The Rudd Government has announced a range of measures in the 2009-10 Budget as part of its ongoing efforts to improve the operation of the tax law.
These measures will cut compliance costs for business, strengthen the integrity of the tax system and further streamline the tax law design process.
Key measures include:
- amendments to the off-market share buyback provisions in response to a Board of Taxation review;
- reform of GST administration in response to a Board of Taxation review;
- the repeal of unlimited amendment periods and a review of elections in the tax law; and
- a review into anti-avoidance provisions to ensure the integrity of the tax law.
The measures are discussed in more detail below. More information on a number of the measures can also be found attached to this press release.
Simplification of the tax law
Review of unlimited amendment periods and elections in the tax law
The Government announces tonight that it will move to repeal over 100 provisions in the income tax laws that currently provide the Commissioner with an unlimited period in which to amend an item in a taxpayer’s income tax return.
The Government will also shortly release for public comment a discussion paper proposing guidelines for the design of election provisions in the income tax law with a view to increasing consistency and reducing uncertainty in relation to these provisions.
Consolidation of the taxation secrecy and disclosure provisions
The Assistant Treasurer released on 13 March 2009 exposure draft legislation that proposes to consolidate the taxation secrecy and disclosure provisions into a single framework which are now found across some 18 tax acts.
Strengthening the integrity of the tax system
The Government is also taking steps to ensure that the tax law is able to effectively guard against individuals and businesses seeking to avoid their tax obligations.
Discussion paper on anti avoidance provisions
The Government will shortly release a discussion paper canvassing options to consolidate, streamline and improve the operation of provisions designed to counter tax avoidance.
Tax agents regime
The Government is also continuing its work to implement a new regulatory regime for the provision of tax agent services to ensure that such services are provided in line with appropriate professional and ethical standards.
Transitional and consequential legislation for the new tax agent services regime is currently being finalised and the process of appointing members to the Tax Practitioners Board is currently underway, with positions advertised from 7 May 2009. The Government intends to have the new arrangements take effect from early in 2010.
Initiatives to assist business and reduce compliance costs
Reforms to GST administration
The Government will take steps to streamline and improve the legal framework for the administration of the GST by implementing a number of recommendations made by the Board of Taxation following its review of this issue.
The package of reforms will reduce the compliance costs of the GST and achieve greater standardisation between the GST and income tax regimes.
In addition, reviews are being undertaken by Treasury of the GST margin scheme provisions and the GST financial services provisions to simplify their operation whilst maintaining the current policy.
Following on from the Board’s review in this area, the Government has further asked the Board to examine the application of the GST to cross-border transactions, with a particular focus on the extent of involvement of non-residents in the GST.
This review will ensure that transactions are treated in an efficient and effective way under the GST. For further information refer to the Assistant Treasurer’s press release of 12 May 2009.
The Government will further improve the operation of the GST law through amendments that will streamline its application to the domestic transport of imported and exported goods (Attachment A).
Measures to assist business through reducing compliance costs and improving the tax law
Greater certainty and less complexity will also be pursued through a range of other measures.
The Government will make a number of amendments to the existing off-market share buyback rules, accepting all the recommendations of the Board of Taxation review in this area (Attachment B).
“I would like to thank the Board of Taxation for its excellent work in producing this report. I would also like to take this opportunity to thank those who made submissions to the Board and attended consultation meetings that assisted in the production of this report,” Mr Bowen said.
In addition, the Government will respond to concerns of the life insurance industry relating to exempt annuity businesses (Attachment C), and will amend the uniform capital allowance (Attachment D) and thin capitalisation regimes (Attachment E) to improve and clarify their operation.
The Government will also respond to concerns raised by the Property Council of Australia and others to allow a limited roll-over for certain fixed trusts to enable such trusts to restructure without immediate capital gains tax (CGT) consequences (Attachment F).
“Providing a limited roll-over will enable businesses and investment trusts to improve efficiency and attract further investment,” Mr Bowen said.
As announced on 29 April by the Minister for Superannuation and Corporate Law, Senator Nick Sherry, the Government will also remove impediments to mergers of superannuation funds by allowing an optional loss roll-over for losses that arise as a result of a merger between certain superannuation funds. This measure is limited and removes potential barriers to a robust and efficient superannuation industry, which is important in the current financial climate.
The Government will also defer the application of an income test that has applied to the entrepreneurs’ tax offset with the income test now applying from the 2009-10 financial year. This will assist eligible businesses by ensuring that the form and timing of the income tests are consistent with the Government’s broader reforms in this area (Attachment G).
Streamlining the tax law design process
Tax Design Review Panel recommendations
As announced on 22 August 2008, the Government accepted in principle all the recommendations of the Tax Design Review Panel which examined ways to reduce delays in introducing tax legislation and improve the quality of taxation legislation.
The Government will implement the one outstanding recommendation to make greater use of private sector experts in the tax design process as recommended by the Panel.
The Government will provide Treasury with additional funding to fund private sector expert input on the practical and commercial issues arising from proposed tax changes which will lead to improved tax legislation.
The Government has also tonight released a discussion paper to progress the Panel’s recommendation that consideration be given to whether or not the Commissioner of Taxation should be given further power to modify the tax law to give relief to taxpayers as announced by the Assistant Treasurer on 13 March 2009.
The paper - which canvasses the pros and cons of an extra-statutory concession - seeks views on how a provision could be designed and implemented if introduced. The paper, copies of which can be obtained from the Treasury website, will be open for consultation for eight weeks.
Attachment A
GST and Cross-Border Transport Supplies
As part of its commitment to ease tax compliance costs for Australian businesses, the Government will streamline the GST law to assist businesses involved in the domestic transport of imported and exported goods, with effect from 1 July 2010.
The liability for paying GST on the domestic transport of imported goods will be shifted from the transport service suppliers to the importer of the goods. This will involve adding the cost of domestic transport into the ‘value of taxable importation’ used to calculate GST liability on importation and removing the GST liability on the supply of domestic transport services made to a non-resident. This will ease compliance costs for domestic transporters and non-residents.
The definition of ‘place of export’ will be amended for containerised non-postal goods from the place of ‘containerisation’ to the place from which the goods are sent. This will make the GST treatment of postal and containerised non-postal goods more consistent and reduce GST compliance costs for transporters.
Sub-contracted domestic transport services that are part of the domestic leg of an export transport service will be made taxable/creditable, even though the goods may be for export ultimately. This will assist sub-contracted transport suppliers with tax compliance and ease compliance costs.
This measure is subject to the unanimous agreement of the States and Territories.
Attachment B
Board of Taxation Report on Off-Market Share Buybacks
The Government will implement the Board of Taxation’s recommendations to improve the taxation treatment of off-market share buybacks.
The Board made six recommendations in its report on the taxation treatment of off-market share buybacks. A summary of the recommendations can be found below. The full report is available on the Board of Taxation website.
The Government agrees with all of the Board’s recommendations. Implementation of these recommendations will provide more certainty and flexibility for companies undertaking off-market share buybacks and their shareholders, while reducing administration costs.
The amendments to the income tax law to implement the Board’s recommendations will apply to off-market share buybacks undertaken after the date of Royal Assent of the amending legislation.
Legislation reflecting the Board’s recommendations will be introduced as soon as practicable. Initial consultation will be undertaken on the design of the amendments to implement these recommendations. Details will be released on the Treasury website by the end of May 2009.
An exposure draft of the legislation will be released for consultation on the Treasury website after consulting on the design of these amendments.
Summary of The Board Of Taxation recommendations on the taxation treatment of off‑market share buybacks
Recommendation 1: Administrative cap on the level of discount
The Board recommends that the Australian Taxation Office remove the administrative cap on the level of the discount to an Australian securities exchange value of shares under off-market share buybacks conducted by listed companies.
Recommendation 2: Non-resident to resident streaming
The Board recommends that:
- there should continue to be a debit to the franking account of the company to reflect the intended wastage of franking credits in the hands of non-resident shareholders; and
- there should be a specific provision dealing with this issue in the context of off-market share buybacks rather than relying on the general streaming and integrity provisions. That provision should include the formula for calculation of the debit to the franking account. Franking credits will continue to be available to shareholders notwithstanding this debit to the franking account.
Recommendation 3: Notional losses
The Board recommends that:
- notional losses should be denied to all shareholders who participate in off-market share buybacks conducted by listed companies. The market value uplift rule in subsection 159GZZZQ(2) of the Income Tax Assessment Act 1936 should not apply to off-market share buybacks conducted by listed companies; and
- notional losses should continue to be allowed for shareholders who participate in off-market share buybacks conducted by unlisted companies. The market value uplift rule in subsection 159GZZZQ(2) of the Income Tax Assessment Act 1936 will continue to apply to off-market share buybacks conducted by unlisted companies.
Recommendation 4: Greater certainty for listed companies
The Board recommends:
- legislative provisions be introduced that:
- outline the methodology for the capital/dividend split. Average capital per share should be specified as the general method to be used by companies, with a discretion available to the Commissioner of Taxation to allow companies to apply another methodology such as the slice method or the embedded value method when appropriate to their particular circumstances. The Australian Taxation Office should provide guidance on the circumstances in which these other methodologies may be appropriate;
- specify an extension of time for listed companies conducting an off-market share buyback to provide a distribution statement; and
- confirm that sections 45A and 45B and paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936, and section 204-30 of the Income Tax Assessment Act 1997, will not be applied to tender style off-market share buybacks conducted by listed companies where average capital per share is used to determine the capital/dividend split;
- • taxation rulings be issued that:
- – outline the appropriate buyback timetable; and
- – outline the application of the 45 day rule, including how LIFO (last in first out) applies in relation to off-market share buybacks conducted by listed companies.
Recommendation 5: Unlisted companies
The Board recommends the off-market share buyback provisions should generally apply in the same way to listed and unlisted companies, subject to the following modifications:
- sections 45A and 45B and paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936, and section 204-30 of the Income Tax Assessment Act 1997, will continue to apply to off-market share buybacks conducted by unlisted companies; and
- the Australian Taxation Office should continue to provide guidance on market valuation for unlisted companies.
Recommendation 6: Include buyback provisions in the Income Tax Assessment Act 1997
The Board recommends that in amending any existing provisions that apply to off-market share buybacks, consideration be given to moving the provisions currently in the Income Tax Assessment Act 1936 to the Income Tax Assessment Act 1997.
Attachment C
LIFE INSURANCE COMPANIES: EXEMPT ANNUITY BUSINESS
The Government will clarify the scope of the exempt annuity business of life insurance companies.
The changes will clarify that the non-assessable non-exempt income of life insurance companies includes income from assets supporting annuity policies that satisfy the pre-July 2000 annuity conditions. These changes will apply from 1 July 2002.
In addition, with effect from the 2007-08 income year, the annuity conditions will not apply to annuity policies that are superannuation income streams. This will clarify that life insurance companies, like other providers of superannuation income streams, are exempt from tax on income derived from assets that support superannuation income streams.
Initial consultation will be undertaken on the design of these amendments — a consultation paper providing further information is available on the Treasury website (www.treasury.gov.au).
An exposure draft of the legislation will also be released for consultation on the Treasury website.
Attachment D
TECHNICAL CHANGES TO UNIFORM CAPITAL ALLOWANCE REGIME
The Government will make a number of technical amendments to the Uniform Capital Allowance (UCA) regime within the taxation system.
The UCA regime specifies how to calculate deductions for the decline in value of depreciating assets over time. In general, the period over which these deductions can be claimed is the effective life of the asset.
These amendments will correct minor deficiencies in the current regime and improve certainty for taxpayers. It is an example of the Government’s commitment to improve Australia’s taxation system.
Details of the technical amendments can be found below.
The Government will undertake a consultation process to assist with developing the legislative changes.
UNIFORM CAPITAL ALLOWANCES: TECHNICAL CHANGES
The following provides a summary of the proposed technical changes to the Uniform Capital Allowance (UCA) regime. All legislative references are to the Income Tax Assessment Act 1997 (ITAA 1997).
| Issue | Description of issue | Amendment |
|
Issue 1 Extensions, renewals and conversions of mining rights. |
Concerns with the current law centre around extensions, renewals and conversions of mining rights as a result of routine state/territory administrative arrangements but this inappropriately changes the status of the mining right for taxation purposes. In the case of pre 1 July 2001 mining rights (ie, prior to the commencement of the UCA regime), there is a risk in these circumstances that the taxation treatment of the mining right shifts from the capital gains tax regime to the UCA regime. In the case of post 1 July 2001 mining rights, there is a risk in these circumstances that a balancing adjustment event may occur. |
Make an amendment to ensure there is no change in taxation treatment in circumstances where the mining right expires or is surrendered in particular circumstances (along the lines set out in subdivision 124-L for capital gains tax purposes). Commencement date: 1 July 2001 (ie, commencement of the UCA regime). |
|
Issue 2 Disposal of pre-UCA mining rights. |
There is a risk of double taxation where a pre-UCA mining right together with pre-UCA mine site improvements are disposed of. |
Make an amendment to ensure there is no double taxation in this circumstance. Commencement date: 1 July 2001 (ie, commencement of the UCA regime). |
|
Issue 3 Transfer of mining rights. |
The rewrite of the former law that occurred with the introduction of the UCA regime results in the taxpayer who is the transferee of a mining lease being unable to claim a deduction for the value of improvements where the improvements were made by a previous owner of the lease. |
Make an amendment to ensure that where an improvement to land is made by the owner of a quasi ownership right, a subsequent owner of that right or the owner of a subsequent quasi ownership right over that land is a holder of the improvement. Commencement date: 1 July 2001 (ie, commencement of the UCA regime). |
|
Issue 4 Project Pools-treatment of non-cash benefits. Consistency of language: Subsections 40-830(5) and (6) and section 40-885. |
The treatment of non-cash benefits and termination of liabilities differs between a depreciating asset (when a balancing adjustment event occurs) and a project pool (when a project is abandoned, sold or disposed of). In particular, non-cash benefits, the amounts of terminated liabilities, set-offs, reductions in liabilities and amounts credited are not included in assessable income for the purposes of subsections 40-830(5) and (6). In addition subsection 40-830(5) uses the word ‘receive’, subsection 40-830(6) uses the word ‘derived’ and section 40-885 uses the words ‘received’ and ‘incurred’. Given these sections are interlinked, the different language creates inconsistencies. |
Make an amendment to capture all amounts in assessable income and to ensure consistency of language. Commencement date: 1 July 2009 |
|
Issue 5 Reduction to reflect non-taxable use when calculating the amount included in assessable income for abandonment, sale or other disposal. |
Taxpayers are unable to reduce amounts on which they are assessed on disposal, sale or abandonment of a project to account for non-taxable use. This means that taxpayers pay more tax or deduct more losses than intended. |
Make an amendment to the project pool provisions in subdivision 40-I to capture non-taxable use in previous years when calculating the balancing adjustment for abandonment, sale or other disposal of a project. Commencement date: 1 July 2009 |
|
Issue 6 Project amounts can include expenditures that are specifically barred from tax relief elsewhere in the ITAA 1997. |
Taxpayers may be able to claim deductions for expenditure that is otherwise non-deductible expenditure if such expenditure can be included in project amounts in the pooling provisions. |
Make an amendment to incorporate non-deductible expenditure elsewhere in the UCA regime for the purposes of the project pool provisions because this expenditure is dealt with in the tax law in some other way. Commencement date: 1 July 2009 |
|
Issue 7 Expenditure on intellectual property satisfying both project pool amounts and cost of a depreciating asset. |
Taxpayers may incur expenditure which they can claim a double deduction by allocating the amount to a project pool and claiming deductions for decline in value where those amounts later come to form part of the cost of a depreciating asset. An example is expenditure relating to lodging an application for intellectual property. |
Make an amendment to remove the double deduction in this circumstance. Commencement date: 1 July 2009 |
|
Issue 8 Identifying economic owner (items 5 and 6 of table 40-40). |
Section 40-40 is designed to identify the ‘economic owner’ rather than the ‘legal owner’ as the holder of the asset for depreciation purposes. There are circumstances where items 5 and 6 of section 40-40 do not correctly identify the economic owner of an asset. In particular, there are difficulties with the ‘reasonable to expect’ test in item 6 where the lease arrangement has both a call and put option and it is certain that at least one of them will be exercised, the word “exercise” is interpreted to relate to options but in fact should have broader application, and there is a problem where there is an associate of the lessee. |
Make an amendment to address these issues. Commencement date: 1 July 2009 |
|
Issue 9 Interaction between Divisions 40 (which is the UCA regime) and 240 (which deals with hire purchase arrangements). |
There are two problems with the interaction between Divisions 40 and 240. The first relates to identifying the notional seller in a hire purchase agreement in all circumstances. The second relates to uncertainty as to whether the amount variously described as the ‘consideration for the sale of the property’, the ‘cost of the acquisition of the property’ and the ‘price of the goods’ is the amount that is the termination value to the notional seller, and the cost to the notional buyer, for UCA purposes. |
Make amendments to address these issues. The amendments will need to ensure all hire purchase arrangements are captured and to ensure consistency of language between Divisions 40 and 240. Commencement date: 1 July 2009. |
|
Issue 10 Accelerated depreciation (subsections 40-95(5) and (6)). |
Sections 40-95(5) and (6) are designed to prevent the acceleration of deductions within the UCA regime through the churning of assets to associates or through sale and leaseback arrangements. The current sections produce harsh outcomes if accelerated depreciation was used prior to 1 July 2001. This is because taxpayers who held plant and equipment subject to accelerated depreciation rates were not ‘using an effective life’. Instead, they were ‘using a rate of depreciation’ that applied within a range of effective lives. |
Make an amendment to ensure that the new holder can use the lowest effective life in the range to which the relevant accelerated depreciation rate applied. Commencement date: 1 July 2009 |
|
Issue 11 Certain sale and leaseback arrangements (subsection 40-95(5)). |
The provisions apply correctly in the case of genuine sale and leaseback arrangements - that is, where the leaseback provides no prospect of the lessee immediately becoming the holder again. If the lessee does regain holding of the asset, the provisions do not apply correctly because the former holder (the lessor) was not using the asset as required by subsection 40-95(5). If subsection 40-95(5) cannot apply, then subsection 40-95(6) cannot apply either, in which case the lessee would be able to self assess an effective life which is contrary to the intent of the provision. |
Make an amendment to ensure all sale and leaseback transactions are captured. Commencement date: 1 July 2009 |
|
Issue 12 Accelerated deductions and sale and leaseback (subsection 40-95(5)). |
Subsection 40-95(5) is designed to prevent accelerated depreciation under sale and leaseback transactions. These provisions may inappropriately apply in certain arms-length transactions. For example, where A owns a property that it rents to B on a commercial basis. A sells the property to C who continues to rent it to B on a commercial basis. All of A, B and C are arms-length parties. At present, subsection 40-95(5) applies to ensure that C must use the same effective life that A was using because B, the end user, does not change. This produces an unintended result for C given that this is an arms-length situation. |
Make an amendment to remove this anomaly. Commencement date: 1 July 2009 |
|
Issue 13 No default mechanism (subsection 40-95(4)). |
There is no fallback position for subsection 40-95(4) where the effective life that the former holder was using cannot be ascertained. |
Make an amendment to introduce a fallback. This amendment could involve the effective life determined by the Commissioner of Taxation, and if there is no determination, the taxpayer could self assess the effective life. Commencement date: 1 July 2009 |
|
Issue 14 Prime cost method (subsections 40-95(4) and (5)). |
The problem is with the prime cost method where the new holder acquires an asset after the end of the ‘effective life’ of the asset. The new holder is required to use the prime cost method but because the asset’s effective life is zero the decline in value under the prime cost calculation is undefined. |
Make an amendment be made so that the taxpayer can self assess the effective life. Commencement date: 1 July 2009 |
|
Issue 15 Additional fallback (subsection 40-95(6)). |
Subsection 40-95(6) provides that where the taxpayer cannot obtain the effective life from a former holder, the effective life is that determined by the Commissioner of Taxation. When the Commissioner of Taxation has not determined an effective life, there is no fallback. |
Make an amendment to allow the taxpayer to self assess the effective life if the Commissioner of Taxation has not determined the effective life of the asset and the current holder cannot find out the information from the former holder of the asset. Commencement date: 1 July 2009 |
|
Issue 16 Car expenses: ‘one-third of actual expenses’ method. |
There is a problem when a taxpayer uses the ‘one-third of actual expenses’ method to claim deductions for car expenses. The effect of the current law is to deny deductions because the actual deduction is inadvertently reduced by a third. |
Make an amendment be made to ensure that taxpayers claim the correct deduction for car expenses using the one-third method. Commencement date: 1 July 2009 |
|
Issue 17 Balancing adjustment event for an unused asset that was intended to be used partially or wholly for other than a taxable purpose. |
Issue A: An excessive balancing adjustment may arise in the case where a taxpayer ceases to hold an asset prior to use (or installation for use) and had intended to use the asset, partially or wholly, for a non-taxable purpose. Consequently, a balancing adjustment amount could arise from a non-taxable purpose in this circumstance. Issue B: The policy position set out in a note in the current law indicates that if the 12 per cent method is used to work out deductions for car expenses, then the taxpayer is not entitled to a balancing adjustment under the UCA regime. This is the correct policy outcome but the current law does not give effect to this policy (because notes are inoperative). |
Issue A: Make an amendment to reduce the balancing adjustment amount in respect of non-taxable use. Issue B: Make an amendment to ensure that if the 12 per cent method is used to work out deductions for car expenses, then the taxpayer is not entitled to a balancing adjustment under the UCA regime. Commencement date: Issue A — 1 July 2001 (commencement of the UCA regime), and Issue B — 1 July 2009. |
|
Issue 18 Definition of a depreciating asset. |
The definition of a depreciating asset may not include all the components of ‘plant’ as defined in section 45-40. |
Make an amendment to include ‘plant’ as defined in section 45-40 in the definition of a ‘depreciating asset’. This will ensure that there is no doubt that the meaning of a depreciating asset includes all the components of plant. Commencement date: 1 July 2001 (ie, commencement of the UCA regime). |
|
Issue 19 Timing issue relating to applying the luxury car limit (subsection 28-45(2)). |
Subsection 28-45(2) limits the amount a taxpayer can deduct for car expenses under the 12 per cent method by reference to the car limit for the year the taxpayer first uses the car for any purpose. In contrast, the car limit provision in subsection 40-230(1) sets the first element of cost of a car (which is use to calculate the decline in value) as the point in time the taxpayer first holds the car. This causes an anomaly when a car is acquired in one income year but not used until the next income year and there is a change in the luxury car limit. In this scenario, taxpayers can deduct a greater amount using the ‘12 per cent of original value’ method as opposed to using the rules set out in Division 40. |
Make an amendment to remove the inconsistency between subsections 28-45(2) and 40-230(1). This amendment would be to subsection 28-45(2) so that it is based on when the taxpayer holds the luxury car. Commencement date: 1 July 2009 |
|
Issue 20 First element of cost of replacement asset (subsection 40-180(2)) |
Section 40-300 item 8 provides a termination value in the case where an asset is lost or destroyed. There is no equivalent provision in section 40-180. That is, there is a need to determine the cost of a depreciating asset where it replaces an asset asset which was lost or destroyed. |
Make an amendment to provide a cost for a depreciating asset where that asset was acquired as a replacement asset for a depreciating asset that was lost or destroyed. This cost should be the market value of the replacement asset. Commencement date: 1 July 2009 |
|
Issue 21 Purchase with instalments or with a discount (subsection 40-185(1)). |
Where a taxpayer purchases a depreciating asset for a certain sum payable by instalments, Item 3 of the table in subsection 40-185(1) treats the full sale price as the cost. However, if the purchaser stops paying the instalments (whether the asset is returned or not) there is not any mechanism to adjust the cost. Similar issues arise where there is a discount provided. Again, the cost rules take the gross amount as the cost. There is no adjustment for the discount. |
Make an amendment to provide a reduction in the cost of a depreciating asset where that cost is not fully paid. Commencement date: 1 July 2009 |
|
Issue 22 Disposal consideration received in instalments or subject to a discount (subsection 40-305(1)). |
Where a taxpayer sells a depreciating asset for a certain sum payable by instalments, Item 3 of the table in subsection 40-305(1) treats the full sale price as the termination value. However, if the purchaser stops paying the instalments (whether the asset is returned or not) there is no mechanism to adjust the seller’s termination value. The result is that the debt relating to the unpaid instalments is treated as a CGT asset with a capital loss occurring on its non payment. This causes the paper profit/loss at the time of sale to be dealt with immediately on revenue account while the loss on the failure to pay the debt is dealt with later on capital account. Similar issues arise where there is a discount provided. |
Make an amendment to address this issue. The amount not received will be dealt with in the year of default to avoid amending past returns. Commencement date: 1 July 2009 |
|
Issue 23 Low value pool and balancing adjustment (sections 40-340 and 40-345). |
Taxpayers using low-value pools can satisfy the requirements for roll-over relief as set out in section 40-340. Having satisfied these requirements, the taxpayer qualifies for rollover relief but section 40-345 does not provide any balancing adjustment relief for these taxpayers. |
The amendment would seek to ensure taxpayers using low-value pools are treated the same as other taxpayers by providing rollover relief. Commencement date: 1 July 2009 |
|
Issue 24 Low value pools and exploration (section 40-430(1)) |
Assets costing less than $1,000 and first used in exploration or prospecting must be allocated to a low-value pool. However, such assets already attract an immediate write-off. |
Make an amendment to ensure that assets costing less than $1,000 and first used for exploration or prospecting are not allocated to a low-value pool. Commencement date: 1 July 2009 |
|
Issue 25 Non-taxable use (subsection 40-440(1) Step 1) |
In the case where an asset is used for private use (such as a refrigerator) and then is used for a taxable purpose (say in a rental property), then in working out the amount to write off through the pool no account is taken of the period the asset has already been used for private purposes (ie, cost is the original acquisition price). |
Make an amendment to ensure that taxpayers take into account any initial non-taxable use of the asset before allocation to the pool. Commencement date: 1 July 2009 |
|
Issue 26 Low value pool and allocation (subsection 40-440(1)) |
Taxpayers need to determine net income relating to a particular activity (eg, net primary production income and net rental income). This information is used for various tax and non-tax purposes. However, the current tax law provides no mechanism to allocate amounts within the low value pool to various activities. |
Make an amendment to provide a basis for apportioning the total decline in value of all assets in the low-value pool across assets used for particular activities. Commencement date: 1 July 2009 |
|
Issue 27 Software development pool (section 40-455). |
There is a non-arms-length rule applied generally in the UCA regime. However, this rule does not apply to software development pools. |
Make an amendment to provide a non-arms-length cost rule for software development pools. Commencement date: 1 July 2009 |
|
Issue 28 UCA and capital gains tax interaction (subsection 118-20(5)) |
There are circumstances where the anti-overlap rule between the UCA and capital gains tax regimes does not relieve double taxation. The problem arises because the capital gains tax rules apply before the UCA rules apply in certain circumstances. |
Make an amendment to ensure that the tax treatment under the capital gains tax regime is taken into account in applying the UCA rules. Commencement date: 1 July 2009 |
Attachment E
THIN CAPITALISATION - INTERNATIONAL FINANCIAL REPORTING STANDARDS
The Government will introduce changes to the thin capitalisation regime for approved authorised deposit-taking institutions (ADIs).
The changes will clarify how treasury shares, the previous business insurance asset known as excess market value over net assets and capitalised software costs will be recognised under the thin capitalisation provisions.
Furthermore, the changes will take into account the views expressed by stakeholders in relation to how the Australian equivalents of International Financial Reporting Standards apply to certain thin capitalisation arrangements for ADIs.
The current transitional provisions provide relief to affected entities from the impact of the adoption of new accounting standards in 2005. Given concerns related to the expiry of the transitional provisions, it is intended that the proposed changes will have effect from 1 January 2009.
The thin capitalisation regime is an integrity measure designed to ensure Australian and foreign owned multi-national entities do not allocate an excessive amount of global debt to their Australian operations. Rules operate to disallow a proportion of otherwise deductible expenses where the debt used to fund the Australian operations exceeds certain limits.
An exposure draft of the legislation will be released for consultation on the Treasury website.
Attachment F
PROVISION OF LIMITED CAPITAL GAINS TAX (CGT) ROLL-OVER FOR FIXED
TRUSTS WITH SAME BENEFICIARIES
Following consultation on the abolition of the trust cloning exception (announced on 31 October 2008 in Media Release No. 092 of 2008), the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, Chris Bowen MP, announced today that the Government will provide a CGT roll-over for assets transferred between trusts with no material discretionary elements (sometimes referred to as fixed trusts) and with the same beneficiaries.
This will defer the CGT consequences of an asset transfer for the trustees of relevant trusts.
The measure will be accompanied by appropriate integrity rules. For example, beneficiaries of the trusts will be required to adjust the CGT attributes of their interest(s) in the trusts to take account of the transfer.
The abolition of the trust cloning exception and the CGT roll-over for fixed trusts will be combined into one set of amendments.
Legislation giving effect to these measures will be introduced as soon as practicable. An exposure draft of the legislation will be released for consultation in the coming weeks on the Treasury website (www.treasury.gov.au).
Consistent with the previous announcement, these amendments will apply to CGT events happening after 31 October 2008.
Attachment G
DEFERRAL OF INCOME TESTING OF THE ENTREPRENEUR'S TAX OFFSET
The Government will defer the application of an income test on the entrepreneurs’ tax offset (ETO), a decision in the 2008-09 Budget. As a consequence, the income test will commence on 1 July 2009 rather than 1 July 2008.
This decision will ensure that the proposed income test for the ETO will commence at the same time as, and be consistent with, the Government’s broader means testing reforms, also announced in the 2008-09 Budget and enacted in the Tax Laws Amendment (2009 Measures No.1) Bill 2009.
Ultimately, ensuring that the proposed income test for the ETO is consistent with these broader reforms in the tax system will make it easier for taxpayers to comply with their tax obligations.
The ETO provides a 25 per cent tax offset against the income tax liability for small businesses whose annual turnover is below $75,000. The Government announced in its 2008-09 Budget its intention to ensure that the ETO is better targeted at genuine small businesses by introducing an income test to restrict eligibility for the ETO. Under the income test, eligibility for the ETO will begin to phase out for singles with income of $70,000 and families with income of $120,000.
As a result of this decision, small business entities eligible to claim the ETO in the 2008-09 income year will not have their claim reduced by the application of an income test. However, the existing annual turnover test for the business will continue to apply.
An exposure draft of the legislation will be released for consultation on the Treasury website.