The Minister for Revenue and Assistant Treasurer today introduced legislation to implement a range of changes and improvements to Australia’s taxation system (Tax Laws Amendment (2006 Measures No. 3) Bill 2006). This Bill will amend the taxation laws to:
Extend eligibility for the beneficiary tax offset to Cyclone Larry income support payments
This measure extends eligibility for the beneficiary tax offset to taxpayers in receipt of Cyclone Larry income support payments.
The Cyclone Larry income support payments are provided to farmers and small business owners whose income has been adversely affected by Cyclone Larry and are equivalent to the maximum rate of the Newstart allowance.
Applying the beneficiary tax offset to Cyclone Larry income support payments ensures consistency with the taxation treatment of the Newstart allowance.
Assist recovery for businesses adversely affected by Cyclone Larry
This Bill will also assist businesses that are adversely affected by Cyclone Larry. The Business Assistance Fund and the fuel excise relief programme payments will be tax-free.
Eligible businesses may apply for a one-off grant of $10,000 under the Business Assistance Fund. Those businesses that can demonstrate significant losses may apply for a grant of up to $25,000.
In addition, any excise paid on diesel or petrol used by businesses for generating their own electricity until restoration of normal services will be subsidised by the Government.
This recognises the extraordinary hardship inflicted by Cyclone Larry.
Extend eligibility for the beneficiary tax offset to drought-affected taxpayers in receipt of interim income support payments
This measure extends eligibility for the beneficiary tax offset to taxpayers who receive interim income support payments.
Welfare support for drought-affected farmers in areas declared to be in exceptional circumstances is mainly provided through exceptional circumstances relief payments (ECRP) which is a taxable payment. However, ECRP is a rebatable benefit to which the beneficiary tax offset applies.
Interim income support payments are made to farmers in areas where an exceptional circumstances application lodged by a state demonstrates a prima facie case for full exceptional circumstances assistance. Interim income support is available for up to six months while the case for full exceptional circumstances assistance is being considered.
Applying the beneficiary tax offset to interim income support payments ensures consistency with the taxation treatment of ECRP.
Insert the new share capital tainting rules
This measure represents a further component of the simplified imputation system. The share capital tainting rules are integrity rules that prevent companies from disguising distributions of profits as capital distributions.
The new share capital tainting rules are broadly consistent with the old rules with modifications to ensure that:
- certain amounts transferred from an option premium reserve do not cause a company’s share capital account to become tainted; and
- certain amounts transferred in connection with the demutualisation of an insurance company do not cause the company’s share capital account to become tainted.
The new share capital tainting rules will apply to transfers made to a company’s share capital account after today. Some consequential amendments to the old share capital tainting rules will apply from 1 July 1998.
Government grants
The Government will provide capital gains tax (CGT) exempt status for recipients of the WorkChoices grants. The Government is also expanding the CGT exempt status to include other government grants that reimburse expenses. This allows recipients of the WorkChoices grants and expense-reimbursing government grants to better utilise their grants. For employee recipients the Australian Taxation Office considers that the WorkChoices grants do not constitute assessable income
These CGT changes will take effect from the 2005-06 income year.
Introduce an offset for certain taxpayers whose Medicare levy surcharge liability arose, or increased, as a result of a significant, eligible lump sum payment in arrears
Currently taxpayers may be required to pay the Medicare levy surcharge or pay a higher amount of Medicare levy surcharge due to the receipt of a lump sum payment in arrears. Taxpayers can receive concessional income tax treatment to help offset the effects of receiving a lump sum payment in arrears but an equivalent concession has not been available for any resultant Medicare levy surcharge liability.
This amendment will provide an offset to certain taxpayers in respect of their Medicare levy surcharge where the liability arose, or significantly increased, as a result of the taxpayer receiving a significant, eligible lump sum payment in arrears.
This amendment will benefit those taxpayers who are generally not liable for the Medicare levy surcharge but become liable in a particular year due to receipt of a large lump sum payment in arrears and those who would otherwise have had to pay a larger Medicare levy surcharge.
Report superannuation contributions by superannuation provider
I announced on 3 February 2006 in Press Release No. 001 that the practice of requiring superannuation providers to report details of employer contributions to the Australian Taxation Office on an annual basis would continue. This legislation gives effect to that decision.
Reporting exclusion for fringe benefits to address a personal security concern
This amendment excludes, from reporting, fringe benefits provided to address certain security concerns relating to the personal safety of an employee, or an associate of the employee, arising from the employee’s employment. For the reporting exclusion to apply the provision of the fringe benefit to address a security concern must be consistent with a threat assessment made by a competent person.
A fringe benefit will be excluded from reporting where it is provided to address a security concern, arising in respect of employment, relating to the personal safety of the employee, or an associate of the employee. Eligibility for this fringe benefits reporting exclusion will be subject to an appropriate threat assessment.
As a result of this reporting exclusion, the payment summaries of employees who receive such fringe benefits will not include these amounts.
The Government is providing this reporting exclusion because an employee may require certain security services outside of their employment as a result of a credible threat of attack to them or their associates by reason of that employment.
This reporting exclusion applies from 1 April 2004.
Ensure appropriate use of pre-1 July 1988 funding credits
This measure protects revenue and the integrity of the taxation system by preventing the inappropriate use of pre-1 July 1988 funding credits, ensuring they can only be used in accordance with the original policy intent. The measure is expected only to affect public sector superannuation schemes.
Funding credits are used by superannuation schemes to reduce their tax liability. They were granted to unfunded or partly funded schemes and are intended to ensure that contributions made to a scheme after 1 July 1988 (when the 15 per cent contributions tax was introduced) to fund benefits that accrued prior to 1 July 1988 will not be taxed. This ensures equity with funded schemes. However, the legislation does not appropriately restrict the use of funding credits as superannuation schemes are able to use funding credits to reduce tax on contributions made to fund benefits that accrued after 1 July 1988.
To address this unintended outcome, the legislation will be amended so that the policy objective that funding credits could only be used to reduce tax on contributions made in respect of pre-1 July 1988 benefits will be achieved.
Allow certain funds to obtain an Australian Business Number
The Government will allow two types of deductible gift recipients — prescribed private funds and public ancillary funds — to obtain an Australian Business Number where the funds distribute to deductible gift recipients that are not charities (such as public ambulance services and research authorities) provided that these funds are income tax exempt. Under current integrity arrangements, funds seeking access to tax concessions as a prescribed private fund or a public ancillary fund must be endorsed by the Australian Taxation Office and hold an Australian Business Number. The amendment ensures that all prescribed private funds and public ancillary funds that distribute solely to deductible gift recipients which are income tax exempt, can access an income tax exemption.
Allow new deductible gift recipient categories
This measure gives effect to the Government’s announcement in the 2005-06 Budget that it will create five additional deductible gift recipient general categories to enhance philanthropic giving in the areas of education, community and social welfare, and community commemorations. The new deductible gift recipient general categories cover war memorials, disaster relief, animal welfare, charitable services and educational scholarships.
Change GST treatment of gift deductible entities
Changes to the tax law announced in this Bill will address the potential exploitation of certain GST charity concessions. The changes confirm that the GST concessions apply only to deductible gift recipients and not to any non-charitable activities of non-charitable entities that operate the deductible gift recipients.
Also, in 2004, the GST Act was amended to allow endorsed charities to access GST concessions. However, the amendments did not specify that charitable retirement village operators, like other charities, were required to be endorsed in order for the concessions to apply. To ensure consistency amongst charities, the GST Act will be amended to require charitable retirement village operators to be endorsed by the Australian Taxation Office.
The amendments will apply from Royal Assent of the legislation.
Make technical clarification
This measure makes a technical clarification to the Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005, to ensure that the reduced four year amendment period for income tax assessments involving tax avoidance applies from the 2004-05 income year as announced by the Government.
Increase in wine equalisation tax producer rebate
This measure delivers enhanced assistance for the wine industry under the wine equalisation tax (WET) producer rebate scheme, as announced in the 2006-07 Budget. From 1 July 2006, the maximum amount of WET rebate each wine producer (or group of producers) may claim in each financial year will increase to $500,000, compared to the current threshold of $290,000. This will effectively exempt around $1.7 million in domestic wholesale wine sales for a wine producer each year.
GST treatment of residential premises
This measure removes uncertainty in relation to the GST treatment of some types of real property. The amendments were announced in Press Release No. 006 of 27 February 2006.
The decision of the Full Federal Court in the Marana Holdings Pty Ltd v Commissioner of Taxation [2004] FCAFC 307 case has resulted in a blurring of the lines between properties that are subject to GST and those qualifying for input taxed treatment. The measure amends the GST Act to continue the tax treatment of property that existed prior to the Court's decision. It ensures that supplies involving properties such as serviced apartments and strata units leased to hotel operators remain input taxed. This is consistent with the Government's policy intent and will avoid the need for many small investors to register for the GST. The measure will apply from 1 July 2000.