The Minister for Revenue and Assistant Treasurer, Peter Dutton, today introduced Tax Laws Amendment (2006 Measures No. 7) Bill 2006 to improve Australia’s taxation system by reducing compliance costs, improving certainty for taxpayers and ensuring the integrity of the tax base. In particular, the Bill also provides support for primary producers in this time of drought.
Small business capital gains tax provisions
The amendments will reduce the compliance costs for small business and increase the availability of the small business capital gains tax (CGT) concessions. The key measures include:
- replacing the controlling individual 50 per cent test with a significant individual 20 per cent test that can be satisfied either directly or indirectly through one or more interposed entities
- changing the maximum net asset value test by allowing provisions for annual leave, long service leave, unearned income and tax liabilities, as well as a negative asset value of a connected entity, to be taken into account;
- allowing the taxpayer to choose whether to roll-over the whole or part of a capital gain;
giving deceased estates access to the CGT concessions on assets disposed of within two years of death, to the same extent that the taxpayer could have enjoyed those concessions before death; and - introducing an alternative to direct ownership where the capital gains tax event happens to a share in a company or interest in a trust.
Interest withholding tax exemption changes
The amendments to the interest withholding tax (IWT) provisions of the tax law are being made to restore the original purpose of the 2005 IWT amendments and eliminate a risk to tax system integrity.
Without the amendments, interest on a range of debt interests that are not debentures and not contemplated as eligible for exemption by Government, could possibly be able to claim eligibility for IWT exemption.
Current business practices in relation to eligibility for IWT exemption for interest on debentures are not expected to be affected. However, provision has also been made to counter the prospect of interpretations of the term ‘debenture’ that could markedly widen the types of financial instruments eligible for exemption.
Capital protected borrowings
This measure will ensure that, from 1 July 2007 where the expense on a capital protected borrowing exceeds the Reserve Bank of Australia’s personal unsecured loan variable interest rate, part of the expense will be attributed to the cost of the capital protection feature.
The amount of the excess is treated as not being interest but as the cost of the capital protection feature. That amount will not be deductible where this cost is capital in nature.
Streamline gift fund and integrity arrangements for deductible gift recipients
The amendments will give effect to the Government’s announcement in the 2006-07 Budget that it will enhance philanthropy by streamlining the deductible gift recipient (DGR) integrity arrangements and reduce compliance requirements of DGRs.
The reduction in compliance costs is achieved through removing the gift fund requirement for certain DGRs and allowing the consolidation of multiple gift funds for others.
The amendments also align the integrity arrangements across all DGRs by allowing the Commissioner of Taxation to review whether an entity listed in the law as a DGR continues to be eligible to receive deductible gifts, in the same way that the Commissioner can review the eligibility of those entities that require the Commissioner’s endorsement. It is also a requirement for all DGRs to maintain adequate records to show the deductible public donations they receive and their use.
Deductible gift recipient extensions
The legislation will also extend the period of DGR listing for four organisations:
- Dunn and Lewis Youth Development Foundation Limited until 31 December 2007;
- The Rotary Leadership Victoria Australian Embassy for Timor-Leste Fund Limited until 31 December 2009;
- St George’s Cathedral Restoration Fund until 31 December 2007; and
- St Michael’s Church Restoration Fund until 23 February 2008.
Effective life of tractors and harvesters
This measure inserts a statutory cap of 6⅔ years for tractors and harvesters used in the primary production sector. The capped life applies where it is shorter than the effective life determined by the Commissioner and the taxpayer has chosen not to self-assess.
The statutory cap preserves the current safe harbour period over which such tractors and harvesters are depreciated, and provides certainty to farmers in a time of drought.
Farm management deposits – increasing thresholds
This Bill will also provide additional support to primary producers through the ongoing drought.
The non-primary production income threshold for making farm management deposits will increase from $50,000 to $65,000 and the total deposit limit will increase from $300,000 to $400,000.