Bills Digest no. 139 2009–10
Tax Laws Amendment (2010 Measures No. 2) Bill
2010
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
Financial implications
Background and Main
provisions
Contact officer & copyright details
Passage history
Tax Laws Amendment (2010 Measures No. 2)
Bill 2010
Date introduced: 17 March 2010
House: House
of Representatives
Portfolio: Treasury
Commencement: The formal provisions commence on Royal Assent, as
do Schedules 3, 4 and 5 (Part 1
only).[1]
Schedules 1 and 6 commence the day after the Act
receives Royal Assent. Part 1 of Schedule 2
commences on 1 July 2010 or Royal Assent, whichever occurs
later. Items 26 and 27 of Schedule 2 commence on various
dates, depending on the commencement of the nominated sections in
the proposed Tax Laws Amendment (2010 Measures No. 1) Act
2010 (see main provisions below for further details).[2]
Links: The
links to the Bill, its Explanatory Memorandum and second
reading speech can be found on the
Bill’s homepage, 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 Bill has six main purposes,
being:
- to tighten the non-commercial loan rules in Division 7A of Part
III of the Income Tax Assessment Act 1936 (ITAA 1936) to
prevent a shareholder of a private company accessing tax-free
dividends through the use of company assets for less than their
market value (Schedule 1)
- to extend the tax file number withholding arrangements to
closely-held trusts, including family trusts (Schedule
2)
- to exempt from income tax the value of any Higher Education
Contribution Scheme-Higher Education Loan Program (HECS-HELP)
benefit received by an eligible applicant (Schedule
3)
- to add two organisations to the list of deductible gift
recipients (DGR) in the Income Tax Assessment Act 1997
(ITAA 1997) (Schedule 4)
- to make the Global Carbon Capture and Storage Institute Limited
(which is a not-for-profit organisation involved in the promotion
of carbon capture and storage technologies) income tax exempt for
four years (Schedule 5), and
- to repeal over 100 legislative provisions which give the
Commissioner of Taxation (the Commissioner) an unlimited period in
which to amend taxpayers’ assessments (Schedule
6).
The Bill has been referred
to the Senate Economics Legislation Committee for inquiry and
report by 11 May 2010. The main reason for the referral is to
ensure ‘that there are no further unintended consequences of
the Bill, particularly relating to the amendments in Schedule
1’.[3] Details
of the inquiry are at
http://www.aph.gov.au/senate/committee/economics_ctte/tlab_02_2010/info.htm,
viewed 22 March 2010.
According to
the Explanatory Memorandum, the Bill has the following financial
impacts:
- Schedule 1: savings of $30m (being $10m a
year) over the forward estimates period
- Schedule 2: savings of $150m (being $50m a
year) over the forward estimates period
- Schedule 3: nil
- Schedule 4: a cost of $0.098m in
2009–10; $0.687m in 2010–11; $0.363m in 2011–12
and nothing in 2012–13, and
- Schedule 5: nil
- Schedule 6: unquantifiable (but thought to be
less than $1m per year).[4]
As each of the six Schedules deals with a discrete issue, this
Digest will deal with the background to, and main provisions of,
each Schedule in turn.
The ‘non-commercial loan’
rules in Division 7A of Part III of the ITAA 1936 are intended to
prevent private companies from making tax-free distributions of
profits to shareholders (and their associates).[5] Part III of the ITAA 1936
deals broadly with liability to taxation, and Division 7A
deals specifically with distributions to entities connected with a
private company. It deems certain payments, loans, and the
forgiveness of debts by a private company to shareholders (or their
associates) to be dividends where the company has realised or
unrealised profits (that is, a distributable
surplus)—although there are some exceptions.[6] The deemed dividends do not
attract franking credits. By contrast, payments made to a
shareholder (or an associate) in his or her capacity as an
employee, or as an associate of an employee of the private company,
are not subject to the rules in Division 7A of the ITAA 1936, but
they are subject to the provisions of the Fringe Benefits Act
1986.
In the 2009–10 Budget, the Rudd Government announced that
it would tighten the rules to provide greater equity and fairness
to taxpayers by preventing shareholders of a private company (and
their associates) from avoiding tax on distributions and benefits
they receive from the company.[7] The Government proposes to extend the
coverage of Division 7A to include ‘payments’ by
way of a licence or right to use real property (or an interest in
real property) and chattels, saying that the measure:
… reduces the scope for private
companies to allow their shareholders or associates to use company
assets such as real estate, cars and boats for free, or at less
than their arm’s length value [that is, market value].
The measure will provide greater equity in
treatment between the shareholders of private companies on the one
hand and employees more generally.[8]
The Government also proposes to extend coverage of Division 7A
to include payments made by ‘closely-held corporate limited
partnerships’ and interposed entities—see further
discussion below. The amendments will apply retrospectively
from 1 July 2009 (being the start of the first financial year after
the measure was announced in the 2009–10 Budget).[9]
The use of arrangements (particularly corporate limited
partnerships) to circumvent the application of the deemed dividend
provisions in Division 7A was identified as being of concern to the
Australian Taxation Office (ATO) at least as early as 6 June
2007.[10] The
current law specifically excludes corporate limited partnerships
from the definition of ‘private company’ for tax
purposes.[11]
In fact, the law deems such partnerships to be public
companies—and therefore Division 7A does not apply to
them.[12]
On 5 June 2009, the Treasury released a discussion paper on the
proposed measures.[13] It received 18 submissions, of which one was
confidential.[14] A number of the submissions raised concerns that
the proposed amendments would inadvertently target small business
owners who, as shareholders in their own private company, currently
live rent-free in dwellings attached to property owned by the
corporate structure through which they conduct their
business. In this regard, the National Farmers Federation
(NFF) noted that:
… a significant number of farm
businesses hold their land within a separate entity, a private
company. It is not uncommon for the trading entity to comprise the
same family members as the private company shareholders. These
arrangements have often functioned with no formal lease agreement
or payment between the asset owning company and the trading entity.
Implicit in this arrangement, however, is a “license”
to use the land asset.[15]
The NFF particularly encouraged the Government to ensure that
farmers (who own their farms through a private company structure in
order to avoid death duties and intergenerational transfer of
assets) are ‘not unintentionally affected by the new
legislation through their legitimate use of company assets owned
exclusively for business use—in particular farm
land’.[16]
Similarly, the Institute of Chartered Accountants in Australia
pointed out that ‘the use of a private company asset by a
shareholder/associate for business purposes should not be within
the scope of Division 7A’.[17] It drew particular attention to the rural
sector, ‘where many family farming businesses are conducted
through arrangements where the family land is held by the company
and the business is conducted by another entity’.[18]
In response to these concerns, on 14 September 2009, the
Assistant Treasurer, Senator Nick Sherry, reiterated that the
purpose of the measure is to prevent private companies from
providing shareholders with access to ‘holiday homes, cars
and other luxury items’, where the benefits are provided at
less than market value and are ‘disguised as tax-free
distributions’.[19] The Assistant Treasurer clarified that the
amendments would not apply to farmers (and other small
business owners) who live in a dwelling owned by a private company
where the shareholder has a ‘right-to-use or a licence as
part of the carrying on the business’.[20] He also announced that the
amendments would not apply to any business use (as opposed to
private use) that a shareholder makes of an asset provided to him
or her under a ‘right-to-use’ or licence
arrangement—such ‘payments’ will be deemed to be
‘otherwise deductible’.[21]
On 4 January 2010, the Treasury released draft legislation
amending the non-commercial loan rules.[22] It received 19 submissions on
the exposure draft, two of which were confidential.[23] The main
difference between the exposure draft and the current Bill is that
the current Bill contains a whole new provision, proposed
section 109CA, which includes an enlarged number of
exceptions to the new rule in proposed subsection
109CA(1) that Division 7A applies to the
‘provision’ of an asset under a lease or licence.
Schedule 1 makes two main amendments to
Division 7A of the ITAA 1936:
1. unless certain
exceptions apply, if a shareholder (or an associate) receives a
‘payment’ from a private company (or a
‘closely-held corporate limited partnership’), the
market value of the payment (less any consideration paid by the
shareholder) must be included in the shareholder’s assessable
income (proposed section 109CA), and
2. an amount may be
treated as a dividend even if it is paid or lent by a private
company to a shareholder through one or more interposed
entities. Particularly, an amount may be included in a
shareholder’s assessable income if a company has an unpaid
present entitlement to income of a trust and the trustee makes a
payment or loan to, or forgives a debt of the shareholder (or
associate). The amendments will apply to any resident or
non-resident private company that makes a payment to a resident
shareholder (or associate) (proposed Subdivision EB of
Division 7A of Part III of the ITAA 1936).
These amendments are discussed in greater detail below.
Proposed section 109BB of the
ITAA 1936 extends the application of Division 7A to include not
only private companies but also any ‘corporate limited
partnership’ if at any time during the relevant income
year:
- the partnership has fewer than 50 members, or
- any entity (shareholder/associate) has, directly or indirectly,
and for the entity’s own benefit an entitlement to 75 per
cent or more of the partnership’s income or capital.[24]
The general rule is that if a shareholder (or an associate)
receives a ‘payment’ from a private company or a
closely-held corporate limited partnership, the market value of the
‘payment’ (less any consideration paid by the
shareholder) must be included in the shareholder’s assessable
income.[25]
If the consideration paid by the shareholder (for example, rent
money to use the company’s holiday home) is equal to (or
exceeds) the amount that would have been paid in an arm’s
length transaction, the amount of the ‘payment’ (for
the purposes of Division 7A) is nil.[26]
The term ‘payment’ is defined in
proposed subsection 109CA(1) to include ‘the
provision of an asset for use’ by an entity (including a
shareholder). This phrase includes a right to use the asset
(such as a company car, yacht or holiday home), without any
transfer of title to the property, as well as provision of the
asset under a lease or licence.[27]
The time the payment is made is either the time the entity first
(a) uses the asset with the provider’s permission or (b) has
a right to use the asset (whether alone or with other entities) at
a time when the provider of the asset does not have a right to use
the asset or provide the asset for use by another entity.[28] If the use (or
right to use) continues into another income year, the taxpayer must
treat the provision of the asset in the other income year as being
a separate payment made at the start of each relevant income
year.[29]
There are, however, a number of exceptions where the general
rule in proposed subsection 109CA(1) does not
apply, such as where:
- the use of the asset by a shareholder or his or her associate
is minor and infrequent.[30] In this regard, proposed subsection
109CA(4) draws an analogy with the situation under section
58P of the Fringe Benefits Tax Assessment Act 1986, which
states that minor benefits (where the notional taxable value is
less than $300) are exempt from fringe benefits tax if certain
conditions are met,[31] or
- (if the shareholder had incurred and paid expenditure in
relation to the provision of the asset), the taxpayer would
otherwise have been entitled to a ‘once-only’ deduction
in relation to the expenditure.[32] However, for the purposes of this
exception, the deduction (for the business-related expense) must
arise under a provision other than:
- section 82A of
the ITAA 1936 (which limits deductions for self-education expenses
to $250),[33]
or
- Divisions 28 (car
expenses) and 900 (substantiation rules) of the ITAA 1997[34]
Further, proposed subsection 109CA(1) does not
apply to the provision of a dwelling to a shareholder (or
associate) if the shareholder (or associate):
- carries on a business, and
- uses (or is granted or has a lease, licence or other right to
use) land, water or a building for the purpose of carrying on the
business
and the provision of the dwelling is connected
with that use (or that lease, licence or other right).[35]
The Explanatory Memorandum notes that this
exception would apply to shareholders in a private company (who are
also beneficiaries under a family trust) where the private company
owns real property (a farm) on which the family trust runs a
farming business and the shareholders live in a dwelling on the
farm. The use of the dwelling is for private purposes, and
therefore does not come within the ‘otherwise
deductible’ exception in proposed subsection
109CA(5). However, as the shareholders use the
dwelling in connection with the family trust’s use of the
farm to carry on a business, the provision of the dwelling is
disregarded for the purposes of proposed subsection
109CA(1).[36] By comparison, if the same shareholders reside in
a townhouse owned by the same private company, the exception in
proposed subsection 109CA(6) does not
arise.[37]
This is because the shareholders’ use of the dwelling is not
connected to the use of the land, water or building on the
farm.
Nonetheless, under proposed subsection
109CA(7), where a private company provides a dwelling to
shareholder (or an associate), the ‘payment’ (in the
form of the use of the dwelling) will not be taxed under Division
7A if:
- the dwelling is the main residence of the entity
- the private company acquired the dwelling before 1 July 2009,
and
- the private company would meet the conditions set out in
section 165–12 of the ITAA 1997 (which is about the company
maintaining the same owners in order to be eligible to deduct a tax
loss from an earlier income year), but with the ‘ownership
test period’ commencing when the company acquired the
dwelling and ending at the time of the payment to the entity (as
calculated under proposed subsection
109CA(2)).
Thus, in the example given immediately above, the
shareholders who reside in the townhouse owned by the private
company may be eligible to claim the exception in proposed
subsection 109CA(7) if the dwelling is their main
residence and was acquired by the private company before 1 July
2009. Eligibility will, however, depend on the company
meeting the ‘continuity of ownership’ test—and
the exception is extinguished if ownership of the private company
changes.
If the provision of the asset to the shareholder is in fact a
transfer of property, proposed subsection
109CA(1) does not apply.[38] Instead, paragraph 109C(3)(c) provides that
the private company which transferred the asset is taken to pay a
dividend.[39]
As mentioned earlier in this Digest,
Schedule 1 amends the ITAA 1936 to provide that an
amount may be treated as a dividend even if it is paid or lent by a
private company to a shareholder through one or more interposed
entities. Existing Subdivision EA of Division 7A of Part
III of the ITAA 1936 treats a payment or loan from a trust to a
shareholder (or associate) as a payment or loan from the private
company, if the company has an unpaid present entitlement from the
trust.[40] As
the ATO explains, Subdivision EA is ‘designed to ensure that
a trustee cannot shelter trust income at the prevailing company tax
rate by creating a present entitlement to a private company without
paying it and then distributing the underlying cash to a
shareholder (or their associate) of the company’.[41]
Item 25 inserts proposed
Subdivision EB into Division 7A of Part III of the ITAA
1936. It has two main purposes:
1. it allows an
amount to be included in a shareholder’s (known as ‘the
target entity’s) assessable income under Subdivision
EA if an entity interposed between a trustee and the target entity
makes a payment or loan to the target entity under an arrangement
involving the trustee. In such as case, the trustee is
treated as having made a payment (or loan) of an amount determined
by the Commissioner of Taxation to the target entity, and
2. it allows an
amount to be included in a shareholder’s assessable income
under Subdivision EA if a private company is (or becomes) presently
entitled to an amount from the net income of a trust estate
interposed between the private company and another trust estate
(known as the target trust) under an arrangement involving the
target trust.
In short this means that a shareholder (or associate) must
include in his or her assessable income any amount received, not
only from a private company, but from a ‘closely-held
corporate limited partnership’, if:
- the company has an unpaid present entitlement to income of a
trust (the whole of which entitlement has not been paid), and
- instead of making a payment to the corporate beneficiary, the
trustee makes a payment or loan to, or forgives a debt of, the
company’s shareholder (or associate).[42]
There are three conditions (set out in
proposed sections 109XF and 109XG) which must be
met in order for a trustee to be taken to have made a payment (or
loan) to a shareholder/target entity through an interposed
entity:
1. the trustee must
make a payment or loan to the interposed entity
2. the
circumstances must be such that a reasonable person would conclude
that the trustee made the payment or loan ‘solely or mainly
as part of an arrangement involving a payment [or loan] to the
target entity’, and
3. the interposed
entity (or another interposed entity) makes a payment or loan to
the target entity.[43]
The Explanatory Memorandum provides a number of
useful, practical examples of how these provisions are intended to
operate. For example, Example 1.15 states as follows:[44]
Berry Pty Ltd
has an unpaid present entitlement from Raspberry Trust.
Raspberry Trust makes a payment to Strawberry Trust, who then makes
a loan to Jane, who is a shareholder of Berry Pty Ltd, as set out
in the diagram. The notional transaction between Raspberry
Trust and Jane is treated as a loan, because the transaction
between Jane and Strawberry Trust is a loan.
(Note that while not identified as such in the
diagram, Strawberry Trust is the ‘interposed
entity’.)
Proposed subsection 109XH(1)
states that the amount the trustee is taken to have paid or lent to
the target entity is the amount (if any) determined by the
Commissioner of Taxation (after considering the matters set out in
proposed subsection 109XH(2)). The trustee
is taken to have made the payment or loan at the time the
interposed entity made the payment or loan mentioned in
proposed paragraphs 109XF(1)(c) or 109XG(1)(c) to
the target entity.
Similarly, proposed section
109XI states that a private company is taken to be (or to
become) entitled to an amount from the net income of a trust
estate (known as the ‘target trust’)
if:
1. the company is
(or becomes) presently entitled to an amount from the net income of
another trust estate (the interposed trust) that is
interposed between the target trust and the company
2. a reasonable
person would conclude (having regard to all the circumstances) that
the company is (or becomes) so entitled ‘solely or mainly as
part of an arrangement involving an entitlement to an amount from
the target trust’, and
3. either the
interposed trust (or another interposed trust) is (or becomes)
presently entitled to an amount from the net income of the target
trust.
The amount to which the private company is taken
to be entitled from the net income of the target trust is the
amount (if any) determined by the Commissioner of Taxation (taking
into account the matters set out in proposed subsection
109XI(6).[45] The total amount to which the private company is
taken to be entitled must not exceed the amount to which the
interposed trust is (or becomes) presently entitled from the net
income of the target trust.[46]
The company is taken to be (or to become)
entitled to the amount from the net income of the target trust at
the time the company is (or becomes) entitled to the amount from
the net income of the first interposed trust.[47]
Items 16–23 of
Schedule 2 amend existing sections 109XA, 109XB
and 109XC of the ITAA 1936, largely as a result of the amendments
made by item 25.
Item 24 inserts proposed
section 109XD to provide that where a loan is made by a
trustee in circumstances that give rise to a deemed
dividend, and the loan has already been included in a
shareholder’s assessable income, then if the loan is
subsequently forgiven by the trustee, the forgiven amount is
disregarded.[48]
Items 26–30 of
Schedule 1 to the current Bill amend section 109Y
of the ITAA 1936, which provides for a proportional reduction of
dividends so they do not exceed distributable surplus. The
amendments are largely consequential upon other amendments made by
Schedule 1 and make it clear that the term
‘non-commercial loans’ means the total of any amounts
the company is taken to have paid as dividends in earlier years of
income (as shown in the company’s accounting records) and
‘any amounts that are included in the assessable income of
shareholders, or associates of shareholders, of the company under
section 109XB as if the amounts were dividends paid by the company
in earlier years of income’.[49]
Item 35 states the amendments
made by Schedule 1 apply in relation to payments
made, loans made, and debts forgiven on or after 1 July 2009.
While this is the date that the Government has consistently given
as the application date for the measures contained in Schedule
1,[50] it may be
worth noting that the date was the subject of some comment in the
submissions on the exposure draft. For example, the Institute
of Chartered Accountants in Australia recommended that the
‘proposed amendments which are adverse to taxpayers’
(principally the amendments relating to the use of private company
assets) should not apply until the date of Royal Assent—that
being the date when the proposed Act actually becomes law in
Australia.[51] It also recommended that there should be
roll-over relief (for both capital gains tax and Division 40
purposes) in circumstances where a private company decides to
transfer assets to shareholders (and/or associates).[52]
In the case of amendments ‘which are
beneficial to taxpayers, reflecting the clarification of the intent
of parliament’, the Institute recommended the amendments
should apply from the date that Subdivision EA commenced, being 12
December 2002.[53]
Part 1 of Schedule 2 extends the tax file
number (TFN) withholding arrangements to cover closely-held trusts,
including family trusts.
Although there are some exclusions, the term
‘closely-held trust’ is defined in
section 102UC of the ITAA 1936 to mean:
(a) a trust where an individual has, or
up to 20 individuals have between them, directly or indirectly, and
for their own benefit, fixed entitlements to a 75% or greater share
of the income, or a 75% or greater share of the capital, of the
trust; or
(b) a discretionary trust; [54]
In announcing the measure as part of the 2009–10 Budget,
the Rudd Government said:
The measure will ensure that assessable
distributions to beneficiaries of closely held trusts align with
the amounts included by these beneficiaries in their tax returns.
The measure will not apply to income upon which tax is directly
payable by the trustee of the trust, such as the income assessable
to minors. Individuals who have tax withheld by trustees can claim
a credit for that tax in their tax return.[55]
The measure is part of the Government’s
general mission to ‘to improve fairness and integrity in the
tax system’.[56] It means that if a beneficiary of a closely-held
trust provides his or her TFN to the trustee, no amount will be
withheld from the beneficiary’s assessable distribution from
the trust. However, if the beneficiary does not provide his
or her (or its) TFN, the trustee must withhold an amount from the
beneficiary’s assessable distribution and remit that amount
to the Commissioner of Taxation. If an amount is withheld,
the beneficiary may claim a credit for the amount when lodging his
or her annual tax return. Withholding will not occur where
the trustee pays tax in relation to certain beneficiaries, such as
minors and bankrupts.[57]
Item 1 of Schedule
2 inserts proposed Division 4B into Part
VA of the ITAA 1936. Proposed Division 4B
deals with the quotation of TFNs in connection with certain
closely-held trusts and comprises:
- proposed section 202DN (setting out when the
Division applies)[58]
- proposed section 202DO
(stating that a beneficiary may quote a TFN to the
trustee)
- proposed section 202DP (requiring the trustee
to report quoted TFNs to the ATO), and
- proposed section 202DR
(providing that if an incorrect TFN has been quoted and reported to
the Commissioner of Taxation, the Commissioner can correct the TFN
using available information; however, the Commissioner is unable to
correct an incorrectly-quoted TFN and must give written notice to
the trustee and the beneficiary if the Commissioner is satisfied
that the beneficiary’s TFN has been cancelled or withdrawn,
or the number quoted is not the beneficiary’s TFN, or the
Commissioner is not satisfied the beneficiary has a TFN).
Item 5 inserts proposed section
12–175 into Schedule 1 to the Taxation
Administration Act 1953 (TAA 1953). It will appear in
Part 2–5, which deals with the ‘pay as you go’
(PAYG) withholding system. Specifically, proposed
section 12–175 will appear in Division 12 (Payments
from which amounts must be withheld)—in Subdivision
12–E (Payments where a TFN or ABN is not quoted).
Proposed section 12–175 applies if:
- a trustee makes a distribution to a beneficiary at a time
(known as the ‘distribution time’) during an income
year, and
- some or all of the distribution is from the ordinary income or
statutory income of the trust, and
- the trust is a resident trust estate (as defined in subsection
95(2) of the ITAA 1936) and a closely-held trust (as defined in
section 102UC of that Act) and is not prescribed by the regulations
for the purposes of this subparagraph, and
- the beneficiary is:
- an Australian
resident who is not an ‘exempt entity’, [59] and
- not under a legal
disability for the purposes of section 98 of the ITAA 1936 (for
example, the beneficiary is not a child).[60]
Under proposed subsection
12–175(2), the trustee must withhold an amount from
the distribution if:
- the beneficiary did not quote his or her (or its) TFN to the
trustee before the distribution time, and
- the trustee is not liable to pay tax under section 98 of the
ITAA 1936 in connection with the distribution,[61] and
- the trustee is not required to make a ‘correct TB
statement’ under Division 6D of Part III of the ITAA
1936 (about trustee beneficiary non-disclosure) in connection with
the distribution,[62] and
- family trust distribution tax is not payable under Schedule 2F
to the ITAA 1936 in connection with the distribution.[63]
If a beneficiary becomes presently entitled to a share of income
from the trust at the end of an income year, then under
proposed section 12–180 of Schedule 1 to the
TAA 1953, the trustee must withhold an amount from that share of
the net income of the trust if the beneficiary did not quote his or
her (or its) TFN to the trustee before the end of the year.[64]
If the trustee fails to withhold an amount from a distribution
to a beneficiary or fails to withhold an amount from a
beneficiary’s present entitlement to a share of the
trust’s income, the trustee commits an offence.[65]
Subsection 15–10(2) of Schedule 1 to the TAA 1953 states
that the amount that Subdivision 12–E (and other named
Subdivisions) requires to be withheld from a payment is to be
worked out under the regulations. According to the
Explanatory Memorandum, the withholding rate applicable to
proposed sections 12–175 and 12–180
‘is intended to match the ‘top
rate’’.[66] For example, in the case of TFN withholding in
respect of investments, the current rate is 46.5 per cent.[67]
Neither proposed sections 12–175 nor
12–180 applies if the payment is less than the
amount worked out under the regulations.[68]
If a trustee withholds an amount under proposed sections
12–175 or 12–180, the trustee must pay it to
the Commissioner of Taxation:
- by the end of the 28th day of the next month
following the day the trustee was required to report to the
Commissioner under subsection 16–152(1) for the income year,
or
- within a longer period allowed by the Commissioner.[69]
If a trustee makes any withholding payments covered by
proposed sections 12–175 or 12–180
during an income year, the trustee must give a report to the
Commissioner of taxation in the approved form.[70] The report must be given
not later than 3 months after the end of the income year, or within
such further period as the Commissioner allows.[71] Even if the beneficiary
provided a TFN and the trustee was not required to withhold
amounts, the trustee must also provide an annual report for amounts
distributed to beneficiaries to the Commissioner.[72] Such a report must be
given by the end of the day on which the trustee lodges the
trust’s income tax return for the income year or within such
further period as the Commissioner allows.[73]
The trustee must also give a ‘payment summary’ to a
beneficiary of the trust if the trustee made any withholding
payments covered by proposed sections 12–175 or
12–180 during the income year.[74] The ‘payment
summary’:
- • must cover each of
the withholding payments covered by proposed sections
12–175 or 12–180
- • may be given in
electronic form, and
- • must be given not
later than 14 days after the day by which the trustee is required
to give the Commissioner a report under proposed subsection
16–152(1) for the income year, or within a longer period
allowed by the Commissioner.[75]
The amendments made by Part 1 of
Schedule 2 will apply from 1 July 2010.[76]
The amendments in Part 2 of Schedule 2 to the
current Bill are contingent on the passage of the Tax Laws
Amendment (2010 Measures No. 1) Act 2010, noting that
that Act is yet to be made.[77] Item 152 of Schedule 6 to the Bill for that
proposed Act repeals and substitutes a revised definition for the
term ‘quote’ in section 995–1 of the
ITAA 1997, and item 153 of Schedule 6 to the Bill for the proposed
Act repeals the definition of the term
‘quoted’ in section 995–1 of the ITAA
1997.[78]
Currently the terms ‘quote’
and ‘quoted’ are defined in section
995–1 of the ITAA 1997 as follows:
‘quote’
an entity’s ABN means quote in a form and manner approved by
the Commissioner.
‘quoted’:
an entity has quoted its tax file number in connection with a Part
VA investment if the entity is taken, for the purposes of Part VA
of the Income Tax Assessment Act 1936, to have quoted its
tax file number in connection with the investment.[79]
Item 26 of Schedule
2 to the current Bill adds a third element to the
definition of the term ‘quote’ in section
995–1 of the ITAA 1997 (as it is proposed to be amended by
item 152 of Schedule 6 to the proposed Tax Laws Amendment (2010
Measures No. 1) Act 2010). If that provision does
not commence, the amendment in item 26 of
Schedule 2 to the current Bill will also not
commence.
Item 27 repeals and substitutes
a new definition for the term ‘quoted’, but it
will not commence if item 153 of Schedule 6 to the proposed Tax
Laws Amendment (2010 Measures No. 1) Act 2010 commences
before the current Bill receives Royal Assent (or 1 July 2010,
whichever occurs later).
Schedule 3 exempts the HECS-HELP benefit from
the payment of income tax.[80]
The HECS-HELP benefit was introduced in the 2008–09 Budget
to encourage graduates of maths or science courses of study and
early childhood education courses of study to take up employment in
specified occupations. [81] Early childhood education graduates are also
encouraged to take up employment in specified locations
‘including rural and regional areas, Indigenous communities
and areas of socio-economic disadvantage’.[82] In the 2009–10
Budget, the benefit was extended to include graduates of eligible
education or nursing (including midwifery) courses of study after
30 June 2009.[83] Eligibility is determined according to different
criteria, depending on the course from which the applicant
graduated.[84]
The HECS-HELP benefit is not a cash payment. The ATO
applies the benefit to reduce the recipient’s compulsory HELP
repayment (or, in the case of early childhood education teachers
who do not have to make a compulsory repayment, the ATO applies the
benefit to reduce the recipient’s accumulated HELP debt).
Item 2 of Schedule 3 amends
the table at the end of section 51–10 of the ITAA 1997 to
show that if the taxpayer is a recipient of a HECS-HELP benefit,
then the benefit is exempt from income tax. There are no
conditions attached to the exemption.[85] The exemption applies to
assessments for the 2008–09 income year and later income
years.[86]
Schedule 4 amends the ITAA 1997 to enable
taxpayers to claim income tax deductions for gifts to the Sichuan
Earthquake Surviving Children’s Education Fund and the Bali
Peace Park Association Inc. It also extends the time period
for gifts to the Yachad Accelerated Learning Project Limited to
allow gifts made after 29 June 2005 but before 1 July 2012 (instead
of the current deadline of 1 July 2009) to be deductible.[87]
Item 2 amends existing subsection
30–80(2) of the ITAA 1997 to include the Sichuan Earthquake
Surviving Children’s Education Fund and the Bali Peace Park
Association Inc in the list of international affairs deductible
gift recipients.
The Sichuan Earthquake Surviving Children’s Education Fund
was established by the Federation of Chinese Scholars in Australia
(FOCSA) in partnership with Channel 9’s Today
television program on 14 May 2008 following the devastating
earthquake in Sichuan Province in China on 12 May 2008.[88] The aim of the
appeal fund is to ‘raise funds to build a new school for 500
students, and to provide scholarships in supporting surviving
children particularly those orphaned or handicapped to continue
their schooling in Beichuan County’.[89] Donations/gifts to the Sichuan
Earthquake Surviving Children’s Education Fund must be made
between 12 May 2008 and 13 May 2010 to be deductible.
The Bali Peace Park Association Inc was established in Perth
(Australia) in September 2008. Its primary aims are to raise
funds to acquire the Sari Club site in Bali and create a spiritual
garden in memory of the victims of the terrorist bomb attack on 12
October 2002. It also wishes to ‘help build a future
without fear by promoting tolerance, understanding and freedom for
generations to come, irrespective of nationality, culture,
religious belief or race’.[90] To be eligible for the tax deduction, gifts
to the Bali Peace Park Association Inc must be:
- made between 16 December 2009 and 17 December 2011, and
- be used for the purpose of establishing the Bali Peace
Park.[91]
The amendments made by Schedule 4 apply to the
2007–08 income year and later income years.
Item 1 of Schedule 5 amends
the table in section 50–5 of the ITAA 1997 to include the
Global Carbon Capture and Storage Institute Ltd in the list of
entities in the field of ‘charity, education, science and
religion’ whose total ordinary and statutory income is exempt
from income tax. Only amounts included in that
organisation’s assessable income on or after 1 July 2009 and
before 1 July 2013 (that is, a four-year period) will be
exempt.
The establishment of the Global Carbon Capture and Storage
Institute (known more colloquially as the ‘Global CCS
Institute’) was announced by the Rudd Government in September
2008. It was formally launched in April 2009 and became an
independent legal entity (namely a not-for-profit company limited
by guarantee) on 12 June 2009.[92] It is a ‘bold new initiative’
aimed at accelerating the commercial deployment of CCS to
contribute to the reduction of carbon dioxide emissions.[93]
The inclusion of the Global Carbon Capture and Storage Institute
in the list of exempt entities ends on 1 January 2018.[94] While the
Institute does not meet the general requirements for income
tax-exempt entities, the Government is of the view that it should
be entitled to a limited exemption from income tax because the
‘information and expertise developed by the Institute is to
be disseminated broadly and globally to the benefit of both the
Australian and global carbon capture and storage
communities’.[95]
Items 2–5 repeal the definitions of the
terms ‘eligible policy’, ‘exempt
entity’, ‘exempt life assurance
fund’ and ‘trustee’ in existing
section 102M of the ITAA 1936.[96] The Explanatory Memorandum notes that these
definitions do not accord with current drafting practices and, in
the case of the definition of ‘exempt entity’
in section 102M is inconsistent with the definition of that term in
the Dictionary to the ITAA 1936.
Item 6 inserts proposed section
102MD into the ITAA 1936 to make it clear that Division 6C
(which deals with the liability to taxation of the income of
certain public trading trusts) applies to the person in whom the
assets of a fund are vested (whether or not as trustee) in the same
way as it applies to an exempt entity if the fund is:
- maintained by a life assurance company solely in respect of a
class of life assurance business that consists of the issuing of
(or undertaking of liability under) exempt life assurance policies
or complying superannuation/first home saver account (FHSA) life
insurance policies (within the meaning of the ITAA 1997),[97] or
- a complying superannuation fund, a complying approved deposit
fund, or a pooled superannuation trust.
Schedule 6 repeals over 100 unlimited amendment
periods in over 100 different taxation Acts to provide certainty
for taxpayers.
Schedule 6 replaces the unlimited time period
in which the Commissioner of Taxation may amend an assessment with
existing general amendment provisions that set a finite period of
two or four years (depending on the complexity of the
taxpayer’s circumstances). However, the unlimited
amendment period will continue to apply if there has been fraud or
tax evasion.
The amendments are the result of a number of reviews and public
consultations undertaken by both the Howard and Rudd Governments
since 2004.[98] The practice of drafting unlimited amendment
periods ceased in 2005.[99] Some of the amendments in Schedule
6 are thus long overdue.
The amendments in Schedule 6 commence the day
after the current Bill receives Royal Assent.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2795.
[5].
The term
‘associate’ includes relatives, partners,
spouses, children, trustees of a trust where the person (or another
entity that is an associate of the person) benefits under the
trust, and companies which are controlled or influenced by the
shareholder. For further details, see ATO, You and your
shares 2008–09: Non-commercial loans and private company
transactions, ATO website, 8 September 2009, viewed 18 March
2010,
http://www.ato.gov.au/individuals/content.asp?doc=/content/00191825.htm&page=24&H24
[79].
The term ‘Part VA
investment’ is defined in section 995–1 of the
ITAA 1997 to mean ‘an investment of a kind mentioned in
section 202D of the Income Tax Assessment Act 1936’,
which includes an interest-bearing account with a financial
institution; units in a unit trust; and shares in a public
company. The text of section 202D of the ITAA 1936 is
available at
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1936240/s202d.html,
viewed 3 May 2010.
[81].
ATO, Overview of the HECS-HELP benefit,
ATO website, 31 March 2010, viewed 24 April 2010,
http://www.ato.gov.au/individuals/content.asp?doc=/content/00236158.htm
Morag Donaldson
6 May 2010
Bills Digest Service
Parliamentary Library
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