TAX LAWS AMENDMENT (2004 MEASURES NO. 5) BILL 2004

2002-2003-2004

The Parliament of the
Commonwealth of Australia

HOUSE OF REPRESENTATIVES

Presented and read a first time

Tax Laws Amendment (2004 Measures No. 5) Bill 2004

No. , 2004

(Treasury)

A Bill for an Act to amend the law relating to taxation, and for related purposes

Part 3—Certain losses not taken into account under step 3 of allocable cost amount 19

Part 4—Transitional treatment of tax liabilities for allocable cost amount and CGT purposes 20

A Bill for an Act to amend the law relating to taxation, and for related purposes

1 Short title

This Act may be cited as the Tax Laws Amendment (2004 Measures No. 5) Act 2004.

2 Commencement

(1) Each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms.

Commencement information
Column 1	Column 2	Column 3
Provision(s)	Commencement	Date/Details
1. Sections 1 to 4 and anything in this Act not elsewhere covered by this table	The day on which this Act receives the Royal Assent.
2. Schedule 1, items 1 to 5	The day on which this Act receives the Royal Assent.
3. Schedule 1, items 6 to 9	The later of: (a) the start of the day on which this Act receives the Royal Assent; and (b) immediately after the commencement of Schedule 4 to the Tax Laws Amendment (2004 Measures No. 4) Act 2004. However, the provision(s) do not commence at all if the event mentioned in paragraph (b) does not occur.
4. Schedules 2 to 7	The day on which this Act receives the Royal Assent.
5. Schedule 8	Immediately after the Taxation Laws Amendment Act (No. 8) 2003 received the Royal Assent.	21 October 2003

Note: This table relates only to the provisions of this Act as originally passed by the Parliament and assented to. It will not be expanded to deal with provisions inserted in this Act after assent.

(2) Column 3 of the table contains additional information that is not part of this Act. Information in this column may be added to or edited in any published version of this Act.

3 Schedule(s)

Each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.

4 Amendment of assessments

Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment made before the commencement of this section for the purposes of giving effect to this Act.

Schedule 1—Deductible gift recipients

Income Tax Assessment Act 1997

1 Subsection 30-25(1) (at the end of the table)

Add:

2.1.12

a government school that:

(a) provides special education for students each of whom has a disability that is permanent or is likely to be permanent; and

(b) does not provide education for other students

none

2 Application for item 1

The amendment made by item 1 of this Schedule applies to gifts made on or after 1 April 2004.

3 Subsection 30-50(2) (table item 5.2.1)

Omit “1 July 2005”, substitute “1 July 2007”.

4 Subsection 30-50(2) (table item 5.2.19)

Omit “15 August 2004”, substitute “15 August 2005”.

5 Subsection 30-50(2) (table item 5.2.21)

Omit “3 July 2004”, substitute “1 July 2006”.

6 Subsection 30-50(2) (at the end of the table)

Add:

5.2.24

City of Onkaparinga Memorial Gardens Association Inc

the gift must be made after 28 April 2004 and before 25 April 2005

7 Section 30-102 (at the end of the table)

Add:

12A.2.11

CFA & Brigades Donations Fund

Victoria

the gift must be made after 30 June 2004

8 Subsection 30-315(2) (after table item 30)

Insert:

30A

CFA & Brigades Donations Fund

item 12A.2.11

9 Subsection 30-315(2) (after table item 31)

31A

City of Onkaparinga Memorial Gardens Association Inc

item 5.2.24

Schedule 2—Irrigation water providers

Income Tax Assessment Act 1997

1 After section 40-50

Insert:

40-53 Alterations etc. to certain depreciating assets

(1) These things are not the same ^*depreciating asset for the purposes of section 40-50 and Subdivision 40-F:

(a) a depreciating asset; and

(b) a repair of a capital nature, or an alteration, addition or extension, to that asset that would, if it were a separate depreciating asset, be a ^*water facility.

(2) These things are not the same ^*depreciating asset for the purposes of section 40-50 and Subdivision 40-G:

(a) a depreciating asset; and

(b) a repair of a capital nature, or an alteration, addition or extension, to that asset that would, if it were a separate depreciating asset, be a ^*landcare operation.

2 At the end of section 40-515

Add:

(5) Paragraph (4)(a) does not apply to a ^*water facility if the expenditure incurred on the construction, manufacture, installation or acquisition of the water facility was incurred by an ^*irrigation water provider.

Meaning of irrigation water provider

(6) An irrigation water provider is an entity whose ^*business is primarily and principally the supply (otherwise than by using a ^*motor vehicle) of water to entities for use in ^*primary production businesses on land in Australia.

3 Subsection 40-520(1)

Repeal the subsection, substitute:

(1) A water facility is:

(a) ^*plant or a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to plant or a structural improvement, that is primarily and principally for the purpose of conserving or conveying water; or

(b) a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to a structural improvement, that is reasonably incidental to conserving or conveying water.

Example: Examples of a water facility include a dam, tank, tank stand, bore, well, irrigation channel, pipe, pump, water tower and windmill. Examples of things reasonably incidental to conserving or conveying water include a culvert, a fence to prevent livestock entering an irrigation channel and a bridge over an irrigation channel.

4 Subsection 40-525(1)

Repeal the subsection, substitute:

Water facilities

(1) The capital expenditure you incurred on the construction, manufacture, installation or acquisition of the ^*water facility must have been incurred:

(a) primarily and principally for the purpose of conserving or conveying water for use in a ^*primary production business that you conduct on land in Australia; or

(b) for expenditure incurred by an ^*irrigation water provider—primarily and principally for the purpose of conserving or conveying water for use in primary production businesses conducted by other entities on land in Australia, being entities supplied with water by the irrigation water provider.

5 At the end of subsection 40-555(1)

Add:

Note: A depreciating asset and a repair of a capital nature or an alteration, addition or extension to that asset that is a water facility are not the same depreciating asset for the purposes of section 40-50 and this Subdivision: see section 40-53.

6 Subsection 40-555(2)

Repeal the subsection.

7 After subsection 40-630(1)

Insert:

(1A) A ^*rural land irrigation water provider can deduct capital expenditure it incurs at a time in an income year on a ^*landcare operation for:

(a) land in Australia that other entities use at the time for carrying on ^*primary production businesses; or

(b) rural land in Australia that other entities use at the time for carrying on ^*businesses for a ^*taxable purpose from the use of that land (except a business of ^*mining operations);

being entities supplied with water by the rural land irrigation water provider.

(1B) A rural land irrigation water provider is:

(a) an ^*irrigation water provider; or

(b) an entity whose ^*business is primarily and principally the supply (otherwise than by using a ^*motor vehicle) of water to entities for use in carrying on ^*businesses (except businesses of ^*mining operations) using rural land in Australia.

8 After subsection 40-630(2)

Insert:

(2A) In applying paragraph (2)(b) to capital expenditure incurred by a ^*rural land irrigation water provider on a dam or structural improvement, the requirement in paragraph 45-40(1)(c) that the land on which the dam or structural improvement is situated be used for agricultural or pastoral operations is to be disregarded.

Exception: deduction available under Subdivision 40-F

(2B) A ^*rural land irrigation water provider cannot deduct an amount under this Subdivision for capital expenditure if the entity can deduct an amount for that expenditure under Subdivision 40-F.

9 At the end of section 40-630

Add:

(4) Subsection (3) does not apply to expenditure incurred by a ^*rural land irrigation water provider. Instead, a rural land irrigation water provider must reduce its deduction in relation to particular land by a reasonable amount to reflect an entity’s use of the land in the income year after the rural land irrigation water provider incurred the expenditure for a purpose other than a ^*taxable purpose.

10 Paragraph 40-635(1)(f)

Omit “an extension, alteration or addition”, substitute “a repair of a capital nature, or an alteration, addition or extension,”.

11 At the end of subsection 40-635(1)

Add:

; or (g) constructing a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to a structural improvement, that is reasonably incidental to an asset described in paragraph (c) or (d).

Note: A depreciating asset and a repair of a capital nature or an alteration, addition or extension to that asset are not the same asset for the purposes of section 40-50 and this Subdivision: see section 40-53.

12 Subsection 995-1(1)

Insert:

irrigation water provider has the meaning given by section 40-515.

13 Subsection 995-1(1)

Insert:

rural land irrigation water provider has the meaning given by section 40-630.

14 Application

The amendments made by this Schedule apply to expenditure incurred on or after 1 July 2004.

Schedule 3—FBT housing benefits

Fringe Benefits Tax Assessment Act 1986

1 Paragraph 58C(1)(b)

After “sells”, insert “, or proposes to sell,”.

2 Paragraphs 58C(1)(d) and (e)

Repeal the paragraphs, substitute:

and (d) at the notice time, the employee occupied, or proposed to occupy, the dwelling, or proposed to occupy the proposed dwelling, as his or her usual place of residence;

3 After paragraph 58C(2)(a)

Insert:

(aa) the employee or associate entered into a contract for the sale of the interest or right within 2 years after the day (the new employment day) on which the employee commenced to perform the duties of that employment at the employee’s new place of employment;

4 Paragraph 58C(3)(c)

Repeal the paragraph, substitute:

(c) the employee or associate entered into a contract for the acquisition of the interest or right on a day (the contract day) within 4 years after the new employment day;

(ca) if, on the contract day, the employee or associate holds an interest or right in another dwelling in a situation where:

(i) if that interest or right were sold within 2 years after the new employment day; and

(ii) if a benefit of a kind referred to in subsection (2) were provided in relation to that interest or right;

the benefit would be an exempt benefit under subsection (2)—not more than 2 years have elapsed since the new employment day;

5 At the end of section 58C

Add:

(5) If:

(a) a benefit is an exempt benefit in relation to a year of tax under subsection (3); and

(b) paragraph (3)(ca) applied to the employee; and

(c) the employee or associate does not enter into a contract for the sale of the interest or right in the other dwelling referred to in that paragraph within 2 years after the new employment day;

this Act has effect as if:

(d) a benefit equivalent to the exempt benefit were provided in respect of the employment of the employee in, or in respect of, the year of tax in which that period of 2 years expired; and

(e) that equivalent benefit were not an exempt benefit.

6 Application

The amendments made by this Schedule apply to benefits provided in a year of tax that begins on or after 1 April 2004.

Schedule 4—CGT event G3

Income Tax Assessment Act 1997

1 Section 104-5 (table item dealing with CGT event G3)

Repeal the item, substitute:

G3 Liquidator or administrator declares interests in a company worthless
[See section 104-145]

when declaration is made

no capital gain

interests’ reduced cost base

2 Section 104-145

Repeal the section, substitute:

104-145 Liquidator or administrator declares interests worthless: CGT event G3

(1) CGT event G3 happens if you own an interest in a company of a kind referred to in subsection (3) and a liquidator or administrator of the company declares in writing that the liquidator or administrator has reasonable grounds to believe (as at the time of the declaration) that:

(a) there is no likelihood that owners of interests of that kind, or of a class of interests that includes interests of that kind, will receive any further distribution for those interests; or

(b) for a right, option or similar interest—the interest has no value or has only negligible value.

(2) The time of the event is when the declaration is made.

(3) The kinds of interests are:

(a) ^*shares issued by the company; and

(b) notes or ^*convertible notes issued by the company; and

(d) rights or options to acquire interests of a kind referred to in a preceding paragraph.

(4) You can choose to make a capital loss equal to the ^*reduced cost base of your interest (as at the time of the declaration).

(5) If you make the choice, the ^*cost base and ^*reduced cost base of the interest is reduced to nil just after the declaration is made.

Note: This is for the purpose of working out if you make a capital gain or loss from any later CGT event in relation to the interest.

Exception

(6) You cannot choose to make a ^*capital loss if you ^*acquired the interest before 20 September 1985.

3 Section 112-45 (table item dealing with CGT event G3)

Omit “A liquidator declares shares to be worthless”, substitute “A liquidator or administrator declares interests in a company to be worthless”.

4 Section 136-10 (table item dealing with CGT event G3)

Repeal the item, substitute:

Liquidator or administrator declares interests in a company worthless

the interests

3, 5, 7, 8, 9

5 Paragraph 165-115GB(1)(b)

Repeal the paragraph, substitute:

(b) a liquidator or administrator of the company declares that interests in the company are worthless (CGT event G3).

6 Subsection 165-115H(2)

After “declaration by a liquidator”, insert “or administrator”.

7 Section 165-115N

Repeal the section, substitute:

165-115N Alteration time—declaration by liquidator or administrator

If a liquidator or administrator makes a declaration referred to in section 104-145 in relation to a company, the time of the declaration is also an alteration time in respect of the company.

8 Application

The amendments made by this Schedule apply to declarations by liquidators or administrators made after the day on which this Act receives the Royal Assent.

Schedule 5—Superannuation reporting requirements

Superannuation Guarantee (Administration) Act 1992

1 Section 23A

Repeal the section.

2 Application

The amendment made by item 1 applies to contributions made on or after 1 January 2005.

Schedule 6—Consolidation

Part 1—Application

1 Application

Except as provided otherwise, the amendments made by this Schedule apply on and after 1 July 2002.

Part 2—Source of certain distributions for allocable cost amount purposes

Income Tax Assessment Act 1997

2 After subsection 705-50(3)

Insert:

(3A) A way in which the extent to which dividends were paid out of profits that were not subject to income tax may be worked out is by:

(a) assuming that dividends were paid out of profits of income years in order from the most recent to the earliest; and

(b) assuming that, for any income year for which dividends were paid out of profits in accordance with paragraph (a), they were, to the extent they were not ^*franked distributions, paid out of profits of that income year that were not subject to income tax before they were paid out of such profits that were subject to income tax.

3 At the end of section 705-90

Add:

(10) Without limiting paragraph (9)(b), a way in which, for the purposes of subsection (7), the amount of a profit that accrued to the joined group during a particular period may be worked out is by:

(a) assuming that profits of income years were distributed in order from the most recent to the earliest; and

(b) assuming that, for any income year for which distributions were paid out of profits in accordance with paragraph (a), they were, to the extent they were not ^*franked distributions, paid out of profits of that income year that were not subject to income tax before they were paid out of such profits that were subject to income tax.

4 At the end of paragraph 705-95(b)

Add:

Note: As well as subsection 705-90(7), paragraph 705-90(9)(b) and subsection 705-90(10) are relevant to working out whether or not profits accrued to the joined group before the joining time.

Part 3—Certain losses not taken into account under step 3 of allocable cost amount

Income Tax Assessment Act 1997

5 After subsection 705-90(2)

Insert:

(2A) However, if a loss that did not accrue to the joined group before the joining time (subsection (8) states what it means for a loss to accrue to the joined group before the joining time) would be taken into account in working out the undistributed profits, the loss is not so taken into account.

Part 4—Transitional treatment of tax liabilities for allocable cost amount and CGT purposes

Income Tax (Transitional Provisions) Act 1997

6 After section 701-30

Insert:

701-32 No adjustment of amount of liabilities required in working out allocable cost amount

(1) This section has effect for the purposes of applying section 705-70 (step 2 of allocable cost amount) of the Income Tax Assessment Act 1997 in relation to a transitional entity.

(2) In spite of subsection 705-70(1A) of that Act, if the amount of an accounting liability of the transitional entity would be different when it becomes an accounting liability of the transitional group, that difference is not taken into account in working out the amount of the liability.

701-34 CGT event L7 does not happen in respect of certain liabilities

CGT event L7 does not happen if the liability mentioned in section 104-530 of the Income Tax Assessment Act 1997 is one that satisfies the conditions in section 701-32 of this Act.

Part 5—Attributing tax credits to head companies

Taxation Administration Act 1953

7 After section 18-25 in Schedule 1

Insert:

18-26 Credits of subsidiary member of group go to head company

(1) This section has effect if, apart from this section, an entity would be entitled to a credit under section 18-15, 18-20 or 18-25 (except subsection 18-25(4), (6) or (8)) wholly or partly for an ^*amount withheld under section 12-140 or 12-190 from a ^*withholding payment made while the entity was a ^*subsidiary member of a ^*consolidated group or ^*MEC group.

(2) The entity is not entitled to the credit to the extent that it is for the ^*amount withheld. This has effect despite sections 18-15, 18-20 and 18-25.

(3) Instead, the company that was the ^*head company of the ^*consolidated group or ^*MEC group at the time of the payment is entitled to the credit to that extent.

8 Application

Section 18-26 in Schedule 1 to the Taxation Administration Act 1953 applies in relation to amounts withheld on or after 1 July 2002.

Schedule 7—Baby bonus adoption amendments

Income Tax Assessment Act 1997

1 At the end of section 61-350

Add:

If you are entitled to a tax offset because you adopt a child, you might also be entitled to an offset if the child was in your care before the adoption.

2 Group heading before section 61-355

Repeal the heading, substitute:

Entitlement to a first child tax offset

3 Section 61-355 (heading)

Repeal the heading, substitute:

61-355 Who is entitled to a tax offset under this section

4 At the end of subsection 61-355(1)

Add:

Note: If you are entitled to a tax offset because you adopt a child, you might also be entitled to an offset if the child was in your care before the adoption (see section 61-440).

5 Section 61-365

After “^*tax offset”, insert “under section 61-355”.

6 Section 61-370

After “^*tax offset”, insert “under section 61-355”.

7 Paragraph 61-370(b)

Omit “the offset”, substitute “a tax offset”.

8 Subsection 61-375(2)

After “^*tax offset”, insert “under section 61-355”.

9 Subsection 61-380(1)

After “^*tax offset”, insert “under section 61-355”.

10 Group heading before section 61-385

Repeal the heading, substitute:

Transferring an entitlement

11 Section 61-385 (heading)

Repeal the heading, substitute:

61-385 You may transfer your entitlement to a tax offset

12 Subsection 61-385(1)

After “61-355”, insert “or 61-440”.

13 After subsection 61-385(1)

Insert:

(1A) However, if you are entitled to a ^*tax offset for a child for a particular income year under both of sections 61-355 and 61-440, you may only transfer one of those entitlements to another person if you also transfer the other entitlement to the same person.

14 Group heading before section 61-405

Repeal the heading, substitute:

Claiming a first child tax offset

15 Group heading before section 61-415

Repeal the heading, substitute:

Amount of a first child tax offset

16 Section 61-415

After “^*tax offset”, insert “under sections 61-355 and 61-440”.

17 Subsections 61-425(1) and (2)

After “^*tax offset”, insert “under either or both of sections 61-355 and 61-440”.

18 At the end of subsection 61-430(1)

Add:

Note: If a child is in your care before you adopt the child, your base year can instead be the year the child was first in your care or the year before that (see section 61-450).

19 Subsection 61-430(3)

Repeal the subsection, substitute:

(3) A choice cannot be made:

(a) after you have claimed the ^*tax offset under section 61-355 for any income year; or

(b) after you have transferred your entitlement to the tax offset under section 61-355 for any income year.

20 Section 61-430 (link note)

Repeal the link note, substitute:

Additional tax offset if a child is in your care before you legally adopt the child

61-440 Additional tax offset if a child is in your care before you legally adopt the child

(1) You are entitled to a ^*tax offset for a child for an income year if:

(a) you meet the conditions in paragraph (3)(a) at any time in the income year; and

(b) you meet the conditions in paragraphs (3)(b), (c) and (d).

Note: You are not entitled to a tax offset under this section if section 61-455 applies to you.

(2) To meet those conditions for a child at a given time is to have a primary entitlement to the ^*tax offset for the child at that time.

(3) The conditions are that:

(a) at the time:

(i) the child is less than 5; and

(ii) the child is in your care (but you are not legally responsible for the child); and

(iii) you are an Australian resident; and

(b) you meet the conditions in subsection 61-355(3) in relation to the child in that year or a later income year; and

(d) the time is on or after 1 July 2001 and before 1 July 2004.

Note: See section 61-445 for when a child is first in your care.

61-445 When a child is first in your care

For the purposes of sections 61-440 and 61-450, a child is first in your care on the date evidenced in writing by a court or relevant department of the relevant State or Territory.

61-450 What is your base year if a child is in your care before you legally adopt the child?

Your base year can relate to a year during which a child was in your care before you adopted the child

(1) This section defines your base year if you are entitled to a ^*tax offset for a child under section 61-440 (which is where a child is in your care before you legally adopt the child).

Primary entitlement

(2) Your base year for a ^*tax offset under sections 61-355 and 61-440 is:

(a) if you were an Australian resident at any time in the income year (the previous income year) just before the income year in which the child was first in your care—the later of the following years:

(i) the previous income year;

(ii) the income year commencing on 1 July 2000; and

(b) otherwise—the later of the following years:

(i) the earliest income year in which you were an Australian resident and the child was in your care;

(ii) the income year commencing on 1 July 2001.

Note: See section 61-445 for when a child is first in your care.

(3) If paragraph (2)(a) applies to you, you may choose, in the ^*approved form, the later of the following years to be your base year:

(a) the year the child was first in your care;

(b) the income year commencing on 1 July 2001.

A choice cannot be revoked.

(4) A choice cannot be made:

(a) after you have claimed the ^*tax offset under section 61-440 for any income year; or

(b) after you have transferred your entitlement to the tax offset under section 61-440 for any income year.

Transferred entitlement

(5) Your base year for an entitlement transferred to you under section 61-385 is the income year before the first income year for which the entitlement for the child was transferred to you.

61-455 Old Subdivision applies if you would be worse off

This Subdivision as in force on 30 June 2004 (instead of this Subdivision as amended by Schedule 8 to the Tax Laws Amendment (2004 Measures No. 5) Act 2004) continues to apply to you if the amount of all ^*tax offsets to which you would be entitled under this Subdivision as in force on that date is more than the amount of all tax offsets to which you would be entitled under the amended Subdivision.

Note: The effect of this that:

(a) you are only entitled to a tax offset in respect of days for which you are legally responsible for the child (and not days during which the child is in your care); and

(b) your base year is the income year in which the child event happened or the year before.

[The next Division is Division 65.]

21 Subsection 995-1(1) (both definitions of base year)

Repeal the definitions, substitute:

base year:

(a) for an entitlement to a ^*tax offset under Subdivision 61-I—has the meaning given by sections 61-430 and 61-450; and

(b) otherwise—has the meaning given by sections 45-320 and 45-470 in Schedule 1 to the Taxation Administration Act 1953.

22 Subsection 995-1(1) (definition of primary entitlement)

Omit “subsection 61-355(2)”, substitute “subsections 61-355(2) and 61-440(2)”.

23 Application of amendments

The amendments made by this Schedule apply to assessments for income years that commence on or after 1 July 2001.

Schedule 8—Technical correction

Taxation Laws Amendment Act (No. 8) 2003

1 Subsection 2(1) (table item 5)

Repeal the item, substitute:

5. Schedule 7, items 6 to 8

Immediately after the commencement of Schedule 7 to the Taxation Laws Amendment Act (No. 1) 2004.

30 June 2003

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