Bills Digest No. 78,
PDF version [538KB]
Dr Nitin Gupta
27 March 2017
Purpose of the Bill
Structure of the Bill
Senate Standing Committee for the
Scrutiny of Bills
Policy position of non-government
Position of major interest groups
Statement of Compatibility with Human
Parliamentary Joint Committee on
Key issues and provisions
Schedule 1: amendments to innovation
Schedule 2: amendment of the ASIC
Date introduced: 16
House: House of
1 commences on the first 1 January, 1 April, 1 July or 1 October after Royal
Schedule 2 commences the day after Royal Assent.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
All hyperlinks in this Bills Digest are correct as
at March 2017.
The Treasury Laws Amendment (2017 Measures No. 1) Bill
2017 (the Bill) seeks to:
the Income Tax
Assessment Act 1997 (ITAA 1997) to ensure that investors who
invest through an interposed trust are able to access the capital gains
concessions provided by the tax incentives for early stage investors and
venture capital investment measures
Securities and Investments Commission Act 2001 (ASIC Act) to
specify that the sharing of confidential information by the Australian
Securities and Investments Commission (ASIC) with the Commissioner of Taxation
is authorised use and disclosure of that information.
of the Bill
The Bill has two Schedules. Schedule 1 to the Bill
seeks to make minor technical changes to the ITAA 1997 to ensure that
the measures relating to the National Innovation and Science Agenda (NISA) in
the Tax Laws Amendment (Tax Incentives for Innovation) Act 2016 operate
in accordance with their original policy intent.
Schedule 2 seeks to amend the ASIC Act 2001 to
allow ASIC to more readily share confidential information with the Commissioner
The measures contained in the Tax Laws Amendment
(Tax Incentives for Innovation) Act 2016 (2016 Act) formed part
of the NISA, announced by the Turnbull Government on 7 December 2015.
According to the Minister’s Second Reading Speech at the time of the
introduction of the Bill for the 2016 Act, the aim was to ‘to encourage
innovation, risk taking and an entrepreneurial culture in Australia.’
To this end, the 2016 Act articulated tax incentives for investments in
early stage innovative companies, including concessional capital gains tax
(CGT) treatment that would exempt investors from a capital gain arising from
shares in eligible companies, provided these shares were held for between 12 months
and 10 years.
According to the Explanatory
Memorandum to the current Bill, this concessional treatment was intended to
be available to all types of investors, regardless of their preferred method of
investment (whether directly by an individual or corporation or indirectly
through a trust or partnership).
However, the provisions of the 2016 Act prevent investors from accessing
the CGT exemption if the gains are distributed through a trust. The proposed
amendments are intended to ensure a level playing field with regards to the
mechanism for the investments.
Currently ASIC has a range of powers to gather information
and documents as part of its mandate to regulate Australian companies,
financial markets, and financial service organisations.
The ASIC Act requires ASIC to take all reasonable measures to protect
confidential information that it receives as part of its statutory functions
from unauthorised use or disclosure.
It does, however, authorise ASIC to share that information with specified individuals
and organisations, including the relevant Minister, the Reserve Bank of
Australia (RBA) and the Australian Prudential Regulation Authority (APRA).
The Commissioner of Taxation is not currently one of the specified individuals.
The current law prohibits ASIC from sharing confidential
information with the Commissioner of Taxation, unless the Chairperson of ASIC,
or their delegate, is satisfied that the information will enable or assist the
Commissioner of Taxation to perform or exercise their functions or powers.
This means that each potential release of information to the ATO must be
considered and authorised, in comparison with release to (for example) APRA,
which is authorised under the Act and does not require the ASIC Chairperson to
be satisfied that the disclosure will enable or assist APRA to perform any of
its functions or powers. According to the Explanatory
Memorandum, this creates inefficiencies and hinders effective
Schedule 2 of the Bill seeks to include the Commissioner
of Taxation in the list of those to whom ASIC is authorised to provide
The Senate Standing Committee for Selection of Bills did
not refer the Bill to committee for inquiry and report.
Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills considers
that the amendments proposed by Schedule 2 of the Bill raise privacy concerns:
The Committee notes that the current law merely requires
consideration be given before confidential information is shared that the
information will enable or assist the Commissioner of Taxation to perform or
exercise their functions or powers. The current approach would appear to allow
for the sharing of confidential information in fairly broad terms. It is
unclear, based on the explanatory material, how the current law is inefficient
and not sufficiently simple.
The Committee has sought advice from the Minister on the
steps that are currently undertaken before ASIC shares advice with the
Commissioner of Taxation.
position of non-government parties/independents
The Bill is supported by the Australian Labor Party (ALP).
In his second
reading speech, Andrew Leigh of the ALP stated:
... the amendments in this Bill are uncontroversial. They
should assist start-ups and assist ASIC and the ATO to work together to
investigate corporate and tax fraud. Labor is pleased to support the speedy
passage of this Bill through the House.
At the time of writing this Digest, no statements on the
Bill from other parties or independents were identified.
major interest groups
At the time of writing this Bills Digest, no statements
relating to the Bill’s provisions from major interest groups were identified.
The proposed amendments in Schedule 1 are not estimated to
have any revenue impact over the forward estimate period. The proposed
amendment in Schedule 2 does not have a financial impact.
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the
Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.
Schedule 1 of the Bill does not raise any human
rights issues. Schedule 2 raises a human rights issue. It engages the
right to protection from unlawful or arbitrary interference with privacy under
Article 17 of the International Covenant on Civil and Political Rights
(ICCPR) because it provides a more streamlined process for ASIC to share
information with the Commissioner of Taxation.
Joint Committee on Human Rights
At the time of the drafting of this Bills Digest, the Bill
had not been considered by the Parliamentary Joint Committee on Human Rights.
amendments to innovation measures
Schedule 1 seeks to amend the ITAA 1997 to provide
investments made through interposed trusts with the same concessional CGT
treatment that is available to investments made by individuals and companies.
Division 104 of the ITAA 1997 sets out all the CGT
‘events’ for which a person can make a capital gain or loss. It explains how to
work out if a person has made a capital gain or loss from each event and
contains exceptions for gains and losses for certain events.
Subdivision 104-E deals with CGT events that are specific to trusts.
As set out in the Explanatory Memorandum to the Bill:
[Currently] if an investor invests in an early stage
innovation company indirectly through a trust, [Subdivision 104-E] would apply
to claw back any disregarded capital gains that are later distributed through
the trust. In particular,[the current provisions of Subdivision 104-E] would
result in the CGT cost base of the unit or interest in the trust held by the
investor being reduced by the amount of the distribution. If this would reduce
the cost base of the unit or interest below zero, the cost base is reduced to
zero and the investor has a capital gain equal to the balance of the amount
The amendments [in Schedule 1 to the Bill] ensure that
investors that invest through an interposed trust are able to access the
capital gain concessions provided by the tax incentives for early stage
investors measure, as intended.
Item 1 amends paragraph 104-71(3)(aa) to clarify
the language to ensure that there is no ambiguity about whom the venture
capital gains tax concessions would apply to. More specifically, the amendment
ensures that CGT consequences do not arise for a beneficiary in respect to that
beneficiary’s share of income derived from a partnership that is exempt because
of the venture capital tax concessions.
Items 2 and 3 amend paragraphs
104-71(3)(b), (c) and (d) to change references from ‘proceeds’ to ‘capital
proceeds’ to ensure consistency throughout the CGT rules in the ITAA 1997.
Item 4 adds proposed paragraph 104-71(3)(e) to
clarify that where concessional CGT treatment is available to early stage
investors then the CGT concession will apply irrespective of any interposed investment
vehicle used by the investor, such as a trust.
Item 5 provides that the amendments relating to the
tax incentives for early stage investors measure (item 4) apply to capital
gains tax events occurring on or after 1 July 2017. The amendments relating to
the venture capital investment measure (item 1) apply in relation to payments
made on or after 1 July 2016.
amendment of the ASIC Act 2001
Section 127 of the ASIC Act provides for the confidentiality
of protected information held by ASIC.
It also sets out the circumstances where ASIC may disclose information.
Subsection 127(2A) authorises the use and disclosure of information by ASIC to:
Secretary of the Treasury
Clean Energy Regulator and
Climate Change Authority.
Item 1 of Schedule 2 to the Bill will amend subsection
127(2A) to add the Commissioner of Taxation to the list of entities to
which disclosure of confidential information is authorised.
Item 2 provides that
the amendment made by item 1 applies in relation to disclosures of information
made on or after Schedule 2 commences, regardless of whether ASIC obtained the
disclosed information before, on or after that time.
Turnbull (Prime Minister) and C Pyne (Minister for Industry, Innovation and
Innovation and Science Agenda, media release,
7 December 2015.
reading speech: Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016’,
House of Representatives, Debates, 16 March 2016, p. 3251.
Laws Amendment (Tax Incentives for Innovation) Bill 2016, Bills digest,
117, 2015–16, Parliamentary Library, Canberra, 4 May 2016.
Memorandum, Treasury Laws Amendment (2017 Measures No. 1) Bill 2017,
3 of the Australian
Securities and Investments Commission Act 2001 provides information
gathering powers. See also: Australian Securities and Investments Commission
compulsory information gathering powers’, ASIC website.
127(1) of the ASIC Act.
127(2A) of the ASIC Act.
127(4) of the ASIC Act.
Memorandum, op. cit., p. 16.
Standing Committee for Selection of Bills, Report,
3, 2017, The Senate, Canberra, 23 March 2017.
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 3, 2017, The Senate, Canberra, 22 March 2017, p. 37.
reading speech: Treasury Laws Amendment (2017 Measures No. 1) Bill 2017’,
House of Representatives, Debates, 2 March 2017, p. 11.
Memorandum, op. cit., pp. 7 and 8.
Statement of Compatibility with Human Rights can be found at pages 13 and 17 of
the Explanatory Memorandum to the Bill.
104-1 of the ITAA 1997.
basically a trust exists when one person (‘the trustee’) has legal ownership of
property and another person (‘the beneficiary’) has the beneficial, or
equitable, interest in that property: Thomson Reuters, Australian Income Tax
Memorandum, Treasury Laws Amendment (2017 Measures No. 1) Bill 2017, p. 10.
information’ is defined at subsection 127(9) of the ASIC Act.
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