Bills Digest no. 94 2005–06
Tax Laws Amendment (2005 Measures No. 6) Bill
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
Contact Officer & Copyright Details
Tax Laws Amendment (2005 Measures No. 6) Bill 2005
The Welfare to Work Act
Family and Community Services Legislation Amendment (Welfare
to Work) Act 2005
Coleambally Irrigation Mutual
Co-Operative Ltd v Commissioner of
Taxation  FCAFC 250
(7 September 2004)
Commissioner of Taxation
deductible gift recipient
Income Tax Assessment Act 1936
Income Tax Assessment Act 1997
medical expenses offset
Taxation Administration Act 1953
the Federal Court
Federal Court of Australia
Amendment (2005 Measures No. 6) Bill
House: House of Representatives
Sections 1-3 as well as
Schedules 1, 2, 4 and 5 will commence upon the Tax Laws Amendment
(2005 Measures No. 6) Bill 2005 ( Bill ) receiving Royal Assent.
Schedule 3 of the Bill will commence the later of the following
days: the start of the day on which this Act receives the Royal
immediately after the commencement of the Family and Community
Services Legislation Amendment (Welfare to Work) Act 2005
( Welfare to Work Act ). Should the Welfare to Work Act not be
enacted, than the provisions in Schedule 3 will not
The Bill implements a range of
changes to the taxation legislation. The respective Schedules have
different purposes which are discussed under their individual
Each Schedule of the Bill has a different background which, so
far as necessary, will be discussed under each individual heading
Loss utilisation can occur in several ways, for example, where
an entity joins a group and brings with it losses which can be used
by the head company of the group. Australian tax law restricts the
way in which such losses may be utilised. There are various ways in
which this can be done, one of which is called the available
The available fraction is:
the proportion that the joining entity s market
value (at the time of the joining) bears to the value of the whole
group (including the joining entity) at that
Item 1, Schedule 1 repeals subsection
707-320(4) and substitutes a new subsection
707-320(4) of the Income Tax Assessment Act 1997
(ITAA 1997). New subsection 707-320(4) provides
For a bundle of losses:
(a) subject to paragraph (b)‑the
available fraction is worked out to 3
decimal places, rounding up if the fourth decimal place is 5 or
(b) if the available fraction worked out under
paragraph (a) is 0.0000 and, if it worked out to more decimal
places, it would include one or more non-zero digits ‑the
available fraction is worked out to the
number of decimal places that includes the first or only such
digit, rounding up if the next decimal place is 5 or more.
Examples: For 0.000328, the available
fraction is 0.0003. For 0.000086, the available fraction is
This amendment will apply from 1 July 2002. This amendment
removes an unintended consequence and is beneficial
The amendments in Schedule 2 of the Bill are designed to remedy
the impact of the Coleambally Irrigation Mutual Co-operative
Ltd v Commissioner of Taxation  FCAFC 250 (7 September
2004) (Coleambally) on certain not-for-profit entities.
The aim of the amendments is to restore the
pre-Coleambally situation for affected not-for-profit
In Coleambally, the Full Federal Court held that the
mutuality principle could not be relied upon by non-profit
organisations to reduce their assessable income. Not-for-profit
entities include clubs, professional associations and some friendly
The mutuality principle recognises that:
Amounts are not derived for income tax purposes unless they are
received from an external source.
The principle is that where a number of people agree to
contribute sums to a fund for a common purpose that is created and
controlled for their mutual benefit, as in the case of certain
insurance funds and clubs and societies, any repayments from that
fund to the contributing members are not income as such
State and Territory
legislation governs the definition of a not-for-profit
entity.(4) In order to be classified as not-for-profit
an entity s constitution must prohibit the distribution of surplus
funds to members either on a winding up or whilst the entity is
Schedule 2, item 3,
new section 59-35 provides that income is not assessable
or exempt income to an entity if the amount would be a mutual
receipt, but for the entity s constituent document preventing the
entity from making any distribution, whether in money, property or
otherwise, to its members.
Schedule 2, item 4 provides that the amendments
made by the Bill apply to income years commencing on or after 1
July 2000. This is beneficial legislation designed to ensure that
the taxation status of not-for-profit entities is not affected by
the Federal Court s decision in Coleambally.
Schedule 3 Child care tax
Schedule 3 of the Bill amends subdivision 61-IA
of the ITAA 1997 to ensure that eligibility for the Child Care Tax
Rebate (CCTR) is preserved, notwithstanding changes to the
work/training/study requirements for access to Child Care Benefit
(CCB) with the passage of the Family and Community Services
Legislation Amendment (Welfare to Work) Bill 2005.(6)
The CCTR was announced during the 2004 Election campaign and can be
claimed from the 2005-06 tax year onwards.(7)
The passage of that Bill means that from 1 July 2006, a 15 hour
per week activity requirement (or 30 hours over 2 weeks) will be
required to be met to access more than 25 hours a week
Under the current tax legislation, eligibility for the CCTR for
out‑of‑pocket child care expenses can only be met where
the person otherwise qualifies for CCB for more than 20 hours a
week (up to 50 hours a week of CCB). However, the passage of the
Family and Community Services Legislation Amendment (Welfare to
Work) Bill) will change the CCB access rules from 1 July 2006. From
1 July 2006, to access more then 24 hours a week CCB (and up to 50
hours a week) a person will need to be working for 15 hours a week
or more. So for child CCTR , there will be persons who met the old
CCB rules but not the new CCB rules. So that these persons continue
to be able to access the CCTR, this Schedule proposes to amend the
tax legislation to allow continued access to the CCTR to those who
would have met the old CCB rules.
CCB for more than 20 hours a week and up to 50 hours per week is
payable to the taxpayer and their partner if they met either of the
the CCB work/training/study test at some time in the week (no
minimum hours required)
had an exemption from meeting the test; or
subject to a provision where there was no requirement to meet
Where one of these requirements are met, more than 20 hours of
CCB is payable; that is from 21 hours up to 50 hours a week.
The new CCB test to satisfy the child care work/training/study
requirement is contained in the Family and Community Services
Legislation Amendment (Welfare to Work) Bill 2005. The new test
applies in the first week commencing after 1 July 2006.
The new test requires that for more than 25 hours of CCB
(up from 20 hours a week) to be payable and up to 50 hours a week
the person will:
need to be engaged in a work activity for at least 15 hours a
week or more, or
where there are two parents, both parents each will need to be
engaging in work activity for 15 hours a week or more.
This is beneficial legislation. Notwithstanding the CCB rules
are to change from 1 July 2006, in regards to access to more than
24 hours a week CCB and up to 50 hours a week, access to the CCTR
will be preserved for those who would have met the old CCB
Section 159P of the Income Tax Assessment Act 1936
(ITAA 1936) provides a tax offset for any net medical expenses
incurred over $1,500 in an income year. The rate of offset is 20
per cent on expenses over the $1,500 threshold.
Prior to the amendment taxpayers could claim in respect of
medical procedures that were cosmetic.
The effect of the amendment is to exclude cosmetic procedures
from being eligible for the medical expenses offset. Expense which
are cosmetic in nature and do not attract a Medicare
benefit are classed as ineligible medical expenses.
Item 2, Schedule 4 of the Bill inserts
new subsection 159P(4) into the ITAA 1936:
ineligible medical expenses means
(a) to a legally qualified medical
practitioner, nurse or chemist, or a public or private hospital, in
respect of a cosmetic operation that is not a professional service
for which a medicare benefit is payable under Part II of the
Health Insurance Act 1973; or
(b) to a legally qualified dentist for:
(i) dental services; or
that is solely cosmetic.
Item 9, Schedule 4 provides that the amendments
will apply to assessments for the
2005-06 and later years of income.
Procedures which are not solely cosmetic will be unaffected by
Items 1, 3-10, Schedule 5 of the Bill amend
ITAA 1997 to update the lists of deductible gift recipients (DGRs)
and extend the period for which deductions are allowed for gifts to
certain fund that have time-limited DGR status.(10)
The ITAA 1997 is amended to allow make deductible gifts to be
made to the following bodies:
International Specialised Skills Institute Incorporated
Yachad Accelerated Learning Project Limited
C E W Bean Foundation
The Vietnam War Memorial of Victoria Incorporated
Australian Red Cross Society‑US 2005 Hurricane Relief
The Salvation Army Hurricane Katrina Relief Appeal; and
Xanana Vocational Education Trust.
Item 2, Schedule 5 of the Bill amends
subsection 30-50(2) of the ITAA 1997 and extends the DGR
listing of the City of Onkaparinga Memorial Gardens Association
Incorporated to 30 June 2005.
The Schedule 1 amendments address an unintended consequence and
The Schedule 2 amendments in respect of restoring the
pre-Coleambally situation for situation for affected
not-for-profit entities are beneficial.
The Schedule 3 amendments in respect of the child care benefit
rules are beneficial legislation. Despite the CCB rules changing
from 1 July 2006, access to the child care tax rebate will be
preserved for those who would have met the old CCB rules.
The Schedule 4 amendments exclude eligibility to the medical
expenses offset for solely cosmetic procedures.
The Schedule 5 amendments update the lists of deductible gift
recipients. This is beneficial legislation.
CCH Australian Master Tax Guide, CCH Australia Limited,
Sydney, 2005, p. 739.
Explanatory Memorandum, Tax Laws Amendment (2005 Measures No. 6)
Bill 2005, para 2.2, p. 11.
R L Deutsch, M L Friezer, I G Fullerton, M M Gibson, P J Hanley,
and T J Snape,
Australian Tax Handbook 2004, Thomson Legal &
Regulatory Limited, 2004 at para 10350, p. 272.
For example, Associations Incorporations Act 1981
ibid., pp.273 4.
Dale Daniels and Katrina Gunn, Family and Community Services
Legislation Amendment (Welfare to Work) Bill 2005, Bills
Digest, No. 75 2005-06, Parliamentary Library, Canberra, 20
December 2005. http://www.aph.gov.au/library/pubs/bd/2005-06/06bd075.pdf
Greg McIntosh, The New Child Care Tax Rebate , Research Note
No. 3 2005-06, Parliamentary Library,
Canberra, 5 August 2005. http://www.aph.gov.au/library/pubs/rn/2005-06/06rn03.pdf
Explanatory Memorandum, para 3.2, p. 15.
Explanatory Memorandum, para 4.17, p. 21.
Explanatory Memorandum, para 5.1, p. 25.
Jane Grace and Peter Yeend
7 February 2005
Bills Digest Service
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© Commonwealth of Australia 2006
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