27 March 2007

Government to Make Further Improvements to the Tax System

The Minister for Revenue and Assistant Treasurer, Peter Dutton, today introduced Tax Laws Amendment (2007 Measures No. 2) Bill 2007 to improve Australia’s taxation system by reducing compliance costs, improving certainty for taxpayers, supporting philanthropy and ensuring the integrity of the tax base.

Effective life provisions

This legislation will more closely align the decline in value deductions for mining, quarrying and prospecting rights with other depreciating assets. As a result of this measure, holders of these rights will be able 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 will ensure that the provisions will operate as the Government originally intended.

Taxation of boating activities

The Bill will allow deductions to taxpayers who hold or use a boat for non-business income producing purposes (such as leasing out one’s private vessel to a charter operator), in circumstances where the holding or use of the boat is not part of a specified type of boating business (such as a ferry service).

The measure will allow taxpayers to:

  • deduct expenditure relating to their boating activity up to the level of income generated from their boating activity; and
  • carry forward any excess deductions to be deducted against income from that boating activity in future years.

The measure will ensure that where taxpayers generate an income stream from their boat, they are not unfairly taxed, while ensuring that the tax system does not subsidise the private use of boats.

Research and development

This measure ensures that the original policy intent of the refundable research and development (R&D) tax offset and the 175 per cent premium incremental concession is reflected in the law.

Amendments to the R&D tax offset will extend the timeframe that companies have to choose the offset and allow companies to object to the amount of offset that is allowed. An exception to the $20,000 minimum expenditure threshold for contracted expenditure to a registered research agency will apply to the R&D tax offset and all companies in a group will be covered by the R&D tax offset provisions.

Amendments to the 175 per cent premium incremental concession will ensure that a premium deduction amount can be allocated to all companies in a group that have contributed to that amount. Group eligibility will now be based upon expenditure incurred during a company’s group membership period and eligibility can now be established using Commercial Ready program payments.

Donations of listed shares to deductible gift recipients

To promote philanthropic giving, the Government announced in the 2006-07 Budget that it will allow a tax deduction for the donation of certain publicly listed shares to deductible gift recipients, extending the current gift provisions.

The amendments allow a tax deduction for donations of shares, in listed public companies, which were acquired at least 12 months before the donation, and have a market value of $5,000 or less. Donors can claim a deduction for the market value of the shares on the day they make the gift.

Deductible gift recipient extensions

The legislation will update the list of deductible gift recipients (DGR) to include two new entities:
American Australian Association Limited from 14 November 2006; and

  • Bunbury Diocese Cathedral Rebuilding Fund from 19 December 2006 until 18 December 2008.
  • In addition, the legislation will extend the DGR listing of The Finding Sydney Foundation to 27 August 2007.

Deductions for contributions relating to fund-rising events

The legislation also extends the thresholds for deductions for contributions relating to fund‑raising events. A tax deduction is available where the value of the taxpayer’s contribution is more than $150 (previously $250), and the minor benefit received by the taxpayer is no more than the lesser of $150 (previously $100), and 20 per cent (previously 10 per cent) of the value of the contribution.

Relaxing the minor benefits thresholds improves the ability of deductible gift recipients (DGRs) to attract donors for specific one-off fundraising events and provides greater accessibility for more DGRs to benefit from the measure.

Technical correction

This Bill will make technical amendments and corrections to the way the income tax law applies to exempt entities. It will ensure that Public Ancillary Funds or Prescribed Private Funds do not lose their income tax exempt status if they distribute money to Commonwealth, State or Territory bodies which are exempt from tax and also deductible gift recipients. Examples of such bodies are the National Gallery of Victoria, the Sydney Opera House and the National Portrait Gallery.

Venture capital

This legislation introduces a package of measures aimed at increasing activity in the Australian venture capital sector. These measures reinforce the Government’s ongoing support for new business ventures.

The Government has introduced amendments to the taxation laws to relax the eligibility requirements for foreign residents investing in venture capital limited partnerships and Australian venture capital funds of funds. The Government has also introduced a new set of taxation concessions for Australian residents and foreign residents investing in early stage venture capital activities through a new investment vehicle called an early stage venture capital limited partnership.

These amendments implement the changes to the venture capital regime that were announced in the 2006-07 Budget. The package addresses key findings of a review into Australia’s venture capital industry.