Bills Digest no. 80 2008–09
Tax Laws Amendment (2008 Measures No. 6) Bill
2008
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
Financial implications
Main provisions
Contact officer & copyright details
Passage history
Date introduced: 3 December 2008
House: House of Representatives
Portfolio: Treasury
Commencement: Royal Assent
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The main purposes of the Bill
are:
- to amend the capital gains tax (CGT) and tax consolidation
provisions in the Income Tax Assessment Act 1997 (ITAA
1997) to restrict CGT scrip for scrip rollover to genuine
takeovers
- to amend the assistance in collection provisions of the
Taxation Administration Act 1953 (the Administration
Act)
- to amend the Superannuation Guarantee (Administration) Act
1992 (the SGAA 1992) in relation to the late payment offset,
and
- to make minor amendments to other tax legislation, including
the Income Tax Assessment Act 1936 (ITAA 1936), as part of
the Government s commitment to the care and maintenance of taxation
laws.
Subdivision 124-M of the ITAA 1997, which deals with capital
gains arising from scrip for scrip roll-over, was inserted into the
ITAA 1997 by the New Business Tax System (Capital Gains Tax)
Act 1999. It applies to CGT events happening on or after the
day on which that Act received Royal Assent, namely, 10 December
1999.
The Hon. Peter Costello, MP, then Treasurer, in the
second reading speech on the New Business Tax System (Capital
Gains Tax) Bill 1999 explained that the purpose of the scrip for
scrip roll-over was to improve corporate acquisition activity in
Australia as follows:
The changes in relation to rollover relief relate to where there
is a takeover and somebody sells their shares because of the
takeover and takes shares in the new company. They are essentially
exchanging the scrip they have for the scrip of the company making
the takeover. They will be able to do that capital gains tax free.
That will give enormous benefits to small shareholders throughout
Australia and it will free up the market for competitive takeovers
and give an improvement in the economic benefits that that will
bring.[1]
Subdivision 124-M of the ITAA 1997 allows a taxpayer to choose a
roll-over where shares or trust interests owned by the taxpayer and
acquired on or after 20 September 1985 are replaced with other
shares or trust interests. For example, where a replacement of
shares in one company by shares in another company takes place such
as in a company takeover, a taxpayer receiving the replacement
shares will be entitled to scrip for scrip roll-over under certain
circumstances.
The roll-over allows a taxpayer to disregard the capital gains
from the original shares, units or other interest. The replacement
shares, units or other interests are taken to have been acquired
for the cost base of the original interest.
The roll-over is only available if the exchange is a consequence
of an arrangement that results in the acquiring entity (or the
wholly owned group of which it is a member) becoming the owner of
80 per cent or more of the original company or trust (80 per cent
rule). The 80 per cent or more requirement is in subsection
124-780(2) of Subdivision 124-M.
Subsection 124-795(3) provides that the roll-over under
Subdivision 124-M is not available if a roll-over is available
under Division 122 of the ITAA 1997, dealing with disposal of
assets to a wholly-owned subsidiary, or if a roll-over is available
under Subdivision 124-G, dealing with company reorganisation.
The reader is referred to the Australian Taxation Office (ATO)
fact sheet on
Takeovers and mergers, scrip-for-scrip rollover for further
details on the operation of the scrip for scrip rollover.[2]
Budget Paper No. 2, 2008-09, at page 18 indicated that the
Government will modify the scrip for scrip capital gains tax
roll-over provisions in relation to corporate restructures.
The Government will modify the scrip for scrip capital gains tax
roll‑over provisions to ensure that, for corporate
restructures, the acquiring entity s cost base of shares in the
target entity reflects the tax costs of the target entity s net
assets, with effect from 7.30 pm (AEST) on 13 May 2008. This
cost base will also be used in determining the value of the target
entity s assets in consolidation if the target entity subsequently
joins the acquiring entity s consolidated group. This measure has
an ongoing unquantifiable revenue impact.
Under the current provisions, the acquiring entity obtains a
market value cost base for the shares it acquires in the target
entity. This can result in significant unintended tax benefits
arising if, for example, the target entity subsequently joins the
acquiring entity s consolidated group. The measure will prevent
companies from obtaining unintended tax benefits if they
restructure.[3]
On 13 May 2008, the Hon. Chris Bowen, MP, Assistant Treasurer
and Minister for Competition Policy and Consumer Affairs, confirmed
the changes announced in the Budget, adding that:
This measure will replace the former Government's announced
changes to the consolidation rules following certain CGT
roll-overs, which caused significant disruption to the operation of
Australia's capital markets.
The private sector has been consulted in the development of this
measure. The measure will ensure that genuine commercial
transactions which have been on hold since the former Government's
announcement will now to able to proceed with certainty. [4]
The former government s proposals for changes to consolidation
rules following certain CGT roll-overs were made by the Hon. Peter
Dutton, then Minister for Revenue and Assistant Treasurer, in
Press Releases of
12 October 2007 and
16 October 2007.[5]
Basically, the tax minimisation practice involves entities
exploiting the scrip for scrip roll-over measures and the tax
consolidation regime to effectively increase the capital allowance
deductions on the assets of an entity after that entity joins a
consolidated group or multiple entry consolidated group (MEC group)
and reduce capital gains on the disposal of assets of that
entity.
The experience of the ATO of the use of such schemes for tax
minimisation purposes is described in the
Explanatory Memorandum as follows:
1.6 Companies are able to gain significant tax benefits by
restructuring in a way that attracts the scrip for scrip
roll‑over rather than the exchange of shares roll‑over.
These tax benefits are compounded if the entity taken over becomes
a member of the acquiring entity s consolidated group.
1.7 For example, some entities have entered into schemes that
involve the insertion of a new holding company above the original
entity (known as top hat schemes). The schemes are designed to
attract a scrip for scrip roll‑over. As a result, the holding
company obtains a market value cost base for the shares it acquires
in the original entity under the scheme even though there is no
significant change in the underlying ownership of the assets.
1.8 Where the original entity subsequently joins the holding
company s consolidated group, the consolidation tax cost setting
rules apply to push this market value cost base into the underlying
assets of the original entity. This effectively allows the tax
costs of the original entity s assets to be reset which, in turn,
can lead to an increase in capital allowance deductions and a
reduction in capital gains that arise on the disposal of those
assets.[6]
Thus, underlying the tax minimisation schemes using the scrip
for scrip roll-over measures is the fact that these measures and
the consolidation measures result in giving a market value cost
base for the underlying assets of the original entity when that
entity joins the acquiring company s consolidated group.
The measures proposed in Schedule 1 to the Bill are directed at
preventing a market value cost base arising when shares and other
interests in a target entity are acquired by an acquiring entity
following a scrip for scrip roll-over under an arrangement which is
a restructure.
A summary of the proposed measures is set out below:
1.9 The scrip for scrip CGT roll‑over provisions will be
modified to prevent a market value cost base from arising for any
qualifying interests acquired by the acquiring entity under an
arrangement that is taken to be a restructure.
1.10 An arrangement will be taken to be a restructure if,
broadly, just after the arrangement was completed (the completion
time) the market value of the replacement interests issued by the
acquiring entity under the arrangement in exchange for qualifying
interests in the original entity is more than 80 per cent of
the market value of all the shares (including options, rights and
similar interests to acquire shares) issued by the replacement
entity.
1.11 If an arrangement that qualifies for scrip for scrip
roll‑over is taken to be a restructure, then the cost base
for the qualifying interests that the acquiring entity acquires in
the original entity will reflect the cost bases of the underlying
net assets of the original entity (rather than the market value of
the original entity).
1.12 In addition, if the original entity becomes a member of a
consolidated group or multiple entry consolidated group (MEC group)
under the arrangement, then the head company of the group can elect
to retain the tax costs of the original entity s assets.[7]
The following press commentary appears to suggest that genuine
scrip takeovers are likely to re-emerge and that tax minimisation
by internal restructure be prevented by the measures in
Schedule 1.
In December 2008, the Australian Financial Review
reported comments from Ernst & Young and PricewaterhouseCoopers
on the proposed changes:
Scrip takeovers are likely to re-emerge, particularly in the
current environment; where obtaining debt finance for acquisitions
can be very difficult, Ernst & Young partner Don Green
said.
Existing companies, seeing an attractive target company, will be
able to undertake scrip takeovers and will know the tax
implications with certainty, rather than relying on government
announcements without legislation.
and:
PricewaterhouseCoopers tax partner Mike Davidson said: They have
gone back to the underlying theme of only trying to target a
certain type of transaction which is really just an internal
restructure, which is quite good.
However, he said the legislation stated the change would apply
to listed companies for a takeover completed after May 13, but Mr
Bowen had previously announced it would apply to arrangements
entered into after that date.
So people could be doing deals thinking we re safe, Mr Davidson
said, but all of a sudden we re caught by these provisions.
[8]
The Australian Financial Review also published comments
from KPMG following the announcement of the Budget changes in May
2008:
KPMG mergers and acquisitions tax partner Peter Poulos said the
policy was designed to stop companies restructuring specifically to
limit CGT on any subsequent sale of assets.
He said that the crucial aspect of the measure announced in the
budget was that it did not apply in instances where there was a
change in ownership.
They have designed the law in such a way so that internal
transactions don t step up but genuine scrip-for-scrip deals like
Westpac and St George or BHP Billiton and Rio Tinto won t be
affected, Mr Poulos said.[9]
The Explanatory Memorandum states that the financial impact of
the measures in Schedule 1 is unquantifiable
.[10]
The amendment of the mutual assistance in collection provisions
of the Administration Act has been proposed in Schedule
2. The proposed changes aim to bring a degree of coherence
among counterparts of the Australian Taxation Office (ATO) in
partner countries.
The current assistance in collection provisions were enacted by
the International Tax Agreements Amendment Act (No. 1)
2006 to enable the Commissioner to meet Australia s existing
and future treaty obligations for mutual assistance in collection
of tax debts. To be more precise, these provisions authorise the
Commissioner to take action to collect or to conserve tax debts
owed in another country where the debtor is resident in Australia
or has assets in Australia.
Two issues are significant. The first
one is when a foreign tax debt is deemed as never to have been
payable when the debt is reduced under subsection 263-35(6) of the
Administration Act. The Commissioner may encounter difficulty in
instituting proceedings to commence or finalise the debt when a
debtor has made a part payment in a foreign country where the debt
has been reduced as a consequence of an amendment to the debtor s
liability. The second issue is the types
of payments that the Commissioner is able to make to the foreign
country. Under the current law only the principal amount, and any
general interest charge (GIC) referable to that amount, has been
collected by the Commissioner and paid to the foreign country.
However, the amendments in Schedule 2 address the
ambiguity in this area, and will allow the Commissioner to pay to
other countries any other amounts that are needed to be paid.
According to the Explanatory Memorandum, the financial impact of
the measures in Schedule 2 is nil .[11]
The Superannuation Guarantee (SG) scheme, administered by the
Australian Taxation Office (ATO), requires employers to provide a
prescribed minimum level of superannuation support in each quarter
for their employees. From 1 July 2008, this prescribed minimum
level is 9 per cent of an employee s ordinary time earnings. If the
employer fails to make these payments, the amount not paid is known
as a SG shortfall .
Employer s payments of their SG obligations are required to be
made within a 28 day period after the end of the relevant quarter.
This day is the due date .
Employers are required to self-assess their liability to the pay
the shortfall and any associated penalties. Under existing section
33 of the SGAA 1992, they must also lodge an SG Statement with the
ATO. Employers who fail to self assess their SG liability may be
issued with a default assessment by the ATO under existing section
36. The Commissioner for Taxation may amend a previous assessment
under existing section 37 of the SGAA 1992. These are the formal
assessments of an employer s liabilities under the SG regime
referred to in the proposed amendments to the SGAA 1992.
These assessments take effect on the later of:
- the day the statement was lodged, or
- the day the SG statement was required to be lodged for the
quarter.
Under existing section 33 of the SGAA 1992, an employer who has
an SG shortfall for a quarter must lodge an SG statement on or
before the 28th day of the second month after the end of the
quarter, that is, on or before:
- for a quarter beginning on 1 January 28 May in the next
quarter
- for a quarter beginning on 1 April 28 August in the next
quarter
- for a quarter beginning on 1 July 28 November in the next
quarter
- for a quarter beginning on 1 October 28 February in the next
quarter.
The total of the payments to be made is known as the SG charge
(see below for further explanation). The employer must pay the SG
charge, if any, to the Australian Taxation Office (ATO) at any
point in time after the due date.
The SG charge is made up of the amount of the shortfall plus an
interest and an administration component. The shortfall and
interest component of the charge are distributed by the ATO for the
benefit of those employees in respect of whom the charge was
paid.
Under existing section 23A of the SGAA 1992, employers who make
contributions to a superannuation fund after the due date,
that is after the 28th day following the end of the relevant
quarter, can offset the late payment against the components of the
SG charge liability that relate to the relevant employee's
entitlements. To benefit from the offsetting rule, the employer
must elect to make a late contribution to employee s superannuation
funds either:
- in a statement having effect under existing section 35 of the
SGAA 1992 as the employer s assessment for the quarter (see above),
or
- before the end of a four year period from when the employer s
superannuation guarantee charge for that quarter becomes payable
under existing paragraph 23A(2)(b).
The actual payment can be made at any time after the election
has been made. In extreme circumstances this can lead to lengthy
delays in the actual payment being made. As late payments of the
employer s obligations are not tax deductible under existing
section 26-95 of the ITAA 1997, there is little incentive for an
employer to make these payments promptly.
The advantages of the proposed amendments to the SGAA 1992
are:
- they limit the time during which an employer may defer the
payment of their SG obligations in circumstances where a late
payment is made, and
- they potentially limit the amount of the interest component of
the SG charge if the proposed amendments to the SGAA 1992 are
complied with.
Changes to the SG charge regime were last dealt with in Schedule
2 of Tax Laws Amendment (2008 Measures No. 2) Act 2008,
which received Royal Assent on 24 June 2008. It appears that the
amendments made by that particular Act were not sufficiently
comprehensive to achieve all the Government s aims in this
area.
For further information about that amendment see the Bills
Digest for Tax Laws Amendment (2008 Measures No. 2) Bill
2008.
The particular measure was announced by the Minister for
Superannuation and Corporate Law on 20 March 2008.[12]
The Explanatory Memorandum notes that the proposed measure in
Schedule 3 will have a minimal financial
impact.[13]
Schedule 4 to the Bill makes a number of minor
amendments to a variety of tax legislation. Many of these
amendments simply update outdated terminology or references to
legislation, or correct minor grammatical errors (such as replacing
references to singular verbs with references to plural
ones).[14] There
are, however, some substantive amendments in Schedule 4 which are
explained in the Main Provisions section below.
The Explanatory Memorandum makes the following comment in
relation to the financial impact of the minor amendments in
Schedule 4 to the Bill:
The revenue impact of extending capital
allowance roll over relief for depreciating assets to the case
where a fixed trust is converted to a company, is unquantifiable,
but is expected to involve a minimal to small cost to revenue. Each
of the other amendments will have a nil to minimal revenue
impact.[15]
Item 1 of Schedule 1 inserts a new item
2A in the table appearing after section 112 53 of the ITAA
1997. Section 112 53 sets out a table of relevant provisions in a
scrip for scrip roll-over. A scrip for scrip roll-over is a
roll-over that occurs under Subdivision 124 M of the ITAA 1997
(being sections 124.775 to 124.810 of the ITAA 1997). Item
1 inserts reference to the situation where an interest is
acquired by an entity where there is a roll-over under Subdivision
124 M and the arrangement is taken to be a restructure , where the
first element of the entity s cost base and the reduced cost base
is affected. The applicable provision of the ITAA 1997 in this
situation is proposed section 124 784B (see
below).
Section 124 780 of the ITAA 1997 (found in Subdivision 124 M)
deals with the replacement of shares, where under a single
arrangement an entity swaps a share (the entity s original
interest) in a company (the original entity) for a share (the
holder s replacement interest) in another company, or if the entity
swaps an option in the original entity for an option in the other
company. The exchange of a share (or option) in the original
company for an option (or a share) in the other company does not
constitute a scrip for scrip roll-over. The acquiring entity
(either alone or as part of a group) must end up holding at least
80 per cent of the voting rights in the original company:
subsection 124 780(4). The term
arrangement is defined in subsection 995
1(1) as any arrangement, agreement, understanding, promise or
undertaking, whether express or implied, and whether or not
enforceable (or intended to be enforceable) by legal proceedings
.
Item 2 inserts proposed sections 124
784A, 124 784B and 124 784C into the ITAA 1997.
Proposed section 124 784A provides that an
arrangement is a restructure if the
replacement entity for the arrangement knows, or could reasonably
be expected to know, that a roll-over under section 124 780 has
been, or will be, obtained in relation to the arrangement, and that
there is a common stakeholder for the arrangement, and if
the result of applying the formula in step 2 of the method
statement in proposed subsection 124 784A(2) is
more than 80 per cent of the result obtained by applying the
formula in step 3 of that subsection.
Under proposed subsection 124 784A(3), if
interests in an entity are listed for quotation in a list of an
approved stock exchange at the time the
arrangement is completed ( the completion time ), the replacement
entity may choose for the market value of the interest in the
original entity to be assessed at the officially quoted price of
the interest at that time, rather than applying the formula in
proposed subsection 124 784A(2). The term
approved stock exchange is defined in
subsection 995 1(1) of the ITAA 1997 by reference to the meaning
given by section 470 of the ITAA 1936, being:
- a stock exchange named in regulations made for the purposes of
this definition; or
- until regulations are so made--a stock exchange named in
Schedule 3. [16]
The term officially quoted price is
defined in proposed subsection 124 784A(6) as the
weighted average of the price at which the interest on the stock
exchange was traded at least once in the week when the interest
needs to be valued. Where the interest is quoted on two or more
approved stock exchanges on a relevant day, the entity can choose
which of the officially quoted prices to use: proposed
subsection 124 784A(7).
Proposed subsection 124 784B sets out the
method of calculating the cost base and reduced cost base of the
acquiring entity.[17] It applies to each qualifying interest in the original
entity that is acquired under an arrangement to which
proposed section 124 784A applies, but where the
first element of the cost base of the acquiring entity is not
worked out under section 124 782.[18]
The formula for working out the first element of the cost
base of the acquiring entity is set out in the method statement
contained in proposed subsection 124 784B(2). It
is calculated by reference to the market value and the cost bases
of the original entity s pre-CGT assets and post-CGT assets (except
trading stock) at the completion time . Where the original entity s
CGT assets (except trading stock) had no cost base, the relevant
amount for inclusion in the formula is the maximum amount of
consideration the original entity would need to receive if it were
to dispose of the asset at the completion time without incurring an
amount by way of assessable income or deduction. The formula also
provides for the assessment of the original entity s trading
stock.
Proposed subsection 124 784B(3) provides that
where the qualifying interest is acquired under the arrangement
partly in exchange for one or more replacement interests and partly
in exchange for something else, the formula in proposed
subsection 124 784B(2) applies only for working out the
first element of that part of the cost base of the qualifying
interest that is attributable to the replacement interests
.[19]
Proposed subsections 124 784B(4) and (5) deal
with the treatment of liabilities in step 4 of the formula in
proposed subsection 124 784B(2).
Proposed subsection 124 784B(6) states that the
reduced cost base of the acquiring entity for the qualifying
interest in the original entity is worked out similarly . While it
is not entirely clear, it seems that this means that the reduced
cost base is worked out according to the formula in proposed
subsection 124 784B(2) for calculating the first element of the
cost base of the acquiring entity. However, to avoid doubt, it
would be prudent to make specific reference to the appropriate
subsection.
Proposed subsection 124 784B(7) states that for
the purposes of step 5 of the formula in proposed
subsection 124 784(2) (which deals with the situation of
classes of membership interests in the original entity), an option,
right, or similar interest (including a contingent option, right or
interest) to acquire a membership interest in the original entity
is treated as if it were a membership interest in the original
entity .
Proposed section 124 784C deals with the
allocation of an appropriate cost base to equity issues or new
debt owed by an acquiring entity under the arrangement to the
ultimate holding company of a
wholly owned group , where the cost base
is worked out under proposed section 124 784B.
The term ultimate holding company (of
a wholly owned group) is defined in subsection 995 1(1) of the ITAA
1997 by reference to the meaning of that term in section 124 780
(see above, at the beginning of the Main Provisions section).
Particularly, subsection 124 780(7) states: A company is the
ultimate holding company of a wholly-owned group if it is not a
100% subsidiary of another company in the group .
The term wholly owned group is defined
in subsection 995 1(1) of the ITAA 1997 by reference to the meaning
of the term in section 975 500 of that Act. Section 975 500
states:
Two companies are members of the same
wholly-owned group if:
- one of the companies is a 100% subsidiary of the other company;
or
- each of the companies is a 100% subsidiary of the same third
company.
Proposed subsection 124 784C(2) provides that
the first element of the cost base of the equity or debt is that
part of the cost base of the qualifying interest worked out under
proposed subsection 124 784B as may be reasonably
allocated to the equity or debt and is not more than the market
value of the equity of debt at the completion time . The term
market value is usually defined according
to the plain and ordinary meaning of the term: section 960 400 of
the ITAA 1997. However, subsection 995 1(1) of the ITAA 1997
provides that the term s ordinary meaning is affected by
Subdivision 960 S .[20]
Proposed subsection 124 784C(3) provides that
any capital gain of the ultimate holding company from the repayment
of new debt owed by an acquiring entity under the arrangement is
disregarded to the extent that it relates to the difference between
the part of the cost base worked out under [proposed] section 124
784B and the market value of the debt at the completion time . As
stated in the note to the proposed subsection, there may be a
capital gain if the debt is assigned or exchanged.
Item 3 of Schedule 1 to the Bill inserts
proposed subsection 124 795(4) into the ITAA 1997.
Section 124 795 deals with the exceptions to the scrip for scrip
roll-over provisions in Subdivision 124 M. The proposed insertion
makes it clear that a taxpayer obtains a scrip for scrip roll-over
in relation to the exchange of a qualifying interest if the
replacement entity makes a choice to that effect under
proposed subsection 124 795(4) and either the
replacement entity or the original entity notifies the taxpayer in
writing of the choice before the exchange.
Item 4 of Schedule 1 inserts proposed
Subdivision 715 W at the end of Division 715, which deals
with interactions between Part 3 90 of the ITAA 1997 (which deals
with consolidated groups) and other areas of the income tax law.
Proposed Subdivision 715 W deals with the effect
on arrangements where CGT roll-overs are obtained. There are four
proposed sections in the proposed Subdivision: proposed
sections 715 910, 715 915, 715 920 and 715 925.
Proposed section 715 910 applies if, as the
result of an arrangement to which proposed section 124 784A (see
above) applies, an original entity becomes a subsidiary member of a
consolidated group , and proposed section 715
920 does not apply.[21] The term subsidiary member of a consolidated
group is defined in subsection 995 1(1) of the ITAA by reference to
the definition in section 703 15 of that Act.[22]
Proposed subsection 715 910(2) states that for
the purposes of proposed section 124 784B, the completion time for
the arrangement is the time the original entity becomes a member of
the group. It also states that Division 701 (Core rules) is to be
disregarded in relation to the original entity becoming a member of
the group. Proposed subsection 715 910(3) states
that the head company may choose that section 701 10 (dealing with
the cost to a head company of the assets of another entity which
becomes a subsidiary member of the group) and subsection 701 35(4)
(dealing with setting a value of trading stock at a tax-neutral
amount) do not apply to the original entity s assets in respect of
the original entity becoming a subsidiary member of the group.
Proposed section 715 915 deals with the effect
on restructures where the original entity is a head company. It
provides that if proposed section 124 784A applies in
relation to an arrangement, and the original entity (within the
meaning of that section) for the arrangement is the head company of
a consolidated group just before the arrangement was completed, and
proposed section 715 920 does not apply (because the original
entity was not the head company of another consolidated group
before the arrangement was completed), then for the purposes of
section 124 784B, the rules in subsections 701 1(1) and 701 5 apply
in respect of the group.
Subsection 701 1(1) is known as the single entity rule and
provides:
(1) If an entity is a subsidiary member of a
consolidated group for any period, it and any other subsidiary
member of the group are taken for the purposes covered by
subsections (2) and (3) to be parts of the head company of the
group, rather than separate entities, during that period.[23]
Section 701 5 is known as the entry history rule and
provides:
For the head company core purposes [detailed in
subsection 701 1(2)] in relation to the period after the entity
becomes a subsidiary member of the group, everything that happened
in relation to it before it became a subsidiary member is taken to
have happened in relation to the head company.
The term head company of a consolidated group is defined is
subsection 995 1(1) as having the meaning given by section 703 15
of the ITAA 1997, which provides that an entity is the head company
of a consolidated group if the requirements in item 1 of the table
in the section are met. The requirements are that (i) the entity
must be a company (but not one covered by section 703 20) that has
all or some of its taxable income (if any) taxed at a rate that is
or equals the corporate tax rate; (ii) the entity must be an
Australian resident (but not a prescribed dual resident); and (iii)
the entity must not be a wholly-owned subsidiary of another entity
that meets the requirements in (i) or (ii) or, if it is, it must
not be a subsidiary member of a consolidatable group or
consolidated group.
Proposed section 715 920 deals with the effect
on restructures where the original entity is a head company that
becomes a subsidiary member of another group. Proposed
section 715 920 applies if proposed section 124 784A
applies in relation to an arrangement; the original entity for the
arrangement is the head company of a consolidated group (the
acquired group ) just before the arrangement was completed;
and as a result of the arrangement both the original entity
and the subsidiary members of the acquired group (just before the
arrangement was completed) become subsidiary members of another
group at the completion of the arrangement.
Proposed subsection 715 920(2) provides that
for the purposes of proposed section 124 784B, the original entity
is taken to be the head company of the acquired group at the
completion time for the arrangement. Further, the operation of Part
3 90 of the ITAA 1997 for the head company core purposes (mentioned
in subsection 701 1(2)) in relation to the original entity and the
entities that were subsidiary members of the acquired group just
before the arrangement was completed (see above) continues to have
effect at the completion time for the arrangement: proposed
paragraphs 715 920(2)(a) and (b). Proposed
subsection 715 920(2) also states that the completion time
is the time when the original entity becomes a member of the other
group (proposed paragraph 715 920(2)(c)), and that
Division 701 (Core rules) is to be disregarded in relation to the
original entity becoming a member of the group. Finally,
proposed subsection 715 920(3) is in similar terms
to proposed subsection 715 910(3)
and applies to the acquiring group.
Proposed section 715 925 deals with the effect
on restructures where the original entity ceases to be a subsidiary
member. It states that if, as the result of an arrangement to which
proposed section 124 784A applies, an original entity ceases to be
a subsidiary member of a consolidated group after the completion
time, and does not become a member of another consolidated group,
then (for the purposes of proposed section 124 784B) the completion
time for the arrangement is the time when the original entity
ceases to be a subsidiary member.
Item 6 provides that the amendments in Schedule
1 apply to:
- an arrangement that is or relates to a takeover bid (as defined
in the Corporations Act 2001) if the relevant step
specified in sections 633 and 635 of that Act (for an off-market
bid or a market bid, as the case may be) is completed after 7.30pm
(legal Australian Capital Territory Time) on 13 May 2008
- an arrangement if a court makes an order (under
subsection 411(1) of the Corporations Act 2001) for a
meeting or meetings of a company s members (or one or more classes
of a company s members) about the arrangement, and the application
for the order was made after 7.30pm (legal Australian Capital
Territory Time) on 13 May 2008, and
- in relation to an arrangement which does not fall within the
first two dot-points: a decision to enter into the arrangement was
not made before 7.30pm (legal Australian Capital Territory Time) on
13 May 2008.
Notably, the amendments operate retrospectively, which may cause
concern or a practical difficulty for those entities to whom the
amendments apply, if the entity is not otherwise already aware of
the Government s intention to revise the law. However, on 13 May
2008, the Treasurer announced the planned modification of the scrip
for scrip roll-over provisions for corporate restructures as part
of the 2008 09 Budget with the associated financial statements
being available to the public from that time.[24]
Division 263 of the Administration Act deals with mutual
assistance in collection of foreign tax debts, where there is an
agreement in force between Australia and a foreign country or
territory that contains an article relating to assistance in
collection of foreign tax debts .[25] As noted in the Assistant Treasurer s Second
Reading Speech when introducing the Bill on 3 December 2008, the
mutual assistance provisions enable the Commissioner of Taxation to
take action to collect or conserve tax debts owed in another
country where the debtor is resident in Australia or has assets in
Australia .[26]
Item 1 of Schedule 2 to the
Bill inserts proposed subsection 263 30(1A) into
existing Schedule 1 to the Administration Act to make clear that
the amount owed by the debtor may not be the same as the amount of
a foreign revenue claim entered in the Foreign Revenue Claims
Register (the Register) kept by the Commissioner of Taxation under
section 263 20 of the Administration Act.[27]
Items 2 and 3 of Schedule 2
clarify the wording of existing subsection 263 30(2) and the
heading to existing section 263 35 (being Amending the Register ).
The heading needs to be amended as a consequence of the proposed
amendments to section 263 35 contained in items 4
7 of Schedule 2.
Item 4 of Schedule 2 inserts
proposed subsection 263 35(2A) to make clear that
the Commissioner may reduce an amount to be recovered from a debtor
under existing paragraph 263 35(2)(b) without amending the
Register.[28]
Item 5 of Schedule 2 replaces
existing subsection 263 35(5) with a new provision. The amendment
removes the reference to the debtor being taken never to have been
liable to pay an amount (including any general interest charge)
where the Commissioner removes particulars of a foreign revenue
claim from the Register, and replaces it with a reference to the
debtor being entitled to a credit for the purposes of Part IIB
.[29] Item
6 makes a similar amendment to the wording of existing
subsection 263 35(6), and item 7 inserts a note at
the end of existing subsection 263 35(6) to direct attention to the
fact that how the credit is applied is set out in Part IIB of the
Administration Act.
Item 8 inserts proposed subsection 263
40(3) into Schedule 1 to the Administration Act. Section
263 40 deals with payment by the Commissioner to the competent
authority (or a nominee) of all or part of an amount recovered from
a debtor under a registered foreign revenue claim. The proposed
subsection gives the Commissioner a discretion to pay to the
competent authority all or part of judgment interest and/or costs
recovered in the course of legal proceedings, where the costs
represent an amount that has previously been paid by the competent
authority to the Commonwealth in relation to the recovery of the
claim . The proposed amendment includes no guidance on the exercise
of the discretion although, at least in relation to the costs of
legal proceedings, the payment to the competent authority would
seem to be in the nature of reimbursement of an amount already paid
by the competent authority to the Commonwealth to recover the
foreign debt.
Item 9 provides that the amendments made by
Schedule 2 to the Bill apply to foreign revenue claims already
contained in the Register at the commencement of Schedule 2 (being
Royal Assent) and to claims that are entered in the Register after
that date.
Schedule 3 amends the Superannuation
Guarantee (Administration) Act 1992 in relation to the late
payment offset for superannuation guarantee contributions. Under
existing section 23A of the SGAA 1992, where an employer makes a
late superannuation guarantee contribution for an employee, the
employer may offset that contribution against any superannuation
guarantee charge liability.
Item 1 of Schedule 3 to the
Bill amends existing paragraph 23A(1)(a) by including a requirement
for the contribution to be made before the employer s original
assessment of that quarter is made . As noted above, the employer s
own assessment of their SG obligations where a late payment is to
be made for the quarter must be submitted on or before the 28th day
of the second month after the end of the quarter.
The effect of this amendment is to set a time limit for making a
late SG payment on the behalf of an employee of:
- on or before the 28th day of the second month after the end of
the quarter (the date by which an employer must submit their self
assessment of their SG charge liability, or
- the date on which the ATO issues a default assessment
if the employer is to take advantage of the SG charge offset
provisions in existing section 23A of the SGAA 1992.
Item 2 of Schedule 3 replaces
the requirement in existing paragraph 23A(1)(b) that the election
(by the employer to have the contribution offset) must be made
within 4 years after the employer s superannuation guarantee charge
for the quarter became payable with the requirement that the
election be made within 4 years after the employer s original
assessment for the quarter is made . This amendment requires that
the employer to elect to make use of the existing offset provisions
in section 23A of the SGAA 1992 by the above dates.
Item 3 amends existing subsection 23A(3) by
making it clear that the contribution is offset at the time the
employer s original assessment for the quarter is made . A benefit
of this particular proposed amendment is to limit the amount of
interest component that accrues as part of the SG charge to
interest that accumulates between the due date and the date on
which the original assessment for the quarter is made.
Item 4 replaces existing subsection 49(3A) of
the SGAA 1992 with a revised subsection. Section 49 deals with an
unpaid superannuation guarantee charge, and appears in Part 6 of
the Act, which deals with the collection and recovery of the
charge. The proposed revision is much clearer and simpler than the
existing provision, and makes it plain that an election under
section 23A has effect from the time the employer s original
assessment for the quarter is made .
Item 5 states that the amendments in Schedule 3
to the Bill apply to elections under section 23A of the SGAA 1992
made on or after the commencement of Schedule (that is, on or after
Royal Assent).
Item 2 of Schedule 4 amends
steps 3 and 4 of the method statement in subsection 5C(3) of the
Fringe Benefits Tax Assessment Act 1986, and also inserts
proposed step 5 of the method statement. Section 5C sets out how to
work out an employer s aggregate fringe benefits amount .
Subsection 5C(3) contains the method statement for working out
an employer s type 1 aggregate fringe benefits amount for a year of
tax. The proposed amendment simplifies step 3 of the method, and
also makes clear that the excluded fringe benefits must also be
GST-creditable benefits . Note 1 to revised step 3 comments that
existing subsection 5E(3) explains what is an excluded fringe
benefit ,[30] and
Note 2 to revised step 4 notes that section 149A explains what
is a GST-creditable benefit .[31]
Item 3 of Schedule 4 to the
Bill amends steps 3 and 4 of the method statement in existing
subsection 5C(4), which deals with the calculation of an
employer s type 2 aggregate fringe benefits amount for a year of
tax.
Item 4 provides that the amendments made by
items 2 and 3 apply to the year of tax starting on
1 April 2000 and later years of tax. Again, this means that the
proposed amendments will operate retrospectively, which may or may
not infringe a taxpayer s rights. However, the amendments seem
unlikely to affect taxpayers unduly, given that they seem to do
little more than simplify existing procedures.
Item 9 amends subsection 82KZMGA(1) of the ITAA
1936. Section 82KZMGA deals with deductions for certain forestry
expenditure, and currently provides:
- A taxpayer cannot deduct expenditure in relation to which the
requirements in section 82KZMG [which also deals with deductions
for certain forestry expenditure] are met if:
- the taxpayer holds the taxpayer s interest in the agreement
mentioned in section 82KZMG as an initial participant in the
agreement; and
- a CGT event happens in relation to that interest within 4 years
after the end of the year of income in which the taxpayer first
incurred expenditure under the agreement.
- Despite section 170, the Commissioner may amend the taxpayer s
assessment at any time within 2 years after the end of the year of
income in which the CGT event happens, for the purpose of giving
effect to this section.[32]
Item 9 replaces existing subsection 82KZMGA(1)
with a revised provision that makes it clear that the requirements
in paragraph 82KZMG(2)(a) do not need to be met. It also inserts
the requirement that the expenditure must be incurred on or before
30 June 2008 , which is also the end date for expenditure under
paragraph 82KZMG(2)(a) the difference between that paragraph and
proposed paragraph 82KZMGA(1)(c) being that
existing paragraph 82KZMG(2)(a) requires that the expenditure must
be incurred on or after 2 October 2001 and on or before 30 June
2008 under an agreement . According to the Explanatory Memorandum
for the Bill, item 9 removes a discrepancy in the
law that may inhibit the trading of pre-2 October 2001 interests in
forestry managed investment schemes and reflects the original
policy intent of the Tax Laws Amendment (2007 Measures No. 3)
Act 2007 .[33]
Item 26 revises the example in subsection 122
50(1). Section 122 50 of the ITAA 1997 deals with the disposal or
creation of assets by an individual or trustee to a wholly-owned
company, where all the assets are acquired on or after 20 September
1985. In addition to the things mentioned in the existing example,
the revised example also refers to the market value of the taxpayer
s plant and equipment, and office furniture at the time of
disposal. According to the Explanatory Memorandum, the example was
correct when it was first introduced, but has not been updated to
reflect changes in the law since that time.[34]
Item 45 inserts paragraph (a) into the
definition of income tax crediting amount into subsection 3(1) of
the Taxation (Interest on Overpayments and Early Payments) Act
1983. The whole of that paragraph was inadvertently repealed
by the Tax Laws Amendment (2007 Measures No. 4) Act
2007.[35]
Item 45 reinstates the part of the paragraph which
allowed interest to be paid to taxpayers when a credit entitlement
arose that was not related to foreign tax credits .[36]
Part 2 of Schedule 4 to the
Bill corrects the asterisking of words in the ITAA 1997. Where an
asterisk appears immediately before a term in the ITAA 1997, the
asterisk indicates to the reader that the term is defined in the
Act: section 2.10 of the ITAA 1997. The purpose of item
52 is twofold: some items in the table in item
52 insert an asterisk before some terms which are actually
defined in the ITAA 1997 but which are not currently asterisked,
and some items in the table in item 52 remove an
asterisk before a term where the asterisk is not required (such as
where the asterisked term has already been asterisked in the
relevant subsection).
Item 53 of Schedule 4 to the
Bill repeals the whole of the Pay-roll Tax Act 1941.
As noted in the Explanatory Memorandum, Commonwealth payroll tax
ceased to apply to wages paid after 1 September 1971, which is the
date the Commonwealth transferred responsibility for payroll tax to
the States .[37]
While the Pay-roll Tax Assessment Act 1941 was repealed
by the Tax Laws Amendment (Repeal of Inoperative Provisions)
Act 2006, the Pay-roll Tax Act 1941 has remained on
the statute books, even though it has not been operative for nearly
40 years.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2795 (Morag
Donaldson) or (02) 6277 2469 (Bernard Pulle).
[9]. M. Dunkley & J. Kehoe, Scrip and
restructuring schemes doomed , Australian Financial Review
15 May 2008, p. 14,
http://parlinfo.aph.gov.au/parlInfo/download/media/pressclp/9SFQ6/upload_binary/9sfq62.pdf,
accessed on 23 January 2009.
[29]. Part IIB
of the Administration Act deals with running balance accounts ,
application of payments and credits, and related matters. See
particularly Division 3 of Part IIB, which deals with the treatment
of payments, credits and running balance account surpluses.
[36]. The
proposed paragraph itself refers to any amount of a credit that
does not arise under Division 770 of the Income Tax Assessment
Act 1997 or under the International Tax
Agreements Act 1953 . Division 770 of the ITAA 1997 deals
with foreign income tax offsets. The International Tax
Agreements Act 1953 is an Act to give the force of Law to
certain Conventions and Agreements with respect to Taxes on Income
and Fringe Benefits, and for purposes incidental thereto : see long
title to that Act.
Bernard Pulle, Kali Sanyal and Leslie Nielson
29 January 2009
Bills Digest Service
Parliamentary Library
© Commonwealth of Australia
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