $1500 per location.
It is a policy decision for the Government to determine whether
telecommunications carriers and service providers should be
provided the effective taxation deduction enabled by this
legislation, given their past history of slow cable system rollout.
There is a public policy argument in that, as long as the bulk of
the population is denied affordable broadband access, carriers
should be encouraged to quickly provide quality communications
infrastructure.
-
Explanatory Memorandum to the Tax Laws Amendment (2005 Measures
No. 2) Bill 2005. This Bills Digest draws extensively from the
Explanatory Memorandum.
-
ibid., p. 3.
-
ibid.
-
ibid., p. 4.
-
ibid.
-
ibid., p. 5.
-
ibid., p. 6.
-
ibid.
-
ibid., p. 7.
-
The Hon Peter Costello MP, the Treasurer and the Hon Joe Hockey,
the then Minister for Small Business, Small Business Tax
Simplification ,
Press Release No. 036, 11 May 2004.
-
Australian Taxation Office, Simplified imputation:
franking a distribution (NAT 7134);
Simplified
imputation: the benchmark and anti-streaming rules
(NAT 7135); Simplified imputation:
the franking account (NAT 7136).
-
Australian Prudential Regulation Authority,
Explanatory guide on licensing and registration, (July
2004).
-
Senator the Hon Helen Coonan, the then Minister for Revenue and
Assistant Treasurer, Capital Gains Tax Improvements , Press
Release CO29/04 ,11 May 2004.
-
Australian Taxation Office,
Consolidation: in brief.
-
Budget Measures 2004 05, Budget Paper No. 2, p. 34.
-
Explanatory Memorandum to the Bill, p. 32.
-
The Hon Mr Mal Brough, the Minister for Revenue and Assistant
Treasurer, Second Reading Speech: Tax Laws Amendment (2005 Measures
No. 2) Bill 2005 , House of Representatives, Debates , 17
March 2005, p. 5.
-
Explanatory Memorandum, pp. 35 and 36, paragraphs 6.2 to
6.10.
-
ibid., p. 35, paragraph 6.2.
-
Australian Taxation Office,
GSTR 2002/5 ruling - Goods and services tax: when is a 'supply of a
going concern' GST-free?
-
Australian Taxation Office,
Property and Construction Industry Partnership - Issues Register -
Section 06 - Farm Land.
-
Australian Taxation Office,
GST groups - Fact Sheet..
-
Australian Taxation Office,
GST joint ventures - Fact Sheet.
-
Australian Taxation Office,
GST and the margin scheme - real property acquired before 1 July
2000 (last modified 29 November 2004).
-
Australian Taxation Office,
GST and the margin scheme real property acquired on or after 1 July
2000 (last modified 30 November 2004).
-
Entities with common ownership often operate as a group. A GST
group of such entities is treated as one entity for GST purposes.
In consequence, a transaction within the group, between group
members, is ignored for GST purposes.
-
Morag Donaldson, Family Law Amendment (Annuities) Bill
2004, Bills Digest, no. 39, Parliamentary
Library, Canberra, 2004 05.
-
Explanatory Memorandum, pp 55 to 63, paragraphs 7.1 to 7.39.
-
Senator the Hon Helen Coonan, the then Minister for Revenue and
Assistant Treasurer, One more year for transition to FBT exemption
for payments to worker entitlement funds ,
Press Release CO19/04, 1 April 2004.
-
Explanatory Memorandum to the Bill, p. 7.
-
ibid., p. 67, paragraph 8.10.
-
ibid., p. 67, paragraph 8.12,.
-
ibid., extracted from pages 3 to 7.
-
Paul Budde Communication, 2004 Global Broadband Market Report,
8th Edition, p. 30.
Bernard Pulle
25 May 2005
Bills Digest Service
Information and Research Services
This paper has been prepared to support the work of the
Australian Parliament using information available at the time of
production. The views expressed do not reflect an official position
of the Information and Research Service, nor do they constitute
professional legal opinion.
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 2005
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
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of the Australian Parliament in the course of their official
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Published by the Parliamentary Library, 2005.
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