The Government today introduced Tax Laws Amendment (2007 Measures No. 4) Bill 2007 to implement a number of improvements to Australia’s taxation system, including the following:
New foreign income tax offset and foreign loss rules
The foreign tax credit and foreign loss legislation will be replaced with new, streamlined rules.
The Bill will repeal the current quarantining rules that have applied to foreign tax credits and foreign losses.
Consultation with the business community has produced simple transitional rules for the treatment of past foreign losses and credits.
Capital gains tax roll‑over for medical defence organisations
This Bill will ensure that capital gains tax need not be an impediment to mergers or takeovers of medical defence organisations (MDOs).
The amendments will provide a capital gains tax roll‑over, similar to the scrip for scrip roll‑over, for membership interests in MDOs. The roll‑over will generally be available when a membership interest in an MDO is replaced with a similar membership interest in another MDO, for example where one MDO merges with another MDO, and both organisations are companies limited by guarantee.
Investment in instalment warrants by superannuation funds
These amendments allow investment by superannuation funds in instalment warrants that are of a limited recourse nature, over any asset a fund would be permitted to invest in directly.
In recent years, many superannuation funds, particularly self‑managed superannuation funds, have invested in instalment warrants. These changes will allow superannuation funds to continue investing in limited recourse instalment warrants with certainty.
Trustee beneficiary reporting rules
This Bill simplifies the ultimate beneficiary reporting rules applying to closely held trusts.
Under the new rules, trustees of closely held trusts will be required to report only the details of the trustee beneficiaries that are entitled to certain income of the trust and any tax‑preferred amounts.
Trusts that have made a family trust election or an interposed entity election will be excluded from the new reporting requirements. These trusts are already governed by rules that subject any distributions which are made outside the family group to a penalty rate of tax (the family trust distribution tax).
To provide options to further reduce compliance costs, the Commissioner of Taxation will be authorised not to require annual reporting for some trusts where he considers it unnecessary. These amendments will reduce compliance costs for trustees of closely held trusts whilst maintaining the integrity of the tax system.
Increasing flexibility for family trusts
In the 2006-07 Budget, the Government announced that it would increase flexibility for family trusts in relation to trust and related company tax loss rules, bad debt deductions and franking credit rules. The amendments will allow family trust elections and interposed entity elections to be varied or revoked in a broader range of circumstances. In addition, the definition of ‘family’ will be broadened to include lineal descendants and distributions to former spouses, widows/widowers and former step-children will be exempt from family trust distribution tax.
Deductible gift recipient extensions
The legislation will update the list of deductible gift recipients (DGRs) to include two new entities:
- Australian Peacekeeping Memorial Project Incorporated from 30 April 2007 until 31 December 2008; and
Social Ventures Australia Limited from 4 May 2007. - In addition, the legislation reflects a name change of one organisation listed as a DGR to Mawson’s Huts Foundation Limited.
Minor amendments
This Bill makes a number of minor technical corrections and other minor amendments to the tax laws as part of the Government’s ongoing commitment to improve the quality of the taxation laws and reducing their complexity.