Bills Digest no. 11 2008–09
Tax Laws Amendment (Political Contributions and Gifts) Bill
2008
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Contact officer & copyright details
Passage history
Date introduced:
27 August 2008
House: House of Representatives
Portfolio: Treasury
Commencement:
Royal Assent, but the
operative provisions apply to political donations made on or after
1 July 2008.
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
This Bill
amends
- A New Tax System (Goods and Services Tax)
Act 1999 (GST Act)
- the Income Tax Assessment Act 1936 (ITAA36), and
- the Income Tax Assessment Act 1997 (ITAA97)
to generally deny individual taxpayers a tax
deduction in respect of political party membership fees paid on or
after I July 2008. This Bill also denies a tax deduction to both
individual and corporate tax payers in respect of contributions or
gifts made to:
- political parties
- members of parliament (both State, Territory and Federal)
- members of a local governing body (such as a local council),
and
- candidates (both party nominated and independent) for political
office
on or after 1 July 2008.
Employees or office holders may continue to claim
tax deductions for these amounts incurred in earning tax assessable
income.
Currently, a tax deduction is available in
respect of the above contributions and gifts made to political
parties registered under Pt XI of the Commonwealth Electoral
Act 1918 or registered under relevant State or Territory
legislation, under Division 30-DA ITAA97. The maximum deduction for
both individuals and companies is $1500 per annum.[1]
A tax deduction in respect of these amounts
was limited to $100 per annum for contributions/gifts made before
22 June 2006. Before this date the deduction was only available in
respect of gifts/contributions made to parties registered under the
above Commonwealth Act. This meant that gifts/contributions made
to:
- independent candidates
- State/Territory political parties
- members of State/Territory parliaments, and
- all State/Territory political candidates
made before 22 June 2006 did not qualify for
any tax deduction.[2]
Identical provisions to those in this Bill in
respect of ITAA36 and ITAA97 are also in Schedule 1 of Tax Laws
Amendment (2008 Measures Bill No. 1) 2008 (TLAB1). On 19 March 2008
the Senate resolved to refer these provisions to the Joint Standing
Committee on Electoral Matters for inquiry and report by June
2009.[3] . TLAB1 was
negated by the Senate on 26 June 2008. However, the Committee
actually tabled its report on 16 June 2008.
Readers should note that the current bill also
amends the GST Act (see discussion of items
1 - 5 in the main provisions section of this
Digest). The relevant provisions of TLAB1 did not contain any
similar amendments. This Bill is not quite a carbon copy of the
provisions of Schedule 1 of TLAB1.
The denial of tax deductions for political
gifts/contributions was announced by the then Shadow Minister for
Finance, The Hon. Lindsay Tanner MP on 2 March 2007.[4] The policy of removing
the tax deductibility of political gifts/contributions was first
announced by the then Leader of the opposition, the Hon. Kim
Beazley MP on 3 October 2006.[5]
As noted above, identical provisions to those
in the current Bill amending ITAA36 and ITAA97 have already been
referred to the Joint Standing Committee on Electoral Matters (the
JSCEM), which reported on the provisions in June 2008 (see further
at p. 5 of this Digest).
It has been argued that increasing the tax
deductibility threshold for political donations/contributions from
$100 to $1500 per annum encourages participation in the democratic
process. That is, making political gifts/contributions tax
deductible encourages citizen s democratic participation.
However, it has also been argued that the
existence of such a high threshold skews political influence to the
wealthier in society who have a greater capacity to contribute and
who will receive proportionately higher (tax-payer funded)
subsidies for making these donations.[6]
One press report argued that the removal of
tax deductibility for membership fees would anger many political
party members, especially those in the Australian Labor
Party.[7]
There are several reasons for the abolition of
political gifts/contributions tax deductibility:
- it would have a positive financial impact, saving the
government an estimated $31.4 million between 2009 2010 and 2011
2012
- it may cause individuals to more carefully consider the
direction of their political support, and
- remove any potential financial advantage (however significant)
that higher income donors may receive in making a tax deductible
donation.
However, there are some points in favour of
retaining this tax deduction. The availability of a $1500 tax
deduction is of greater importance to individual donors than to
corporate or wealthy donors. Insofar as the absence of a tax
deduction discourages a large number of smaller donors from
contributing, it allows corporate and wealthier donors to make up a
greater proportion of a political party s/candidate s source of
funding. It may be argued that this potentially increases the
influence of corporatist and wealthier individual s influence on
political decision making.
This last point has to be tempered by the
realisation that currently it is unlikely that smaller donors to
political parties or candidates exercise much influence simply on
the basis of their donations alone.
The
Joint Standing Committee on Electoral Matters reported on the
provisions of Schedule 1 of TLAB1 in June 2008.[8] The Coalition members of that
Committee wrote a minority report recommending that:
we propose that consideration of the tax
deductibility measures contained in this Bill be deferred until
they can be assessed as part of the committee s comprehensive
review of campaign finance.[9]
On this basis it is likely that the Coalition
members and senators will oppose this Bill.
In relation to the Green s position, the above
mentioned minority report of the Joint Standing Committee on
Electoral Matters noted that:
Coalition Party members of the Committee,
together with Senator Bob Brown of the Greens, have opposed this
inquiry proceeding in isolation, preferring that the matters
referred by the Senate in relation to the Bill, be taken up as part
of the committee s broader inquiry.[10]
In the course of the debate on the equivalent
provisions in the TLAB1 Senator Brown stated:
Let me deal with the first first. As Senator
Ronaldson indicated, the Greens are very keen to get public input
on tax-deductibility for election campaign spending. I understand
that the government is going to be working on this over the coming
months. We favour the abolition of tax-deductibility for donations
for electoral purposes. [11]
Family First has indicated its support for the
abolition of tax deductibility for gifts/contributions to political
parties.[12] The
position of the independent senators on this matter is, at the time
of writing, unclear.
A range of other views on this matter are in
the report of the Joint Standing Committee on Electoral Matters
entitled the 2004 Federal Election Polling day 9 October
2004.[13]
The following table outlines the projected
financial impact of this particular measure.
Table 1: Financial impact Abolition of
tax deductibility for political donations
|
Year
|
2008 09
|
2009 10
|
2010-11
|
2011 12
|
|
Financial impact $m
|
-
|
10.1
|
10.3
|
11.0
|
Source:
Explanatory Memorandum p. 3.[14]
The main report of the Joint Standing
Committee on Electoral Matters accepted the above savings. However,
the minority report by the Coalition members of this Committee
noted that one witness suggested that these estimates were
unreliable.[15]
Item 1 of Schedule
1 of the Bill amends various sections in the GST Act
replacing the term gift-deductible entity with the term
concessional entity . This amendment is a consequence of the
proposed repeal of the definition of gift-deductible entity by
Item 4, which would cause loss of access to
certain concessions that may be available to gift-deductible
entities in the GST Act, without this amendment.
Currently, section 195-1 of
the GST Act defines a gift-deductible entity as one if gifts or
contributions made to it can be deductible under Division 30
of the ITAA97.
Item 3 inserts a new
definition of concessional entity into the GST Act. This new
definition includes in its meaning the above cited definition of a
gift-deductible entity , but also includes:
- a political party that is registered under part XI of the
Commonwealth Electoral Act 1918 , or under a corresponding
State or Territory law
- an independent candidate, and
- an independent member.
Items 5 and
6 insert the necessary definitions into section
195-1 of the GST Act of an independent member and independent
candidate. Similar definitions existing in the ITAA97 are to be
repealed by this Bill (items 19 and 20).[16]
The Explanatory Memoranda notes that the
proposed amendments to the GST Act ensure that the existing Goods
and Services Tax (GST) treatment of political parties, independent
members and independent candidates is not altered by the proposed
changes to income tax law.[17]
Item 9 of Schedule
1 inserts new section 26-22 into the
ITAA97. This new section prevents a tax deduction for membership
fees, gifts/contributions to political parties, electoral
candidates or members of an Australian legislature or local
governing body.
However proposed sub clause
26-22(2) of item 9 allows a deduction to
be claimed where such fees, gifts or contributions are necessarily
incurred in the person gaining or producing tax assessable
income.
The Explanatory Memorandum notes, for example,
that a compulsory levy to retain a Member of Parliament s
membership of a political party would still be tax deductible under
the general tax deduction provision of section 8-1
ITAA97.
Item 15 repeals the whole of
Division 30-DA ITAA97. This particular Division
contains existing legislation allowing a limited tax deduction for
political party membership fees and gifts/contributions to
political parties.
Items 17 and
18 insert new subsections to
sections 110-38 and 110-55(9E)
ITAA97. These are consequential amendments to ensure that political
party membership fees and political gifts/contributions do not form
part of the cost base of an item subject to Capital Gains Tax and
thereby reduce the amount of taxable income assessable when a
gift/contribution is made to a political party.
Items 19 and
20 repeal the existing definitions of the terms
independent candidate and independent member in subsection
955-1 ITAA97. As noted above these new definitions are
proposed to be placed in subsection 195-1 of the
GST Act.
The substantive definitions of these terms are
currently contained in sections 30-244 and 30-245 ITAA97 which lie
in Division 30DA. As noted above item 15 proposes
to repeal the whole of Division 30-DA.
The existing and proposed definitions of these
terms do not appear to be different in effect, however the wording
is quite different.[18]
Leslie Nielson
1 September 2008
Bills Digest Service
Parliamentary Library
© Commonwealth of Australia
This work is copyright. Except to the extent of uses permitted
by the Copyright Act 1968, no person may reproduce or transmit any
part of this work by any process without the prior written consent
of the Parliamentary Librarian. This requirement does not apply to
members of the Parliament of Australia acting in the course of
their official duties.
This work has been prepared to support the work of the Australian
Parliament using information available at the time of production.
The views expressed do not reflect an official position of the
Parliamentary Library, nor do they constitute professional legal
opinion.
Feedback is welcome and may be provided to: web.library@aph.gov.au. Any
concerns or complaints should be directed to the Parliamentary
Librarian. Parliamentary Library staff are available to discuss the
contents of publications with Senators and Members and their staff.
To access this service, clients may contact the author or the
Library’s Central Entry Point for referral.
Back to top