Bills Digest no. 135 2006–07
Tax Laws Amendment (2007 Measures No. 2) Bill
2007
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
Schedule 1 Effective life provisions
Schedule 2 Taxation of boating
activities
Schedule 3 Research and development
Schedule 4 Donation of listed shares to
deductible gift recipients
Schedule 5 Specifically listed deductible gift
recipients
Schedule 6 Deductions for contributions
relating to fund-raising events
Schedule 7 Technical corrections
Schedule 8 Venture
capital
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage
History
Tax Laws
Amendment (2007 Measures No. 2) Bill 2007
Date introduced:
29 March 2007
House: House of Representatives
Portfolio: Treasury
Commencement:
The Act commences on Royal Assent. The
commencement and application of the Schedules are dealt with in the
Main Provisions section of this Bills Digest.
The Tax Laws Amendment
(2007 Measures No. 2) Bill 2007 (the Bill) has eight Schedules and
the purpose of each Schedule is briefly as follows.
- Schedule 1 proposes to make amendments to the
Income Tax Assessment Act 1997 (ITAA 1997) so that the
treatment of mining rights under the uniform capital system, which
was enacted from 1 July 2001, will be more closely aligned with
that of other depreciating assets. A new rule will clarify how to
work out the life of a mine.
The amendments will apply to assessments for the
income year in which 1 July 2001 occurred and later income
years.
- Schedule 2 proposes to make amendments to the
ITAA 1997 so that taxpayers, who cannot claim deductions in respect
of their boating activities on the basis that they are carrying on
a business, will be allowed to claim deductions up to the amount of
their boating income. Such taxpayers could carry forward deductions
in excess of their boating income and be allowed to deduct them
from income from boating activities in later income years.
- Schedule 3 proposes to make amendments to the
provisions of the Income Tax Assessment Act 1936 (ITAA
1936) dealing with the tax treatment of expenditure on research and
development. As stated in paragraph 3.1 on page 29 of the
Explanatory Memorandum to the Bill, these amendments clarify and
make 10 technical amendments to the provisions for the premium
incremental concession and the refundable tax offset. The most
significant changes are that:
- companies will now be able to claim the R&D Tax Offset if
they have incurred contracted expenditure to a Registered Research
Agency, regardless of whether the aggregate expenditure is less
than $20 000, and
- the premium incremental concession will be distributed amongst
all companies in a group that have increased their R&D
expenditure over the average of their past three year s
expenditure.
- Schedule 4 proposes to make amendments to the
ITAA 1997 to allow taxpayers a tax deduction for donations of small
parcels of shares in a listed public company to a deductible gift
recipient (DGR). The conditions for deductibility would be that the
shares were acquired at least 12 months before the donation and
have a market value of $5 000 or less on the day the donor makes
the gift.
- Schedule 5 proposes amendments to the ITAA
1997 to update the list of DGRs to include the American Australian
Association Limited with effect from 14 November 2006 and Bunbury
Diocese Cathedral Rebuilding Fund with effect from 19 December
2006.
Schedule 5 also extends the period for making
donations to The Finding Sydney Foundation from 27 August 2006 to
28 August 2007.
- Schedule 6 proposes amendments to the ITAA
1997 in relation to the conditions for claiming deductions for
contributions to fund-raising events of DGRs.
Under the proposed amendments the deduction
will be available if:
- the value of the contribution is more than $150 (currently it
is $250), and
- the minor benefits received by the donor is the lower of:
(a) an amount which is less than $150
(currently it is $100), and
(b) 20 per cent (currently 10 per cent) of the
value of the contribution.
- Schedule 7 proposes amendments to correct
defects in the definitions of:
- exempt entity in the ITAA 1997, and
- excepted trust in the ITAA 1936.
- Schedule 8 proposes amendments to the venture
capital provisions in income tax law, the Venture Capital Act
2002 and the Pooled Development Funds Act 1992 to
enhance the attraction to invest in venture capital in Australia.
- Part 1 of Schedule 8 includes proposed
amendments to the ITAA 1997 and the Venture Capital Act
2002 to relax the eligibility requirements for concessional
taxation treatment for foreign residents investing in venture
capital limited partnerships (VCLP) and Australian venture capital
funds of funds (AFOFs).
- Part 2 of Schedule 8 includes proposed
amendments to the ITAA 1936, the ITAA 1997 and the Venture
Capital Act 2002 to provide tax concessions for Australian
residents and foreign residents investing in early stage venture
capital activities through a new investment vehicle called the
early stage venture capital limited partnership (ESVCLP).
- Part 3 of Schedule 8 includes proposed
amendments to the ITAA 1997, the Pooled Development Funds Act
1992 and the Venture Capital Act 2002 to replace the
name of the Pooled Development Funds (PDF) Registration Board with
the name Venture Capital Registration Board. The amendments
proposed also provide for the Venture Capital Registration Board to
register and monitor the compliance of ESVCLPs with approved
investment plans.
- Part 4 of Schedule 8 provides for the closure
of the PDF regime under the Pooled Development Funds Act
1992 after the commencement of this Act.
- Part 5 of Schedule 8 include technical
amendments to ensure that eligible partners in conditionally
registered VCLPs and AFOFs are entitled to the tax exemption on the
profits and gains derived by the partnership while the partnership
was conditionally registered.
As there is no central theme to the Bill, the
background to the various measurers and the related main provisions
will be considered under the amendments proposed by each
Schedule.
Division 40 of the ITAA 1997, which was
enacted with effect from 1 July 2001, provides for a uniform
capital allowance (UCA) system. The UCA is intended to allow
deductions to taxpayers for the decline in value of a depreciating
asset used in producing income when assessing their taxable income.
A depreciating asset is an asset that has a limited effective life
and that is reasonably expected to decline in value over the time
it is used to produce income.
Broadly, the
effective life of a depreciating asset is the period it can be used
to produce income. Section 40-100 of the ITAA 1997 provides that
the Commissioner of Taxation may make a written determination
specifying the effective life of depreciating assets. Section 40-95
gives a taxpayer the choice to use an effective life determined by
the Commissioner or to work out the effective life of the asset in
accordance with section 40-105.
One of the exceptions to the above mentioned
general provisions of the UCA is that in respect of the effective
lives of certain intangible depreciating assets including patents,
designs, copyrights and mining, quarrying or prospecting rights.
Subsection 40-95(7) sets out a table giving the effective lives of
certain intangible assets including certain mining, quarrying or
prospecting rights in existing items 11 to 13 in the table. The
provisions relating to self-assessment of effective life of
depreciating assets is therefore not available in respect of these
intangible assets.
On 9 May 2006, in connection with the 2006
Budget, the Minister for Revenue and Assistant Treasurer
announced that changes will be made to the way effective lives
of certain mining, quarrying or prospecting rights are worked out
under the UCA system so that the provisions relating to
self-assessment will apply.(1) The Minister stated as
follows.
As a result of this measure, the law will include
these rights under the general provisions of the uniform capital
allowances regime which will provide holders of these rights with
the option of self assessment; allowing them to write-off their
right over the remaining life of the mine, petroleum field
or quarry. Also, they will not be required to make an annual
estimate of their asset s economic life.
This measure will ensure that these rights are
essentially treated the same as other depreciable assets that are
written-off under the uniform capital allowances regime, as had
been originally intended.
The Minister also announced that the legislative amendments will
apply from 1 July 2001 the date mining rights were brought into the
UCA regime as depreciating assets.
Item 1 of Schedule
1, repeals items 11, 12 and 13 of the table in subsection
40-95(7) referred to above so that the current provisions cease to
apply to determining the effective life of mining, quarrying or
prospecting rights.
Item 3 of Schedule
1 inserts proposed subsection 40-95(10)
which includes the following table for determining the effective
lives of the mining, quarrying or prospecting rights mentioned
therein.
|
Item
|
For this asset:
|
Estimate the period until the end of:
|
|
1
|
A *mining, quarrying or
prospecting right relating to *mining operations (except obtaining
*petroleum or quarry materials)
|
The life of the mine or
proposed mine to which the right relates or, if there is more than
one, the life of the mine that has the longest estimated life
|
|
2
|
A *mining, quarrying or
prospecting right relating to *mining operations to obtain
*petroleum
|
The life of the petroleum
field or proposed petroleum field to which the right relates
|
|
3
|
3 A *mining, quarrying or
prospecting right relating to *mining operations to obtain quarry
materials
|
The life of the quarry or
proposed quarry to which the right relates or, if there is more
than one, the life of the quarry that has the longest estimated
life
|
Section 40-105 provides for taxpayers to
self-assess effective lives of depreciating assets. Section 40-110
enables taxpayers to choose to recalculate effective lives if the
effective life a taxpayer has been using is no longer accurate
because of changed circumstances relating to the nature of the use
of the asset. However subsection 40-105(4) and subsection 40-110(5)
state that section 40-105 and section 40-110 do not apply to an
intangible depreciating asset to which an item in the table in
subsection 40-95(7) applies.
Item 4 of Schedule
1 proposes to repeal subsection 40-105(4) and substitute
proposed subsection 40-105(4). Item
5 inserts proposed subsections 40-110(3A)
and (3B). These proposed amendments have the
effect of making a special provision in proposed subsection
40-110(3B) for enabling taxpayers to recalculate the
effective life of a mining, quarrying or prospecting right from a
later income year, if the effective life a taxpayer has been using
is no longer accurate because of changed circumstances relating to
an existing or proposed mine, petroleum field or quarry to which
that right relates.
Proposed paragraph
40-110(4)(b) provides that the recalculation of a mining,
quarrying or prospecting right must be done using the rules in
proposed subsections 40-95(10) and
(11).
The Explanatory Memorandum to the Bill at page
3 states that the financial impact is nil.(2)
Item 7 of Schedule
1 provides that the amendments made by this Schedule apply
to assessments for the income year in which 1 July 2001 occurred
and later income years. Although, this measure is retrospective in
its application, some taxpayers may benefit from being able to
recalculate the effective life of certain mining, quarrying and
prospecting rights.
On 9 May 2006, in connection with the 2006
Budget, the Minister for Revenue and Assistant Treasurer
announced that the Government will amend the tax treatment of
boat hire arrangements to allow taxpayers, who cannot demonstrate
that they are actually carrying on a business using a boat, to
claim deductions for costs related to their boating
activity.(3) The Minister added that:
The measure will allow taxpayers who cannot
demonstrate that they are carrying on a business using a boat
to:
- deduct expenditure relating to their boating activity up to the
level of income generated from their boating activity; and
- allow any excess deductions to be carried forward and deducted
against income from that boating activity in future years.
The measure will ensure
that where taxpayers generate an income stream using their boat,
they are not unfairly taxed while maintaining the restrictions on
using the tax system to subsidise private use of boats.
Part 1 of Schedule
2 includes the main amendments to the ITAA 1997 to give
effect to Government s proposal. Part 2 of Schedule
2 deal with consequential amendments.
Item 1 of Part
1, Schedule 2 inserts proposed
section 26-47 to the ITAA 1997 to deal with non-business
boating activities.
Proposed subsection 26-47(2)
provides that so much of the amounts relating to using or holding
boats for an income year as exceed the assessable income from using
or holding boats for that year:
- were not deductible against other income for that income year;
and
- were an amount (a quarantined amount) relating to using or
holding boats to be deducted from assessable income from using or
holding boats in the next income year.
Proposed subsection 26-47(2)
clearly allows the grouping of activities from more than one boat
owned by the taxpayer. The quarantined amount is the excess of the
total expenditure in operating all boats over the assessable income
from all boats owned by the taxpayer.
Proposed subsection 26-47(3)
provides an exception to proposed subsection
26-47(2) where the using or holding of boats is
attributable to one or more of the following:
- where the holding of a boat is trading stock of a
taxpayer;
- where the boat is used or held for letting on hire in the
ordinary course of business;
- where the boat is held or used for transporting the public or
goods for payment in the ordinary course of business; and
- where using a boat is for a purpose that is essential to the
efficient conduct of a business carried on by the taxpayer.
A note to proposed subsection
26-47(3) states that even if this exception applies, to
the application of quarantining losses under proposed
subsection 26-47(2), Division 35 of the ITAA 1997 which
deals with the deferral of losses from non-commercial business
activities may still apply to quarantine losses from using or
holding boats. Briefly, the quarantining of losses under Division
35 will not apply if an activity passes one of four tests, i.e. the
real property test, profits test, other assets test, or assessable
income test or the Commissioner exercises discretion to allow the
loss to be offset against other income. An overview of the
operation of the non-commercial loss provisions is to be found in
the Australian Taxation Office fact sheet, a link to which is
here.
Proposed subsection 26-47(6)
provides that any amount quarantined under proposed
subsection 26-47(2) can be deducted from the excess of
assessable income from boating activities over the deductions from
boating activities for a subsequent year. The deduction of the
quarantined amount is limited to the lesser of that excess and the
remaining quarantined amount.
Exception where
the using or holding of a boat results in a fringe benefit
Proposed subsection 26-47(4)
provides that the rule for quarantining losses under
proposed subsection 26-47(2) does not apply to an
amount incurred by using or holding a boat in providing a fringe
benefit under the Fringe Benefits Tax Assessment Act 1986
(FBTAA 1986).
Item 4 of Schedule
2 inserts proposed section 118-80 into
Subdivision 118-A of the ITAA 1997 to provide for the reduction of
a capital gain in relation to a boat by an amount quarantined under
proposed subsection 26-47(2).
Proposed subsection 26-47(5)
reduces the quarantined amount under proposed subsection 26-47(2)
by so much of that quarantined amount that has been set off against
the capital gain from a boat under proposed section
118-80.
Proposed subsection 26-47(5)
also provides that the reduction from boat capital gains under
proposed subsection 26-47(5) will take place
before a deduction is made under proposed subsection
26-47(6) from boat business profits.
Section 6-20 of the ITAA 1997 states that, an
amount of ordinary income or statutory income is exempt income, if
it is made exempt from income tax by a provision of the ITAA 1997
or another Commonwealth law.
The method of calculating net exempt income is
set out in section 36-20 of Division 36 of the ITAA 1997. It is the
excess of exempt income from all sources over the sum of
non-capital expenses incurred in deriving that income and any
foreign tax on that income. For an Australian resident, the net
exempt income is the amount by which the total of:
The net exempt income reduces the amount of tax
loss for an income year as well as tax losses in a later income
year under section 36-10 and 36-15 of the ITAA 1997
respectively.
Division 35 of the ITAA 1997 dealing with
deferral of losses from non-commercial business activities provides
that net exempt income which has not been utilised under sections
36-10 and 36-15 is set off against non-commercial losses under
Division 35 before being carried forward to later income years.
Proposed subsection 26-47(8)
provides for the reduction of any remaining quarantined amount,
after it has been reduced by any boating gains under
proposed subsection 26-47(5) and any boat business
profits under proposed subsection 26-47(5), by
exempt income which has not been set off against carry-forward
amounts from Division 35 and Division 36.
When a taxpayer is bankrupt any losses
incurred prior to bankruptcy cannot be carried forward to a period
after bankruptcy as provided for in Subdivision 36-B of the ITAA
1997. There is a similar provision in Division 35 relating to
non-commercial losses.
The proposed subsections
26-47(9) and (10) make a similar
exception to the utilisation of quarantined amounts on
bankruptcy.
The Explanatory Memorandum to the Bill at page
3 states that these measures will result in the following savings
to revenue.
|
2006-07
|
2007-08
|
2008-09
|
2009-10
|
| |
-$5m
|
-$6m
|
-$6m
|
Item 18 of Part
3 of Schedule 2 provides that the
amendments made by this Schedule apply to the
first income year starting on or after the day on which this Act
receives the Royal Assent and later income years.
Budget Measures 2006-07, Budget Paper No. 2 at
page 319, stated that Government will improve the operation of the
research and development (R&D) provisions to clarify the law,
remove unintended consequences and ensure that the law reflects the
original policy intent.
The Budget measure envisaged changes to the
R&D tax offset leading to additional R&D tax offset
payments of $7.0 million per year.
Improvements were also foreshadowed to the 175
per cent premium R&D deduction in Budget Paper No.2 as
follows.
These changes include:
- ensuring that the deduction can be allocated to those companies
in a group who have increased their R&D expenditure over three
years; and
- that the deduction requirement test matches group history and
group expenditure, adding a reference to the Commercial Ready
Program.
These changes will result in decreased revenue
of $2.5 million per year.
The
Explanatory Memorandum to the Bill states concisely at
paragraph 3.5 on page 29 the 10 technical amendments that Schedule
makes. These are set out below:
3.5 The new law makes 10 technical amendments to
the R&D provisions of the ITAA 1936 to:
extend the appeal and review rights to encompass companies claiming
the R&D tax offset;
extend the time for claiming the R&D tax offset;
ensure that the exception to the $20,000 minimum R&D spend rule
applies to the R&D tax offset;
ensure that all R&D companies are covered by the R&D offset
provisions by referring to persons rather than taxpayers ;
correct a section reference;
provide a more appropriate allocation of the premium incremental
concession between companies in a group;
match the group s history with its R&D expenditure;
replace a reference to the start grant with a reference to the
Commercial Ready program;
provide a more appropriate outcome in calculating the amounts
relevant to the premium incremental concession; and
include a reference to the premium incremental concession as a
deduction in section 12-5 of the Income Tax Assessment Act 1997
(ITAA 1997).
The main provisions section of this Bills
Digest will consider the significant amendments the R&D tax
offset and the 175 per cent premium R&D deduction.
Eligible small companies with an annual group
turnover of less than $5 million are entitled to choose a R&D
tax offset under subsection 73I (2) of the Income Tax
Assessment Act 1936 (ITAA 1936) in the company s return of
income for the tax offset year, instead of the R&D tax
deduction if they satisfy the eligibility conditions in section
73J. The other conditions for eligibility for the R&D tax
offset under subsection 73J(1) are that the aggregate R&D
amount is more than $20 000 and less than $1 million per year.
Eligible companies can choose to receive the R&D tax offset of
30 cents for each dollar of R&D expenditure that would
otherwise have been claimable as a R&D deduction.
The significant amendments dealt with in this
section of the Bills Digest cover the operation of the R&D tax
offset.
Subsection 175A(2) of the ITAA 1936 provides
that a taxpayer with no taxable income or who has taxable income
but no tax payable cannot object to an assessment unless it results
in an increase in the tax liability. A taxpayer who claims the tax
offset and falling into one of these two categories will therefore
not be able to object to an assessment in relation to the amount of
tax offset included in the assessment.
Item 3 of Schedule
3 inserts proposed section 73IA to
provide for the Commissioner to give a company eligible for the
R&D tax offset a written notice under proposed
subsection 73IA(1) specifying the amount of tax offset
available to the company under section 73I.
Proposed subsection 73IA(2)
provides that the eligible company if dissatisfied with the notice
may object in the manner set out in Part IVC of the Taxation
Administration Act 1953. Item 22 of
Schedule 3 inserts proposed paragraph
14ZW(1)(bc) into Part IVC to allow companies between two
and four years to lodge an objection with the Commissioner
depending on the complexity of their tax affairs based on the
status of the company as determined by reference to the items in
the table in subsection 170(1) of the ITAA 1936.
Item 4 of Schedule
3 provides that that the amendments made by item
3 apply on or after 1 July 2001. It must be noted that the
R&D tax offset under section 73I commenced from the income year
starting from 1 July 2001 and later income years. The retrospective
application of this measure will assist companies to seek an
amendment of the R&D tax offset with effect from the year
2001-02 income year and later years.
Under current law a company cannot choose the
R&D tax offset by amending their original return. An eligible
company can only claim the R&D tax offset in the company s
return for the tax offset year under subsection 73I(2) of the ITAA
1936.
Item 2 of Schedule
3 repeals subsection 73I(2) and substitutes
proposed subsection 73I(2) to enable a company to
make the election for the R&D tax offset additionally by notice
in writing to the Commissioner under proposed paragraph
73I(2)(b) within the normal time for amendment of income
tax assessments by the Commissioner. This period is determined by
reference to the table in subsection 170(1) of the ITAA 1936.
One of the eligibility conditions for claiming
the R&D tax offset is that the aggregate R&D development
amount must exceed $20 000 for the tax offset year under paragraph
73J(1)(b). Item 5 of Schedule 3
repeals paragraph 73J(1)(b) and substitutes proposed
paragraph 73J(1)(b) which allows either contracted
expenditure without any specified minimum amount or its aggregate
research and development amount which exceeds $20 000 for the tax
offset year. Contracted expenditure as defined in subsection
73B(1)means expenditure contracted to a body registered under
section 39F of the
Industry Research and Development Act 1986.
Item 6 of Schedule
3 provides that the amendment made by item
5 applies to expenditure incurred in years of income
commencing on or after the day on which this Act receives the Royal
Assent.
The Explanatory Memorandum at page 4 states
that the changes to the R&D tax offset will cost an additional
$7 million a year in R&D tax offset payments.
As mentioned above:
- item 4 of Schedule 3 provides
that that the amendments made by item 3 relating
to objections to the notice of R&D tax offset issued by the
Commissioner, apply on or after 1 July 2001. It must be noted that
the R&D tax offset under section 73I commenced from the income
year starting on 1 July 2001.
- item 6 of Schedule 3 provides
that the amendment made by item 5 relating the
R&D tax offset on contracted expenditure with a Registered
Research Agency, applies to expenditure incurred in years of income
commencing on or after the day on which this Act receives the Royal
Assent.
As the table in clause 2 of
the Bill provides that Schedule 3 commences on the
day on which this Act receives the Royal Assent, all other
amendments mentioned above take effect from that date.
The R&D tax concessions include an
incremental concession at the 175 per cent rate of deduction on any
additional expenditure on R&D over the average of their past
three year s expenditure under sections 73P to 73Z of the ITAA
1936. Briefly, the additional expenditure is eligible for a further
deduction of 50 per cent under subsection 73Y(2) on top of the 125
per cent and is applicable to additional expenditure on R&D
made in years of income that commence after 30 June 2001.
Under current tax law, a history of either
deductible R&D expenditure or receipts from R&D start
grants will meet the three year history requirement under section
73Q of the ITAA 1936.
As the R&D Start Program was abolished and
replaced with the Commercial Ready Program commencing on 6 May
2004, item 10 and item 15 of
Schedule 3 provide for the three year history
requirement for eligibility to the premium R&D deduction to be
met by receipts of a subsidy or grant from the Commercial Ready
Program.
There are certain key features of the
incremental concession in relation to groups of companies. Relevant
to the amendments considered in this paragraph, there are also
rules to determine the portion of the premium amount which is
distributed to an eligible company. The rules in section 73X are
intended to distribute the premium amount between the members of
the group that contributed to earning it.
The Explanatory Memorandum states at paragraph
3.12 on page 33, that under current law it is possible that a group
of companies will be eligible for an amount of the premium
incremental concession without any firm in the group being eligible
for the distribution of that amount. To remedy this, item
19 of Schedule 3 repeals subsection
73X(1) and inserts proposed subsection 73X(1) to
provide that the premium amount for an year of income is
distributed between each group member that increased its
incremental expenditure during its group membership period in that
year, based on each company s expenditure over the average of the
previous three year s expenditure.
The Explanatory Memorandum to the Bill at page
34 states that this measure is expected to lead to an additional $7
million per year in R&D tax offset payments and decreased
revenue of $2.5 million per year as a result of the premium
incremental concession.
Items 11 and
16 of Schedule 3 provide that the
amendments made by items 10 and15
take effect from 6 May 2004.
Item 20 of Schedule
3 provides that the amendment made by item
19 applies to assessments for the year of income following
the year of income in which this Act receives the Royal Assent and
later years.
Income tax law allows taxpayers to claim
income tax deductions for certain gifts to the value of $2 or more
to deductible gift recipients (DGRs). To be a DGR, an organisation
must fall within a category of organisations set out in Division 30
of the ITAA 1997 and be endorsed by the ATO, or be
specifically listed under that Division.
In the context of the 2006 Budget, the
Minister for Revenue and Assistant Treasurer
announced on 9 May 2006 a number of measures to enhance
philanthropy.(4) The proposed changes included extending
a tax deduction for the donation of small parcels of shares to
deductible gift recipients.
Items 1 to 6
of Schedule 4 amend subsection 30-15(2) of the
ITAA 1997 to allow the deduction of the market value of listed
company shares that satisfied the following conditions.
- The market value on the day the shares were gifted should be $5
000 or less.
- The shares were acquired at least 12 months before making the
gift.
- The shares are listed for quotation on the official list of an
Australian stock exchange.
Share as defined in subsection 995-1(1) applies
for this purposes means a share in the capital of the company, and
includes stock. Thus securities that are not shares and the
derivatives of shares are not covered by this measure.
The Explanatory Memorandum to the Bill adds at
paragraph 4.9 on page 38, that shares acquired include those that
come into the donor s possession through a variety of means
including shares that have been purchased, inherited, won, received
as a gift or received as a bonus.
The Explanatory Memorandum to the Bill on page
4 states that this measure will have the following revenue
implications:
|
2007-08
|
2008-09
|
2009-10
|
2010-11
|
| |
-$10m
|
-$11m
|
-$11m
|
Item 10 of Schedule
4 provides that the amendments made by this Schedule apply
to gifts and contributions made in an income year commencing on or
after the day on which this Act receives the Royal Assent.
As mentioned above, certain gifts to the value
of $2 or more to specifically listed deductible gift recipients in
Division 30 of the ITAA 1997 are tax deductible.
On 14 November 2006, the proposal to list the
American Australian Association Limited was announced in the Prime
Minister s Media Release.(5)
On 22 December 2006, the proposal to list the
Banbury Diocese Cathedral Rebuilding Fund was announced in the
Press Release of the Minister for Revenue and Assistant
Treasurer.(6)
Items 3 to 6
of Schedule 5 amend Division 30 of the ITAA 1997
to give effect to these proposals.
In the case of the American Australian
Association Limited the amendment by item 3
requires that the gift must be made after 13 November 2006.
In the case of the Banbury Diocese Cathedral
Rebuilding Fund the amendment by item 4 requires
that the gift must be made after 18 December 2006 and before 19
December 2008.
The reader is referred to the background to
the listing of these two organisations given in paragraphs 5.7 and
5.8 respectively on page 44 of the Explanatory Memorandum.
On 10 November 2006, the Minister for Revenue
and Assistant Treasurer announced that an extension will be granted
to the listing of The Finding Sydney Foundation.(7)
Item 1 of Schedule
5 amends item 5.2.25 in the table in subsection 30-50(2)
by extending from 27 August 2006 to 28 August 2008 when gifts may
be made to The Finding Sydney Foundation. It is necessary to
restore item 5.2.25 to the table in subsection 30-50(2) by an
amendment to Tax Laws Amendment (Repeal of Inoperative
Provisions) Act 2006 effected by the amendment proposed by
item 9 of Schedule 8.
Items 2, 7, and
8 of Schedule 5 propose
amendments to subsections 30-65 and 30-315(2) to substitute the
former name of the Voluntary Service to Indigenous Communities
Foundation under which it was listed, with its present name,
namely, Indigenous Community Volunteers Limited.
The Explanatory Memorandum to the Bill at page
5 states that the above measures will have the following revenue
implications:
|
2007-08
|
2008-09
|
2009-10
|
2010-11
|
2011-12
|
|
-$5m
|
-$1m
|
-$0.7m
|
-$0.6m
|
-$0.6m
|
The amendments made by Schedule 5 commence
from the day on which this Act receives the Royal Assent, as
provided in item 2 of the table in subclause 2(1)
of the Bill. However, the individual measures operate as indicated
above.
From 1
July 2004, tax law permitted contributions to fund-raising events
of deductible gift recipients (DGRs) to be tax deductible even
though the contributor received minor benefits, subject to certain
conditions in item 8 of the table in subsection 30-15(2) of the
ITAA 1997.
Broadly, to be tax deductible the contribution must be money
over $250, or property purchased during the 12 months before making
the contribution and valued at more than $250, or property valued
by the Commissioner at more than $5,000
The benefit received by the contributor must
be no more than 10% of the value of the contribution or $100,
whichever is less.
The Australian Taxation Office (ATO)
describes fund-raising events of DGRs as
follows.(8)
They include:
- fetes, balls, gala shows, dinners, performances or similar
events
- events comprising sales of goods if selling such goods is not a
normal part of the supplier s business, and
- events that have been approved by the Commissioner of Taxation
as a fundraising event.
To be eligible for the concession, the same type
of event cannot be conducted more than 15 times in a financial
year.
On 1 December 2006, the Minister for Revenue
and Assistant Treasurer and the Minister for Families, Community
Services and Indigenous Affairs announced in a
Joint Press Release that the minimum contribution threshold
will be reduced from $250 to $150 to allow a greater number of
charities to use the measure for fund-raising.(9)
In addition, the value of the minor benefit
allowed will be increased to 20 per cent of the gift or ticket
price but not exceeding a value of $150 (previously 10% not
exceeding $100).
The Joint Press Release indicated that the changes will apply
from 1 January 2007.
Items 1 to 9 of
Schedule 6 amend the table in subsection 30-15(2)
to implement these changes.
Item 10 of Schedule 6 provides
that the amendments made by this Schedule apply and are taken to
have applied to contributions made on or after 1 January 2007.
The Explanatory Memorandum to the Bill at page
6 states that Schedule 7 addresses:
- a defect in the definition of exempt entity in the ITAA 1997,
and
- excepted trust in the ITAA 1936.
It adds that it corrects some minor technical
errors in Division 58 of the ITAA 1997 dealing with capital
allowances for depreciating assets.
Item 14 of Schedule
7 repeals the definition of exempt entity in subsection
995-1(1) of the ITAA 1997 and replaces it with a new definition
which has two paragraphs (a) and (b). An entity satisfying any one
of these two paragraphs is an exempt entity.
Paragraph (a) provides that an exempt entity
means an entity whose ordinary income or statutory income is exempt
because of the ITAA 1997 or because of another Commonwealth law
regardless of the kind of ordinary income or statutory income it
might have.
Paragraph (b) provides that an exempt entity
is an untaxable Commonwealth entity.
The reader is referred to paragraphs 7.6 and
7.7 on page 52 as well as paragraphs 7, 9 to 7.12 on page 53 of the
Explanatory Memorandum for examples of the problems that have
arisen because of the present definition and the results flowing
from this amendment, respectively.
Item 1 of Schedule
7 amends paragraph 272-100(d) in Schedule 2F of the ITAA
1936 to amend the definition of excepted trust to require all the
interests in the income and capital of the trust to be held by
exempt entities.
The effect of the changes to the definition of
exempt entity and excepted trust is that state and territory bodies
exempted by Division 1AB of Part 111 of the ITAA 1936 are treated
in the same manner with entities exempted by Division 50 of the
ITAA 1997.
The Explanatory Memorandum at page 6 states
that the financial impact of the technical amendments and
corrections is nil.
The amendment made by item 14
to the definition of exempt entity applies from 1 July 2005, as
provided in item 4 of the table in subclause 2(1)
of the Bill.
The amendment made by item 1
to the definition of excepted trust applies from the day on which
this Act receives the Royal Assent, as provided in item 3 of the
table in subclause 2(1) of the Bill.
The
Venture Capital Act 2002 and the
Taxation Laws Amendment (Venture Capital) Act 2002
introduced tax concessions to facilitate non-resident investment in
the Australian venture capital industry. The Pooled Development
Funds Board established under the Venture Capital Act 2002
and the Australian Taxation Office (ATO) jointly administer the tax
concessions. The ATO website
gives an overview of the operation of the venture capital tax
concession and an extract from it is set out
below:(10)
The aim of the concession is to facilitate
non-resident investment in the Australian venture capital industry
by providing incentives for increased investment to support patient
equity capital investments in relatively high-risk start-up and
expanding businesses that would otherwise have difficulty in
attracting investment through normal commercial terms.
This is achieved by providing tax concessions in
certain circumstances to:
- tax-exempt foreign residents from Canada, France, Germany,
Japan, United Kingdom and the United States of America
- foreign venture capital fund of funds managed and controlled in
the countries named above, and
- taxable foreign residents from the countries named above or
from Italy, the Netherlands (excluding the Netherlands Antilles),
New Zealand, Norway, Sweden or Taiwan, whose committed capital in
the venture capital limited partnership (VCLP) or Australian
fund of funds (AFOF) is less than 10%.
Specifically, the concessions provide for:
- flow-through tax treatment to two newly created venture capital
investment vehicles the VCLP and the AFOF where an investment was
made either directly or through a VCLP, and
- an exemption from income tax on profits (capital or revenue)
from the disposal of eligible Australian investments by partners or
members of these investment vehicles, or by eligible venture
capital investors who invest directly in such eligible Australian
investments.
On 20 May 2005, the Minister for Industry,
Tourism and Resources, the Hon Ian McFarlane
announced (11)the release of the following
terms of reference of the Review of the Venture Capital
Industry by an expert group headed by Mr Brian
Watson:(12)
1. Assess the level and sources of venture capital
and later stage private equity investment, including historical
trends and growth prospects. The Review should identify factors
that might impact on levels of Australian venture capital and later
stage private equity investment including, but not limited to, the
availability of suitable investment opportunities, the
accessibility and liquidity of Australian equity markets and
proximity to global capital and product markets.
2. Determine whether there are any impediments to
the efficient operation of the venture capital and later stage
private equity market and, on this basis, determine whether
government intervention is warranted.
3. Consider the appropriateness, effectiveness and
efficiency of existing Australian Government support for venture
capital and later stage private equity investment, in the context
of a thorough review of the industry, including:
- The Pooled Development Funds program paying regard to the
issues and recommendations raised in the PDF Registration Board s
report Financing Australian SMEs .
- The Venture Capital Regime including venture capital limited
partnerships.
- Other programs including Innovation Investment Funds, COMET and
the Pre-seed Funds.
Where feasible, the Venture Capital Review Expert
Group may wish to identify features of government intervention by
other countries to determine their effectiveness, usefulness and
relevance to Australia.
4. Determine the impact of venture capital (and
later stage private equity) activity on the Australian economy.
The Department of Industry, Tourism and Resources website gives
the following details of the
Innovation Investment Fund Program.(13)
The objectives of Innovation Investment Fund (IIF)
are to:
- encourage the development of new-technology companies
commercialising R&D, by addressing capital and management
constraints;
- develop a self-sustaining, early-stage, technology-based
venture capital industry;
- develop fund managers with experience in the early stage
venture capital industry; and
- establish in the medium term a revolving or self-funding
program.
Program history
The IIF program was announced in the Small
Business Statement of March 1997, and round one licensed funds
became operational in 1998. A further round was announced in 2000
with licensed funds' commencing operations in 2001.
The Australian Government, in partnership with the
private sector, established nine venture capital funds to invest in
small technology based companies, commercialising Australian
R&D. By demonstrating the returns achievable from investing in
such companies, IIF aims to encourage additional private sector
investment.
The report of the review of the venture
capital industry was not published, but the changes announced in
connection with the 2006 Budget referred to in the following
paragraph, would appear to be a response to that report.
Key features of the venture capital measures
announced in a
Joint Press Release by the Treasurer and the Minister for
Industry, Tourism and Resources in connection with the 2006 Budget
were as follows.(14)
- The requirements to qualify for the tax concessions by venture
capital limited partnerships (VCLPs) will be relaxed to remove a
range of restrictions including allowing investment in unit trusts
and convertible notes as well as shares; relaxing the requirement
that 50 per cent of assets and employees must be in Australia for
12 months after making the investment; and removing restrictions on
the country of residence of investors.
- A new vehicle for venture capital investments will be provided
with the establishment of the early stage venture capital limited
partnerships (ESVCLPs) with flow through tax treatment and a
complete tax exemption for income, both revenue and capital,
received by its domestic and foreign partners. To qualify, the
ESVCLP must have a maximum fund size of $100 million and total
assets of investee companies cannot exceed $50 million immediately
prior to investment. The ESVCLP must also divest itself of
any holdings once the total assets of the investee company exceed
$250 million.
- The progressive replacement of the existing pooled development
fund (PDF) programme with ESVCLP. The PDF programme will be closed
to new registrations after 31 December 2006.
- The Government will commit $200 million for a further round of
funding of the Innovation Investment Fund (IIF) programme to be
drawn down over the period 2007-08 to 2018-19. The Government
funding will be matched dollar for dollar by private sector
funds.
In a separate
Press Release issued by the Treasurer on 9 May 2006, the
benefits of proposed measures were indicated as
follows.(15)
Who will benefit?
- The new venture capital measures will benefit small to medium
enterprises seeking capital injections to finance expansion and
start up companies by making it easier for them to obtain
capital.
- Venture capital investors will also benefit from this measure.
Major beneficiaries from the introduction of the early stage
venture capital limited partnership (ESVCLP) vehicle will be
domestic resident investors and fund managers as non-resident
investors are already expected to benefit from an exemption from
capital gains tax as a result of changes announced in the
2005-06 Budget.
The Australian Private Equity & Venture
Capital Association Limited (AVCAL) welcomed the venture capital
measures announced with the 2006 Budget, with some
reservations.
We congratulate the Federal Government on their
Venture Capital initiatives outlined in the budget. The reforms
should add to the supply of venture capital, drive
commercialisation of research, develop advanced skills, and
contribute to the creation of a knowledge based economy.
Subdivision 118-F of the ITAA 1997 titled
Venture capital investment , deals with the requirements that must
be met for some foreign residents to be entitled to the tax
concessions for venture capital investments in Australian companies
and in some cases foreign holding companies. These foreign
residents can disregard capital gains and capital losses from
capital gains tax (CGT) events that relate to these
investments.
The eligibility requirements include that
these investments are made:
- through limited partnerships, known as venture capital limited
partnerships(VCLPs) that are unconditionally registered under Part
2 of the Venture Capital Act 2002; or
- through limited partnerships, known as Australian venture
capital funds of funds (AFOFs) that are unconditionally registered
under Part 2 of the Venture Capital Act 2002; or
- directly by foreign residents who are registered under Part 3
of the Venture Capital Act 2002.
The significant amendments proposed in each of
the three Parts of Schedule 8 will be considered
in this section of this Bills Digest.
As mentioned above, the joint press release
issued on 9 May 2006 by the Treasurer and the Minister for
Industry, Tourism and Resources indicated that the eligibility
requirements for qualifying to be treated under the venture capital
regime will be relaxed.
The
significant measures proposed in Schedule 8 are
considered below.
Section 118-425 sets out the requirements for
an eligible venture capital investment (VCI). It requires that the
investments be either in shares or options in a company in
paragraph 118-425(1)(b).
Items 26,
27, 28 and 29 of
Schedule 8 amend paragraph 118-425(1)(b) to
include investments in convertible notes that are equity interests
in a company, other than convertible notes that are debt interests,
as an eligible venture capital investment.
Item 44 of Schedule
8 inserts proposed section 118-427 to
allow acquisition of units in unit trusts to be eligible venture
capital investments.
The reader is referred to paragraphs 8.11 to
8.18 on pages 63 to 67 of the Explanatory Memorandum for details of
the requirements to be met by the convertible notes and units in
unit trusts to be eligible venture capital investments.
Currently, subsection 118-425(2) of the ITAA
1997 requires that the company must at the time the investment is
made be an Australian resident. In addition if it is the entity s
first investment in the company, the company must have more than 50
per cent of its employees and assets located in Australia for 12
months after the investment is made. The Pooled Development Fund
Board may determiner a shorter period than 12 months under section
25-5 of the Venture Capital Act 2002.
Item 30 adds a Note at the
end of subsection 118-425(2) to indicate that a company that fails
to meet the requirements of this subsection in relation to location
in Australia can still be eligible in certain circumstances and
directs attention to proposed subsection
118-425(12A).
Item 43 of Schedule
8 inserts proposed subsection
118-425(12A) to provide that a company is taken to meet
the requirements in subsection 118-425(2) in relation to location
in Australia where the sum of the value of the investments at the
time the entity makes it and the value of all other investments
owned by the entity does not exceed 20 per cent of the partnership
s committed capital.
Amendments made by Schedule 4 of the
Tax Laws Amendment (2006 Measures No. 4) 2006 to the CGT
provisions of the ITAA 1997 limit the scope of CGT assets to
taxable Australian property for foreign residents. The amendments
apply to CGT events occurring on or after 12 December 2006 - the
date of Royal Assent. (16)
To bring the venture capital provisions in
line with these recent CGT changes the country of residence
restrictions in section 118-420 are being relaxed.
The amendments proposed to section 118-420 by
items 19 to 25 of
Schedule 8 to the ITAA 1997 allow limited partners
of VCLPs to be resident of any foreign country.
The amendments proposed by item
54 of Schedule 8 to the Venture
Capital Act 2002 repeals paragraph 9-1(1)(a) and substitutes
proposed paragraph 9-1(1)(a) to relax the
residency requirements for general partners and VCLPs. These
amendments allow VCLPs and general partners to be resident in, or
established in, any country with which Australia has a double tax
agreement in force as defined in Part X of the ITAA 1936.
Amendments are proposed to the
Venture Capital Act 2002, the Pooled Development Funds
Act 2002 and the ITAA 1997 to provide for a new limited
partnership investment vehicle to be called an early stage venture
capital limited partnership (ESVCLP).The following significant
amendments to these Acts are considered in this section of the
Bills Digest.
Item 171 of Part
2 of Schedule 8 inserts proposed
section 9-3 to the Venture Capital Act 2002 to
set out the registration requirements of ESVCLPs. The registration
requirements in proposed subsection 9-3(1) are
targeted at early stage activities of projects. Registration under
the Venture Capital Act 2002 is a condition for being
eligible for the tax concessions under the ITAA 1997.
The significant registration requirements are
as follows.
- The ESCVLP was established by or under a law in force in
Australia or established in, any country with which Australia has a
double tax agreement in force as defined in Part X of the ITAA 1936
(proposed paragraph 9-3(1)(a)).
- All the partners who are general partners are either resident
in Australia or in a country with which Australia has a double tax
agreement in force as defined in Part X of the ITAA 1936 (proposed
paragraph 9-3(1)(b)).
- The partnership agreement should provide for the partnership to
remain in existence for a period of not less than 5 years and not
more than 15 years with which Australia has a double tax agreement
in force as defined in Part X of the ITAA 1936 (proposed paragraph
9-3(1)(c)).
- The committed capital of the ESVCLP must be at least $10
million and cannot exceed $100 million (proposed paragraph
9-3(1)(d)).
- An investment by any partner and his associates cannot exceed
30 per cent of the ESVCLPs committed capital (proposed paragraph
9-3(1)(e)).
- The ESVCLP must not continue to hold investments in an entity
if at the end of the ESVCLP s preceding income year , the sum of
the values of the assets of the company or unit trust and the
assets of each other entity that is a connected entity exceed $250
million (proposed paragraph 9-3(1)(e) and proposed subsection
9-3(6)).
- The ESVCLP must have an investment plan approved by the Venture
Capital Registration (VCR) Board (proposed sections 13-15 and
13-20).
- The ESVCLP must submit annual reports to the VCR Board on the
implementation of the approved investment plan. The VCR Board must
publish such reports (proposed section 15-17).
The main amendments in relation to the tax
concessions provided in the Bill are briefly considered below.
Division 5A of Part 111 of the Income Tax
Assessment Act 1936 (ITAA 1936) taxes certain limited
partnerships as companies. However, subsection 94D(2) in Division
5A provides that a partnership that is a VCLP, an AFOF or a venture
capital management partnership (VCMP) cannot be a corporate limited
partnership. The amendments proposed by items 89
to 92 of Schedule 8 to subsection
94D(2) are for the purpose of excluding ESVCLPs from the
application of Division 5A and hence ESVCLPs will not be treated as
companies for tax purposes. In consequence, ESVCLPs will be taxed
under Division 5 of Part 111 of the ITAA 1936 as flow through
vehicles.
Division 5 provides that each partner of any
partnership is assessable on its share of the net income and is
allowed a deduction for its share of any partnership loss. As
limited partners are only liable for the debts of the limited
partnership to the extent of their investment in the partnership
section 92(2AA) provides for the losses allowed to limited partners
to be limited to the extent of their outstanding financial
commitment to the partnership. Item 88 of
Schedule 8 proposes amendments to section 92(2AA)
and 92A to extend these provisions which limit the losses allowed
to limited partners of VCLPs, AFOFs or Vamps to limited partners of
ESVCLPs.
Item 105 of Schedule
8 inserts proposed section 51-52 to the
ITAA 1997 to exempt income from eligible venture capital
investments by ESVCLPs. The reader is referred to paragraphs 8.48
and 8.49 of the Explanatory Memorandum for details of the
conditions to be met to qualify for this exemption.
Items 106 to
109 amends section 51-54 of the ITAA 1997 to
exempt partners of ESVCLPs from income tax on any gains or profits
from the disposal of eligible venture capital investments. This
exemption is now available to partners in VCLPs and AFOFs under
section 51-54.
Item 119 of Part
2 of Schedule 8 inserts proposed
section 118-407 into Subdivision 118-F of the ITAA 1997 to
provide exemption of capital gains from tax for certain venture
capital investments made through early stage venture capital
limited partnerships (ESVCLPs).
Proposed subsection
118-407(1) provides that the share of a capital gain or
capital loss from a CGT event is disregarded if certain conditions
are satisfied.
Item 217 of Schedule 8 repeals
section 5 of the Pooled Development Funds Act 1992. It
substitutes proposed section 5 to
effectively change the name of the PDF Registration Board to the
Venture Capital Registration Board. This takes effect from the date
of commencement of the proposed section.
Part 3 of
Schedule makes consequential amendments to the ITAA 1997 and the
Venture Capital Act 2002 to reflect the change in name of
the PDF Registration Board to the Venture Capital Registration
Board.
Item 349 of Schedule
8 inserts proposed subsection 11(4A) to
the Pooled Development Funds Act 2002 to provide that new
applications must not be made after the day Part 4 of Schedule 8 to
the Tax Laws Amendment (2007 Measures No.2) Act commences.
Thus the PDF regime is closed to new applications after the
commencement of this Act.
The Explanatory Memorandum to the Bill states
at paragraph 8.84 on page 83 that the amendments proposed by
items 350 to 353 of
Schedule 8 are technical amendments to ensure that
eligible partners in conditionally registered VCLPs and AFOFs are
entitled to the tax exemption on the profits and gains derived by
the partnership while the partnership was conditionally
registered.
ESVCLPs will receive similar treatment under
amendments proposed in items 180 to
183 of Part 2 of Schedule
8.
The Explanatory Memorandum at page 7 states
that the venture capital measures will have the following revenue
implications.
|
2007-08
|
2008-09
|
2009-10
|
2010-11
|
| |
-$2m
|
-$7m
|
-$16m
|
Clause 2 of the Bill provides a table of
commencement information. Item 6 provides that the
commencement date for Parts 1 to 4 of Schedule 8 is the day of
which this Act receives the Royal Assent.
Item 85 of Schedule 8 provides
that the amendments made by Part 1 of
Schedule 8 apply to assessments for the 2007-2008
year of income and later years of income. The amendments in Part 1
of Schedule relate to relaxing the eligibility requirements for
venture capital limited partnerships.
Item 205 of Schedule 8 provides
that the amendments to the ITAA 1997 made by Part
2 of Schedule 8 apply to assessments for
the 2007-08 year of income and later years. These amendments
related to providing the tax incentives for investment in early
stage venture capital through the ESVCLP vehicle.
Item 7 in the table in clause 2
of the Bill provides that the amendments made by Part
5 of Schedule 8 will commence immediately
after the commencement of the Venture Capital Act 2002.
Column 3 of the table provides the information that the relevant
date is 19 December 2002.
Concluding comments
This Bill implements the venture capital
measures announced in the 2006 Budget following a Review of the
Venture Capital Industry (the Review) undertaken in 2005. The
Australian Venture Capital Association (AVCAL) had prior to the
Review warned that serious shortages would occur as start-up
companies and entrepreneurs found themselves competing for funds
with Baby Boomer business owners looking to sell their businesses
and retire.(17)
AVCAL has welcomed the 2006 Budget initiatives
but had expressed reservations about some of the restrictions which
will inhibit private equity activities.
Unfortunately, the government does not yet get the
message that private equity drives productivity growth in services
and manufacturing, drives economic modernization and reform and
delivers higher returns to super funds, including bureaucrats and
politicians! (18)
Allens Arthur Robinson (AAR) in an article in
their website assessing the impact of the 2006 Budget venture
capital measures made the following comments on the restrictions
that have been imposed on early stage venture capital limited
partnerships (ESVCLPs).
ESVCLPs will be tax flow-through vehicles (like
VCLPs) however income and capital gains earned by ESVCLPs will be
exempt from any Australian tax. This exemption will apply to both
residents and non-residents.
This is a significant concession, both in
comparison to VCLPs and PDFs. However, the attractiveness of these
concessions must be measured against the following restrictions
that will apply to ESVCLPs:
- the maximum size of the fund administered by an ESVCLP is $100
million;
- ESVCLPs will not be able to invest in investee entities having
total assets exceeding $50 million (this restriction already
applies to PDFs);
- once the total assets of an entity invested in by an ESVCLP
exceeds $250 million, the ESVCLP must divest itself of that entity
(a significant and onerous requirement that may prove to make
ESVCLPs unattractive vehicles for private equity, despite the tax
concessions); and
- losses from ESVCLPs will not be deductible by the partners (the
justification given by the Government being that, as revenue and
capital gains are not taxable, losses should not be
deductible).(19)
The AAR article refers to AVCAL s
disappointment that target investees must have less than $250
million in assets (a restriction generally not imposed in other
jurisdictions . However, the AAR article ends on a positive note
that the Budget measures take Australia towards a more competitive
regime for attracting venture capital.
The negative reception is not surprising given
that two of AVCAL's key suggestions for VCLP reform removing the
$250 million cap and ending the prohibition on investment in
financial services have been ignored. Nevertheless, with these
initiatives the Government has moved somewhat closer to
establishing an internationally competitive regime for encouraging
venture capital investment in Australia.
It appears that a close monitoring of the
progress made in attracting venture capital to Australia will be
required to ensure that the demands of the venture capital industry
are met adequately.
- The Hon Peter
Dutton, MP, the Minister for Revenue and Assistant Treasurer,
Effective Lives of Mining, Petroleum an Quarrying Rights,
Parliament House, Canberra, 9 May 2006.
- The
Explanatory Memorandum to the Tax Laws Amendment (2007 Measures
No.2) Bill 2007. The author has drawn extensively from the
Explanatory Memorandum in the preparation of this Bills
Digest.
- The Hon Peter
Dutton, MP, the Minister for Revenue and Assistant
Treasurer,
Tax Treatment for Boat Hire Arrangements, Parliament House,
Canberra, 9 May 2006.
- The Hon Peter
Dutton, MP, the Minister for Revenue and Assistant
Treasurer,
Measures to Enhance Philanthropy and Streamline Deductible Gift
Recipient Arrangements , Parliament House, Canberra, 22
December 2006.
- The Hon John Howard,
MP, the Prime Minister and the Hon Peter Costello, MP, the
Treasurer, United
States Study Centre, Media Release, Parliament House, Canberra,
14 November 2006.
- The Hon Peter
Dutton, MP, the Minister for Revenue and Assistant Treasurer,
Deductibility of Gifts to Bunbury Diocese Cathedral Rebuilding Fund
(The Bunbury Fund)Parliament House, Canberra, 22 December
2006.
- The Hon Peter
Dutton, MP, the Minister for Revenue and Assistant Treasurer,
Deductibility of Gifts to the Finding Sydney Foundation,
Parliament House, Canberra, 10 November 2006.
- ATO Fact sheet
titled Tax deductible contributions - Non-profit organisations and
fundraising at
http://www.ato.gov.au/nonprofit/content.asp?doc=/content/56543.htm&page=2&H2
on 2 May 2007.
- The Hon Mal Brough,
MP, the Minister for Families, Community Services and Indigenous
Affairs, Minister Assisting the Prime Minister on Indigenous
Affairs and The Hon Peter Dutton, MP, the Minister for Revenue and
Assistant Treasurer, Encouraging Philanthropy Through Improved Tax
Deductions, Joint Press Release, Parliament House, Canberra, 1
December 2006.
- ATO fact sheet
titled 2002 venture capital tax concession: overview at http://www.ato.gov.au/large/content.asp?doc=/content/70986.htm
on 2 May 2007.
- The Hon Ian
McFarlane, MP, the Minister for Industry, Tourism and Resources
Venture Capital Review Consultations Commence, Media
Release, Parliament House, Canberra, 20 May 2005.
- Review of the
Venture Capital Industry,
Terms of Reference.
- Department of
Industry, Tourism and Industry,
Innovation Investment Fund, at
http://www.industry.gov.au/content/itrinternet/cmscontent.cfm?objectid=3084D4F9-BFE5-92CB-B5B2FD5D85EEA272&searchID=288608
on 2 May 2007.
- The Hon Peter
Costello, MP, Treasurer and the Hon Ian McFarlane, MP, the Minister
for Industry, Tourism and Resources,
Further Boost to Australia s Venture Capital Sector, Joint
Press Release, Joint Press Release, Parliament House, Canberra ,9
May 2006.
- The Hon Peter
Costello, MP, Treasurer,
Further Boost to Australia s Venture Capital
Sector, Press Release, Parliament House,
Canberra, 9 May 2006.
- For an explanation
of what is taxable Australian property in relation to foreign
residents please click here
for a link to the ATO fact sheet titled Capital Gains and
foreign residents (30 January 2007).
- Rebecca Martin,
Venture capital urges shake-up, ABC Online 27 May
2005.
- IN-form, the AVCAL
News Letter,
Federal Budget Impact on VC & PE, 10 May 2006.
- AAR Publication:
Focus, Private Equity May
2006
Bernard Pulle
7 May 2007
Economics Section
Parliamentary Library
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ISSN 1328-8091
© Commonwealth of Australia 2007
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