Scrutiny of Bills Eleventh Report of 1998
SENATE STANDING COMMITTEE FOR THE SCRUTINY OF BILLS
9 December 1998
ISSN 0729-6258
MEMBERS OF THE COMMITTEE
Senator B Cooney (Chairman)
Senator W Crane (Deputy Chairman)
Senator H Coonan
Senator T Crossin
Senator J Ferris
Senator A Murray
TERMS OF REFERENCE
Extract from Standing Order 24
(1) (a) At the commencement of each Parliament, a Standing Committee
for the Scrutiny of Bills shall be appointed to report, in respect of
the clauses of bills introduced into the Senate, and in respect of Acts
of the Parliament, whether such bills or Acts, by express words or otherwise:
(i) trespass unduly on personal rights and liberties;
(ii) make rights, liberties or obligations unduly dependent upon insufficiently
defined administrative powers;
(iii) make rights, liberties or obligations unduly dependent upon non-reviewable
decisions;
(iv) inappropriately delegate legislative powers; or
(v) insufficiently subject the exercise of legislative power to parliamentary
scrutiny.
(b) The Committee, for the purpose of reporting upon the clauses of a
bill when the bill has been introduced into the Senate, may consider any
proposed law or other document or information available to it, notwithstanding
that such proposed law, document or information has not been presented
to the Senate.
SENATE STANDING COMMITTEE FOR THE SCRUTINY OF BILLS
ELEVENTH REPORT OF 1998
The Committee presents its Eleventh Report of 1998 to the Senate.
The Committee draws the attention of the Senate to clauses of the following
bill which contains provisions that the Committee considers may fall within
principles 1(a)(i) to 1(a)(v) of Standing Order 24:
Taxation Laws Amendment Bill (No. 2) 1998
Taxation Laws Amendment Bill (No. 2) 1998
Introduction
The Committee dealt with this bill in Alert Digest No 10 of 1998,
in which it made various comments. The Assistant Treasurer has responded
to those comments in a series of letters dated 3 December 1998. Copies
of the letters are attached to this report. An extract from the Alert
Digest and relevant parts of the Assistant Treasurer's responses are
discussed below.
Extract from Alert Digest No 10 of 1998
This bill was introduced into the House of Representatives on 12 November
1998 by the Minister for Financial Services and Regulation. [Portfolio
responsibility: Treasury]
The bill proposes to amend the following Acts:
- Income Tax Assessment Act 1936 to:
- deny the ability to offset against capital gains certain capital
losses created by an arrangement entered into before 3pm on 29 April
1997 and to prevent companies using capital losses artificially
created through an arrangement entered into after that time;
- allow instalment taxpayers classified as small to pay their likely
tax on 15 December following their income year and the balance,
if any, of their tax liability on the following 15 March, and make
consequential amendments;
- prevent franking credits or debits arising from the payment or
refund of tax where those amounts are attributable to the retirement
savings account business of a life assurance company;
- replace the formulae used to determine the passive income of the
controlled foreign companies of life and general insurance companies;
- require life companies to use average calculated liabilities,
rather than calculated liabilities at the end of the year of income,
as the basis for determining income that relates to immediate annuity
policies and apportioning income and capital gains;
- clarify the operation of the depreciation provisions in circumstances
when an entity the income of which is exempt becomes, for any reason,
subject to tax on any part of its income under the provisions of
the Act; and
- exclude superannuation funds, approved deposit funds, and pooled
superannuation trusts from the grouping provisions contained in
the company tax instalment system; and
- Fringe Benefits Tax Assessment Act 1986 to:
- exempt certain benefits relating to approved student exchange
programs from FBT; and
- introduce new record keeping exemption arrangements; and
- Fringe Benefits Tax Assessment Act 1986, Income Tax Assessment
Act 1936 and Income Tax Assessment Act 1997 to:
- extend the existing exemption for taxi travel beginning or ending
at an employee's place of work;
- introduce a new exemption from FBT for car parking benefits for
certain small business owners; and
- simplify “arranger” provisions; and
- Income Tax Assessment Act 1936, Income Tax Assessment Act
1997 and Taxation Laws Amendment (Landcare and Water Facility
Tax Offset) Act 1998 to ensure that taxpayers must reduce the cost
base or indexed cost base of an asset to the extent of any net deductions
allowable for expenditures included in the cost base; and
- Income Tax Assessment Act 1997 to prevent a taxpayer who has
become bankrupt from using a carried forward landcare and water facility
tax offset in certain circumstances.
Retrospective application
Subclause 2(2) and Schedule 7, Part 3
By virtue of subclause 2(2) of this bill, the amendments proposed in
Part 3 of Schedule 7 are to commence retrospectively on 14 July 1998.
This is the commencement date of the Taxation Laws Amendment (Landcare
and Water Facility Tax Offset) Act 1998.
The Explanatory Memorandum appears to provide no reason for this retrospectivity.
Reference to the associated Act does not clarify matters. Accordingly
the Committee seeks the Minister's advice as to the reasons for
the retrospective application of the amendments proposed in Part 3 of
Schedule 7.
Pending the Minister's advice, the Committee draws Senators' attention
to the provisions, as they may be considered to trespass unduly on personal
rights and liberties, in breach of principle 1(a)(i) of the Committee's
terms of reference.
Relevant extract from the response from the Assistant
Treasurer
Taxation Laws Amendment (Landcare and Water Facility
Tax Offset) Act 1998 (Tax Rebate Act), which is being amended by Part
3 of Schedule 7 of TLAB2, contained provisions which adjusted the cost
base and indexed cost base of an asset for capital gains tax purposes
(cost base adjustment provisions) where a taxpayer had taken the landcare
or water facilities rebate. However, these provisions were not to come
into effect until just after the commencement of the cost base adjustment
provisions in Taxation Laws Amendment Bill (No. 2) 1998 (TLAB2). These
provisions have not commenced.
TLAB2 was introduced into the Senate on 30 November 1998.
Part 3 of Schedule 7 of TLAB2 contained provisions which repealed the
Tax Rebate Act's cost base adjustment provisions and their commencement
provision with effect from 14 July 1998.
I understand that your Committee considers that these
provisions may trespass unduly on personal rights and liberties.
TLAB2 does repeal the commencement provision of the cost
base adjustment provisions in the Tax Rebate Act but it also goes on to
repeal the cost base adjustment provisions too. Additionally, there is
a commencement provision for the repeal which is to take effect immediately
after the Royal Assent of the Tax Rebate Act - 14 July 1998. Taken together,
these provisions prevent taxpayers' rights being adversely affected as
the cost base adjustment provisions in the Tax Rebate Act are prevented
from coming into operation retrospectively.
TLAB2 contains some replacement cost base adjustment provisions
which will commence their operation on Royal Assent and affect expenditure
which is eligible for the rebate where the expenditure is incurred on
the date of TLAB2's introduction - 12 November 1998.
I trust the above has been of assistance.
The Committee thanks the Assistant Treasurer for this
response. The response seems to indicate that the cost base adjustment
provisions in the Tax Rebate Act, which were to come into effect after
the commencement of the cost base adjustment provisions in the Taxation
Laws Amendment Bill (No 2) 1998, are now to be repealed by that bill.
This repeal is to take effect retrospectively from 14 July 1998, notwithstanding
that the provisions have not yet come into effect. Substitute cost base
adjustment provisions are to apply to expenditure incurred after 12 November
1998. The Committee would appreciate the Minister's advice regarding any
possible disadvantage to those who may have incurred expenditure prior
to 12 November 1998.
Legislation by press release
Schedule 1, Part 2 and Schedule 9
The amendments proposed by Part 2 of Schedule 1 to the
bill are to apply from 29 April 1997, being the date of the Treasurer's
press release on the matter. Similarly, the amendments proposed by Schedule
9 are to apply from the same date, being the date of a separate press
release issued by the Treasurer.
In each case, the application provision is outside the
`six month rule', as set out in the Senate resolution of 8 November 1988.
This resolution, which deals with taxation legislation only, states that:
Where the Government has announced, by press release,
its intention to introduce a Bill to amend taxation law, and that Bill
has not been introduced into the Parliament or made available by way of
publication of a draft Bill within 6 calendar months after the date of
that announcement, the Senate shall, subject to any further resolution,
amend the Bill to provide that the commencement date of the Bill shall
be a date that is no earlier than either the date of introduction of the
Bill into the Parliament or the date of publication of the draft Bill.
Accordingly the Committee seeks the Treasurer's advice
as to the reason for the delay in putting the proposed amendments into
legislative form.
Pending the Minister's advice, the Committee draws
Senators' attention to the provisions, as they may be considered to trespass
unduly on personal rights and liberties, in breach of principle 1(a)(i)
of the Committee's terms of reference.
Relevant extracts from the responses from the Assistant
Treasurer
Part 2 of Schedule 1
On 29 April 1997, the Treasurer announced that the Income
Tax Assessment Act 1936 (the Act) would be amended to deny the ability
to offset against capital gains certain capital losses created by an arrangement
entered into before 3 pm on 29 April 1997 and to prevent the use of capital
losses artificially created through an arrangement entered into after
that time.
The measures to amend the Act were contained in Schedule
1 of Taxation Laws Amendment Bill (No 6) 1997, (TLAB6) which was
introduced into the House of Representatives on 29 October 1997, six months
after the date of announcement. TLAB 6 was passed by the House of Representatives,
but had not completed its passage through Parliament when Parliament was
prorogued for the Federal election on 31 August 1998. The measures used
a two pronged approach. Part 1 was designed to prevent the use of capital
losses artificially created by a particular type of scheme. Part 2 amended
the general anti-avoidance provisions contained in Part IVA of the Act,
so that they could apply to artificially created capital losses in the
year in which they are created if they were created under a scheme entered
into after 3 pm on 29 April 1997.
The Senate resolved on 8 November 1988 that taxation laws
which apply from the date of announcement must be introduced into Parliament
or published in draft form within 6 months of that date. This resolution
does not specifically take into account Bills which lapse if Parliament
is prorogued for a Federal election. However the Senate has previously
agreed that a lapsed measure which is reintroduced should retain the status
it had when first introduced, so far as the `six month rule' is concerned
(for example the Trust Loss measures contained in Taxation Laws Amendment
(Trust Loss and Other Deductions) Bill 1997. In the case of these
measures, the spirit of the resolution has been met as the details of
the proposed laws were made available to the public in the form of a Bill
introduced into Parliament within the required 6 months.
In addition, altering the date of effect of Part 2 of
Schedule 1 of TLAB 2 would unfairly advantage taxpayers who have disregarded
the proposed measures compared to those who have complied.
The measures contained in Schedule 1 of TLAB 2 should
therefore be treated as having been introduced on 29 October 1997, for
the purposes of the `six month rule' ...
Part 2 of the proposed legislation is not retrospective
and will not unduly trespass upon the personal rights and liberties of
taxpayers. The legislation is designed to make the general anti-avoidance
provisions more effective in preventing the creation of artificial capital
losses to offset against capital gains.
I trust this answers your concerns.
Schedule 9
In Alert Digest No 10 of 2 November 1998, the Committee
queried the length of time between the issue of a Press Release with an
immediate date of effect and introduction of the legislation.
On 29 April 1997 the Treasurer announced that the Income
Tax Assessment Act 1936 (the Tax Act) would be amended to require
life insurance companies to use average calculated liabilities, rather
than calculated liabilities at the end of the year of income, as the basis
for determining:
. the amount of income that relates to immediate annuity
policies;
. the amount of income that is attributable to overseas
branches; and
. the amount of income and capital gains to be allocated
to each class of assessable income.
The use of average calculated liabilities will provide
a more accurate reflection of the liabilities a life company has for policies
held during the income year to be used in the assessment of income tax
and will remove distortions that arise by using calculated liabilities
at the end of the year of as the basis of apportioning income.
The amendments apply from the first income year that commences
on or after 29 April 1997. However, the amendments will apply to
a preceding year of income if a significant event occurred in one of the
insurance funds of a life company in the period from 29 April 1997 to
the end of the income year.
The measures to amend the Tax Act were originally contained
in Taxation Laws Amendment Bill (No. 6) 1997 (TLAB No 6) which
was introduced into the House of Representatives on 29 October 1997, six
months after the date of announcement. TLAB No 6 was passed by the House
of Representatives, but had not completed its passage through Parliament
when Parliament was prorogued for the Federal election on 31 August 1998.
The Senate resolved on 8 November 1988 that taxation laws
which apply from the date of announcement must be introduced into Parliament
or published in draft form within six months of that date. This resolution
does not specifically take into account Bills which lapse if Parliament
is prorogued for a Federal election. However the Senate has previously
agreed that a lapsed measure which is reintroduced should retain the status
it had when first introduced so far as the `six month rule' is concerned
(for example the Trust Loss measures contained in Taxation Laws Amendment
(Trust Loss and Other Deductions) Bill 1997). In the case of these
measures, the spirit of the resolution has been met as the details of
the proposed laws were made available to the public in the form of a Bill
introduced into Parliament within the required six months.
In addition, the impact of the amendments in Schedule
9 of TLAB No 2 will sometimes be beneficial to taxpayers. Altering the
date of effect of the Schedule would cause disruption to taxpayers who
have acted in the expectation that the amendments will be passed by Parliament.
The measures contained in Schedule 9 of TLAB No 2 should therefore be
treated as having been introduced on 29 October 1997 for the purposes
of the `six month rule' ...
Schedule 9 of TLAB No 2 is not retrospective and will
not unduly trespass upon the personal rights and liberties of taxpayers.
I trust this answers your concerns.
The Committee thanks the Assistant Treasurer for these
responses, which address its concerns regarding the introduction of the
proposals within the `six month rule'.
Retrospective application
Schedule 7, Parts 1 and 2, and Schedule 8
As a budget announcement, the amendments proposed by Parts
1 and 2 of Schedule 7 apply to assets acquired after 13 May 1997.
The amendments proposed by Schedule 8 apply from 1 July 1997.
The Committee usually accepts that measures announced
in a Budget may be deemed to apply from Budget night. However, the usual
practice is that legislation giving effect to such measures is introduced
into Parliament within a few months of the bringing down of the Budget.
If the Budget were to be regarded as the equivalent of a Press Release,
the amendments proposed in these Schedules would clearly fall outside
the six-month period referred to in the Senate Resolution of 8 November
1988.
Accordingly, the Committee seeks the advice of the
Treasurer on the reason for the delay in putting these proposed amendments
into legislative form and whether there are any precedents for such delays
in introducing legislation to give effect to Budget measures.
Pending the Treasurer's advice, the Committee draws
Senators' attention to these provisions, as they may be considered to
trespass unduly on personal rights and liberties, in breach of principle
1(a)(i) of the Committee's terms of reference.
Relevant extracts from the responses from the Assistant
Treasurer
Parts 1 and 2 of Schedule 7
On 13 May 1997, the Treasurer announced that the Income
Tax Assessment Act 1936 (the Act) would be amended to require taxpayers
to reduce the cost base of an asset for CGT purposes by deductible expenditure.
The measures to amend the Act were contained in Taxation
Laws Amendment Bill (No 6) 1997, (TLAB 6) which was introduced into the
House of Representatives on 29 October 1997, within six months of the
date of announcement. TLAB 6 was passed by the House of Representatives,
but had not completed its passage through Parliament when Parliament was
prorogued for the Federal election on 31 August 1998.
The Senate resolved on 8 November 1988 that taxation laws
which apply from the date of announcement must be introduced into Parliament
or published in draft form within 6 months of that date. This resolution
does not specifically take into account Bills which lapse if Parliament
is prorogued for a Federal election. However the Senate has previously
agreed that a lapsed measure which is reintroduced should retain the status
it had when first introduced, so far as the `six month rule' is concerned
(for example the Trust Loss measures contained in Taxation Laws Amendment
(Trust Loss and Other Deductions) Bill 1997). In the case of these
measures, the spirit of the resolution has been met as the details of
the proposed laws were made available to the public in the form of a Bill
introduced into Parliament within the required 6 months.
In addition, altering the date of effect of Schedule 7
of TLAB 2 would unfairly advantage taxpayers who have disregarded the
proposed measures compared to those who have complied. The measures contained
in Schedule 7 of TLAB 2 should therefore be treated as having been introduced
on 29 October 1997, for the purposes of the `six month rule' …
The proposed legislation is not retrospective and will
not unduly trespass upon the personal rights and liberties of taxpayers.
The legislation reflects the principle that an item of expenditure should
either be deductible for income tax purposes or included in the cost base
of an asset for CGT purposes but not both.
I trust this answers your concerns.
Schedule 8
Schedule 8 replaces the formulae contained in subsections
446(2) and (4) of the Income Tax Assessment Act 1936 used to calculate
the passive income of life and general insurance companies. The measure
was announced in the 1997-98 Budget on 13 May 1997 and will correct a
deficiency in the existing formulae used to calculate the passive income
of the controlled foreign companies (CFCs) of life and general insurance
companies.
The deficiency in each existing formula is that it excludes
passive income derived from assets that are held by the CFC which are
in excess of those needed to meet the calculated liabilities of policy
holders of life assurance CFCs, or those needed to be set aside to meet
the outstanding claims of general insurance CFCs. The new formulae will
remedy this deficiency by excluding from a CFC's passive income only the
income derived on assets that are referable to insurance policies owned
by non-residents that are not related to the company.
The amendments to give effect to this measure were contained
in Taxation Laws Amendment Bill (No. 6) 1997 which was introduced into
Parliament on 29 October 1997, within six months of the date of announcement.
This Bill was passed by the House of Representatives, but had not completed
its passage through Parliament when Parliament was prorogued for the Federal
election on 31 August 1998.
The Senate resolved on 8 November 1988 that taxation laws
which apply from the date of announcement must be introduced into Parliament
or published in draft form within 6 months of that date. This resolution
does not specifically take into account Bills which lapse if Parliament
is prorogued for a Federal election. However the Senate has previously
agreed that a lapsed measure which is reintroduced should retain the status
it had when first introduced so far as the “six month rule”
is concerned (for example the Trust Loss measures contained in Taxation
Laws Amendment (Trust Loss and Other Deductions) Bill 1997). In the
case of these measures, the spirit of the resolution has been met as the
details of the proposed laws were made available to the public in the
form of a Bill introduced into Parliament within the required 6 months.
In addition, altering the date of effect of Schedule 8
of TLAB2 would unfairly advantage taxpayers who have disregarded the proposed
measures compared to those who have complied. The measures contained in
Schedule 8 of TLAB 2 should therefore be treated as having been introduced
on 29 October 1997 for the purposes of the “six month rule”
...
As indicated above, it is considered that the proposed
legislation is not retrospective and will not unduly trespass upon the
personal rights and liberties of taxpayers. The legislation protects the
revenue by ensuring that only the passive income derived from assets that
are referable to policies owned by non-residents who are not related to
the company will be excluded from passive income.
I trust this answers the Committee's concerns.
The Committee thanks the Assistant Treasurer for these
responses, which address its concerns regarding the introduction of the
proposals within the `six month rule'.
Barney Cooney
Chairman
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