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2008-2009
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
tax laws amendment (2009 measures no. 4) bill 2009
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary 5
General outline and financial impact 7
Chapter 1 Lift the expenditure cap for eligibility to the Research and
Development Tax Offset 11
Chapter 2 Prescribed private funds 15
Chapter 3 Demutualisation of friendly societies 31
Chapter 4 Consolidation: Application of losses with nil available
fraction 67
Chapter 5 Minor amendments 75
Index 103
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
|Abbreviation |Definition |
|ABR |Australian Business Register |
|ATO |Australian Taxation Office |
|CFC |controlled foreign company |
|CGT |capital gains tax |
|Commissioner |Commissioner of Taxation |
|DGRs |deductible gift recipients |
|FBT |fringe benefits tax |
|FHSA trust |First Home Saver Account |
| |trust |
|FIFs |foreign investment funds |
|GST |goods and services tax |
|ITAA 1936 |Income Tax Assessment Act |
| |1936 |
|ITAA 1997 |Income Tax Assessment Act |
| |1997 |
|LIA 1995 |Life Insurance Act 1995 |
|LPR |legal personal representative|
|MEC group |multiple entry consolidated |
| |group |
|PHIA 2007 |Private Health Insurance Act |
| |2007 |
|PPFs |prescribed private funds |
|R&D |research and development |
|TAA 1953 |Taxation Administration Act |
| |1953 |
|TIES |Tax Issues Entry System |
General outline and financial impact
Lift the expenditure cap for eligibility to the Research and Development
Tax Offset
Schedule 1 to this Bill increases the research and development
(R&D) expenditure cap for eligibility to the R&D Tax Offset from $1
million to $2 million.
Date of effect: This amendment applies from 1 July 2009.
Proposal announced: This measure was announced in the Treasurer's
Media Release No. 062 of 12 May 2009.
Financial impact: This measure is estimated to have the following
revenue impact over the forward estimates period:
|2008-09 |2009-10 |2010-11 |2011-12 |2012-13 |
|Nil |-$120m |$55m |Nil |Nil |
Compliance cost impact: Low.
Prescribed private funds
Schedule 2 to this Bill amends the Income Tax Assessment Act 1997,
the Taxation Administration Act 1953 and the A New Tax System
(Australian Business Number) Act 1999 to improve the integrity of
prescribed private funds (PPFs). The amendments among other
things:
. rename PPFs as private ancillary funds;
. move the full administration of those funds under the
authority of the Commissioner of Taxation (Commissioner);
. give the Treasurer the power to make legislative
guidelines about the establishment and maintenance of
private ancillary funds; and
. give the Commissioner the power to impose administrative
penalties on trustees that fail to comply with the
guidelines and to remove or suspend trustees of non-
complying funds.
Date of effect: These amendments will apply from 1 October 2009.
Proposal announced: These amendments were announced in the 2008-09
Budget by the Treasurer in Media Release No. 052 of 13 May 2008.
Financial impact: Nil.
Compliance cost impact: Low.
Demutualisation of friendly societies
Schedule 3 to this Bill amends the Income Tax Assessment Act 1997
to provide relief from capital gains tax to members and insured
entities of friendly societies that have a life insurance business
and/or a private health insurance business and the friendly society
demutualises to a for-profit entity.
Date of effect: These amendments apply to demutualisations that
occur on or after 1 July 2008. This will ensure that friendly
societies that demutualise on or after this date but prior to the
amendments receiving Royal Assent may qualify for this relief.
Proposal announced: These amendments were announced in the then
Assistant Treasurer and Minister for Competition Policy and
Consumer Affairs' Media Release No. 086 of 24 October 2008.
Financial impact: These amendments are expected to have a small
but unquantifiable revenue impact.
Compliance cost impact: Low. This comprises a low implementation
impact and a low decrease in ongoing compliance costs relative to
the affected group.
Consolidation: Application of losses with nil available fraction
Schedule 4 to this Bill amends the Income Tax Assessment Act 1997
to ensure losses transferred to the head company of a consolidated
group or a multiple entry consolidated group by a joining entity
that is insolvent at the joining time can be used by the head
company in certain circumstances.
Date of effect: 1 July 2002 - this measure is beneficial to
taxpayers.
Proposal announced: This measure was announced jointly by the
Treasurer and the then Assistant Treasurer and Minister for
Competition Policy and Consumer Affairs in Media Release No. 053 of
13 May 2008.
Financial impact: This measure will have an unquantifiable (but
minimal) cost to revenue over the forward estimates.
Compliance cost impact: Low.
Minor amendments
Schedule 5 to this Bill makes technical corrections and other minor
amendments to the taxation laws. These amendments are part of the
Government's commitment to the care and maintenance of the tax
system.
Date of effect: These amendments commence from Royal Assent unless
otherwise stated in this explanatory memorandum.
Proposal announced: These amendments were all foreshadowed by
release in draft form on the Treasury website on 20 May 2009.
Financial impact: The amendments proposed by items 329 to 336 to
the capital gains tax (CGT) small business concessions are expected
to result in an unquantifiable but small cost to revenue.
The amendments proposed by items 337 and 338 to the CGT provisions
as they apply to foreign residents are expected to result in an
unquantifiable potential gain to revenue.
The other minor amendments are expected to have a nil to minimal
revenue impact.
Compliance cost impact: Nil to low.
Chapter 1
Lift the expenditure cap for eligibility to the Research and Development
Tax Offset
Outline of chapter
1. Schedule 1 to this Bill amends the tax law to increase the research
and development (R&D) expenditure cap for eligibility to the R&D
Tax Offset from $1 million to $2 million.
2. All references to legislative provisions in this chapter are
references to the Income Tax Assessment Act 1936 (ITAA 1936) unless
otherwise stated.
Context of amendments
3. The R&D Tax Concession contained in the ITAA 1936 provides a
concessional tax deduction to companies that incur expenditure in
undertaking eligible R&D activities. Certain companies can choose
to receive a tax offset (R&D Tax Offset) rather than a deduction.
4. As part of the 2009-10 Budget, the Government announced that it
will replace the existing R&D Tax Concession with a new R&D tax
incentive, with effect from 1 July 2010. For additional details
refer to the Treasurer's Media Release No. 062 of 12 May 2009.
5. The Government announced that as an interim measure, it would
increase the R&D expenditure cap for eligibility to the existing
R&D Tax Offset from $1 million to $2 million, with effect from
1 July 2009.
Summary of new law
6. This amendment increases the R&D expenditure cap for eligibility to
the R&D Tax Offset from $1 million to $2 million.
Detailed explanation of new law
7. Section 73B of the ITAA 1936 provides a tax deduction to companies
that incur expenditure in undertaking eligible R&D activities. In
many cases the deduction is equal to 125 per cent of expenditure.
8. Under section 73I, certain companies, as set out in section 73J,
that incur expenditure on eligible R&D can choose a tax offset
instead of a deduction. The R&D Tax Offset is equal to 30 cents in
every dollar that the company would have been able to deduct if it
had chosen to claim a deduction. For a deduction of 125 per cent,
this would equate to an offset of 37.5 per cent of expenditure.
9. The R&D Tax Offset is refundable, allowing these companies to
'cash out' the R&D Tax Concession. This means it is most
attractive to companies that are in a tax loss position, who cannot
immediately benefit from an additional tax deduction.
10. To be eligible for the R&D Tax Offset, paragraph 73J(1)(c) requires
that the R&D group (as defined in section 73K) of which the company
claiming the Offset is a part have an 'aggregate research and
development expenditure amount' that is not more than $1 million
(this imposes a 'hard cap' on expenditure).
11. This measure increases the R&D expenditure cap for eligibility to
the existing R&D Tax Offset from $1 million to $2 million, with
effect from 1 July 2009. [Schedule 1, item 1, paragraph 73J(1)(c)]
12. Lifting the expenditure cap provides a further boost to small pre-
profit companies in research intensive industries, ahead of the
introduction of the new R&D tax incentive in 2010-11, and mitigates
the incentive for firms to keep their R&D spending under the
current expenditure cap.
1.
Barksdale Technologies Ltd is a company that satisfies the
conditions in section 73J, with the exception of paragraph
73J(1)(c). The company is not part of a broader R&D group.
In 2009-10, the company incurs expenditure of $1.5 million
on eligible R&D activities.
Without this amendment, Barksdale Technologies would be
unable to elect to claim the R&D Tax Offset, as it has not
met the existing condition in paragraph 73J(1)(c). That is,
the company's R&D aggregate expenditure exceeds the hard cap
on expenditure of $1 million.
Following this amendment, Barksdale Technologies is able to
elect to claim the R&D Tax Offset because its R&D aggregate
expenditure is below the new hard cap on expenditure of $2
million.
Application and transitional provisions
13. This amendment commences from the date this Bill receives Royal
Assent and applies to years of income starting on or after
1 July 2009.
14. It is expected that the provision will be repealed as part of the
introduction of the new R&D tax incentive in 2010-11.
15. Schedule 1 does not contain any transitional provisions.
Chapter 2
Prescribed private funds
Outline of chapter
16. Schedule 2 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997), the Taxation Administration Act 1953 (TAA 1953) and
the A New Tax System (Australian Business Number) Act 1999 to
improve the integrity of prescribed private funds (PPFs).
The amendments among other things:
. rename PPFs as private ancillary funds;
. move the full administration of those funds under the
authority of the Commissioner of Taxation (Commissioner);
. give the Treasurer the power to make legislative
guidelines about the establishment and maintenance of
private ancillary funds; and
. give the Commissioner the power to impose administrative
penalties on trustees that fail to comply with the
guidelines and to remove or suspend trustees of non-
complying funds.
Context of amendments
History
17. PPFs came about as a response to a report on philanthropy in
Australia by the Business and Community Partnerships Working Group
on Taxation Reform dated 26 March 1999.
18. PPFs are a form of ancillary trust fund designed to encourage
private philanthropy by providing private groups, such as
businesses, families and individuals, with greater flexibility to
start their own trust funds for philanthropic purposes.
19. Donations to PPFs are tax deductible. PPFs are limited to making
distributions to other deductible gift recipients (DGRs) that
either have been endorsed by the Commissioner, or are listed by
name in the income tax law as a DGR.
20. A PPF may also be entitled to an income tax exemption if it is also
endorsed as a charity or as an income tax exempt fund.
21. A PPF is one of two types of ancillary trust fund that can qualify
for DGR status and income tax exempt status. The other type is a
public ancillary fund, which is distinct from a PPF in that it must
establish a public fund. Public ancillary funds are a common
structure for community and fundraising foundations. Both types of
ancillary fund act only as intermediaries between donors and
organisations that can receive tax deductible donations.
22. The current PPF guidelines outline the process to be followed, and
requirements to be met, in order to establish a PPF, including the
requirement to establish a trust in accordance with a model trust
deed. The current guidelines are unlegislated and therefore have
no legal status in their own right.
Areas for improvement in the current arrangements for PPFs
23. The current PPF guidelines outline the requirements for PPFs in
some detail, but not necessarily the objectives of those
requirements. Furthermore, in cases of PPFs misusing their funds
(for example, providing benefits to the donor) there is currently
an 'all or nothing' penalty system. The Commissioner is generally
limited to advising the Treasurer to declare that a particular
organisation is no longer a PPF. De-listing of a PPF does not
affect the deductions that have already been claimed, nor enable
the protection of the PPF's philanthropic funds into the future.
24. The Government announced in the 2008-09 Budget a measure to improve
PPF integrity which will be achieved by:
. amending the PPF guidelines to, among other things, ensure
regular valuation of assets at market rates and increase
the size of compulsory distributions;
. legislating the PPF guidelines; and
. giving the Australian Taxation Office (ATO) greater
regulatory powers.
25. At present, the Governor-General is responsible for prescribing
funds as PPFs and the Treasurer is responsible for declaring a fund
to no longer be a PPF.
26. The amendments included in Schedule 2 to this Bill implement the
Government's Budget announcement to give legislative force to the
PPF guidelines and to give the ATO greater regulatory powers.
27. The remaining elements of the Government's Budget announcement will
be implemented by way of amendments to the PPF guidelines which
will be made by way of a legislative instrument.
28. The Government released a discussion paper in November 2008 seeking
public input into the implementation of the new integrity
arrangements. One hundred and thirty eight submissions were
received in response to the paper.
29. Many respondents to the discussion paper were encouraged by the
Government's interest in the philanthropic sector, and in
particular the proposals to simplify arrangements for PPFs, and
give the ATO greater regulatory powers. However, the majority of
respondents also cautioned against increasing the minimum
distribution rate for PPFs to a point where PPFs are unable to
exist in perpetuity. The matter of a minimum distribution rate
will be considered by the Government along with other matters
before the new guidelines are finalised.
30. An exposure draft of Schedule 2 to this Bill was released on 14 May
2009. Fourteen submissions were received. There was general
support for the changes proposed in this Schedule. However, a
number of refinements were made as a result of minor concerns about
transitional arrangements and the scope of the administrative
penalty regime.
Summary of new law
31. The amendments bring the full administration of the PPF regime
under the authority of the Commissioner. This means that PPFs
would no longer be 'prescribed' in the relevant legal sense but
instead be endorsed by the Commissioner. This would have the
effect of giving the ATO full regulatory control over PPFs and
allow the ATO to take more timely action to protect the capital of
a PPF.
32. As PPFs will no longer be prescribed, they have been renamed
private ancillary funds.
33. The amendments give the Treasurer the power to make guidelines
about the establishment and maintenance of private ancillary funds.
Those guidelines are enforced through the imposition of
administrative penalties.
34. The Commissioner will also have the power to suspend or remove
trustees of private ancillary funds that breach the guidelines or
other relevant Australian laws. The Commissioner's decisions are
reviewable by the Administrative Appeals Tribunal and the Federal
Court of Australia.
35. In order to provide the Commissioner with the necessary regulatory
powers to protect the charitable funds of private ancillary funds
it is necessary to require that all of the trustees of private
ancillary funds are corporate trustees.
36. The amendments also facilitate changes to the Australian Business
Register (ABR) so that the register can expressly identify private
ancillary funds and the provision in the ITAA 1997 under which a
DGR is entitled to be endorsed.
37. The amendments also introduce new secrecy disclosure rules. The
Commissioner will be able to disclose to State and Territory
Attorneys-General breaches by charities of state laws relating to
trusts and charities.
Comparison of key features of new law and current law
|New law |Current law |
|The Commissioner will be |The Governor-General is |
|responsible for |responsible for |
|determining whether a |prescribing trust funds |
|trust fund is a private |as PPFs. |
|ancillary fund (according|The Treasurer is |
|to a legislative |responsible for removing |
|definition) and |prescribed PPFs. |
|determining whether that |Once a trust fund is |
|fund is entitled to be |prescribed as a PPF it is|
|endorsed as a DGR. |automatically a DGR. |
|The Commissioner's |These decisions are made |
|decision is reviewable by|by reference to |
|the Administrative |non-binding guidelines. |
|Appeals Tribunal and the |There are no formal |
|Courts. |mechanisms to appeal |
| |these decisions. |
|The Treasurer will have |The existing PPF |
|the power to make binding|guidelines are not |
|guidelines about the |binding in nature. |
|establishment and |The Government makes |
|maintenance of private |reference to the |
|ancillary funds. |guidelines in determining|
|The guidelines are a |whether to prescribe or |
|legislative instrument |remove a PPF. |
|and are subject to review|The guidelines are not |
|by the Parliament. |subject to review by the |
| |Parliament. |
|The guidelines are |No equivalent. The only |
|enforced through the |remedy to enforce the |
|imposition of |existing guidelines is to|
|administrative penalties.|prospectively remove the |
| |PPF status of a |
| |non-complying trust fund.|
|The Commissioner will |No equivalent. |
|have the power to suspend| |
|or remove the corporate | |
|trustees of private | |
|ancillary funds that | |
|consistently breach the | |
|guidelines or other | |
|relevant Australian laws.| |
|For constitutional |Trustees of existing PPFs|
|reasons, all of the |can be either individuals|
|trustees of private |or corporations. |
|ancillary funds must be | |
|corporate trustees. | |
|The ABR will expressly |No equivalent. |
|identify whether an | |
|entity is a private | |
|ancillary fund. | |
|The ABR will expressly |The ABR currently only |
|identify under what |includes a statement as |
|provision an entity is |to whether an entity is a|
|entitled to be endorsed |DGR or not. |
|as a DGR. | |
|The Commissioner will be |The Commissioner is |
|able to disclose |unable to disclose |
|information to State and |information to State and |
|Territory |Territory |
|Attorneys-General where |Attorneys-General |
|he or she identifies a |relating to charities. |
|breach by a charity or | |
|private ancillary fund of| |
|a state or territory law | |
|relating to trusts or | |
|charities. | |
Detailed explanation of new law
Full administration by the Commissioner
38. The Commissioner will have full administration of private ancillary
funds. The Governor-General and Treasurer will no longer have a
role in determining whether a particular trust fund is entitled to
be a PPF. [Schedule 2, items 4 and 22, item 2 in the table in
subsection 30-15(2) of the ITAA 1997 and Subdivision 426-D in
Schedule 1 to the TAA 1953]
39. A definition of 'private ancillary fund' (new term for PPF) is
being included in the ITAA 1997 and TAA 1953. A trust fund that
meets the definition will be entitled to be endorsed as a DGR
(subject to the general requirements that apply to all entities
seeking endorsement as a DGR). [Schedule 2, items 4 and 22, item 2
in the table in subsection 30-15(2) of the ITAA 1997 and section
426-105 in Schedule 1 to the TAA 1953]
40. The Commissioner will be responsible for considering whether a
trust fund meets the definition of a 'private ancillary fund' and
whether that fund is then entitled to be endorsed as a DGR.
[Schedule 2, items 5, 6 and 7, paragraph (c) of the cell in item 2
in the table in subsection 30-15(2), paragraph 30-17(1)(b) and
subsection 30-125(1) of the ITAA 1997]
41. The Commissioner will maintain his or her current role in assessing
a trust fund's entitlement for endorsement as an income tax exempt
entity.
42. A trust is a private ancillary fund if:
. all the trustees of the trust are constitutional
corporations; and
. all the trustees have agreed to comply with the guidelines
made by the Treasurer.
43. PPFs were not previously required to have corporate trustees.
However, for Constitutional reasons, it has been necessary to
impose this new requirement on private ancillary funds in order to
provide the Commissioner with additional regulatory powers.
44. A constitutional corporation is a corporation covered by
section 51(xx) of the Constitution. A corporation established and
operated solely as a trustee of a private ancillary fund would be
considered a constitutional corporation. Professional trustee
corporations would also be considered constitutional corporations.
45. Imposing a requirement for private ancillary funds to have a
corporate trustee also ensures that directors meet a minimum
standard of behaviour. The Corporations Act 2001 details the
circumstances under which an individual will be automatically
disqualified from managing corporations. These include where the
person has:
. a conviction on indictment of an offence in relation to
decisions that affect the business of a corporation or its
financial standing;
. an offence involving a contravention of the Corporations
Act 2001 punishable by imprisonment for 12 months or more;
. an offence involving dishonesty punishable by more than
three months imprisonment;
. conviction for an offence against the law of a foreign
country punishable by more than 12 months imprisonment; or
. is an undischarged bankrupt.
[Schedule 2, item 22, section 426-105 in Schedule 1 to the TAA
1953]
46. In order for a trust fund to become a private ancillary fund, the
trustee(s) will need to agree to be bound by the guidelines. The
trustee(s) will indicate their agreement to be bound in a form
approved by the Commissioner. [Schedule 2, item 22, section 426-
105 in Schedule 1 to the TAA 1953]
47. A private ancillary fund will be entitled to be endorsed as a DGR
provided they have an Australian Business Number, meet the existing
conditions applying to both types of ancillary funds and comply
with the guidelines. [Schedule 2, item 7, subsection 30-125(1) of
the ITAA 1997]
48. If the Commissioner refuses to endorse a prospective private
ancillary fund as a DGR, the fund can request a review of the
decision by the Commissioner, Administrative Appeals Tribunal or
appeal the decision to a Court under section 426-35 in Schedule 1
to the TAA 1953.
Private ancillary fund guidelines
49. The Treasurer will be able to make binding guidelines about the
establishment and maintenance of a private ancillary fund.
[Schedule 2, items 15 and 22, subsection 995-1(1) of the ITAA 1997
and section 426-110 in Schedule 1 to the TAA 1953]
50. Compliance with the guidelines is a requirement for a private
ancillary fund's continued endorsement as a DGR. [Schedule 2, item
7, subsection 30-125(1) of the ITAA 1997]
51. The guidelines are a legislative instrument and are therefore
subject to disallowance by either House of Parliament.
52. The guidelines may specify requirements about the purpose,
structure and governing rules of a private ancillary fund. The
guidelines may also specify matters about the ongoing governance
and permitted and prohibited activities of the fund.
53. It is envisaged that the guidelines will specify matters such as
the role and purpose of private ancillary funds; the class of
entities that the fund may donate to; that the fund be not-for-
profit in character; the individuals that may be directors of the
fund's trustee; the minimum distribution requirements of the fund;
the permitted investment strategies of the fund; and any ongoing
audit requirements.
54. The guidelines will ensure that private ancillary funds have
appropriate governance arrangements, are properly accountable and
act in a manner consistent with an entity holding philanthropic
funds for a broad public benefit.
Income tax returns
55. Under the existing non-binding guidelines, PPFs agree to provide
the ATO with an annual information statement. There is currently
no consequence for failing to comply with this requirement.
56. The Government does not intend to introduce new reporting laws for
private ancillary funds. Instead, commencing from the 2009-10
income year, private ancillary funds will be required to lodge an
annual income tax return. The income tax return for private
ancillary funds will be similar to the current annual information
statement.
57. Private ancillary funds that fail to lodge their income tax return
by the relevant due date will be subject to the general penalty
regime that applies to all taxpayers who do provide their income
tax return to the Commissioner by the due date.
Administrative penalties
58. Administrative penalties will be imposed on trustees and the
directors of trustees that hold a private ancillary fund out as
being endorsed; entitled to be endorsed; or entitled to remain
endorsed; as a DGR. [Schedule 2, item 22, subsections 426-120(1)
and (2) in Schedule 1 to the TAA 1953]
59. The administrative penalties will largely result from a private
ancillary fund failing to comply with the guidelines. This is
because a condition of a private ancillary fund's endorsement as a
DGR is that it must comply with the guidelines.
60. While the TAA 1953 imposes the penalty, the guidelines will
determine the amount of the penalty. The amount of the penalty has
been left to be determined by the guidelines so that any
administrative penalty can be appropriately tailored to the nature
and size of the breach taking account of the trustee's level of
culpability and the particular requirement that the private
ancillary fund has not complied with. [Schedule 2, item 22,
subsection 426-120(3) in Schedule 1 to the TAA 1953]
61. The trustees of a private ancillary fund are jointly and severally
liable to any administrative penalty.
62. As corporate trustees of private ancillary funds usually have
little capital, it is necessary to also impose the penalty on the
directors (where any of the penalty cannot reasonably be recovered
from a trustee) to effectively ensure that a private ancillary fund
complies with the guidelines. Exposure to this liability promotes
a minimum level of accountability amongst directors for decisions
that affect the private ancillary fund.
63. In determining whether a penalty can reasonably be recovered from a
trustee regard should be had to the administrative practicality of
recovering the penalty from the trustee, the amount of time the
penalty has remained unpaid and the likelihood of successfully
recovering the penalty from the trustee. The Commissioner must
take reasonable steps to recover the penalty from the trustee
before concluding that the penalty can not reasonably be recovered.
64. A director that did not take part in the management of the trustee
at the time the private ancillary fund breached its obligations may
in certain circumstances avoid an administrative penalty.
65. The circumstances that the director must demonstrate are that the
director was not aware of the breach and it would not have been
reasonable to expect them to have been aware of the breach; or the
director took all reasonable steps to ensure that the breach did
not occur; or there were no such steps that the director could have
taken. [Schedule 2, item 22, subsections 426-120(5) to (8) in
Schedule 1 to the TAA 1953]
66. Directors of trustees that are registered trustee companies are not
liable to these administrative penalties, as registered trustee
companies have an appropriate level of prudential supervision and
regulation to cover their liabilities. Registered trustee
companies are those companies that are governed by the relevant
state trustee companies Acts.
67. The administrative penalty must not be reimbursed from the fund.
[Schedule 2, item 22, subsection 426-120(4) in Schedule 1 to the
TAA 1953]
68. Directors should be aware of the process for making decisions, as
governed by the Corporations Act 2001.
69. Further, the Commissioner has the discretion to remit all or a part
of the penalty under the normal machinery provisions for penalties.
Suspension or removal of trustees
The Commissioner's powers
70. The Commissioner will have the power to remove or suspend a trustee
of a private ancillary fund that breaches the guidelines or any
other Australian law. [Schedule 2, item 22, section 426-125 in
Schedule 1 to the TAA 1953]
71. It is expected that the Commissioner would only take such action in
situations that involve serious non-compliance by a private
ancillary fund.
72. Whether the Commissioner decides to merely suspend a trustee or to
remove them permanently will depend upon the nature of a breach,
the circumstances of the trustee and the history of compliance.
73. The Commissioner is being provided with these powers in order to
protect the assets of the private ancillary fund and the ongoing
integrity of the tax law.
74. If the Commissioner chooses to suspend a trustee, it will be for a
period that the Commissioner determines by reference to the
circumstances. The Commissioner may also modify the suspension
period as he or she considers necessary. [Schedule 2, item 22,
subsections 426-125(2), (4) and (6) in Schedule 1 to the TAA 1953]
75. If the Commissioner suspends or removes a trustee, he or she must
give the trustee a written notice advising them of the decision,
explaining the reasons why the decision was taken and in the cases
of suspension, setting out the period of suspension. The trustee
may seek a review of the decision by the Administrative Appeals
Tribunal or a court following the process outlined in Part IVC of
the TAA 1953 (taxation objections, reviews and appeals). [Schedule
2, item 22, subsections 426-125(3), (5), (7) and (8) in Schedule 1
to the TAA 1953]
If a trustee is suspended or removed
76. When a trustee is suspended or removed, the Commissioner must
appoint an acting trustee to undertake the duties of trustee until
the suspension period has ended or a replacement trustee is
appointed (as the case may be). [Schedule 2, item 22, subsections
426-130(1) and (2) in Schedule 1 to the TAA 1953]
77. An acting trustee may be an individual, body corporate or a
Government authority. The Commissioner may also appoint him or
herself as acting trustee. The acting trustee must have agreed to
comply with the private ancillary fund guidelines. The
Commissioner cannot appoint an acting trustee who is not a
constitutional corporation for a period exceeding 6 months.
[Schedule 2, item 22, subsection 426-130(3) to (5) in Schedule 1 to
the TAA 1953]
78. The Commissioner may determine the terms and conditions upon which
an acting trustee is appointed. The terms and conditions
determined by the Commissioner are valid despite any limitation in
an Australian law or the governing rules of the private ancillary
fund. [Schedule 2, item 22, section 426-135 in Schedule 1 to the
TAA 1953]
79. The Commissioner may also give directions to an acting trustee to
do or not to do certain things. The acting trustee commits an
offence if they contravene a direction. [Schedule 2, item 22,
section 426-160 in Schedule 1 to the TAA 1953]
80. The Commissioner may terminate the appointment of an acting trustee
at any time. If the Commissioner were to do so, he or she would be
required to appoint a new acting trustee. [Schedule 2, item 22,
section 426-140 in Schedule 1 to the TAA 1953]
81. An acting trustee may resign as acting trustee. However, the
acting trustee must do so in writing given to the Commissioner.
The resignation is not effective until seven days after the
Commissioner receives the written resignation. [Schedule 2, item
22, section 426-145 in Schedule 1 to the TAA 1953]
82. When the Commissioner appoints an acting trustee, the Commissioner
must make an order transferring the property of the private
ancillary fund from the former or suspended trustee to the acting
trustee. The order has the legal effect of immediately
transferring that property subject to certain limitations.
[Schedule 2, item 22, subsections 426-150(1) and (3) in Schedule 1
to the TAA 1953]
83. The property covered by the order is both legal and equitable
property.
84. The Commissioner must also make a subsequent order transferring the
property when the appointment of an acting trustee ends. The
subsequent property transfer order may be to a new acting trustee,
to the previously suspended trustee or to a newly appointed trustee
as appropriate. [Schedule 2, item 22, subsection 426-150(2) in
Schedule 1 to the TAA 1953]
85. The Commissioner's order to transfer property does not immediately
transfer property if the property is of a kind whose transfer is
registrable under an Australian law. Instead, the property is
transferred only after the registration process has been completed.
[Schedule 2, item 22, subsection 426-150(4) in Schedule 1 to the
TAA 1953]
86. A former trustee has a number of obligations to comply with
following their suspension, removal or the ending of their
appointment. A former trustee must:
. provide the acting or new trustee with all books relating
to the fund's affairs that is in their custody, possession
or control;
. provide notice to the acting or new trustee identifying
all the property of the fund (as much as they possibly
can); and
. provide notice to the acting or new trustee explaining how
that property was accounted for.
[Schedule 2, item 22, subsections 426-165(1) to (3) in Schedule 1
to the TAA 1953]
87. The acting or new trustee may also require the former trustee to
assist with the transfer of the property of the private ancillary
fund. The acting or new trustee must do so by mandating that the
former trustee take certain actions necessary for the transfer of a
specific item of property to the acting or new trustee. [Schedule
2, item 22, subsection 426-165(4) in Schedule 1 to the TAA 1953]
88. A former trustee will commit an offence if they do not comply with
these obligations. [Schedule 2, item 22, subsection 426-165(5) in
Schedule 1 to the TAA 1953]
89. Former trustees are strictly liable for their actions relating to
books, identification of property and transfer of property (that
is, liable regardless of fault). This liability has been
established to compel former trustees which have already been
removed on the grounds of misconduct to deal fairly with the
trust's property during the handover period. [Schedule 2, item 22,
subsection 426-165(6) in Schedule 1 to the TAA 1953]
Changes to the Australian Business Register
90. For each private ancillary fund, the ABR must include a statement
on the ABR indicating that the fund is a private ancillary fund.
[Schedule 2, items 1 and 22, paragraph 26(3)(ga) of the A New Tax
System (Australian Business Number) Act 1999 and section 426-115 in
Schedule 1 to the TAA 1953]
91. These additional requirements will improve the integrity and
transparency of private ancillary funds.
92. For each DGR, the ABR must identify the item in the table in
subsection 30-15(2) of the ITAA 1997 under which an entity
qualifies as a DGR. Consistent with the endorsement requirements,
this requirement is limited to DGRs covered by items 1, 2 and 4 in
the table in subsection 30-15(2). [Schedule 2, item 9, subsection
30-229(2) of the ITAA 1997]
93. These changes to the ABR will assist ancillary funds determine
which DGRs they can donate monies to. By way of background, for
tax integrity reasons, ancillary funds are forbidden from donating
to one another. However, the ABR currently does not distinguish
between different types of DGRs so it can often be difficult for an
ancillary fund to confirm the eligibility of a DGR to receive
donations from them. These changes to the ABR seek to reduce these
difficulties by distinguishing DGRs on the ABR by type.
Disclosure of information to the states and territories
94. The Commissioner will be authorised to disclose information to
State and Territory Attorneys-General that relates to the non-
compliance of a charity or a private ancillary fund with an
Australian law.
95. The disclosure must be for the purposes of relevant State and
Territory Attorneys-General administering a state or territory law
governing trusts or charities. [Schedule 2, items 3 and 17,
subsection 16(4) of the ITAA 1936 and subsection 3C(4) of the TAA
1953]
96. The States and Territories have the primary responsibility for
trust law and charities law. State and Territory Attorneys-General
are the 'protectors' of charities. Traditionally, they have had
the sole responsibility for ensuring that trustees of charitable
trusts act in accordance with a trust's governing rules and
relevant state law. The Attorneys-General are also the only
authority with standing to take legal action in protection of a
charitable trust.
97. In order to assist the State and Territory Attorneys-General
perform their role, it is appropriate that the Commissioner be able
to provide them with information concerning non-compliance that the
ATO has identified as part of its compliance activities.
Collaboration between ATO and State and Territory Attorneys-General
should improve the integrity of charities and the protection of
philanthropic funds.
Application and transitional provisions
General application
98. The amendments generally apply from 1 October 2009. [Clause 2]
Transitional rules for existing PPFs
99. Existing PPFs will become private ancillary funds on
1 October 2009. The Commissioner will be taken to have endorsed
all those PPFs that become private ancillary funds as DGRs on 1
October 2009. In order to comply with the new definition of
private ancillary fund, all existing PPFs will also be taken to
have agreed to comply with the guidelines from 1 October 2009.
This mechanism will ensure a smooth transition of existing PPFs
into the new regime. [Schedule 2, items 27, 29 and 30]
PPFs with non-corporate trustees
100. Private ancillary funds (that were PPFs before 1 October 2009) will
not be required to replace their non-corporate trustees with
corporate trustees. Mandating the replacement of trustees will
create unnecessary compliance costs for existing trustees.
[Schedule 2, item 28]
101. Those private ancillary funds that continue to have non-corporate
trustees will not be subject to the Commissioner's new powers to
suspend or remove trustees. It is for constitutional reasons that
the new powers cannot be extended to these existing PPFs.
102. In cases of serious non-compliance by private ancillary funds with
non-corporate trustees, the Commissioner will have the ability to
refer the matter to the relevant State or Territory Attorney-
General for action.
103. If at any point after 1 October 2009, a private ancillary fund with
non-corporate trustees replaces all its non-corporate trustees with
corporate trustees, the private ancillary fund will become subject
to the Commissioner's new powers.
104. Under the existing integrity arrangements, PPFs and other ancillary
funds are prevented from distributing to one another. However, in
order to assist PPFs move fully into the new regime, private
ancillary funds with non-corporate trustees will be permitted to
transfer all of their property to another private ancillary fund
with trustees that have only corporate trustees. This transitional
arrangement will give transitional private ancillary funds the
option of restructuring their trustee arrangements by establishing
a new private ancillary fund to hold the assets of the old fund.
[Schedule 2, item 31]
105. Transitional private ancillary funds that wish to restructure
(either by establishing a new private ancillary fund, or replacing
their existing trustees) should make themselves familiar with the
state and territory laws on replacing trustees or transferring
assets between trusts.
PPFs that have been approved by the Treasurer but not prescribed by
1 October 2009
106. Under existing arrangements, there is often a delay between the
time the Treasurer agrees to recommend to the Governor-General that
a trust fund be prescribed as a PPF and date the fund is
prescribed. The date a fund is prescribed is usually backdated to
the day the Treasurer agrees to recommend prescription. Both the
prospective funds and the Commissioner would usually act on the
advice of the Treasurer until the procedural formalities for
prescription are completed.
107. With the transfer of responsibility for these funds to the
Commissioner, there is likely to be a number of funds that are yet
to be prescribed. For reasons of certainty and simplicity, the
Treasurer will be given the power to make a declaration after 1
October 2009 listing those funds that have been approved but not
yet prescribed. The declaration will have the effect of deeming
those listed funds to have been prescribed from the date set out in
the determination. [Schedule 2, item 26]
Progressive changes to the ABR
108. The Australian Business Registrar will be given until 1 January
2010 to update the ABR with the additional DGR endorsement category
details. The changes to the ABR are commencing at a later time to
give the Registrar sufficient time to make the necessary systems
changes in support the new requirements. [Schedule 2, items 23 and
24, subsection 30-229(2A) of the ITAA 1997 and subsection 426-
115(1) in Schedule 1 to the TAA 1953]
Consequential amendments
109. Use of the term 'prescribed private fund' is amended to now refer
to 'private ancillary fund'. [Schedule 2, items 4 and 10, section
30-15 and paragraph 31-10(1)(b) of the ITAA 1997]
110. References to 'prescribed private fund' are being repealed and
replaced with a reference to the definition of private ancillary
fund. [Schedule 2, items 2, 11, 13 to 16, subsection 6(1) of the
ITAA 1936, paragraph 31-10(2)(b) and subsection 995-1(1) of the
ITAA 1997, and subsection 2(1) of the TAA 1953]
111. Table of tax related liabilities in other legislation in the
TAA 1953 is amended to refer to the new penalties. [Schedule 2,
item 18, item 140 in the table in subsection 250-10(2) in Schedule
1 to the TAA 1953]
Chapter 3
Demutualisation of friendly societies
Outline of chapter
112. Schedule 3 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) to provide relief from capital gains tax (CGT) to
members and insured entities of friendly societies that have a life
insurance business and/or a private health insurance business and
the friendly society demutualises to a for-profit entity.
113. All references to legislative provisions in this chapter are
references to the ITAA 1997 unless otherwise stated.
Context of amendments
114. Friendly societies may provide life insurance, private health
insurance, aged care and other services to their members or other
entities. These amendments will provide CGT relief for members or
insured entities of a friendly society with a life insurance and/or
a private health insurance business that demutualises to a for-
profit entity. The CGT relief is broadly equivalent to that which
is available when a stand-alone life insurer or private health
insurer demutualises.
115. Demutualisation is the process by which participants of a mutual
fund (such as a friendly society) give up their rights to
participate in the fund. In effect, this involves the participants
giving up the right to benefit in the future from any accumulated
mutual surplus that has been (or may be) built in the fund. Upon
demutualisation there is effectively a distribution of any
accumulated mutual surplus to the participants. Ordinarily, this
triggers a CGT taxing point.
116. Division 9AA of the Income Tax Assessment Act 1936 (ITAA 1936)
provides that any capital gains or capital losses that arise on
these transactions for members and policyholders of life insurers
and general insurers that demutualise are disregarded. In
addition, Division 9AA of the ITAA 1936 provides a cost base for
shares issued to policyholders and members of demutualising life
insurers that is based on the life insurer's embedded value.
Division 9AA of the ITAA 1936 also provides a cost base for shares
issued to policyholders and members of a demutualising general
insurer that is based on the general insurer's net tangible assets.
117. Division 315 of the ITAA 1997 provides that any capital gains or
capital losses that arise on these transactions for policyholders
of a private health insurer that converts, by demutualising, to a
for-profit entity are disregarded. Division 315 of the ITAA 1997
provides a cost base for shares issued to policyholders of a
demutualising private health insurer that is based on the private
health insurer's market value.
118. Division 9AA of the ITAA 1936 provides relief only when members or
policyholders of the insurer receive their share of the distributed
accumulated mutual surplus in the form of shares in the
demutualised insurer or an entity that ends up wholly owning the
demutualised insurer. Division 9AA of the ITAA 1936 also requires
the demutualised insurer or the holding company to become a listed
company, generally within two years of demutualising.
119. In addition, Division 9AA of the ITAA 1936 may not be available for
friendly societies that have a life insurance business held in a
wholly owned subsidiary.
120. These amendments will therefore provide relief for demutualising
friendly societies in a broader range of situations. Specifically,
relief will be available when the friendly society demutualises to
a for-profit entity regardless of whether the society distributes
its accumulated mutual surplus in the form of shares or an amount
of money (or both). Further, there will be no requirement that the
demutualised friendly society become a listed entity.
121. This is similar to the scope of the relief available for
demutualising private health insurers contained in Division 315 of
the ITAA 1997.
Summary of new law
122. Schedule 3 amends the ITAA 1997 by inserting Division 316 into Part
3-32. This Division disregards various capital gains and capital
losses that may arise when a friendly society demutualises to a for-
profit entity.
123. Specifically, Subdivision 316-B disregards capital gains and
capital losses that arise to members and insured entities of the
friendly society under its demutualisation, except when the member
or insured entity receives an amount of money.
124. In cases where the member or insured entity receives an amount of
money, these amendments modify the cost base rules applying to the
relevant asset (an interest affected by demutualisation) so that
the member or insured entity may realise a capital gain or capital
loss. This modification ensures that members and insured entities
that receive money are treated equivalently under CGT to members
and insured entities that receive an allocation of shares and
immediately dispose of them. These rules are contained in
Subdivision 316-B and Subdivision 316-C.
125. Subdivision 316-C also sets out the rules for calculating the cost
base of shares and rights to acquire shares that are issued under
the friendly society's demutualisation to its members and insured
entities.
126. Subdivision 316-D disregards capital gains and capital losses and
sets out other CGT consequences that arise when shares or rights to
acquire shares are subsequently transferred to members and insured
entities of the friendly society after the demutualisation.
127. Subdivision 316-E sets out special rules for successors of a
deceased member or deceased insured entity that receive shares or
rights to acquire shares that would have otherwise been issued to
the member or insured entity under the demutualisation.
128. The non-CGT consequences of the friendly society's demutualisation
are set out in Subdivision 316-F. This includes a reduction to the
demutualising friendly society's franking account.
Comparison of key features of new law and current law
|New law |Current law |
|Capital gains and capital|Members and policyholders|
|losses arising to members|of life insurers and |
|and insured entities when|policyholders of private |
|their friendly society |health insurers may be |
|demutualises to a |able to disregard capital|
|for-profit entity will be|gains and capital losses |
|disregarded except when |that arise when their |
|the member or insured |insurer demutualises. |
|entity receives an amount|However, these current |
|of money under the |provisions do not provide|
|demutualisation. |consistent outcomes for |
| |friendly societies that |
| |have a life insurance |
| |business and a private |
| |health insurance |
| |business. |
|Members and insured |Except where the |
|entities that receive an |provisions relating to |
|amount of money under |demutualising private |
|their friendly society's |health insurers apply, |
|demutualisation will |entities that give up |
|calculate their capital |rights in return for an |
|gain or capital loss by |amount of money will |
|reference to a modified |typically realise a |
|cost base that is based |capital gain or capital |
|on: |loss on the rights equal |
|the market value of the |to the capital proceeds |
|friendly society's health|received less the cost |
|insurance business (if it|base of the rights. The |
|has one); and |cost base of these rights|
|the embedded value of any|would typically be |
|other business. |minimal. |
|The cost base of shares |The cost base of shares |
|and rights to acquire |issued to members and |
|shares that are issued to|policyholders of life |
|members and insured |insurers that demutualise|
|entities under their |is based on the life |
|friendly society's |insurer's embedded value.|
|demutualisation will be | |
|based on: |The cost base of shares |
|the market value of the |or rights to acquire |
|friendly society's health|shares issued to |
|insurance business (if it|policyholders of private |
|has one); and |health insurers that |
|the embedded value of any|demutualise is based on |
|other business. |the private health |
| |insurer's market value. |
|Capital gains and capital|Capital gains and capital|
|losses arising on some |losses arising on related|
|transactions related to |transactions may trigger |
|the friendly society's |CGT consequences. |
|demutualisation will also| |
|be disregarded. | |
|No other tax consequences|Distributions for a |
|will arise to members and|company may, in certain |
|insured entities from |circumstances: |
|them receiving shares, |be treated as a dividend;|
|rights or an amount of |or |
|money under a friendly |trigger CGT consequences.|
|society's | |
|demutualisation. | |
|Legal personal |As these shares or rights|
|representatives and |are not held by the |
|beneficiaries of a |deceased member or |
|deceased member or |insured entity at the |
|insured entity that |time of their death, no |
|receive shares or rights |CGT roll-over is |
|to acquire shares because|available when the shares|
|of the member or entity's|or rights pass to a |
|death will receive the |beneficiary of their |
|same cost base for the |estate. |
|shares or rights that the| |
|deceased member or entity| |
|would have received. | |
|In addition, any capital | |
|gains or capital losses | |
|arising from the shares | |
|or rights passing to a | |
|beneficiary of the estate| |
|will be disregarded. | |
|Shares or rights to |A trustee dealing with |
|acquire shares issued |assets in a trust will |
|under a friendly |typically incur CGT |
|society's demutualisation|consequences. |
|may be held on trust and | |
|transferred to, or sold | |
|on behalf of, members and| |
|insured entities without | |
|CGT consequences for the | |
|trustee. | |
Detailed explanation of new law
129. A friendly society is defined in section 995 of the ITAA 1997 as
being:
. a body that is a friendly society for the purposes of the
Life Insurance Act 1995 (LIA 1995);
. a body that is registered or incorporated as a friendly
society under a State law or a Territory law;
. a body that is permitted, by a State law or a Territory
law, to assume or use the expression friendly society; or
. a body that, immediately before the date that is the
transfer date for the purposes of the Financial Sector
Reform (Amendments and Transitional Provisions) Act (No.
1) 1999, was registered or incorporated as a friendly
society under a State law or a Territory law.
Eligible demutualisations
130. The demutualising friendly society must satisfy the following
requirements for this relief to be available.
131. Prior to demutualising, the friendly society must carry on either a
health insurance business or a life insurance business. A friendly
society that carries on both a health insurance business and a life
insurance business also qualifies for the relief. These businesses
may be carried on through a wholly owned subsidiary of the friendly
society. [Schedule 3, item 1, paragraph 316-5(a)]
132. The entity that carries on the health insurance business (either
the friendly society or a wholly owned subsidiary) must be a
private health insurer within the meaning of the Private Health
Insurance Act 2007 (PHIA 2007) [Schedule 3, item 1,
subparagraph 316-5(a)(i)].
. A friendly society that carries on only a health insurance
business may qualify for this relief and is therefore
excluded from the demutualisation relief contained in
Division 315 of the ITAA 1997 [Schedule 3, item 22].
133. The entity that carries on the life insurance business (either the
friendly society or a wholly owned subsidiary) must be registered
under section 21 of the LIA 1995 [Schedule 3, item 1,
subparagraph 316-5(a)(ii)].
. A friendly society that carries on a life insurance
business may qualify for this relief and is therefore
excluded from the demutualisation relief contained in
Division 9AA of the ITAA 1936 [Schedule 3, item 2].
134. A friendly society that carries on neither a health insurance
business nor a life insurance business will not qualify for this
relief. However, such a friendly society may qualify for the
demutualisation relief contained in Division 9AA of the ITAA 1936
(if the friendly society is a general insurer) or Schedule 2H to
the ITAA 1936.
135. It is also a requirement of this relief that the friendly society
must not have capital divided into shares that are held by its
members prior to demutualising. [Schedule 3, item 1, paragraph 316-
5(b)]
136. After demutualising, the friendly society must be carried on for
the object of securing a profit or pecuniary gain for its members.
[Schedule 3, item 1, paragraph 316-5(c)]
1.
Friendliest Friendly Society Ltd (Friendliest Friendly) is a
company limited by guarantee and a body that is permitted by
a State law to use the expression friendly society. Among
its other businesses, Friendliest Friendly provides life
insurance to its members. Consequently Friendliest Friendly
is registered under section 21 of the LIA 1995.
Friendliest Friendly proposes to demutualise to a for-profit
entity. Should it demutualise, Friendliest Friendly
qualifies for this relief.
2.
Affable Society Ltd (Affable Society) is registered as a
friendly society under a State law and is a company limited
by guarantee. It has two wholly owned subsidiaries - one of
which carries on a private health insurance business and the
other which carries on a life insurance business.
. The subsidiary that carries on the private health insurance
business is a private health insurer within the meaning of
the PHIA 2007.
. The subsidiary that carries on the life insurance business
is registered under section 21 of the LIA 1995.
Affable Society proposes to demutualise to a for-profit
entity and, as part of a broader merger arrangement with a
for-profit private health insurer Healthy Health Ltd
(Healthy Health), become wholly owned by Healthy Health.
Should it demutualise, Affable Society qualifies for this
relief.
3.
Benevolent Company Ltd (Benevolent Company) is a company
limited by guarantee and a body that is a friendly society
for the purposes of the LIA 1995. It carries on a life
insurance business and is registered under section 21 of the
LIA 1995.
Benevolent Company proposes to demutualise and become a for-
profit entity.
Should it demutualise, Benevolent Company qualifies for this
relief.
137. A friendly society may demutualise in any of the following ways.
. The society may issue shares to its members where the
shares entitle the members to a share of the profit or
capital of the friendly society.
. The society may distribute amounts to its members in their
capacity as members (whether or not the amounts are paid
from profits).
. The society may amend its constitution to expressly
provide for the distribution of profits to its members in
their capacity as members.
Relief for members and insured entities of the friendly society
138. Most capital gains and capital losses arising under the friendly
society's demutualisation to entities that are either members of
the society or insured through the society or a wholly owned
subsidiary of the society will be disregarded.
. An exception to this rule applies when the member or
insured entity receives an amount of money under the
demutualisation. The consequences of this transaction are
set out in paragraphs 3.35 to 3.41.
139. It will be a question of fact as to whether a specific transaction
(and therefore a capital gain or capital loss) arises under the
friendly society's demutualisation. Transactions are likely to
vary between demutualising friendly societies. In determining
whether a transaction arises under a friendly society's
demutualisation, regard may be given to the friendly society's
demutualisation scheme approved by its members.
140. However, transactions that occur after the distribution of the
friendly society's accumulated mutual surplus will not be
transactions that occur under the friendly society's
demutualisation. This will be the case even if the transactions
occur as part of a broader scheme for reorganising the friendly
society's affairs. Nonetheless, a friendly society may distribute
its accumulated mutual surplus in more than one transaction and in
this case each of these transactions would occur under the friendly
society's demutualisation. However, if a friendly society
distributes its accumulated mutual surplus in the form of shares
for example, then there will be cost base implications for the
shares if they are not all issued at the same time. Further
information about these cost base rules is set out in
paragraph 3.49.
1.
Further to Example 3.3.
Following approval from its members, Benevolent Company
demutualises to a not-for-profit entity on 27 October 2008
and distributes its accumulated mutual surplus to its
members in the form of money.
Under the terms of Benevolent Company's demutualisation, the
accumulated mutual surplus will be distributed as follows:
. 90 per cent of the total accumulated mutual surplus to be
distributed will initially be distributed to members that
have agreed to receive their share of the accumulated mutual
surplus and the remaining 10 per cent will be retained for
other members that may make a future claim for their share
of the surplus.
. After six months, the residual amount of the accumulated
mutual surplus will then be distributed to all members that
had previously received a share of the distributed
accumulated mutual surplus (whether it was from the initial
90 per cent distribution or the remaining 10 per cent
distribution).
The distribution of each of these amounts will be
transactions that occur under Benevolent Company's
demutualisation.
141. Entities that are insured through the friendly society or a wholly
owned subsidiary (insured entities) may include, for example:
. policyholders and other insured persons within the meaning
of the PHIA 2007 - where the friendly society or a wholly
owned subsidiary carries on a health insurance business;
and
. owners or holders of life insurance policies within the
meaning of the ITAA 1997 - where the friendly society or a
wholly owned subsidiary carries on a life insurance
business. This may also include owners or holders of
funeral policies, income bonds, sickness policies and
scholarship plans within the meaning of the ITAA 1997.
[Schedule 3, item 1, subparagraph 316-55(1)(a)(ii)]
142. In some cases, depending on the terms of the friendly society's
demutualisation, entities that were formerly members of the society
or were formerly insured by the society or a wholly owned
subsidiary may be entitled to receive a share of the society's
accumulated mutual surplus.
. For convenience, references to members or insured entities
also include entities that were former members of the
society or were formerly insured by the society or a
wholly owned subsidiary.
1.
Further to Example 3.1.
Friendliest Friendly announces its intention to demutualise.
Mary is a member of Friendliest Friendly at the time of this
announcement and at the time its members subsequently
approve its demutualisation. Mary is entitled to receive an
allocation of 1,500 shares in Friendliest Friendly under the
terms of its demutualisation.
However, Mary is no longer a member at the time the
Friendliest Friendly demutualises and issues her with 1,500
shares. Mary is therefore a former member of Friendliest
Friendly.
143. If a member or insured entity dies during a demutualisation
process, similar CGT relief may also be available for their
successor (such as a legal personal representative (LPR)) and
beneficiaries of their estate. Further information about the CGT
consequences for the LPR and beneficiaries in these circumstances
is set out in paragraphs 3.86 to 3.96.
Disregard capital gains and capital losses
144. Except when a member or insured entity of the friendly society
receives an amount of money under its demutualisation, capital
gains and capital losses arising to the entity will be disregarded
from CGT events that happen under the society's demutualisation to
an interest of the member or insured entity that is affected by
demutualisation. [Schedule 3, item 1, paragraph 316-55(1)(a)]
145. An interest affected by demutualisation may include:
. an interest that the entity has (or had) in the friendly
society as the owner or holder of an insurance policy with
the society or a wholly owned subsidiary that is a life
insurer or health insurer;
. a membership interest that the entity has (or had) in the
friendly society;
. a right or interest of another kind that the entity has
(or had) in the friendly society; or
. a right or interest of another kind that arises to the
entity under the demutualisation.
- However, an interest in a lost policy holders trust is
excluded from being an 'interest affected by
demutualisation'. Instead a separate regime exists for
dealing with these interests. Further information about
the lost policy holders trust regime is set out in
paragraphs 3.66 to 3.85.
[Schedule 3, item 1, paragraph 316-55(1)(b)]
1.
Further to Examples 3.1 and 3.5.
Philip is a member of Friendliest Friendly and under the
terms of its constitution has a number of rights including
the right to receive notice of Friendliest Friendly's Annual
General Meeting, the right to attend and be heard at that
meeting and the right to require Friendliest Friendly to
manage its assets in a certain way and to operate on a not-
for-profit basis.
Under the terms of Friendliest Friendly's demutualisation
scheme, Philip acquires the right to receive 5,000 shares.
These rights make up Philip's interests that are affected by
Friendliest Friendly's demutualisation. These rights are
satisfied when Friendliest Friendly distributes its
accumulated mutual surplus and Philip receives his 5,000
shares.
As Philip did not receive an amount of money under
Friendliest Friendly's demutualisation, he disregards any
capital gains or capital losses that arise from the
satisfaction of these rights.
2.
Further to Example 3.5.
Mary has the right to receive 1,500 shares under Friendliest
Friendly's demutualisation. Mary subsequently receives
these shares when Friendliest Friendly distributes its
accumulated mutual surplus and so her right to receive the
shares ends.
This right is an interest affected by Friendliest Friendly's
demutualisation. As it arises under Friendliest Friendly's
demutualisation Mary disregards any capital gains or capital
losses arising to her from the satisfaction of her right to
the 1,500 shares.
Capital gains and capital losses realised on an amount of money
146. From a policy perspective, a member or insured entity that receives
an amount of money under their friendly society's demutualisation
should receive a consistent CGT outcome relative to a member or
insured entity that receives an allocation of shares. This can be
achieved by ensuring that the CGT outcome for such a member or
insured entity is equivalent to that for a member or insured entity
that receives an allocation of shares and immediately disposes of
them.
. In this context it is important to note that Division 9AA
of the ITAA 1936 and Division 315 of the ITAA 1997 do not
distinguish between members and policyholders of the
demutualising entity that have continuously held an
interest in the demutualising entity since before 20
September 1985 and those that have not for the purposes of
providing a modified cost base for issued shares.
147. A member or insured entity that receives an amount of money under
their friendly society's demutualisation for the cancellation or
variation of their interests affected by demutualisation does not
disregard any capital gains or capital losses arising in relation
to the receipt of money. [Schedule 3, item 1, paragraphs 316-
60(1)(a), (b), and (d), paragraph 316-60(3)(a) and subparagraph 316-
60(1)(c)(i)]
148. Instead the member or insured entity calculates whether they
realise a capital gain or capital loss on the basis that their
interest affected by demutualisation has a modified cost base or
reduced cost base. [Schedule 3, item 1, subsection 316-60(2)]
149. The member or insured entity then works out the cost base or
reduced cost base of their interest affected by the demutualisation
by multiplying the capital proceeds they receive by the friendly
society's valuation factor [Schedule 3, item 1, paragraph 316-
60(2)(b)].
. Further information about calculating the friendly
society's valuation factor is set out in paragraphs 3.53
to 3.65.
. The friendly society may inform its members or insured
entities what its valuation factor is.
1.
Further to Examples 3.3 and 3.4.
David has been a continuous member of Benevolent Company
since 2005 and under its demutualisation receives $2,000 in
satisfaction of the rights he has against Benevolent
Company. These rights are David's interests affected by
Benevolent Company's demutualisation.
Benevolent Company has a valuation factor of 0.9.
. Examples 3.14 and 3.15 provide information about how a
friendly society may calculate its valuation factor.
David calculates whether he makes a capital gain or capital
loss from the receipt of the $2,000 on the basis that his
interests affected by demutualisation have a modified cost
base or reduced cost base.
David calculates his cost base for these interests by
multiplying the $2,000 capital proceeds he receives by
Benevolent Company's valuation factor of 0.9.
David's interests affected by demutualisation have a cost
base of $1,800.
. This is calculated as follows:
- $2,000 capital proceeds multiplied by a 0.9 valuation
factor.
David therefore realises a capital gain of $200 on his
interests.
. This is calculated as follows:
- $2,000 capital proceeds less a $1,800 cost base.
150. The following rules will ensure that members and insured entities
that receive an amount of money under the demutualisation receive
an equivalent CGT outcome to members and insured entities that
receive shares.
. A capital gain realised by a member or insured entity from
the receipt of an amount of money under their friendly
society's demutualisation will not be a 'discount capital
gain' [Schedule 3, item 15].
. A capital gain or capital loss realised by a member or
insured entity from the receipt of an amount of money
under their friendly society's demutualisation will not be
disregarded even where the member or insured entity has
held their interest affected by demutualisation since
before 20 September 1985 [Schedule 3, item 1,
paragraph 316-60(3)(b)].
Members or insured entities that receive both non-monetary capital
proceeds and money
151. A member or insured entity may receive their share of the friendly
society's accumulated mutual surplus in the form of money and in
the form of non-monetary proceeds, such as shares or rights to
acquire shares.
152. In these situations the member or insured entity will realise a
capital gain or capital loss only in relation to the capital
proceeds received in the form of money. In calculating this
capital gain or capital loss, the member or insured entity excludes
the market value of any property other than money they receive
under the demutualisation from their capital proceeds.
[Schedule 3, item 1, subsection 316-60(2)]
1.
Further to Example 3.2.
Affable Society announces its intention to demutualise and
offers its members the choice of receiving their share of
its accumulated mutual surplus in the form of:
. an amount of money;
. shares in Healthy Health; or
. a combination of money and shares in Healthy Health.
Niomi is a member of Affable Society and elects to receive
100 per cent of her share of the accumulated mutual surplus
in the form of money. She subsequently receives $1,000 from
Affable Society when it demutualises. This payment is made
in satisfaction of a number of rights (interests affected by
demutualisation) Niomi has against Affable Society.
Affable Society has a valuation factor of 0.85.
Niomi calculates whether she makes a capital gain or capital
loss on the basis that these interests affected by
demutualisation have a modified cost base or reduced cost
base.
Niomi calculates her cost base by multiplying the $1,000
capital proceeds she receives by Affable Society's valuation
factor of 0.85.
Niomi's interests affected by demutualisation have a cost
base of $850.
. This is calculated as follows:
- $1,000 capital proceeds multiplied by a 0.85 valuation
factor.
Niomi realises a capital gain of $150.
. This is calculated as follows:
- $1,000 capital proceeds less a $850 cost base.
2.
Further to Examples 3.2 and 3.9.
Rob is also a member of Affable Society and elects to
receive 50 per cent of his share of the accumulated mutual
surplus in the form of money and 50 per cent in the form of
shares in Healthy Health. He subsequently receives $500
from Affable Society and 250 shares in Healthy Health (each
worth $2) when Affable Society demutualises.
Rob calculates whether he makes a capital gain or capital
loss from this transaction on the basis that his interests
affected by demutualisation have a modified cost base or
reduced cost base.
Rob calculates his cost base by multiplying the $500 capital
proceeds (excluding the market value of the 250 shares he
receives in Healthy Health) he receives by Affable Society's
valuation factor of 0.85.
Rob's interests affected by demutualisation have a cost base
of $425.
. This is calculated as follows:
- $500 capital proceeds multiplied by a 0.85 valuation factor.
Rob realises a capital gain of $75.
. This is calculated as follows:
- $500 capital proceeds less a $425 cost base.
Example 3.13 explains how Rob calculates the cost base of
his shares in Healthy Health.
Relief for the demutualising friendly society
153. Capital gains or capital losses that arise to the friendly society
under its demutualisation will be disregarded. [Schedule 3,
item 1, section 316-75]
Relief for other entities
154. Capital gains or capital losses that arise under the friendly
society's demutualisation to other entities will be disregarded
when the following three requirements are satisfied. [Schedule 3,
item 1, section 316-80]
155. First, the entity must be established solely for the purpose of
participating in the friendly society's demutualisation. It will
be a question of fact whether an entity meets this requirement.
However, in determining this, regard should be given to the terms
of the friendly society's demutualisation and whether, for example,
its demutualisation scheme provides for the creation of the entity.
[Schedule 3, item 1, paragraph 316-80(a)]
156. Second, the entity must not be a lost policy holders trust.
[Schedule 3, item 1, paragraph 316-80(a)]
. These amendments create a separate framework for a lost
policy holders trust. This framework is described in
paragraphs 3.66 to 3.85.
157. Third, the capital gains or capital losses realised by the entity
must be connected to the allocation or distribution of the friendly
society's accumulated mutual surplus and arise either prior to, or
at the time, the surplus is allocated or distributed. Similar to
the first requirement, it will be a question of fact whether these
requirements are satisfied. [Schedule 3, item 1, paragraph 316-
80(b)]
Shares and rights issued to members and insured entities under the
demutualisation
158. As noted above, a friendly society may distribute its accumulated
mutual surplus in the form of shares in the demutualised friendly
society or another company or in the form of rights to acquire such
shares.
. These rights to acquire shares are separate to the rights
that make up a member's or insured entity's interest
affected by demutualisation and which end or are satisfied
under the demutualisation.
Acquisition time of shares or rights to acquire shares
159. Members and insured entities that receive shares or rights to
acquire shares under their friendly society's demutualisation will
be taken, for CGT purposes, to have acquired each of the shares or
rights at their issue time. [Schedule 3, item 1, subsection 316-
105(3)]
1.
Further to Examples 3.6 and 3.7.
Friendliest Friendly demutualises and issues shares to its
members, including Philip and Mary, on 7 November 2008.
Philip is taken to have acquired each of the 5,000 shares
issued to him on 7 November 2008. Similarly, Mary is taken
to have acquired each of the 1,500 shares issued to her on 7
November 2008.
Cost base of shares or rights to acquire shares
160. Members and insured entities of the friendly society that receive
shares or rights to acquire shares under the society's
demutualisation will receive a modified cost base for those shares
or rights when the following requirements are satisfied
[Schedule 3, item 1, subsections 316-105(1) and 316-115(1)].
. First, the shares or rights must be issued under the
demutualisation and in connection with the member or
insured entity's interest affected by demutualisation
being varied or cancelled [Schedule 3, item 1, paragraphs
316-110(1)(b) and 316-110(1)(c)].
. Second, the shares or rights must be issued simultaneously
to:
- all members and insured entities that are entitled to
receive shares and rights to acquire shares under the
demutualisation;
- all successors that are entitled to receive shares or
rights because of the death of a member or insured
entity; and
- the trustee of a lost policy holders trust.
[Schedule 3, item 1, subsection 316-110(3) and section 316-
115]
. Third, if shares are issued, the shares must be issued in
the demutualised friendly society or in a company that
wholly owns the demutualised friendly society [Schedule 3,
item 1, subparagraphs 316-110(1)(a)(i) and (iii)].
. Alternatively, if rights to acquire shares are issued,
then the rights must allow only for shares in the
demutualised friendly society or a company that wholly
owns the friendly society to be acquired [Schedule 3,
item 1, subparagraphs 316-110(1)(a)(ii) and (iv)].
- In addition, the rights must have an exercise price of
nil [Schedule 3, item 1, subsection 316-110(2)].
161. The first element of the cost base or reduced cost base of each of
these shares or rights to acquire shares is calculated by
multiplying the market value of the share or right at the time it
is issued by the friendly society's valuation factor [Schedule 3,
item 1, subsections 316-105(1) and (2)].
. Further information about calculating the friendly
society's valuation factor is set out in paragraphs 3.53
to 3.65.
1.
Further to Example 3.11.
Each of the shares issued in Friendliest Friendly has a
market value of $3.00 at the time of their issue.
Friendliest Friendly has a valuation factor of 0.95.
The first element of the cost base or reduced cost base of
each of the 5,000 shares in Friendliest Friendly issued to
Philip is $2.85.
. This is calculated as follows:
- $3.00 market value multiplied by a 0.95 valuation factor.
Mary calculates the first element of the cost base or
reduced cost base of each of the 1,500 shares issued to her
similarly.
2.
Further to Example 3.10.
The first element of the cost base or reduced cost base of
each of the 250 shares in Healthy Health issued to Rob is
$1.70.
. This is calculated as follows:
- $2.00 market value multiplied by a 0.85 valuation factor.
Should Rob immediately sell his shares he would realise a
capital gain of $0.30 per share, assuming he incurs no other
costs in relation to the shares.
. This is calculated as follows:
- $2.00 capital proceeds (current market value of each of the
shares) less a $1.70 cost base (as calculated above).
Rob's total capital gain from the 250 shares is $75.
. This is calculated as follows:
- $0.30 capital gain per share multiplied by 250 shares.
162. The first element of the cost base or reduced cost base of shares
or rights to acquire shares that are issued to the trustee of a
lost policy holders trust is also calculated in the same way
[Schedule 3, item 1, subsection 316-115(3)].
. Further information about a lost policy holders trust is
set out in paragraphs 3.66 to 3.85.
163. The first element of the cost base or reduced cost base of shares
or rights to acquire shares that are issued to the LPR of a
deceased member or insured entity is also calculated in the same
way [Schedule 3, item 1, subsection 316-115(2)].
. Further information about other CGT consequences of shares
or rights to acquire shares issued to a deceased member or
insured entity's LPR is set out in paragraphs 3.86 to
3.96.
Friendly society's valuation factor
164. The friendly society's valuation factor is derived as follows:
[pic][Schedule 3, item 1, subsection 316-65(1)]
165. The formula's numerator represents the value of the friendly
society and the denominator represents the friendly society's
accumulated mutual surplus.
. The two components that make up the formula's numerator
reflect the differing treatment of life insurers and
private health insurers under the existing income tax law.
Division 9AA of the ITAA 1936 and Division 315 of the
ITAA 1997 respectively calculate the cost base of shares
issued to members and policyholders of life insurers and
policyholders of private health insurers.
. The formula's denominator reflects the total value of the
friendly society's accumulated mutual surplus distributed
to:
- members and insured entities of the society;
- successors of deceased members and insured entities; and
- the trustee of a lost policy holders trust.
[Schedule 3, item 1, section 316-65]
166. Each of the components of the valuation formula is discussed in
further detail below.
Market value of any health insurance business
167. In calculating the market value of a health insurance business
carried on by the friendly society (either directly or through a
wholly owned subsidiary) regard may be given to the consideration
paid to the society or a subsidiary of the society for the disposal
or control of that business. [Schedule 3, item 1, subsection 316-
65(1)]
168. If such consideration is paid to the friendly society or a
subsidiary of the society and the amount to be paid is fixed under
the terms of a binding agreement then the market value of the
health insurance business may be calculated by reference to the
time that the binding agreement for the disposal or control of the
business is made and the value of the consideration.
169. Alternatively, if the consideration paid to the friendly society or
a subsidiary of the society is dependent on subsequent events
occurring after a binding bid is made, then the market value of the
health insurance business may be calculated by reference to the
time that the payment is made and the value of the consideration.
1.
Further to Example 3.2.
Healthy Health entered into a binding agreement with Affable
Society as part of a broader arrangement to pay Affable
Society $50 million for control of Affable Society's private
health insurance.
Several months later Healthy Health makes this $50 million
payment to Affable Society after its members agree to its
demutualisation. At the time Healthy Health makes this
payment, the market value of Affable Society and its private
health insurance business has slightly declined.
For the purposes of the valuation factor calculation,
Affable Society's private health insurance business has a
market value of $50 million.
Embedded value of any other businesses
170. The embedded value of the friendly society's other business is
calculated on the assumption that the friendly society or a wholly
owned subsidiary does not carry on a health insurance business.
[Schedule 3, item 1, subsection 316-65(1)]
171. The embedded value is derived from the sum of the friendly
society's existing business value and its adjusted net worth.
These amounts need to be calculated on either:
. the demutualisation resolution day - if an accounting
period of the friendly society ends on that day
[Schedule 3, item 1, subsection 316-70(1) and
paragraph 316-70(3)(a)]; or
. the last day of the most recent accounting period of the
friendly society prior to the demutualisation resolution
day [Schedule 3, item 1, subsection 316-70(1) and
paragraph 316-70(3)(b)].
- However, if the embedded value is calculated on the last
day of the friendly society's most recent accounting
period prior to the demutualisation resolution day, the
friendly society's existing business value and adjusted
net worth need to be adjusted to take account of any
significant changes to these amounts up until the
demutualisation resolution day [Schedule 3, item 1,
subsection 316-70(5)].
In this context, the reference to a friendly society's accounting
period refers to its financial year accounting period rather than
any other accounting period that the friendly society may have for
management reporting purposes.
172. Consistent with Division 9AA of the ITAA 1936, the friendly
society's demutualisation resolution day is either the day:
. on which the resolution to proceed with the
demutualisation is passed by the society's members or
insured entities; or
. if the friendly society, or a subsidiary of the friendly
society, has a life insurance business and all of that
business is transferred to another company under the
demutualisation under a scheme confirmed by the Federal
Court of Australia - the day that the transfer takes
place.
- However, if the transfer takes place over more than one
day, then the last day that the transfer takes place
will be the friendly society's demutualisation
resolution day.
[Schedule 3, item 1, subsection 316-70(4)]
173. The embedded value calculation needs to be calculated according to
Australian actuarial practice by an actuary who:
. is a Fellow or Accredited Member of the Institute of
Actuaries of Australia; and
. is not an employee of the friendly society, a subsidiary
of the society that carries on a life insurance or health
insurance business or an entity that wholly acquires the
friendly society under the demutualisation [Schedule 3,
item 1, subsection 316-70(2).
174. There are also two assumptions that need to be made in calculating
the friendly society's existing business value and adjusted net
worth. These are:
. that the friendly society and any subsidiaries with a life
insurance or health insurance business will continue to
conduct their businesses in the same way as previously
conducted as if the demutualisation did not occur (the
continued business assumption) [Schedule 3, item 1,
subsection 316-70(6)]; and
. that the friendly society and any subsidiaries will incur
the same amount and type of expenditure (adjusted for
inflation) as incurred prior to the demutualisation (the
expenditure assumption) [Schedule 3, item 1,
subsection 316-70(7)].
Total capital proceeds
175. Capital proceeds received by members, insured entities, successors
of deceased members and insured entities and the trustee of the
lost policy holders trust under the demutualisation in satisfaction
of rights or interests that arise under the demutualisation are
excluded from the valuation factor's denominator. This ensures
that only capital proceeds received under the demutualisation in
relation to the existing rights and interests of members or insured
entities to participate mutually in the friendly society are
included in the denominator.
. Including any capital proceeds for rights or interests
that arise under the demutualisation may lead to a double
counting of some capital proceeds. This will arise for
example, if some of the capital proceeds received in
relation to a member's or insured entity's rights to
participate mutually in the friendly society are rights
that arise under the demutualisation. In this case, the
value of the right that arises under the demutualisation
is included in the capital proceeds the member or insured
entity receives from their rights to participate mutually,
and so should not be included again.
[Schedule 3, item 1, subsection 316-65(1)]
176. Any reduction to the capital proceeds a member, insured entity or a
successor of a deceased member or insured entity makes because they
receive both money and non-monetary capital proceeds under the
demutualisation is ignored when calculating the total capital
proceeds received for the purposes of the valuation formula. This
ensures that the value of all capital proceeds received under the
demutualisation is included in the valuation factor's denominator
whether the proceeds take the form of assets or an amount of money.
[Schedule 3, item 1, subsection 316-65(2)]
1.
Further to Examples 3.13 and 3.14.
Under Affable Society's demutualisation, $70 million is
distributed to its members (and their successors) and 15
million shares in Healthy Health (each worth $2) are issued
to its members, their successors and the trustee of the
Affable Lost Trust (a lost policy holders trust).
The total capital proceeds received by these entities is
$100 million.
. This is calculated as follows:
- $70 million in cash plus $30 million (15 million shares each
with a market value of $2).
The embedded value of Affable Society's non-health insurance
business is $35 million.
Affable Society has a valuation factor of 0.85.
. This is calculated as follows:
- The numerator of Affable Society's valuation factor is
$85 million. This comprises of a $50 million market value
of Affable Society's private health insurance business plus
a $35 million embedded value of its other business.
- The denominator of the valuation factor is equal to
$100 million.
- That is, [pic]
Lost policy holders trust
177. Division 315 of the ITAA 1997 provides a legislative framework for
shares or rights to acquire shares to be held on trust for
policyholders of demutualising health insurers that are entitled to
receive the shares or rights but do not receive them directly. The
framework allows these shares or rights to be held on trust and
transferred to the policyholder without CGT consequences for the
trustee. The framework also ensures that the policyholder receives
the shares or rights with the same CGT attributes as if they had
received the shares or rights to acquire shares directly.
178. These amendments provide a similar framework for shares or rights
to acquire shares to be held on trust and then transferred to
members and insured entities of a demutualising friendly society.
As these amendments provide a different CGT outcome for
distributions of money compared to Division 315 of the ITAA 1997,
this framework also facilitates payments of money from the lost
policy holders trust to members and insured entities.
. These members and insured entities (referred to as
beneficiaries of the lost policy holders trust) could
include unverified or overseas members or unverified or
overseas insured entities. A beneficiary of the lost
policy holders trust could also include an LPR or
beneficiary in the estate of a deceased member or insured
entity that was a beneficiary of the lost policy holders
trust. [Schedule 3, item 1, subsection 316-155(4)]
Requirements for these rules to apply
179. These rules will only apply when the following conditions are
satisfied:
. the friendly society's demutualisation scheme that is
approved by a court provides for the lost policy holders
trust [Schedule 3, item 1, subsections 316-155(1) and
(2)];
. the trust exists solely for the purpose of holding shares
or rights to acquire shares on behalf of entities that are
beneficiaries of the trust; or holding money payable in
satisfaction of the variation or cancellation of interests
affected by demutualisation [Schedule 3, item 1,
subsection 316-155(3)]; and
. shares or rights to acquire shares are issued or money is
paid to the trustee of the lost policy holders trust under
the friendly society's demutualisation [Schedule 3,
item 1, subsection 316-155(5)].
1.
Further to Examples 3.1 and 3.11.
After its members agreed to the demutualisation, Friendliest
Friendly's demutualisation scheme was subsequently approved
by a court. This scheme provided for a trust, Friendly
Trust, which has the sole purpose of holding shares on
behalf of unverified members and members registered at an
overseas address. Friendly Trust's deed provides that the
Trust will cease after three years.
Under Friendliest Friendly's demutualisation, the trustee of
Friendly Trust receives 50,000 shares in Friendliest
Friendly.
The lost policy holder trust rules would apply to Friendly
Trust.
Trustee of the lost policy holders trust
Acquisition time of shares or rights to acquire shares
180. The trustee of the lost policy holders trust that receives shares
or rights to acquire shares will be taken, for CGT purposes, to
have acquired the shares or rights at their issue time.
[Schedule 3, item 1, subsections 316-105(3) and 316-115(3)]
Cost base of shares or rights to acquire shares
181. The first element of the cost base or reduced cost base of the
shares or rights issued to the trustee of the lost policy holders
trust under the friendly society's demutualisation is calculated in
the same way as if the shares or rights to acquire shares had been
issued to the member or insured entity (or their LPR or beneficiary
of their estate if the member or insured entity dies before
receiving the shares or rights) directly. [Schedule 3, item 1,
subsections 316-105(1) and (2) and 316-115(3)]
. These rules are set out in paragraphs 3.49 to 3.52.
1.
Further to Examples 3.12 and 3.16.
The trustee of Friendly Trust acquires 50,000 shares in
Friendliest Friendly on 7 November 2008. The first element
of the cost base of each of these shares is $2.85.
Transfer of assets to a beneficiary of the lost policy holders
trust
182. Any capital gains or capital losses arising to the trustee of the
lost policy holders trust from the transfer of assets in the lost
policy holders trust to a beneficiary of the trust will be
disregarded. Similarly, any capital gains or capital losses
arising to the trustee from a beneficiary of the lost policy
holders trust becoming absolutely entitled to an asset of the trust
will be disregarded. [Schedule 3, item 1, subsections 316-170(1)
and (2)]
1.
Further to Example 3.17.
Jess was a member of Friendliest Friendly and under its
demutualisation was entitled to receive 500 shares.
However, Jess was unaware of Friendliest Friendly's
demutualisation and her entitlement to the shares. Six
months after Friendliest Friendly demutualised Jess became
aware of her entitlement to the 500 shares and contacted the
trustee of Friendly Trust. At this time, each of the shares
in Friendliest Friendly has a market value of $3.50.
Any capital gains arising to the trustee of Friendly Trust
from Jess becoming absolutely entitled to the 500 shares are
disregarded.
2.
Further to Example 3.17.
Ross was also a member of Friendliest Friendly and, although
he was unaware of it, he was entitled to receive 1,000
shares under its demutualisation.
Twelve months after demutualising Friendliest Friendly
reorganises its affairs and interposes a holding company,
Friendly Holding Ltd (Friendly Holding) between itself and
its shareholders. Under this scheme, shareholders in
Friendliest Friendly exchange two shares in Friendliest
Friendly for one share in Friendly Holding. The trustee of
Friendly Trust subsequently receives shares in Friendly
Holding and, assuming the requirements of Subdivision 124-G
of the ITAA 1997 are satisfied, a roll-over of any CGT
liability that would have otherwise arisen under the
exchange.
Three months later (15 months after Friendliest Friendly
demutualised) Ross realised he had an entitlement to shares
under Friendliest Friendly's demutualisation and contacted
the trustee of Friendly Trust. At this time, each of the
shares in Friendly Holding has a market value of $7.50.
Any capital gains arising to the trustee from Ross becoming
absolutely entitled to 500 shares in Friendly Holding are
disregarded.
183. The lost policy holders trust may also provide for the trustee to
dispose of shares or rights in the trust held on behalf of a
beneficiary and give the net proceeds to the beneficiary, on whose
behalf the trustee was holding the assets. This will typically
occur when the beneficiary is registered at an overseas address.
1.
Further to Example 3.17.
Eric was a member of Friendliest Friendly and was entitled
to receive 1,000 shares under its demutualisation. Although
Eric remains an Australian resident for tax purposes, he was
registered with Friendliest Friendly with an overseas
address. Instead of directly receiving his 1,000 shares
when Friendliest Friendly demutualised, Eric's shares are
issued to the trustee of Friendly Trust to sell on his
behalf. Two months after Friendliest Friendly demutualises,
the trustee of Friendly Trust sells the 1,000 shares for
$3.20 each.
Any capital gains arising to the trustee from this
transaction are disregarded.
Other dealings with assets
184. Any capital gains arising from the trustee dealing with the assets
in the lost policy holders trust in any other way will, broadly, be
assessed to the trustee under section 99A of the ITAA 1936.
[Schedule 3, item 1, section 316-175]
185. Specifically, for the purposes of section 97, 98A and 100 of the
ITAA 1936, the share of the net income of the trust that is
attributable to the capital gains arising from these transactions
will not be included in the income of any beneficiaries of the
trust [Schedule 3, item 1, subsection 316-175(2)]. In addition,
the trustee will not be assessed on this share of net income under
section 98 of the ITAA 1936 [Schedule 3, item 1, subsection 316-
175(3)]
Beneficiaries of the lost policy holders trust that receive assets
or money from the trust
Beneficiaries that receive assets
186. Any capital gains or capital losses arising to a beneficiary
receiving assets from the lost policy holders trust in satisfaction
of their interest in the trust are disregarded. [Schedule 3,
item 1, section 316-160]
187. The beneficiary will be taken to have acquired each of the assets
at the same time as the trustee of the lost policy holders trust
acquired them. [Schedule 3, item 1, subsections 316-170(1) and
(4)]
188. The first element of the cost base or reduced cost base of each of
the assets that are transferred to a beneficiary from the lost
policy holders trust will be equal to the asset's cost base in the
trustee's hands. [Schedule 3, item 1, subsections 316-170(1) and
(3)]
189. The trustee of the lost policy holders may inform the beneficiary
what the first element of the cost base or reduced cost base of any
transferred asset will be in the beneficiary's hands. The trustee
may also advise the beneficiary of the date that the trustee
originally acquired the asset as this date will be the same date
that the beneficiary will be taken to have acquired the asset for
CGT purposes.
1.
Further to Example 3.18.
Jess becomes absolutely entitled to 500 shares, which are
held in Friendly Trust, in Friendliest Friendly six months
after it demutualises. Jess becomes absolutely entitled to
the shares in satisfaction of her interest in Friendly
Trust.
Any capital gains or capital losses arising to Jess from
this transaction are disregarded.
The first element of the cost base or reduced cost base of
each of these shares in Jess's hands is $2.85. Jess will be
taken to have acquired each of these shares on 7 November
2008.
2.
Further to Example 3.19.
Ross becomes absolutely entitled to 500 shares in Friendly
Holding held in Friendly Trust in satisfaction of his
interest in Friendly Trust.
Any capital gains or capital losses arising to Ross from
this transaction are disregarded.
The first element of the cost base or reduced cost base of
each of these shares in Ross's hands is $5.70. Ross will be
taken to have acquired each of these shares on 7 November
2008.
. Ross receives this cost base because the trustee exchanged
shares in Friendliest Friendly for shares in Friendly
Holding and received a roll-over under Subdivision 124-G of
the ITAA 1997.
3.
Further to Example 3.20.
Eric becomes absolutely entitled to 1,000 shares in
Friendliest Friendly in satisfaction of his interest in
Friendly Trust. Any capital gains or capital losses arising
to Eric from this transaction are disregarded
The first element of the cost base of each of these shares
is $2.85.
The trustee of Friendly Trust then sells the shares on
behalf of Eric for $3.20. Assuming no other costs are
incurred, Eric realises a capital gain of $0.35 on each
share sold.
. This is calculated as follows:
- $3.20 capital proceeds less a $2.85 cost base equals a $0.35
capital gain.
Beneficiaries that receive an amount of money
190. A beneficiary whose interest in the lost policy holders trust is
satisfied from the receipt of money does not disregard any capital
gains or capital losses arising from that receipt. [Schedule 3,
item 1, subsections 316-165(1) and (3)]
191. Instead the beneficiary calculates whether they realise a capital
gain or capital loss on the basis that their interest in the lost
policy holders trust has a modified cost base or reduced cost base.
[Schedule 3, item 1, subsection 316-165(2)]
192. The beneficiary works out the cost base or reduced cost base of
their interest in the lost policy holders trust by multiplying the
capital proceeds they receive from the trust by the friendly
society's valuation factor [Schedule 3, item 1, paragraph 316-
165(2)(b)].
. Further information about calculating the friendly
society's valuation factor is set out in paragraphs 3.53
to 3.65.
193. The trustee of the lost policy holders trust may inform the
beneficiary what the friendly society's valuation factor is.
Beneficiaries that receive assets and an amount of money
194. A beneficiary's interest in the lost policy holders trust may be
satisfied from the receipt of money and non-monetary proceeds.
195. In these situations the beneficiary will realise a capital gain or
capital loss only in relation to the capital proceeds received in
the form of money. In calculating this capital gain or capital
loss, the member or insured entity excludes the market value of any
property other than money they receive from their capital proceeds.
[Schedule 3, item 1, paragraph 316-165(2)(a)]
Expiry of a beneficiary's interest in the lost policy holders trust
196. Capital gains or capital losses arising from the expiry of a
beneficiary's interest in the lost policy holders trust are
disregarded. [Schedule 3, item 1, section 316-160]
1.
Further to Example 3.17.
Brendan was a member of Friendliest Friendly and under its
demutualisation was entitled to receive 2,000 shares.
However, Brendan was unaware of the demutualisation and his
entitlement to shares.
Brendan is still unaware of his entitlement to shares three
years later when Friendly Trust is wound up and his interest
in the trust expires.
Any capital gains or capital losses arising to Brendan from
the expiry of his interest in Friendly Trust are
disregarded.
Shares, rights to acquire shares or money paid to an LPR
197. If a friendly society distributes its accumulated mutual surplus in
the form of shares or rights to acquire shares and a member or
insured entity of the friendly society dies during the
demutualisation before receiving their shares or rights, those
shares or rights will typically be issued to their LPR. The LPR
can then pass the shares or rights to acquire shares to a
beneficiary of the deceased member or insured entity's estate.
198. Similarly if a friendly society distributes its accumulated mutual
surplus in the form of money and a member or insured entity of the
friendly society dies during the demutualisation before receiving
the money, then the money will typically be paid to their LPR.
Disregard capital gains and capital losses
199. Except where the LPR receives an amount of money under the friendly
society's demutualisation, capital gains or capital losses arising
to the LPR will be disregarded from CGT events that happen under
the demutualisation to an interest of the deceased member or
insured entity that is affected by demutualisation. [Schedule 3,
item 1, subsection 316-55(2)]
Capital gains and capital losses realised on an amount of money
200. An LPR that receives an amount of money under a friendly society's
demutualisation in relation to a deceased member or insured
entity's interest affected by demutualisation does not disregard
any capital gains or capital losses arising in relation to the
receipt of money. [Schedule 3, item 1, paragraphs 316-60(1)(a),
(b) and (d) and subparagraph 316-60(c)(ii)]
201. Instead the LPR calculates whether they realise a capital gain or
capital loss on the basis that the deceased member or insured
entity's interests affected by demutualisation have a modified cost
base or reduced cost base. The LPR works out the cost base or
reduced cost base of the deceased member or insured entity's
interest affected by demutualisation by multiplying the capital
proceeds they receive by the friendly society's valuation factor.
[Schedule 3, item 1, paragraph 316-60(2)(b)]
LPRs that receive both non-monetary capital proceeds and money
202. Where an LPR receives non-monetary proceeds and money, the LPR will
realise a capital gain or capital loss only in relation to the
capital proceeds received in the form of money. In calculating
this capital gain or capital loss, the LPR excludes the market
value of any property other than money they receive from their
capital proceeds. [Schedule 3, item 1, subsection 316-60(2)]
Shares or rights to acquire shares issued to an LPR
Consequences for the LPR
203. An LPR that receives shares or rights to acquire shares under the
demutualisation will receive the same first element of the cost
base or reduced cost base that the deceased member or insured
entity would have received. [Schedule 3, item 1, subsections 316-
115(2) and 316-200(1)]
1.
Further to Examples 3.11 and 3.12.
Hamish was a member of Friendliest Friendly society at the
time it announced its intention to demutualise and at the
time its members approved the demutualisation. Under
Friendliest Friendly's demutualisation Hamish was entitled
to receive 3,000 shares in satisfaction of the rights he had
against Friendliest Friendly. Unfortunately, Hamish died
two days before Friendliest Friendly's demutualisation and
so the 3,000 shares were issued to Darren, his LPR.
Any capital gains or capital losses arising to Darren from
receiving the 3,000 shares in Friendliest Friendly are
disregarded.
The first element of the cost base of each of the 3,000
shares issued to Darren is $2.85. This is the same first
element of the cost base that Hamish would have received for
the shares had he remained alive.
204. Any capital gain or capital loss arising to the LPR from each of
the shares or rights passing to a beneficiary of the deceased
member or insured entity's estate will be disregarded.
[Schedule 3, item 1, subsection 316-200(2)]
1.
Further to Example 3.25.
Five months after Hamish's death, Darren transfers the 3,000
shares to Shaun, Hamish's beneficiary. Each of the shares
has a market value of $3.45 at the time of the transfer.
Any capital gains arising to Darren from the transfer of the
3,000 shares in Friendliest Friendly to Shaun are
disregarded.
Consequences for the beneficiary
205. A beneficiary of the deceased member or insured entity's estate
that receives these shares or rights will be taken for CGT purposes
to have acquired each of the shares or rights at the same time as
the LPR acquired them. [Schedule 3, item 1, subsection 316-200(4)]
206. The first element of the cost base or reduced cost base of each of
the shares or rights that pass to a beneficiary of the deceased
member or insured entity's estate will be equal to the share or
right's cost base in the hands of the LPR. [Schedule 3, item 1,
subsection 316-200(3)]
1.
Further to Example 3.26.
Shaun receives the 3,000 shares in Friendliest Friendly.
For CGT purposes Shaun is taken to have acquired each of the
shares at the time they were issued to Darren (7 November
2008) rather than at the time he receives the shares from
Darren.
Assuming Darren incurred no additional costs from the shares
being transferred to Shaun, the first element of the cost
base of each of the shares that Darren receives is $2.85.
Interest in a lost policy holders trust
Consequences for the LPR
207. Any capital gain or capital loss arising to the LPR from an
interest in a lost policy holders trust passing to a beneficiary of
the deceased member's or insured entity's estate will be
disregarded. [Schedule 3, item 1, section 316-205]
Non-CGT consequences of the demutualisation
General taxation consequences
208. A member or insured entity that receives shares or rights to
acquire shares under their friendly society's demutualisation will
not need to include any amount in their assessable income as a
result of receiving these shares or rights [Schedule 3, item 1,
paragraphs 316-255(1)(a), (2)(a) and (2)(b)]. Alternatively, a
member or insured entity that receives an amount of money under
their friendly society's demutualisation will not need to include
the amount of that money in their assessable income provided it is
received in connection with the variation or cancellation of their
interest affected by demutualisation [Schedule 3, item 1,
paragraphs 316-255(1)(b), (2)(a) and(2)(b)].
1.
Further to Example 3.8.
Apart from the $200 capital gain he realises, David does not
need to include the $2,000 he receives under Benevolent
Company's demutualisation in his assessable income.
209. Similarly, if an entity receives shares or rights to acquire shares
because of the death of a member or insured entity of the friendly
society, then that entity will not need to include an amount in
their assessable income as a result of receiving these shares or
rights to acquire shares [Schedule 3, item 1, paragraphs 316-
255(1)(a) and (2)(c)]. Alternatively, an entity that receives an
amount of money because of the death of a member or insured entity
of the friendly society will not need to include the amount of
money in their assessable income provided it is received in
connection with the variation or cancellation of the deceased
member or insured entity's interest affected by demutualisation
[Schedule 3, item 1, paragraphs 316-255(1)(b) and (2)(c)].
210. A beneficiary of a lost policy holders trust that receives shares
or rights to acquire shares from the lost policy holders trust will
not need to include an amount in their assessable income as a
result of receiving these shares or rights [Schedule 3, item 1,
paragraphs 316-255(1)(c) and (2)(d)]. Alternatively, a beneficiary
that receives an amount of money from a lost policy holders trust
will not need to include the amount of that money in their
assessable income provided it is received in connection with the
variation or cancellation of an interest affected by
demutualisation [Schedule 3, item 1, paragraphs 316-255(1)(d) and
(2)(d)].
Franking debits and credits
211. If the friendly society or a wholly owned subsidiary has a franking
account and that account is in surplus prior to the
'demutualisation resolution day', then a franking debit equal to
the value of the surplus arises at the start of the demutualisation
resolution day. [Schedule 3, item 1, section 316-260]
. This has the effect of reducing the franking account to
zero and is broadly consistent with the treatment in
Division 9AA of the ITAA 1936.
212. The friendly society's demutualisation resolution day is discussed
in paragraph 3.61.
213. If a franking credit arises in the friendly society or a wholly
owned subsidiary's franking account because of a distribution
declared prior to the friendly society's demutualisation resolution
day, a franking debit equal to the amount of the credit arises in
the franking account at the same time as the credit arises.
[Schedule 3, item 1, section 316-265]
214. A franking credit may arise in the friendly society or a wholly
owned subsidiary's franking account on or after the society's
demutualisation resolution day if the society or subsidiary paid a
pay as you go instalment or income tax on or after that day that is
attributable to the period before that day. In these situations, a
franking debit equal to the amount of the credit will arise in the
franking account at the same time as the credit arises.
[Schedule 3, item 1, section 316-270]
215. Alternatively, a franking debit may arise in the friendly society
or a wholly owned subsidiary's franking account on or after the
society's demutualisation resolution day if the society or
subsidiary received a refund of income tax that is attributable to
the period before that day. In these situations, a franking credit
equal to the amount of the debit will arise in the franking account
at the same time as the debit arises. [Schedule 3, item 1,
section 316-275]
Exception to the share tainting rules
216. The share capital account of the friendly society or a company that
owns all the shares in the friendly society will not become tainted
if an amount is transferred to the account in connection with the
friendly society's demutualisation.
. This is consistent with demutualisations that occur under
Division 9AA of the ITAA 1936 and Division 315 of the ITAA
1997, to which sections 197-35 and 197-37 of the ITAA 1997
apply respectively.
[Schedule 3, item 19, subsection 197-38(1)]
217. This exclusion will only apply to so much of the transferred amount
that, together with any amounts that were previously transferred in
connection with the demutualisation, does not exceed the sum of the
cost bases of shares in the company that are issued to members,
insured entities, successors of a deceased member or insured entity
or the trustee of a lost policy holders trust. [Schedule 3,
item 19, subsections 197-38(2) and (3)]
Application and transitional provisions
218. These amendments will apply to demutualisations that occur on or
after 1 July 2008. This will ensure that friendly societies that
demutualise on or after this date but prior to the amendments
receiving Royal Assent may qualify for this relief. [Schedule 3,
items 4, 23 and 24]
Consequential amendments
219. Consequential amendments will be made to exclude friendly societies
with a life and/or health insurance business from the
demutualisation relief in Division 9AA of the ITAA 1936 and in
Schedule 2H to the ITAA 1936. [Schedule 3, items 2 and 3]
220. A consequential amendment will be made to section 11-55 of the ITAA
1997 to direct readers to the non-assessable non-exempt income
provisions contained in these amendments. [Schedule 3, item 5]
221. A consequential amendment will be made to the table in section 102-
30 of the ITAA 1997 that sets out special rules that affect capital
gains and capital losses. [Schedule 3, item 6]
222. Consequential amendments will be made to the guide material in
Subdivision 109-B of the ITAA 1997 to direct readers to the
modified acquisition rules contained in these amendments.
[Schedule 3, items 7 to 10]
223. Consequential amendments will also be made to the guide material in
Subdivision 112-B of the ITAA 1997 to direct readers to the
modified cost base rules contained in these amendments.
[Schedule 3, items 11 to 14]
224. A consequential amendment will be made to Note 3 in section 118-1
of the ITAA 1997 to direct readers to the CGT exemptions contained
in these amendments. [Schedule 3, item 16]
225. A consequential amendment will be made to the anti-overlap rule in
subsection 118-20(4) of the ITAA 1997 to ensure that a member or
insured entity continues to realise a capital gain or capital loss
when they receive an amount of money under the demutualisation that
would otherwise be treated as not assessable and not exempt income.
[Schedule 3, item 17]
226. A consequential amendment will be made to exclude Subdivision 126-E
of the ITAA 1997 from applying in relation to a demutualisation
that Division 316 applies to. [Schedule 3, item 1, section 316-
180]
227. A consequential amendment will be made to paragraphs 149-165(1)(b)
and 149-170(1)(b) of the ITAA 1997 to ensure that a friendly
society that qualifies for this relief and is also a mutual
insurance company or mutual affiliate company will continue to
qualify for the relief in Subdivision 149-F of the ITAA 1997.
[Schedule 3, item 18]
228. Consequential amendments will be made to Division 205 of the ITAA
1997 to include the franking debits and franking credits that may
arise to a friendly society (or a wholly owned subsidiary) under
these amendments. [Schedule 3, items 20 and 21]
229. A consequential amendment will be made to exclude friendly
societies from Division 315 of the ITAA 1997 where friendly
societies are entitled to the relief provided by these amendments.
[Schedule 3, item 22]
Chapter 4
Consolidation: Application of losses with nil available fraction
Outline of chapter
230. Schedule 4 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) to ensure losses transferred to the head company of a
consolidated group or a multiple entry consolidated group (MEC
group) by a joining entity that is insolvent at the joining time
can be used by the head company in certain circumstances.
Context of amendments
231. The consolidation regime applies primarily to a group of Australian
resident entities wholly owned by an Australian resident company
that choose to form a consolidated group. Specific rules provide
for the membership of certain resident wholly owned subsidiaries of
a foreign holding company (that is, a MEC group). The references
in this chapter to a consolidated group include a MEC group.
232. Following a choice to consolidate, members of the group are treated
as a single entity for their income tax purposes. Subsidiary
entities lose their individual income tax identity on entry into a
consolidated group and are treated as part of the head company.
233. When an entity (the joining entity) becomes a member of a
consolidated group (including an entity that becomes the head
company of the group) any tax losses and net capital losses of the
joining entity are transferred to the head company of the group,
provided certain tests are satisfied (Subdivision 707-A).
234. Transferred losses are given an available fraction that represents
the joining entity's market value in proportion to the market value
of the group as a whole (section 707-320). The available fraction
limits the rate at which transferred losses can be used by the
group. The objective is to ensure that the group cannot use the
losses at a substantially faster rate than the joining entity could
if it had not joined the group.
235. Where the value of a joining entity's liabilities exceeds the value
of its assets at the time it joins a consolidated group (that is,
where the joining entity has a market value of nil at the joining
time), any losses of the entity that are transferred to the head
company of the group will have an available fraction of nil.
Consequently, assuming that no transitional concessions apply, the
losses can never be used by the group.
236. Concerns have been raised that inequitable outcomes arise in
respect of a transferred loss with a nil available fraction where
the loss is wholly or partly attributable to:
. a debt that is forgiven after the joining time, resulting
in the head company being subject to the commercial debt
forgiveness rules (Division 245 in Schedule 2C to the
Income Tax Assessment Act 1936 (ITAA 1936));
. a debt that is terminated after the joining time,
resulting in the head company being subject to the limited
recourse debt rules (Division 243); or
. a liability that is taken by an entity which leaves the
group, resulting in the head company making a capital gain
because capital gains tax (CGT) event L5 (section 104-520)
happens.
Summary of new law
237. Schedule 4 to this Bill amends the consolidation provisions in the
income tax law to ensure losses transferred to the head company of
a consolidated group by a joining entity that is insolvent at the
joining time can be used by the head company in certain
circumstances.
238. Therefore, if the transferred losses of a joining entity have an
available fraction of nil, the head company can apply the losses
to:
. reduce a net forgiven amount under the commercial debt
forgiveness rules;
. reduce a capital allowance that is adjusted under the
limited recourse debt rules; or
. reduce the capital gain that arises under CGT event L5
when the joining entity subsequently leaves the group.
Comparison of key features of new law and current law
|New law |Current law |
|If the transferred losses|When an entity (the |
|of a joining entity have |joining entity) becomes a|
|an available fraction of |member of a consolidated |
|nil, the head company can|group (including an |
|apply the losses to: |entity that becomes the |
|reduce a net forgiven |head company of the |
|amount under the |group) any tax losses and|
|commercial debt |net capital losses of the|
|forgiveness rules; |joining entity are |
|reduce a capital |transferred to the head |
|allowance that is |company of the group, |
|adjusted under the |provided certain tests |
|limited recourse debt |are satisfied. |
|rules; or |Transferred losses are |
|reduce the capital gain |given an available |
|that arises under CGT |fraction, worked out |
|event L5 when the joining|based on relative market |
|entity subsequently |values, that regulates |
|leaves the group. |the rate at which |
| |transferred losses can be|
| |used by the group. |
| |If a joining entity has a|
| |market value of nil, any |
| |transferred losses of the|
| |joining entity will have |
| |an available fraction of |
| |nil. Consequently, the |
| |losses can never be used |
| |by the group. |
Detailed explanation of new law
239. The operation of the commercial debt forgiveness rules, the limited
recourse debt rules and CGT event L5 will be modified if:
. an entity (the joining entity) becomes a member of a
consolidated group (including an entity that becomes the
head company of the group);
. a tax loss or net capital loss was transferred from the
joining entity to the head company of the group at the
joining time under Subdivision 707-A; and
. the loss is in a bundle of losses for which the available
fraction is nil.
[Schedule 4, item 4, subsection 707-415(1)]
240. In these circumstances, subject to certain conditions, the head
company can choose to apply the loss to, broadly:
. reduce the net forgiven amount under the commercial debt
forgiveness rules;
. reduce the capital allowance adjustment under the limited
recourse debt rules; or
. reduce the capital gain that arises under CGT event L5
when the joining entity subsequently leaves the group.
[Schedule 4, item 4, subsection 707-415(2)]
241. However, the loss can be applied to reduce the net forgiven amount,
capital allowance adjustment or capital gain in relation to an
income year only to the extent that the loss could be utilised by
the head company for the income year on the assumption that the
available fraction for the bundle of losses was one. [Schedule 4,
item 4, subsection 707-415(3)]
242. In addition, a loss can be applied to reduce the net forgiven
amount, capital allowance adjustment or capital gain only to the
extent that it has not already been applied. [Schedule 4, item 4,
subsection 707-415(7)]
Applying the loss under the commercial debt forgiveness rules
243. The head company can choose to apply the loss under the commercial
debt forgiveness rules if:
. the joining entity owed a debt just before the joining
time to an entity that was not a member of the group at
that time;
. the loss is wholly or partly attributable to the debt; and
. Subdivision 245-E in Schedule 2C to the ITAA 1936 (which
outlines how the total net forgiven amount is applied)
applies in relation to the debt (or another debt that is
reasonably connected to the debt) because the debt is
forgiven after the joining time.
[Schedule 4, item 4, item 1 in the table in subsection 707-415(2)]
244. In these circumstances, the head company can choose to apply the
loss to reduce the total net forgiven amount mentioned in
subsection 245-105(1) for the purposes of applying that total net
forgiven amount to:
. reduce deductible revenue losses in accordance with
subsection 245-105(5);
. reduce deductible net capital losses in accordance with
subsection 245-105(6);
. reduce deductible expenditures in accordance with
subsection 245-105(7); and
. reduce relevant cost bases of certain assets in accordance
with subsection 245-105(8).
[Schedule 4, item 4, item 1 in the table in subsection 707-415(2)]
245. However, the amount of the loss that can be applied to reduce the
total net forgiven amount cannot exceed the gross forgiven amount
(within the meaning of section 245-75) of the debt to which the
loss was attributable. [Schedule 1, item 4, subsection 707-415(4)]
Applying the loss under the limited recourse debt rules
246. The head company can choose to apply the loss under the limited
recourse debt rules if:
. the joining entity owed a limited recourse debt just
before the joining time to an entity that was not a member
of the group at that time;
. the limited recourse debt rules apply in relation to the
debt; and
. the loss is wholly or partly attributable to a deduction
mentioned in paragraph 243-15(1)(c) for an income year
ending before the joining time - that is, the loss is
wholly or partly attributable to, broadly, a capital
allowance deduction in respect of finance expenditure,
refinance expenditure or financed property.
[Schedule 4, item 4, item 2 in the table in subsection 707-415(2)]
247. In these circumstances, the head company can choose to apply the
loss to reduce the deduction mentioned in paragraph 243-15(1)(c)
for the purposes of working out whether the capital allowance
deductions are excessive under subsection 243-35(1). [Schedule 4,
item 4, item 2 in the table in subsection 707-415(2)]
248. However, the amount of the loss that can be applied to reduce the
deduction mentioned in paragraph 243-15(1)(c) cannot exceed the
amount of the loss that is attributable to the deduction.
[Schedule 4, item 4, subsection 707-415(5)]
Applying the loss to reduce the CGT event L5 capital gain
249. The head company can choose to apply the loss to reduce the capital
gain arising under CGT event L5 if:
. the joining entity ceases to be a subsidiary member of the
group after the joining time; and
. the entity's liabilities at the leaving time are the same
as, or are reasonably connected to, the liabilities that
it had at the joining time.
[Schedule 4, item 4, item 3 in the table in subsection 707-415(2)]
250. In these circumstances, the head company can choose to apply the
loss to reduce the amount remaining after applying step 4 in the
table in subsection 711-20(1) for the purposes of working out
whether CGT event L5 happens at the leaving time and, if so, the
amount of any capital gain arising under CGT event L5. [Schedule
4, item 4, item 3 in the table in subsection 707-415(2)]
251. However, the total amount of losses in the bundle of losses that
can be applied to reduce any capital gain arising under CGT event
L5 cannot exceed the amount of the capital gain that would be made
under CGT event L5 assuming the joining entity ceased to be a
member of the consolidated group just after the joining time.
[Schedule 1, item 4, subsection 707-415(6)]
Application and transitional provisions
252. The measure will apply from 1 July 2002 - that is, from the
commencement of the consolidation regime. [Schedule 1, item 5]
253. The measure is to apply from 1 July 2002 as it has been sought by,
and is beneficial to, taxpayers. In this regard, the measure
ensures that losses transferred to the head company of a
consolidated group by a joining entity that is insolvent at the
joining time can be used by the head company and therefore are not
wasted.
Amendment of assessments
254. Generally, the Commissioner of Taxation can amend an assessment of
a company, other than a small business entity, within four years
from the date of the notice of assessment (section 170 of the
ITAA 1936.
255. As these amendments apply from 1 July 2002, the period for amending
assessments will be extended. That is, the operation of
section 170 will be modified so that it does not prevent the
amendment of an assessment if:
. the assessment was made before the commencement of
Schedule 4;
. the amendment is made within two years after that date;
and
. the amendment is made for the purpose of giving effect to
the amendments in Schedule 4.
[Section 4]
Consequential amendments
256. Consequential amendments will insert notes into the commercial debt
forgiveness rules, the limited recourse debt rules and CGT event L5
to refer to the adjustments made by section 707-415. [Schedule 4,
items 1 to 3, subsections 104-520(3) and 243-35(2) of the ITAA 1997
and subsection 245-105(1) in Schedule 2C to the ITAA 1936]
Chapter 5
Minor amendments
Outline of chapter
257. Schedule 5 to this Bill makes various minor amendments to the
taxation laws.
Context of amendments
258. The amendments seek to ensure the taxation law operates as intended
by correcting technical or drafting defects, removing anomalies and
addressing unintended outcomes. The minor amendments are part of
the Government's commitment to the care and maintenance of the
taxation laws.
259. Minor amendment packages now include addressing issues raised
through the Tax Issues Entry System (TIES). The TIES website
(www.ties.gov.au), which the Australian Taxation Office and
Treasury jointly operate, provides a vehicle for tax professionals
and the general public to raise issues relating to the care and
maintenance of the tax system. The relevant part of the
explanatory memorandum identifies TIES issues.
Summary of new law
260. The issues these minor amendments deal with include:
. rectifying incorrect terminology;
. correcting grammatical errors;
. repealing inoperative material;
. clarifying ambiguities; and
. ensuring provisions are consistent with the original
policy intent.
261. Part 1 of this Schedule concerns references to Australian
Government Ministers, Departments and Secretaries; Part 2 concerns
the repeal of Part IV of the Taxation Administration Act 1953; Part
3 has amendments relating to foreign income tax offsets and foreign
losses; Part 4 has other amendments; and Part 5 is a transitional
provision for item 344 relating to determining technical and
further education institutions.
262. More significant amendments include:
. putting beyond any doubt that 'taxable Australian real
property' in the context of Division 855 of the Income Tax
Assessment Act 1997 (ITAA 1997), relating to the types of
assets known as 'taxable Australian property' on which
foreign residents pay capital gains tax (CGT), extends to
a lease over land, with application to CGT events
happening on or after 20 May 2009 (items 337 and 338);
. amending the rules in the income tax law relating to the
foreign income tax offset and foreign losses to ensure
that:
- the rules deeming foreign income tax paid by controlled
foreign companies (CFCs) and foreign investment funds
(FIFs) on attributed amounts apply only to Australian
entities;
- relevant foreign losses converted into tax losses can be
deducted in calculating a partnership's net income or
loss;
- previously recouped foreign losses or CFC losses are not
eligible to be convertible foreign losses or convertible
CFC losses;
- it is clear beyond any doubt that the deduction limit
for convertible foreign losses does not prevent later
year tax losses from being deductible in the current
year; and
- there is no possible double counting in relation to
convertible foreign losses used by an entity before it
joined a consolidated group;
with application in relation to income years, statutory
accounting periods and notional accounting periods starting
on or after 1 July 2008 (Part 3, comprising items 258 to
282);
. ensuring that the capital gains tax small business
concessions interact appropriately with Division 149 (loss
of pre-CGT status) of the ITAA 1997, with application in
relation to payments made by a company or trust on or
after the day this Bill receives Royal Assent (this issue
having been identified through the TIES system) (items 329
to 336);
. amending the fringe benefits tax (FBT) law to ensure that
gifts to deductible gift recipients do not result in an
employer having a FBT liability, with application to the
FBT year starting on 1 April 2008 and later FBT years
(items 304 and 305); and
. ensuring that First Home Saver Account trusts operated by
superannuation funds are a 'full self-assessment taxpayer'
(as defined) for income tax purposes, with application in
relation to the 2009-10 and later income years (items 306
and 307).
263. All of the amendments in Schedule 5 commence from the date of Royal
Assent unless otherwise stated.
Detailed explanation of new law
Part 1 - References to Ministers, Departments and Secretaries
264. Part 1 amends tax legislation to replace the current references to
Australian Government Ministers, Secretaries and Departments with
streamlined references.
265. There are many references in tax legislation to a specific
Minister, Department or Secretary of a Department. This means that
whenever the title of a Minister or Department changes, there is a
need to update these references. In practice, this has rarely
resulted in updated references by legislative amendment in the
legislation itself. Instead, the practice has been to use
substituted reference orders under sections 19B or 19BA of the Acts
Interpretation Act 1901.
266. Substituted reference orders make 'shadow' changes to the
references in legislation. They include information relating to
the existing reference, what needs to be substituted, the affected
provisions, and the date of effect of the substitution. The
Governor-General, acting on the advice of the Federal Executive
Council, makes the orders.
267. Substituted reference orders can be difficult to locate. Even
experienced users of tax legislation often do not know that the
orders exist. The orders themselves become complex to apply as
shadow amendment is made to shadow amendment.
268. The revised approach deals with these issues by providing flexible
and streamlined references that better accommodate future machinery
of government changes. The replacement references refer to the
Minister or Department administering a specified Act of Parliament.
269. This approach automatically accommodates reallocations of
ministerial or departmental responsibility. Administrative
Arrangements Orders formally allocate executive responsibility
among Ministers and Departments and are published in the
Commonwealth of Australia Gazette.
270. The most current Administrative Arrangements Order can be found at
either www.comlaw.gov.au or www.pmc.gov.au. The easiest way to
find Administrative Arrangements Orders is to use an internet
search engine and to search the term 'Administrative Arrangements
Orders'.
271. A New Tax System (Goods and Services Tax Act) 1999 pioneered this
approach. It is instructive that the machinery of government
changes after the election of the Government in 2007 resulted in
many shadow amendments via a substituted references order for all
areas of tax legislation except goods and services tax (GST); in
fact, GST had none.
272. The new arrangements should prove sustainable: the only time that
amendments will typically be needed will be following any repeal of
the identified Act. The normal process of making consequential
amendments as part of the repeal should identify the need for any
amendments to the taxation provisions.
|Act being |Provision |Amendment |
|amended |being amended| |
|Excise Act |4(1) |Inserts a definition of 'Finance |
|1901 | |Minister'. [Schedule 5, item 1, |
| | |subsection 4(1)] |
|Excise Act |4(1) |Replaces the definition of |
|1901 |(definitions)|'Industry Minister' with |
| | |'Resources Minister'. [Schedule |
| | |5, items 2 and 3, subsection |
| | |4(1)] |
|Excise Act |162B(5) |Replaces references to 'Minister |
|1901 |165A(11) |for Finance' with 'Finance |
| |165A(12) |Minister'. Also includes the |
| | |word 'and' at the end of both |
| | |paragraphs 162B(5)(a) and (b), |
| | |consistent with modern drafting |
| | |practice. [Schedule 5, items 4, |
| | |5, 10 and 11, |
| | |subsections 162B(5), 165A(11) and|
| | |(12)] |
|Excise Act |165A(1)(b) |Replaces references to 'Industry |
|1901 |165A(2)(b) |Minister' with 'Resources |
| |165A(3) |Minister'. [Schedule 5, items 6 |
| |165A(4) |and 7, paragraphs 165A(1)(b) and |
| | |(2)(b), items 7 to 9, |
| | |subsections 165A(3) and (4)] |
|Excise |3(1) |In the definition of |
|Tariff |(definitions)|'intermediate area', replaces the|
|Act 1921 | |reference to 'Minister for |
| | |Industry, Science and Resources' |
| | |with 'Resources Minister'. |
| | |[Schedule 5, item 12, subsection |
| | |3(1)] |
| | |Repeals the definition of |
| | |'relevant Energy Minister'. |
| | |[Schedule 5, item 12, subsection |
| | |3(1)] |
|Excise |3A(1) |Replaces the reference to |
|Tariff | |'Minister for Industry, Science |
|Act 1921 | |and Resources' with 'Resources |
| | |Minister'. [Schedule 5, item 13,|
| | |subsection 3A(1)] |
|Fringe |3(1) |Inserts definitions of 'Finance |
|Benefits Tax| |Minister' and 'Finance |
|(Application| |Department'. Also includes the |
|to the | |word 'and' at the end of |
|Commonwealth| |paragraph (a) of the definition |
|) Act 1986 | |of 'responsible Department', |
| | |consistent with modern drafting |
| | |practice. [Schedule 5, items 14 |
| | |to 16, subsection 3(1)] |
|Fringe |7(1) |Replaces the reference to |
|Benefits Tax| |'Department of the Special |
|(Application| |Minister' with 'Finance |
|to the | |Minister'. [Schedule 5, item 17,|
|Commonwealth| |subsection 7(1)] |
|) Act 1986 | |Replaces the reference to |
| | |'Minister for Finance' with |
| | |'Finance Minister'. The heading |
| | |to section 7 is also altered by |
| | |omitting 'Minister for Finance' |
| | |and substituting 'Finance |
| | |Minister'. [Schedule 5, item 18,|
| | |subsection 7(1)] |
|Fringe |47(8)(b) |Replaces the reference to the |
|Benefits Tax| |'Department of Health, Housing, |
|Assessment | |Local Government and Community |
|Act 1986 | |Services' with 'Families |
| | |Department'. [Schedule 5, item |
| | |19, paragraph 47(8)(b)] |
|Fringe |136(1) |Inserts a definition of 'Families|
|Benefits Tax|(definitions)|Department'. [Schedule 5, item |
|Assessment | |20, subsection 136(1)] |
|Act 1986 | | |
|Income Tax |6(1) |Inserts definitions of |
|Assessment |(definitions)|'Agriculture Secretary'; 'Arts |
|Act 1936 | |Department'; 'Defence |
|(ITAA 1936) | |Department', 'Defence Minister' |
| | |and 'Defence Secretary'; |
| | |'Education Department' and |
| | |'Education Secretary'; |
| | |'Employment Department', |
| | |'Employment Minister' and |
| | |'Employment Secretary'; 'Families|
| | |Secretary'; 'Health Department', |
| | |'Health Minister' and 'Health |
| | |Secretary'; 'Housing Secretary'; |
| | |'Immigration Department', |
| | |'Immigration Minister' and |
| | |'Immigration Secretary'; |
| | |'Research Department', 'Research |
| | |Minister' and 'Research |
| | |Secretary'; 'Trade Department', |
| | |'Trade Minister' and 'Trade |
| | |Secretary'; and 'Veterans' |
| | |Affairs Department', 'Veterans' |
| | |Affairs Minister' and 'Veterans' |
| | |Affairs Secretary'. [Schedule 5,|
| | |items 21 to 43 and 45 to 50, |
| | |subsection 6(1)] |
| | |Inserts a definition of 'social |
| | |security law'. [Schedule 5, item|
| | |44, subsection 6(1)] |
|ITAA 1936 |16(4)(e) |Repeals this paragraph and |
| | |replaces it with '... Employment |
| | |Secretary, or the Families |
| | |Secretary, for the purpose of the|
| | |administration of the social |
| | |security law'. Also includes the|
| | |word 'or' at the end of |
| | |paragraphs 16(4)(a) to (d), |
| | |consistent with modern drafting |
| | |practice. [Schedule 5, items 51 |
| | |and 52, paragraph 16(4)(e)] |
|ITAA 1936 |16(4)(ea) |Replaces the reference to |
| | |'Secretary to the Department of |
| | |Employment, Education and |
| | |Training' with 'Employment |
| | |Secretary'. [Schedule 5, item |
| | |53, paragraph 16(4)(ea)] |
|ITAA 1936 |16(4)(f) |Replaces the reference to |
| | |'Secretary to the Department of |
| | |Health' with 'Health Secretary'. |
| | |Also includes the word 'or' at |
| | |the end of paragraphs 16(4)(ea) |
| | |and 16(4)(eb) (after removing |
| | |some now unnecessary words), |
| | |consistent with modern drafting |
| | |practice. [Schedule 5, items 54 |
| | |to 56, paragraph 16(4)(f)] |
| | |Replaces the reference to |
| | |'Minister of State for Health' |
| | |with 'Health Minister'. |
| | |[Schedule 5, item 57, paragraph |
| | |16(4)(f)] |
|ITAA 1936 |16(4)(fc) |Replaces the reference to |
| | |'Secretary of the Department of |
| | |Family and Community Services' |
| | |with 'Families Secretary'. Also |
| | |includes the word 'or' at the end|
| | |of paragraphs 16(4)(f), (fa) and |
| | |(fb), consistent with modern |
| | |drafting practice. [Schedule 5, |
| | |items 58 and 59, paragraph |
| | |16(4)(fc)] |
|ITAA 1936 |16(4)(h) |Replaces the reference to |
| | |'Secretary, Department of |
| | |Defence' with 'Defence |
| | |Secretary'. Also includes the |
| | |word 'or' at the end of |
| | |paragraphs 16(4)(fc), (fd), (g), |
| | |(gaa) and (gb), consistent with |
| | |modern drafting practice. |
| | |[Schedule 5, items 60 and 61, |
| | |paragraph 16(4)(h)] |
|ITAA 1936 |16(4)(hb) |Replaces the reference to |
| | |'Secretary to the Department of |
| | |Education and the Secretary to |
| | |the Department of Social |
| | |Security' with 'Education |
| | |Secretary'. Also includes the |
| | |word 'or' at the end of |
| | |paragraphs 16(4)(h) and (ha), |
| | |consistent with modern drafting |
| | |practice. [Schedule 5, items 62 |
| | |and 63, paragraph 16(4)(hb)] |
|ITAA 1936 |16(4)(hd) |Replaces the reference to |
| | |'Secretary to the Department of |
| | |Immigration and Ethnic Affairs' |
| | |with 'Immigration Secretary'. |
| | |Also includes the word 'or' at |
| | |the end of paragraphs 16(4)(hb), |
| | |(hba), (hc), (hca), (hcaa) and |
| | |(hcb), consistent with modern |
| | |drafting practice. [Schedule 5, |
| | |items 64 and 65, |
| | |paragraph 16(4)(hd)] |
|ITAA 1936 |16(4)(j) |Replaces the reference to |
| | |'Secretary to the Department of |
| | |Housing and Construction' with |
| | |'Housing Secretary'. Also |
| | |includes the word 'or' at the end|
| | |of paragraph 16(4)(hd), |
| | |consistent with modern drafting |
| | |practice. [Schedule 5, items 66 |
| | |to 68, paragraph 16(4)(j)] |
|ITAA 1936 |16(5B) |Replaces the reference to |
| |16(5C) |'Secretary to the Department of |
| | |Trade' with 'Trade Secretary'. |
| | |[Schedule 5, items 69 and 70, |
| | |subsections 16(5B) and (5C)] |
|ITAA 1936 |23AF(11) to |Replaces the reference to the |
| |(14) |'Minister for Trade' with 'Trade |
| |23AF(18) |Minister'. Also includes the |
| | |word 'or' at the end of |
| | |paragraphs (a) to (d) of the |
| | |definition of 'eligible project' |
| | |in subsection 23AF(18). |
| | |[Schedule 5, items 71 to 73, |
| | |subsections 23AF(11) to (14) and |
| | |(18)] |
|ITAA 1936 |73A(6) |Repeals the definition of |
| | |'Research Secretary'. [Schedule |
| | |5, item 74, subsection 73A(6)] |
|ITAA 1936 |124K(1) |Replaces the reference to |
| |124K(1A) |'Minister' with 'Arts Minister' |
| |124K(1B) |and references to 'Secretary to |
| |124K(1D) |the Minister's Department' and |
| |124ZAA(1) |'Minister's Department' with |
| |124ZAA(11) |'Arts Department'. Also includes|
| |124ZAB(1) |the word 'and' in various places,|
| |124ZAB(2)(c) |consistent with modern drafting |
| |124ZAB(3) |practice. Finally, the heading |
| |124ZAB(4) |to section 124ZADAB is altered by|
| |124ZAB(5) |omitting 'Minister' and |
| |124ZAB(6)(a) |substituting 'Arts Minister'. |
| |124ZAB(6A) |[Schedule 5, items 75 to 101, |
| |124ZAB(7) |subsections 124K(1), (1A), (1B), |
| |124ZAC(1) |(1D), 124ZAA(1) and (11) and |
| |124ZAC(2)(c) |124ZAB(1), paragraph |
| |124ZAC(3) |124ZAB(2)(c), |
| |124ZAC(5) |subsections 124ZAB(3) to (5), |
| |124ZAD |paragraph 124ZAB(6)(a), |
| |124ZADAA(1) |subsections 124ZAB(6A) and (7) |
| |124ZADAB(1) |and 124ZAC(1), paragraph |
| |124ZADAB(2) |124ZAC(2)(c), |
| | |subsections 124ZAC(3) and (5), |
| | |section 124ZAD and |
| | |subsections 124ZADAA(1), |
| | |124ZADAB(1) and (2)] |
|ITAA 1936 |159J(6) |Replaces the reference to |
| |(definitions)|'Department of Health' in |
| | |paragraph (c) of the definition |
| | |of 'invalid relative' with |
| | |'Health Department'. [Schedule |
| | |5, item 102, subsection 159J(6)] |
| | |Replaces the reference to |
| | |'Secretary to the Department of |
| | |Social Security' in paragraph (c)|
| | |of the definition of 'invalid |
| | |relative' with 'Families |
| | |Secretary'. [Schedule 5, item |
| | |103, subsection 159J(6)] |
|ITAA 1936 |202CB(6) |Replaces the reference to |
| | |'Secretary to the Department of |
| | |Social Security' with 'Employment|
| | |Secretary'. [Schedule 5, |
| | |item 104, subsection 202CB(6)] |
|ITAA 1936 |202CB(7) |Replaces the reference to |
| |202CE(8) |'Secretary to the Department of |
| | |Veterans' Affairs' with |
| | |'Veterans' Affairs Secretary'. |
| | |[Schedule 5, items 105 and 107, |
| | |subsections 202CB(7) and |
| | |202CE(8)] |
|ITAA 1936 |202CE(7) |Replaces the reference to |
| | |'Secretary of the Department of |
| | |Social Security' with 'Employment|
| | |Secretary'. [Schedule 5, item |
| | |106, subsection 202CE(7)] |
|ITAA 1936 |251R(5)(d) |Replaces the reference to |
| | |'Secretary of the Department |
| | |whose Minister administers that |
| | |Act' with 'Families Secretary'. |
| | |[Schedule 5, item 108, paragraph |
| | |251R(5)(d)] |
|ITAA 1936 |251U(1)(f) |Replaces the reference to |
| | |'Minister for Health' with |
| | |'Health Minister'. Also includes|
| | |the word 'or' at the end of |
| | |paragraphs 251U(1)(a), (b), (c), |
| | |(ca), (caa), (cb), (cc), (d) and |
| | |(f), consistent with modern |
| | |drafting practice. [Schedule 5, |
| | |items 109 to 111, |
| | |paragraph 251U(1)(f)] |
|ITAA 1936 |264AA(1) |Replaces the reference to |
| | |'Secretary to the Department of |
| | |Primary Industries and Energy' |
| | |with 'Agriculture Secretary'. |
| | |Also the heading to section 264AA|
| | |is altered by omitting |
| | |'Department of Primary Industries|
| | |and Energy' and substituting |
| | |'Agriculture Secretary'. |
| | |[Schedule 5, item 112, |
| | |subsection 264AA(1)] |
|ITAA 1997 |25-7 (note) |Replaces the reference to |
| | |'Secretary to the Department of |
| | |Family and Community Services' |
| | |with 'Families Secretary'. |
| | |[Schedule 5, item 113, section |
| | |25-7 (note)] |
|ITAA 1997 |30-25(1) |Replaces the references to |
| |(item 2.1.7 |'Minister for Employment, |
| |in the table)|Education, Training and Youth |
| | |Affairs' and to 'Minister' with |
| |30-30(1)(c) |'Education Minister'. [Schedule |
| |and (d) |5, item 114, item 2.1.7 in the |
| | |table in subsection 30-25(1) and |
| | |items 115 and 116, |
| | |paragraphs 30-30(1)(c) and (d)] |
|ITAA 1997 |30-75 |Replaces the reference to |
| | |'Minister' with 'Families |
| | |Minister'. [Schedule 5, item |
| | |117, section 30-75] |
|ITAA 1997 |30-80(1) |Replaces references to 'Minister |
| |(item 9.1.2 |for Foreign Affairs' with |
| |in the table)|'Foreign Affairs Minister'. |
| | |[Schedule 5, items 118 to 121, |
| |30-85(2)(a) |item 9.1.2 in the table in |
| |and (b) |subsection 30-80(1), paragraphs |
| |30-85 (5) |30-85(2)(a) and (b) and |
| | |subsection 30-85(5)] |
|ITAA 1997 |30-210(1) |Replaces references to 'Minister |
| |30-230(5) |for Communications and the Arts' |
| |30-235(1) |with 'Arts Minister' and to |
| |30-240 |'Secretary to the Department of |
| |30-295 |the Department of Communications |
| |30-300(6) and|and the Arts' with 'Arts |
| |(7) |Secretary'. Also ensures that |
| |30-305(1) |asterisking protocols for defined|
| |and (4) |terms are followed. [Schedule 5,|
| |30-310(1) |items 122 to 124, 148 and 149, |
| |375-865(2)(b)|subsections 30-210(1), 30-230(5),|
| | |30-235(1) and 30-289(4), section |
| |376-10(1)(b) |30-295, subsections 30-300(7), |
| |and (c) |30-305(1) and (4), 30-310(1) and |
| |376-230(1)(a)|paragraphs 375-865(2)(b), |
| |and (b) |376-10(1)(b) and (c), |
| |376-240(3)(d)|376-230(1)(a) and (b) and |
| | |376-240(3)(d)] |
|ITAA 1997 |30-287 |Replaces references to 'Minister |
| |30-289(4) |or Secretary for Family and |
| |30-289A(3) |Community Services' with |
| |30-289B(1) |'Families Minister' or 'Families |
| |and (4) |Secretary'. [Schedule 5, items |
| |30-289C(1) |125 to 129, section 30-287, |
| | |subsections 30-289(4), |
| | |30-289A(3), 30-289B(1) and (4), |
| | |and 30-289C(1)] |
|ITAA 1997 |30-295 |Replaces references to 'Minister |
| |30-300(6) |for Communications and the Arts' |
| |30-300(7) |with 'Arts Minister' and |
| |30-305(1) |references to 'Secretary to the |
| |30-305(4) |Department of Communications and |
| |30-310(1) |the Arts' with 'Arts Secretary'. |
| | |[Schedule 5, items 130 to 135, |
| | |section 30-295 and subsections |
| | |30-295, 30-300(6) and (7), 30-305|
| | |(1) and (4) and 30-310(1)] |
|ITAA 1997 |34-25(1) |Replaces the reference to |
| | |'Secretary to the Department of |
| | |Industry, Science and Tourism |
| | |(the Industry Secretary)' with |
| | |'Industry Secretary'. [Schedule |
| | |5, item 136, subsection 34-25(1)]|
|ITAA 1997 |34-65 |Replaces the reference to |
| | |'Department of Industry, Science |
| | |and Tourism' with 'Industry |
| | |Department'. [Schedule 5, item |
| | |137, section 34-65] |
|ITAA 1997 |40-180(2) |Replaces references to 'Minister |
| |(item 10 in |for Finance' with 'Finance |
| |the table) |Minister'. [Schedule 5, items |
| |40-300(2) |138 and 139, item 10 in the table|
| |(item 11 in |in subsection 40-180(2), item 11 |
| |the table) |in the table in |
| | |subsection 40-300(2)] |
|ITAA 1997 |40-670(1)(a) |Replaces the reference to |
| | |'Secretary of the Department of |
| | |Agriculture, Fisheries and |
| | |Forestry' with 'Agriculture |
| | |Secretary'. [Schedule 5, item |
| | |140, paragraph 40-670(1)(a)] |
|ITAA 1997 |40-670(1)(b) |Replaces the reference to 'that |
| | |Department' with 'the Agriculture|
| | |Department'. |
| | |Replaces the reference to 'that |
| | |Secretary' with 'the Agriculture |
| | |Secretary'. [Schedule 5, |
| | |items 141 and 142, paragraphs |
| | |40-670(1)(a) and (b)] |
|ITAA 1997 |51-32(3) |Replaces the reference in |
| | |paragraph (b) to 'Minister |
| | |administering section 1 of the |
| | |Defence Act 1903' with 'Defence |
| | |Minister'. |
| | |Replaces the words 'that Act' |
| | |with 'the Defence Act 1903'. |
| | |[Schedule 5, items 143 and 144, |
| | |paragraph 51-32(3)(b), subsection|
| | |51-32(3)] |
|ITAA 1997 |52-131(9) |Updates the note about the |
| |(note) |location on the internet of the |
| | |ABSTUDY Policy Manual to refer to|
| | |2009 rather than 2007 and to |
| | |replace the reference to the |
| | |'Department of Education, Science|
| | |and Training' with 'Education |
| | |Department'. [Schedule 5, |
| | |item 145, subsection 52-131(9) |
| | |(note)] |
|ITAA 1997 |61-630(3) and|Replaces the references to |
| |(5) |'Minister administering the |
| | |Student Assistance Act 1973 (the |
| | |Education Minister)' with |
| | |'Education Minister' and ensures |
| | |the reference is asterisked. |
| | |[Schedule 5, items 146 and 147, |
| | |subsections 61-630(3) and (5)] |
|ITAA 1997 |396-5 |Replaces the references to |
| |396-40 |'Minister for Transport and |
| |396-65(1) and|Regional Development' with |
| |(2) |'Transport Minister', with |
| |396-70 |consequential amendments. |
| |(heading) |[Schedule 5, items 150 to 168 and|
| |396-70(1) |171 and 172, sections 396-5 and |
| |396-70(5), |396-40, subsections 396-65(1) and|
| |(6) and (7) |(2), section 396-70, subsections |
| |396-75(1) and|396-70(1) and (5) to (7), |
| |(2) |396-75(1) and (2), 396-80(1) and |
| |396-80(1), |(4), paragraph 396-80(5)(b), |
| |(4) and |subsection 396-90(2) and sections|
| |(5)(b) |396-100, 396-105 and 396-110] |
| |396-90(2) | |
| |396-100 | |
| |396-105 | |
| |396-110 | |
|ITAA 1997 |396-105 |Replaces the reference to |
| | |'Secretary to the Minister's |
| | |Department' with 'Transport |
| | |Secretary' and 'Minister's |
| | |Department' with 'Transport |
| | |Department'. [Schedule 5, items |
| | |169 and 170, section 396-105] |
|ITAA 1997 |995-1(1) |Amends definitions of 'Arts |
| |(Dictionary) |Minister' and 'Arts Secretary'; |
| | |'Climate Change Minister' and |
| | |'Climate Change Secretary'; |
| | |'Environment Minister' and |
| | |'Environment Secretary'; |
| | |'Heritage Secretary'; 'Housing |
| | |Secretary'; 'Industry Secretary';|
| | |'Transport Department' and |
| | |'Transport Minister'. |
| | |Inserts definitions of |
| | |'Agriculture Department', |
| | |'Agriculture Minister' and |
| | |'Agriculture Secretary'; 'Arts |
| | |Department'; 'Climate Change |
| | |Department'; 'Education |
| | |Department' and 'Education |
| | |Minister'; 'Environment |
| | |Department'; 'Families |
| | |Department', 'Families Minister' |
| | |and 'Families Secretary'; |
| | |'Finance Minister'; 'Foreign |
| | |Affairs Minister'; 'Heritage |
| | |Department' and 'Heritage |
| | |Minister'; 'Housing Minister' and|
| | |'Housing Department'; 'Industry |
| | |Department' and 'Industry |
| | |Minister'; and 'Transport |
| | |Secretary'. [Schedule 5, items |
| | |173 to 204, subsection 995-1(1)] |
|Income Tax |30-10 |Replaces references to 'Minister'|
|Assessment |30-15(1) |with 'Arts Minister'. [Schedule |
|(Transitiona|30-15(1) |5, items 205 to 208, |
|l |(note) |section 3-10, subsection 30-15(1)|
|Provisions) |30-20 |and section 30-20] |
|Act 1997 | | |
|Petroleum |2 |Repeals the definition of |
|Resource | |'certifying Minister'. |
|Rent Tax | |Inserts definitions of 'Resources|
|Assessment | |Minister' and 'Resources |
|Act 1987 | |Department'. [Schedule 5, |
| | |items 209 to 211, section 2] |
|Petroleum |18(2) |Replaces references to |
|Resource |18(3) |'certifying Minister' with |
|Rent Tax |20(1) |'Resources Minister' and makes |
|Assessment |20(2)(b) |similar changes. [Schedule 5, |
|Act 1987 |20(7) |items 212 to 226, subsections |
| |20(8) |18(2) and (3) and 20(1), |
| |20(12)(a) |paragraph 20(2)(b), |
| | |subsections 20(7) and (8), and |
| | |paragraph 20(12)(a)] |
|Petroleum |36B(1) |Replaces the reference to the |
|Resource | |'Minister administering the |
|Rent Tax | |Offshore Petroleum and Greenhouse|
|Assessment | |Gas Storage Act 2006' with |
|Act 1987 | |'Resources Minister'. [Schedule |
| | |5, item 227, subsection 36B(1)] |
|Petroleum |36B(2) |Replaces references to 'Minister'|
|Resource |36B(3) |and 'certifying Minister' with |
|Rent Tax |36B(5) |'Resources Minister' and replaces|
|Assessment |108(5) |'Minister's Department' with |
|Act 1987 | |'Resources Department'. |
| | |[Schedule 5, items 228 to 230, |
| | |subsections 36B(2), (3) and (5) |
| | |and 108(5)] |
|Superannuati|3(3) |Inserts a definition of 'Finance |
|on |6(1) |Minister' and replaces the |
|Contribution| |reference to 'Minister for |
|s Tax | |Finance' with 'Finance Minister'.|
|(Application| |[Schedule 5, items 231 and 232, |
|to the | |section 3, subsection 6(1)] |
|Commonwealth| | |
|) Act 1997 | | |
|Taxation |2(1) |Inserts a definition of |
|Administrati|14Q(1) |'Immigration Secretary', repeals |
|on Act 1953 |14S(4)(b)(i) |the definition of 'Immigration |
| |14S(5) |Department', and makes |
| | |consequential amendments. |
| | |[Schedule 5, items 233 to 236, |
| | |subsections 2(1) and 14Q(1), |
| | |subparagraph 14S(4)(b)(i) and |
| | |subsection 14S(5)] |
|Income Tax |995-1 |Amends paragraph (a) of the |
|Assessment | |definition of 'Transport |
|Act 1997 | |Department' and the definition of|
| | |'Transport Minister' by replacing|
| | |references to 'Auslink (National |
| | |Land Transport) Act 2005' with |
| | |'Nation Building Program |
| | |(National Land Transport) Act |
| | |2009'. |
| | |Clause 2 of the Bill provides for|
| | |the commencement provisions for |
| | |these amendments. [Schedule 5, |
| | |items 237 and 238, section 995-1,|
| | |clause 2] |
|Taxation |2(1) |Inserts definitions of |
|Administrati|3ED(1)(b)(i) |'Immigration Department', |
|on Act 1953 |and (ii) and |'Immigration Minister' and |
| |(3)(a)(i) and|'migration officer' and makes |
| |(ii) and |consequential changes. |
| |(b)(i) |Clause 2 of the Bill provides for|
| |3ED(5) |special commencement provisions |
| | |for these amendments. |
| | |Items 239 to 243 are to commence |
| | |at the later of just after the |
| | |start of the day on which this |
| | |amending Bill receives Royal |
| | |Assent and just after the |
| | |commencement of item 1 of |
| | |Schedule 2 to the Migration |
| | |Legislation Amendment (Worker |
| | |Protection) Act 2008 commences. |
| | |[Schedule 5, items 1070 to 1090, |
| | |subsection 2(1), |
| | |paragraphs 3ED(1)(b)(i) and (ii) |
| | |and (3)(a)(i), (ii) and (b)(i) |
| | |and subsection 3ED(5), clause 2] |
Part 2 - Repeal of Part IV of the Taxation Administration Act 1953
1. : Amendments to the Taxation Administration Act 1953
|Provision being |What the amendment does |
|amended | |
|Part IV |Repeals inoperative provisions and |
|3(1) |makes required consequential |
|3(2) |amendments. |
|3B(1AA)(a) |Part IV of the Taxation |
|3B(4) (definition of |Administration Act 1953, in |
|'this Act') |conjunction with section 39B of the |
|3C(9) (definition of |Banking Act 1959, previously dealt |
|'this Act') |with the protection of Commonwealth |
|8J(2)(p) |revenue, and ensured that foreign |
|14ZQ (definition of |currency transfers were prevented if |
|'appealable objection |they would have led to the avoidance |
|decision') |or evasion of an Australian tax |
|14ZR(1)(a) |liability. |
|14ZZ(a) to (c) |Part IV ceased to have effect from 1 |
|14ZZN |July 1990 when the regulations |
|14ZZO |implementing foreign currency |
|14ZZP |controls were withdrawn. |
|14ZZS(1)(a) and (b) |Foreign currency controls have since |
| |been replaced by reporting |
| |requirements under the Cash |
| |Transaction Reports Act 1988 and the |
| |Financial Transaction Reports Act |
| |1988. |
| |Consequential amendments include the |
| |repeal by item 253 of the definition |
| |of 'appealable objection decision' in|
| |section 14ZQ and the omission by |
| |items 256 and 257 of the word |
| |'appealable' in various provisions. |
| |These consequential amendments do not|
| |remove or reduce any currently |
| |available rights of review by the |
| |Administrative Appeals Tribunal or of|
| |appeal to the Federal Court of |
| |Australia. |
| |The concept of 'appealable objection |
| |decision' is necessary under the |
| |current law only to exclude objection|
| |decisions made on a taxation |
| |objection under section 14E (see the |
| |current definition of 'appealable |
| |objection decision' in section 14ZQ).|
| |Section 14E is part of the current |
| |Part IV, which is proposed to be |
| |repealed. The amended wording of |
| |section 14ZZ (as proposed by item |
| |255) fully retains current rights of |
| |review and appeal. |
| |[Schedule 5, items 246 to 257, Part |
| |IV, sections 14ZZN, 14ZZO, 14ZZP and |
| |14ZQ (definition of 'appealable |
| |objection decision'), subsections |
| |3(1), 3(2), 3B(4) (definition of |
| |'this Act') and 3C(9) (definition of |
| |this Act), and paragraphs 3B(1AA)(a),|
| |8J(2)(p), 14ZR(1)(a), 14ZZ(a) to (c) |
| |and 14ZZ(1)(a) and (b)] |
2. : Amendments to the Banking Act 1959
|Provision being |What the amendment does |
|amended | |
|39B |Repeals an inoperative provision. |
| |Section 39B depends on Part IV of the|
| |Taxation Administration Act 1953, |
| |which is being repealed. It prevents|
| |the bank authority doing certain |
| |things unless the Commissioner of |
| |Taxation (Commissioner) has issued a |
| |certificate under Part IV, which has |
| |long been inoperative and which is |
| |now being repealed. [Schedule 5, |
| |item 245, section 39B] |
3. : Amendments to the Administrative Decisions (Judicial Review) Act
1977
|Provision being |What the amendment does |
|amended | |
|Schedule 1, paragraph |Repeals a provision made redundant as|
|(g) |a result of repealing Part IV of the |
| |Taxation Administration Act 1953. |
| |[Schedule 5, item 244, Schedule 1, |
| |paragraph (g)] |
Part 3 - Amendments relating to foreign income tax offsets and foreign
losses
273. The new foreign income tax offset rules in Division 770 of the ITAA
1997 were enacted by the Tax Laws Amendment (2007 Measures No. 4)
Act 2007. They represented a rewriting and simplification of the
previous foreign loss quarantining and foreign tax credit rules.
They included transitional rules under Subdivisions 770-A to 770-C
of the Income Tax (Transitional Provisions) Act 1997 to allow
certain existing foreign losses of entities to be used under the
new foreign income tax offset rules.
274. All the amendments in Part 3 are to apply to income years,
statutory accounting periods and notional accounting periods
starting on or after 1 July 2008 - the start date for the new
foreign income tax offset rules. This will ensure that the new
foreign income tax offset rules work as intended from their first
application and avoid uncertainty in the law by having a common
application date. [Schedule 5, item 282]
1. : Amendments to the Income Tax Assessment Act 1997
|Provision being |What the amendment does |
|amended | |
|770-135(1) |Ensures that the section applies only|
| |to Australian entities (including |
| |partnerships with at least one |
| |partner that is an Australian |
| |entity). |
| |Section 770-135 ensures a streamlined|
| |set of rules to deem certain foreign |
| |income tax paid by CFCs or foreign |
| |investment funds (FIFs) to be paid by|
| |the Australian resident taxpayer or |
| |partnership holding the interest in |
| |the CFCs or FIFs in certain |
| |circumstances. |
| |Foreign income tax paid by |
| |second-tier FIFs (that is, FIFs |
| |indirectly held by Australian |
| |entities through CFCs or other FIFs) |
| |was not intended to be eligible for a|
| |foreign income tax offset in the |
| |hands of the underlying Australian |
| |entity. |
| |However, the section could currently |
| |be interpreted to apply not only to |
| |Australian entities but also to |
| |foreign entities (such as CFCs and |
| |first-tier FIFs). On that |
| |interpretation, and in conjunction |
| |with the operation of section |
| |770-130, the Australian entity that |
| |includes in its assessable income and|
| |amount attributed from a second-tier |
| |FIF via, for example, a CFC or |
| |first-tier FIF, could potentially be |
| |eligible for an offset for foreign |
| |income tax paid by that second-tier |
| |FIF, which was not intended. (Note |
| |that, as CFC income is attributed to |
| |the Australian entity directly - and |
| |not cascaded down through all the |
| |foreign entities in between, as is |
| |the case with FIFs - all CFCs are in |
| |effect first-tier foreign entities |
| |for the purposes of the attribution |
| |and foreign income tax offset rules.)|
| | |
| |These provisions will continue to |
| |ensure that, where a partnership is |
| |interposed in a chain of companies |
| |with an Australian company at its |
| |base, the foreign income tax paid by |
| |the companies in which the |
| |partnership has an interest will not |
| |be eligible for an offset in the hand|
| |of the Australian company (including |
| |where the partnership is interposed |
| |between a CFC and a FIF company). |
| |[Schedule 5, item 258, subsection |
| |770-135(1)] |
2. : Amendments to the Income Tax (Transitional Provisions) Act 1997
|Provision being |What the amendment does |
|amended | |
|770-1 |Amends the law by inserting new |
| |subsection 770-1(4) to ensure that |
| |relevant foreign losses converted |
| |into tax losses can be deducted in |
| |calculating the partnership's net |
| |income or loss under section 90 of |
| |the ITAA 1936, and not be in effect |
| |trapped in the partnership holding |
| |them. |
| |The transitional rules dealing with |
| |foreign losses accumulated under the |
| |previous foreign loss quarantining |
| |rules were intended also to apply to |
| |entity structures involving |
| |Australian partners and partnerships.|
| | |
| |However, it would seem that, while |
| |certain foreign losses held by a |
| |partnership on commencement of the |
| |new foreign income tax offset rules |
| |are eligible to be converted to tax |
| |losses under section 770-1 as |
| |intended, there is no mechanism by |
| |which they can be deducted from the |
| |net assessable income of the |
| |partnership (or added to a |
| |partnership loss) under section 90 of|
| |the ITAA 1936 and so be distributed |
| |to the partners for use against their|
| |own assessable income. Without such |
| |a mechanism, foreign losses could be |
| |converted into tax losses but then be|
| |'trapped' in the partnership instead |
| |of being available to the partners. |
| |[Schedule 5, items 259 and 260, |
| |section 770-1] |
|770-5(1)(a) and (b) |Amends these provisions to ensure |
|770-5(3) |that previously recouped foreign |
|770-10 (heading) |losses are not eligible to be |
|770-10 |convertible foreign losses. |
| |It was not intended that the |
| |transitional rules allow an overall |
| |foreign loss that had been previously|
| |recouped by an entity under the |
| |former rules in section 160AFD of the|
| |ITAA 1936 be a convertible foreign |
| |loss under sections 770-5 and 770-10 |
| |of the Income Tax (Transitional |
| |Provisions) Act 1997. |
| |Ensures that step 1 of the method |
| |statement in section 770-10 operates |
| |as intended for entities other than |
| |companies. [Schedule 5, items 261 to|
| |267, paragraphs 770-5(1)(a) and (b), |
| |subsection 770-5(3), and section |
| |770-10] |
|770-165(1)(a) and (b) |Amends the required sections to |
|770-165(3) |ensure that previously recouped CFC |
|770-170 (heading) |losses are not eligible to be |
|770-170 |convertible CFC losses. |
| |It was not intended that the |
| |transitional rules allow a CFC loss |
| |that had been previously recouped |
| |under the former section 431 of the |
| |ITAA 1936 be a convertible CFC loss |
| |under sections 770-165 and 770-170 of|
| |the Income Tax (Transitional |
| |Provisions) Act 1997. [Schedule 5, |
| |items 277 to 281, paragraphs |
| |770-165(1)(a) and (b), |
| |subsection 770-165(3), and |
| |section 770-170] |
|770-30 |Ensures that the deduction limit |
| |applying to convertible foreign |
| |losses does not prevent later year |
| |tax losses from being deducted in the|
| |current year. This is consistent |
| |with general practice where earlier |
| |year losses are prevented or |
| |restricted from being used by |
| |ownership tests, deduction limits or |
| |quarantining (unless otherwise |
| |expressly stated). |
| |The transitional rules allow an |
| |entity to convert certain foreign |
| |losses incurred before the new |
| |foreign income tax offset rules begin|
| |into convertible foreign losses under|
| |section 770-1 of the Income Tax |
| |(Transitional Provisions) Act 1997. |
| |These convertible foreign losses are |
| |then deductible under Division 36 of |
| |the ITAA 1997 like ordinary tax |
| |losses, up to a limit calculated |
| |using the table in |
| |subsection 770-30(1) of the Income |
| |Tax (Transitional Provisions) Act |
| |1997. |
| |If the limit is reached, the entity |
| |can deduct no further convertible |
| |foreign loss for that income year, |
| |with any further convertible foreign |
| |loss waiting for a future year, as |
| |was intended. |
| |However, an entity may also have |
| |unrecouped ordinary tax losses, all |
| |of which were incurred after the |
| |oldest unrecouped convertible foreign|
| |loss (the further deduction of which |
| |may have been deferred because of the|
| |limit). These ordinary tax losses |
| |remain deductible despite the earlier|
| |year convertible foreign loss not |
| |being fully deducted. This is |
| |consistent with general practice in |
| |relation to using losses unless |
| |expressly otherwise stated. |
| |[Schedule 5, items 268 and 269, |
| |section 770-30] |
|770-95(b) |Removes possible double counting in |
|770-95(c) |relation to convertible foreign |
|770-95 (notes 1 and 2)|losses used by a subsidiary entity |
| |before it joined a consolidated |
|770-100(2) |group. This is to ensure that the |
|770-100(3) |group's head company is not |
|770-165(1)(a) and (b) |disadvantaged by an unintended |
|770-165(3) |reduction in its convertible foreign |
|770-170 (heading) |loss deduction limit. |
| |The drafting of the special reduction|
| |could be interpreted to account twice|
| |for such losses, to the unintended |
| |detriment of the head |
| |company/taxpayer. |
| |The current transitional rules |
| |include some special rules for head |
| |companies of consolidated groups. |
| |This is the case particularly where a|
| |joining entity had converted its |
| |foreign losses incurred before the |
| |new foreign income tax offset rules |
| |began into convertible foreign losses|
| |on commencement of the new foreign |
| |income tax offset rules and had used |
| |some of these losses before joining |
| |the group (that is, before |
| |transferring these losses to the head|
| |company). |
| |Those special rules were included to |
| |reduce the head company's deduction |
| |limit for these losses to the extent |
| |that they had been utilised prior to |
| |transfer. [Schedule 5, items 274 to |
| |276, paragraphs 770-95(b) and (c), |
| |section 770-95 (notes 1 and 2), |
| |subsections 770-100(2) and (3), |
| |paragraphs 770-165(1)(a) and (b), |
| |subsection 770-165(3), section |
| |770-170 (heading)] |
Part 4 - Other amendments and Part 5 -Transitional provision
3. : Amendments to the A New Tax System (Australian Business Number)
Act 1999
|Provision being |What the amendment does |
|amended | |
|25(2) (note 1) |Changes references to 'Income Tax |
|41 (definition of |Assessment Act 1997' to 'ITAA 1997', |
|'electronic |which is defined to mean the Income |
|signature') |Tax Assessment Act 1997 in this Act. |
|41 (definition of |[Schedule 5, items 283 to 287, |
|'non-cash benefit') |subsection 25(2) (note 1), and |
|41 (definition of |section 41] |
|'withholding payment')| |
| | |
|41 (definition of | |
|'withholding payment' | |
|covered by a | |
|particular provision | |
|in Schedule 1 to the | |
|Taxation | |
|Administration | |
|Act 1953) | |
4. : Amendments to the Fringe Benefits Tax Assessment Act 1986
|Provision being |What the amendment does |
|amended | |
|10(3)(a)(v)(B) |Repeals some references to sales tax |
|10(3D)(c) |that are no longer necessary in the |
| |law. |
| |Section 10 provides for the 'cost |
| |basis' that employers can use to work|
| |out the taxable value of car fringe |
| |benefits, and includes outdated |
| |references to sales tax. Sales tax |
| |has not applied since 1 July 2000. |
| |However, the provision was retained |
| |to cover affected cars that were |
| |still being leased out. |
| |Based on the effective life of cars |
| |it is likely there are few, if |
| |any, pre-2000 vehicles still being |
| |leased out and provided as fringe |
| |benefits. In other words, these |
| |provisions are effectively |
| |inoperative. |
| |In any event, section 8 (effect of |
| |repeal) of the Acts Interpretation |
| |Act 1901 would apply to any remaining|
| |cases to ensure the continued |
| |application of the repealed |
| |provisions. [Schedule 5, items 288 |
| |to 292, sub-subparagraph |
| |10(3)(a)(v)(B), and paragraph |
| |10(3D)(c)] |
|42(1) |Makes various improvements by, for |
| |example, correcting punctuation. |
| |[Schedule 5, items 293 and 296 to |
| |303, subsection 42(1)] |
|42(1)(a)(i) |Removes provisions that increase the |
|42(1)(b)(i) |taxable value of an in-house benefit |
| |where sales tax was not paid, as they|
| |are no longer operative. |
| |These provisions relate to the |
| |taxable value of in-house property |
| |fringe benefits. Both subparagraphs |
| |provide that the taxable value is |
| |increased where sales tax was not |
| |paid on the acquisition by the |
| |providers. Following the |
| |introduction of the GST, this type of|
| |event is not subject to sales tax. |
| |[Schedule 5, items 294 and 295, |
| |subparagraphs 42(1)(a)(i) and |
| |(b)(ii)] |
|148 |Amends the FBT law to ensure that |
| |donations made to deductible gift |
| |recipients through salary sacrifice |
| |arrangements do not result in an |
| |employer incurring an FBT liability. |
| |The amendment applies from the start |
| |of the 2008-09 FBT year to ensure |
| |that consistent treatment applies for|
| |the whole FBT year. The 2008-09 year|
| |has been chosen because the bushfire |
| |appeals make it particularly |
| |significant for these arrangements. |
| |FBT may be payable by employers who |
| |make donations to deductible gift |
| |recipients under salary sacrifice |
| |arrangements with their employees. |
| |Gifts of $2 or more in cash or |
| |property (subject to certain rules) |
| |to deductible gift recipients are tax|
| |deductible (see Division 30 of the |
| |ITAA 1997). |
| |Under the Commissioner's workplace |
| |giving program, an employer may make |
| |donations to deductible gift |
| |recipients on behalf of their |
| |employees from the employee's |
| |after-tax salary and wages. |
| |The Commissioner then allows the |
| |employers to adjust the amount that |
| |must be withheld from an employee's |
| |salary and wages (under the pay as |
| |you go withholding system) to take |
| |account of the deduction the employee|
| |will be entitled to for the donation |
| |the employer has made on their |
| |behalf. This allows the employee in |
| |effect to obtain the benefit of the |
| |deduction immediately. |
| |If an employee enters into a salary |
| |sacrifice arrangement with their |
| |employer in which they voluntarily |
| |reduce their salary and wages in |
| |return for a benefit, the FBT regime |
| |may tax the employer on the benefit |
| |provided. |
| |FBT applies to fringe benefits |
| |provided to an employee (or their |
| |associates) in respect of their |
| |employment. The benefit is the |
| |donation made to the deductible gift |
| |recipient. Although a deductible |
| |gift recipient is not likely |
| |ordinarily to be an employee's |
| |associate, the anti-avoidance rule in|
| |subsection 148(2) of the Fringe |
| |Benefits Tax Assessment Act 1986 |
| |treats the deductible gift recipient |
| |as the employee's associate as the |
| |benefit is provided under a salary |
| |sacrifice arrangement. [Schedule 5, |
| |items 304 and 305, section 148] |
5. : Amendments to the Income Tax Assessment Act 1936
|Provision being |What the amendment does |
|amended | |
|6(1) (at the end of |Extends the definition of 'full |
|the definition of |self-assessment taxpayer' to include |
|'full self-assessment |the trustee of an FHSA trust (that |
|taxpayer') |is, the trustee of a First Home Saver|
| |Account trust). |
| |This amendment ensures that |
| |superannuation funds assess the |
| |liability arising from an FHSA trust |
| |in the same manner as the remainder |
| |of the superannuation fund. |
| |Superannuation funds (which will be |
| |offering First Home Saver |
| |Accounts) are already full |
| |self-assessment taxpayers and their |
| |FHSA trusts should not be treated |
| |differently to the superannuation |
| |fund itself. |
| |The inclusion of FHSA trusts as full |
| |self-assessment taxpayers is |
| |consistent with the other entities |
| |listed as full self-assessment |
| |taxpayers. [Schedule 5, item 306, |
| |subsection 6(1)] |
| |This amendment applies in relation to|
| |the 2009-10 and later income years to|
| |ensure that taxpayers and the |
| |Australian Taxation Office have time |
| |to update their systems. [Schedule |
| |5, item 307] |
|16(5BA) |Repeals an inoperative provision |
|16(5C) |(subsection 16(5BA)) and makes |
|16(5C)(a) |necessary consequential amendments. |
| |Subsection 16(5BA) allows the |
| |Commissioner to provide the Treasurer|
| |and others with information about |
| |deductions for shares in companies |
| |listed under the Management and |
| |Investment Companies Act 1983. This |
| |Act was repealed in 2003. [Schedule |
| |5, items 308 to 310, subsections |
| |16(5BA) and (5C), and paragraph |
| |16(5C)(a)] |
|82KZL(1)(a) |Includes the words 'or' or 'and' at |
|(definition of |the end of each listed paragraph, |
|'excluded |consistent with modern drafting |
|expenditure') |practice. [Schedule 5, items 311 to |
|82KZL(1)(b) |312, paragraphs 82KZL(1)(a) and (b) |
|(definition of |and 82KZL(2)(a)] |
|'excluded | |
|expenditure') | |
|82KZL(2)(a) | |
|99H(1)(c) |Replaces an incorrect reference to |
| |'subsection 12-400(4)' with the |
| |correct reference to 'subsection |
| |12-405(4)'. |
| |This amendment does not change the |
| |practical effect of the law. This is|
| |because the present incorrect |
| |reference to subsection 12-400(4) is |
| |clearly a typographical error. The |
| |provision makes sense only if the |
| |incorrect reference is read as a |
| |reference to subsection 12-405(4). |
| |The courts would be expected to read |
| |the legislation in its correct form |
| |where there was clearly an error of |
| |this kind. For example, Justice |
| |Muirhead in the case of Lindner v |
| |Wright (1976) 14 ALR 105 read an |
| |incorrect reference to subsection (3)|
| |as a reference to the correct |
| |subsection (4). [Schedule 5, |
| |item 313, paragraph 99H(1)(c)] |
|128W(1) |Repeals inoperative provisions. |
|128W(2) |Subsections 128W(1), (2), (3) and (7)|
|128W(3) |related to the payment of mining |
|128W(7) |withholding tax that became due and |
| |payable before 1 July 2000. The |
| |provisions relating to the collection|
| |and recovery of mining withholding |
| |tax and other amounts are now covered|
| |by Part 4-15 of Schedule 1 to the |
| |Tax Administration Act 1953. |
| |[Schedule 5, items 314 and 315, |
| |subsections 128W(1) to (3) and (7)] |
| |The amendment does not apply to any |
| |mining withholding tax that became |
| |due and payable before 1 July 2000. |
| |[Schedule 5, item 316] |
|161AA(d) |Replaces references to 'fund that is |
| |an eligible superannuation fund (as |
| |defined in section 267)' with |
| |'superannuation fund'. |
| |Section 267 was repealed in 2007 by |
| |Schedule 1, item 8 of the |
| |Superannuation Legislation Amendment |
| |(Simplification) Act 2007. [Schedule|
| |5, item 317, paragraph 161AA(d)] |
| |The amendment applies in relation to |
| |the 2009-10 and later income years. |
| |[Schedule 5, item 318] |
6. : Amendments to the Income Tax Assessment Act 1997
|Provision being |What the amendment does |
|amended | |
|30-25(1), table item |Replaces a reference to 'declared by |
|2.1.7 |a signed instrument to be a technical|
| |and further education institution |
| |within the meaning of the Employment,|
| |Education and Training Act 1988' with|
| |'determined to be a technical and |
| |further education institution under |
| |the Student Assistance Act 1973'. |
| |The Employment, Education and |
| |Training Act 1988 was repealed by the|
| |Australian Research Council |
| |(Consequential and Transitional |
| |Provisions) Act 2001. The Student |
| |Assistance Act 1973 covers the same |
| |relevant ground as the repealed Act. |
| |[Schedule 5, items 319 and 344, |
| |item 2.1.7 in the table in subsection|
| |30-25(1)] |
|30-86(4) |Replaces the word 'declaration' with |
| |the word 'recognition', which is |
| |consistent with the language used |
| |elsewhere in the section. [Schedule |
| |5, item 320, subsection 30-86(4)] |
|40-425(2) |Changes the punctuation of the |
| |subsection to make it easier to |
| |understand. [Schedule 5, item 321, |
| |subsection 40-425(2)] |
|54-10(2) |Extends the definition of 'State |
|54-10(1)(e) |Insurers' to the whole Act and makes |
|54-10(1A)(e) |necessary consequential amendments. |
|995-1(1) (Dictionary) |The term 'State Insurers' is at |
| |present defined only for the purposes|
| |of subsection 54-10(2). Defining a |
| |term for only a portion of the Act is|
| |inconsistent with drafting protocols,|
| |which require definitions to apply |
| |across the whole Act. |
| |At present, subsection 54-10(2) is |
| |the only provision in the Act that |
| |uses this term. [Schedule 5, items |
| |322, 323 and 341, paragraphs |
| |54-10(1)(e) and (1A)(e), |
| |subsections 54-10(2) and 995-1(1)] |
|124-10(3) (note 2) |Amends a statutory note to ensure it |
| |refers to relevant provisions. |
| |Note 2 of subsection 124-10(3) alerts|
| |the reader to provisions that modify |
| |the consequences of CGT replacement |
| |asset roll-overs. This amendment |
| |includes in the note a reference to |
| |'Subdivision 124-C (about statutory |
| |licences)'. [Schedule 5, item 324, |
| |subsection 124-10(3) (note 2)] |
|124-40(1) (notes) |Includes a statutory note (note 2) to|
| |provide a signpost to provisions in |
| |Subdivision 124-C of the Income Tax |
| |(Transitional Provisions) Act 1997 |
| |that modify the CGT statutory |
| |licences roll-over for certain |
| |water-related licences. |
| |A consequential amendment renumbers |
| |the existing unnumbered note as note |
| |1. [Schedule 5, items 325 and 326, |
| |subsection 124-140(1)] |
|130-90(3)(a)(i) |Amends the CGT provisions relating to|
|130-90(3)(a)(ii) |employee share schemes to ensure that|
|130-90(3)(c) |they operate as intended. The |
| |amendment clarifies that there is no |
| |potential for double taxation in the |
| |described circumstance. |
| |Tax Laws Amendment (Budget Measures) |
| |Act 2008 amended subsection 130-90(3)|
| |to remove double taxation by |
| |disregarding capital gains or capital|
| |losses arising when an employee |
| |becomes entitled to shares held in |
| |the trust as a result of exercising a|
| |right acquired under an employee |
| |share scheme. |
| |There arguably remains potential for |
| |double taxation in the circumstance |
| |where an employee share scheme right |
| |is exercised and the shares remain in|
| |the trust because of restrictions |
| |that apply to the shares. This |
| |creates uncertainty about whether the|
| |employee on ultimately acquiring the |
| |shares from the satisfaction of a |
| |beneficial interest has acquired the |
| |shares as a result of exercising a |
| |right acquired under an employee |
| |share scheme. [Schedule 5, items 327|
| |and 328, |
| |subparagraphs 130-90(3)(a)(i) and |
| |(ii) and paragraph 130-90(3)(c)] |
|149-30(1) |These amendments give effect to a |
|149-30(2) |suggestion made through the Tax |
|152-110(1) |Issues Entry System. |
|152-125(1)(a) |Amends these provisions (including by|
|152-125(1)(a)(iii) |making consequential amendments) to |
| |ensure that they apply more |
| |appropriately. |
| |Section 152-125 (which is part of the|
| |CGT small business concessions) |
| |allows a company or trust to make |
| |exempt payments to a CGT concession |
| |stakeholder, including payments |
| |reflecting a capital gain that is |
| |exempt under the 15-year exemption or|
| |a pre-CGT capital gain. |
| |The amendments allow the pre-CGT |
| |capital gain that existed on an asset|
| |before the operation of Division 149,|
| |which turns a pre-CGT asset into a |
| |post-CGT asset where there has been |
| |at least a 50 per cent change in |
| |ownership of a company or trust, to |
| |be distributed tax-free to a CGT |
| |concession stakeholder of the company|
| |or trust. |
| |This is achieved firstly by amending |
| |subsection 149-30(1) so that it |
| |comprises two subsections. |
| |The application of new subsection |
| |149-30(1A) and section 149-35 is then|
| |ignored for the purposes of |
| |section 152-125. |
| |The effect of these two amendments is|
| |that, where Division 149 has treated |
| |a pre-CGT asset as a post-CGT asset, |
| |the asset retains its original cost |
| |base and time of acquisition for the |
| |purposes of section 152-125. |
| |This means the total capital gain, |
| |comprising the actual pre-CGT gain |
| |and actual post-CGT gain, is treated |
| |as a post-CGT gain for the purposes |
| |of allowing that capital gain to be |
| |an exempt amount under subsection |
| |152-125(1). |
| |The amendments also clarify that, in |
| |calculating the period an entity has |
| |continuously owned an asset for the |
| |purposes of section 152-110, any |
| |change in majority underlying |
| |interests in the asset is ignored. |
| |This means that the period of |
| |ownership of the CGT asset starts |
| |from the time the entity originally |
| |acquired the asset. |
| |The amendments similarly result in |
| |any change in majority underlying |
| |interests in an asset being ignored |
| |for testing whether an entity had a |
| |significant individual for at least |
| |15 years for the purposes of section |
| |152-110. [Schedule 5, items 329 to |
| |335, subsections 149-30(1) and (2), |
| |152-110(1), subparagraph |
| |152-125(1)(a)(iii), |
| |paragraph 152-125(1)(a)] |
| |The Division 152 amendments apply to |
| |payments made by a company or trust |
| |on or after the day on which this |
| |Bill receives Royal Assent. |
| |[Schedule 5, item 336] |
|855-20(a) |A foreign resident is liable for CGT |
| |if the relevant CGT asset is 'taxable|
| |Australian property' (as defined). |
| |This includes real property in |
| |Australia. |
| |The amendment puts beyond doubt that |
| |'taxable Australian real property' in|
| |this context includes a lease over |
| |land. This accords with the intended|
| |application of the provisions when |
| |introduced. |
| |A lease in this context would include|
| |a sublease. |
| |The amendment applies in relation to |
| |CGT events happening on or after 20 |
| |May 2009, the date on which the |
| |amendment was first foreshadowed. |
| |The amendment is to be disregarded |
| |for interpreting the provisions in |
| |their previous form in relation to |
| |CGT events happening before 20 May |
| |2009. The effect of this is to |
| |ensure that no inference can be drawn|
| |from the amendment that the law |
| |operated differently before the |
| |amendment. This is important because|
| |the intention of the amendment is not|
| |to change the existing law but merely|
| |to clarify how it was always intended|
| |to apply. [Schedule 5, items 337 and|
| |338, paragraph 855-20(a)] |
|960-190(1) (table item|Corrects asterisking of a defined |
|3) |term. In the ITAA 1997, the drafting|
| |protocol is to mark defined terms |
| |with an asterisk but to do so only |
| |for the first occurrence of the term |
| |in each subsection (see |
| |subsection 2-15(1)). However, |
| |'partnership' is included in the list|
| |in subsection 2-15(3) of defined |
| |terms not identified with an |
| |asterisk. [Schedule 5, item 339, |
| |item 3 in the table in subsection |
| |960-190(1)] |
|995-1 (paragraphs (a) |Replaces references to 'a person' |
|and (b) for the |with 'an individual' given that only |
|definition of 'legal |an individual can die or be under a |
|personal |legal disability. [Schedule 5, item |
|representative') |340, section 995-1, paragraphs (a) |
| |and (b) for the definition of 'legal |
| |personal representative'] |
7. : Amendments to the International Tax Agreements Act 1953
|Provision being |What the amendment does |
|amended | |
|16(4) |Omits references to the repealed |
|16(5)(b) |section 104 of the ITAA 1936 and |
| |consequentially rewrites the |
| |provision. |
| |Section 104 was repealed by the Tax |
| |Laws Amendment (Repeal of Inoperative|
| |Provisions) Act 2006. It previously |
| |made private companies liable to pay |
| |additional tax on undistributed |
| |profits. It ceased to apply from 1 |
| |July 1986 with the introduction of |
| |the imputation system. [Schedule 5, |
| |item 342, subsections 16(4) and (5)] |
8. : Amendments to the Tax Laws Amendment (2007 Measures No. 5) Act
2007
|Provision being |What the amendment does |
|amended | |
|Schedule 7, item 14 |Corrects an error in the Tax Laws |
| |Amendment (2007 Measures No.5) Act |
| |2007 that incorrectly applies an |
| |application provision to a general |
| |regulation-making power also inserted|
| |by the Schedule. |
| |Item 13 of Schedule 7 of the Act |
| |created a general regulation-making |
| |power for the Income Tax |
| |(Transitional Provisions) Act 1997. |
| |The remaining items of Schedule 7 |
| |concerned CGT statutory licence |
| |roll-over provisions in Subdivision |
| |124-C of the Income Tax (Transitional|
| |Provisions) Act 1997. |
| |Item 14 of Schedule 7 at present |
| |inappropriately applies all the |
| |amendments made by Schedule 7 to CGT |
| |events happening in the 2005-06 and |
| |later income years. |
| |This is inappropriate for the general|
| |regulation-making power given that |
| |regulations made under it may have |
| |nothing to do with CGT events. At |
| |this stage, no regulations have been |
| |made for the purposes of the Income |
| |Tax (Transitional Provisions) Act |
| |1997. |
| |The amendment excludes item 13 from |
| |the application provision. [Schedule|
| |5, item 343, item 14 of Schedule 7] |
Index
Schedule 1: Research and development
|Bill reference |Paragraph |
| |number |
|Item 1, paragraph 73J(1)(c) |1.11 |
Schedule 2: Prescribed private funds
|Bill reference |Paragraph |
| |number |
|Items 1 and 22, paragraph 26(3)(ga) of the A|2.75 |
|New Tax System (Australian Business Number) | |
|Act 1999 and section 426-115 in Schedule 1 | |
|to the TAA 1953 | |
|Items 2, 11, 13 to 16, subsection 6(1) of |2.95 |
|the ITAA 1936, paragraph 31-10(2)(b) and | |
|subsection 995-1(1) of the ITAA 1997, and | |
|subsection 2(1) of the TAA 1953 | |
|Items 3 and 17, subsection 16(4) of the ITAA|2.80 |
|1936 and subsection 3C(4) of the TAA 1953 | |
|Items 4 and 10, section 30-15 and paragraph |2.94 |
|31-10(1)(b) of the ITAA 1997 | |
|Items 4 and 22, item 2 in the table in |2.23 |
|subsection 30-15(2) of the ITAA 1997 and | |
|Subdivision 426-D in Schedule 1 to the TAA | |
|1953 | |
|Items 4 and 22, item 2 in the table in |2.24 |
|subsection 30-15(2) of the ITAA 1997 and | |
|section 426-105 in Schedule 1 to the TAA | |
|1953 | |
|Items 5, 6 and 7, paragraph (c) of the cell |2.25 |
|in item 2 in the table in subsection | |
|30-15(2), paragraph 30-17(1)(b) and | |
|subsection 30-125(1) of the ITAA 1997 | |
|Item 7, subsection 30-125(1) of the |2.32, 2.35 |
|ITAA 1997 | |
|Item 9, subsection 30-229(2) of the |2.77 |
|ITAA 1997 | |
|Items 15 and 22, subsection 995-1(1) of the |2.34 |
|ITAA 1997 and section 426-110 in Schedule 1 | |
|to the TAA 1953 | |
|Item 18, item 140 in the table in subsection|2.96 |
|250-10(2) in Schedule 1 to the TAA 1953 | |
|Item 22, section 426-105 in Schedule 1 to |2.30, 2.31 |
|the TAA 1953 | |
|Item 22, subsections 426-120(1) and (2) in |2.43 |
|Schedule 1 to the TAA 1953 | |
|Item 22, subsection 426-120(3) in Schedule 1|2.45 |
|to the TAA 1953 | |
|Item 22, subsection 426-120(4) in Schedule 1|2.52 |
|to the TAA 1953 | |
|Item 22, subsections 426-120(5) to (8) in |2.50 |
|Schedule 1 to the TAA 1953 | |
|Item 22, section 426-125 in Schedule 1 to |2.55 |
|the TAA 1953 | |
|Item 22, subsections 426-125(2), (4) and (6)|2.59 |
|in Schedule 1 to the TAA 1953 | |
|Item 22, subsections 426-125(3), (5), (7) |2.60 |
|and (8) in Schedule 1 to the TAA 1953 | |
|Item 22, subsections 426-130(1) and (2) in |2.61 |
|Schedule 1 to the TAA 1953 | |
|Item 22, subsection 426-130(3) to (5) in |2.62 |
|Schedule 1 to the TAA 1953 | |
|Item 22, section 426-135 in Schedule 1 to |2.63 |
|the TAA 1953 | |
|Item 22, section 426-140 in Schedule 1 to |2.65 |
|the TAA 1953 | |
|Item 22, section 426-145 in Schedule 1 to |2.66 |
|the TAA 1953 | |
|Item 22, subsections 426-150(1) and (3) in |2.67 |
|Schedule 1 to the TAA 1953 | |
|Item 22, subsection 426-150(2) in Schedule 1|2.69 |
|to the TAA 1953 | |
|Item 22, subsection 426-150(4) in Schedule 1|2.70 |
|to the TAA 1953 | |
|Item 22, section 426-160 in Schedule 1 to |2.64 |
|the TAA 1953 | |
|Item 22, subsections 426-165(1) to (3) in |2.71 |
|Schedule 1 to the TAA 1953 | |
|Item 22, subsection 426-165(4) in Schedule 1|2.72 |
|to the TAA 1953 | |
|Item 22, subsection 426-165(5) in Schedule 1|2.73 |
|to the TAA 1953 | |
|Item 22, subsection 426-165(6) in Schedule 1|2.74 |
|to the TAA 1953 | |
|Items 23 and 24, subsection 30-229(2A) of |2.93 |
|the ITAA 1997 and subsection 426-115(1) in | |
|Schedule 1 to the TAA 1953 | |
|Item 26 |2.92 |
|Items 27, 29 and 30 |2.84 |
|Item 28 |2.85 |
|Item 31 |2.89 |
Schedule 3: Demutualisation of friendly societies
|Bill reference |Paragraph |
| |number |
|Item 1, paragraph 316-5(a) |3.20 |
|Item 1, subparagraph 316-5(a)(i) |3.21 |
|Item 1, subparagraph 316-5(a)(ii) |3.22 |
|Item 1, paragraph 316-5(b) |3.24 |
|Item 1, paragraph 316-5(c) |3.25 |
|Item 1, paragraph 316-55(1)(a) |3.33 |
|Item 1, subparagraph 316-55(1)(a)(ii) |3.30 |
|Item 1, paragraph 316-55(1)(b) |3.34 |
|Item 1, subsection 316-55(2) |3.88 |
|Item 1, paragraphs 316-60(1)(a), (b) and (d)|3.89 |
|and subparagraph 316-60(c)(ii) | |
|Item 1, paragraphs 316-60(1)(a), (b), and |3.36 |
|(d), paragraph 316-60(3)(a) and | |
|subparagraph 316-60(1)(c)(i) | |
|Item 1, subsection 316-60(2) |3.37, 3.41, |
| |3.91 |
|Item 1, paragraph 316-60(2)(b) |3.38, 3.90 |
|Item 1, paragraph 316-60(3)(b) |3.39 |
|Item 1, section 316-65 |3.54 |
|Item 1, subsection 316-65(1) |3.53, 3.56, |
| |3.59, 3.63 |
|Item 1, subsection 316-65(2) |3.65 |
|Item 1, subsection 316-70(1) and |3.60 |
|paragraph 316-70(3)(a) | |
|Item 1, subsection 316-70(1) and paragraph |3.60 |
|316-70(3)(b) | |
|Item 1, subsection 316-70(2). |3.62 |
|Item 1, subsection 316-70(4) |3.61 |
|Item 1, subsection 316-70(5) |3.60 |
|Item 1, subsection 316-70(6) |3.63 |
|Item 1, subsection 316-70(7) |3.63 |
|Item 1, section 316-75 |3.42 |
|Item 1, section 316-80 |3.43 |
|Item 1, paragraph 316-80(a) |3.44, 3.45 |
|Item 1, paragraph 316-80(b) |3.46 |
|Item 1, subsections 316-105(1) and (2) |3.50 |
|Item 1, subsections 316-105(1) and (2) and |3.70 |
|316-115(3) | |
|Item 1, subsections 316-105(1) and |3.49 |
|316-115(1) | |
|Item 1, subsection 316-105(3) |3.48 |
|Item 1, subsections 316-105(3) and |3.69 |
|316-115(3) | |
|Item 1, subparagraphs 316-110(1)(a)(i) and |3.49 |
|(iii) | |
|Item 1, subparagraphs 316-110(1)(a)(ii) and |3.49 |
|(iv) | |
|Item 1, paragraphs 316-110(1)(b) and |3.49 |
|316-110(1)(c) | |
|Item 1, subsection 316-110(2) |3.49 |
|Item 1, subsection 316-110(3) and |3.49 |
|section 316-115 | |
|Item 1, subsection 316-115(2) |3.52 |
|Item 1, subsections 316-115(2) and |3.92 |
|316-200(1) | |
|Item 1, subsection 316-115(3) |3.51 |
|Item 1, subsections 316-155(1) and (2) |3.68 |
|Item 1, subsection 316-155(3) |3.68 |
|Item 1, subsection 316-155(4) |3.67 |
|Item 1, subsection 316-155(5) |3.68 |
|Item 1, section 316-160 |3.75, 3.85 |
|Item 1, subsections 316-165(1) and (3) |3.79 |
|Item 1, subsection 316-165(2) |3.80 |
|Item 1, paragraph 316-165(2)(a) |3.84 |
|Item 1, paragraph 316-165(2)(b) |3.81 |
|Item 1, subsections 316-170(1) and (2) |3.71 |
|Item 1, subsections 316-170(1) and (3) |3.77 |
|Item 1, subsections 316-170(1) and (4) |3.76 |
|Item 1, section 316-175 |3.73 |
|Item 1, subsection 316-175(2) |3.74 |
|Item 1, subsection 316-175(3) |3.74 |
|Item 1, section 316-180 |3.115 |
|Item 1, subsection 316-200(2) |3.93 |
|Item 1, subsection 316-200(3) |3.95 |
|Item 1, subsection 316-200(4) |3.94 |
|Item 1, section 316-205 |3.96 |
|Item 1, paragraphs 316-255(1)(a), (2)(a) |3.97 |
|and(2)(b) | |
|Item 1, paragraphs 316-255(1)(a) and (2)(c) |3.98 |
|Item 1, paragraphs 316-255(1)(b), (2)(a) |3.97 |
|and(2)(b) | |
|Item 1, paragraphs 316-255(1)(b) and (2)(c) |3.98 |
|Item 1, paragraphs 316-255(1)(c) and (2)(d) |3.99 |
|Item 1, paragraphs 316-255(1)(d) and (2)(d) |3.99 |
|Item 1, section 316-260 |3.100 |
|Item 1, section 316-265 |3.102 |
|Item 1, section 316-270 |3.103 |
|Item 1, section 316-275 |3.104 |
|Item 2 |3.22 |
|Items 2 and 3 |3.108 |
|Items 4, 23 and 24 |3.107 |
|Item 5 |3.109 |
|Item 6 |3.110 |
|Items 7 to 10 |3.111 |
|Items 11 to 14 |3.112 |
|Item 15 |3.39 |
|Item 16 |3.113 |
|Item 17 |3.114 |
|Item 18 |3.116 |
|Item 19, subsection 197-38(1) |3.104 |
|Item 19, subsections 197-38(2) and (3) |3.106 |
|Items 20 and 21 |3.117 |
|Item 22 |3.21, 3.118 |
Schedule 4: Consolidation
|Bill reference |Paragraph |
| |number |
|Items 1 to 3, subsections 104-520(3) and |4.27 |
|243-35(2) of the ITAA 1997 and | |
|subsection 245-105(1) in Schedule 2C to the | |
|ITAA 1936 | |
|Item 4, item 1 in the table in subsection |4.14, 4.15 |
|707-415(2) | |
|Item 4, item 2 in the table in subsection |4.17, 4.18 |
|707-415(2) | |
|Item 4, item 3 in the table in subsection |4.20, 4.21 |
|707-415(2) | |
|Item 4, subsection 707-415(1) |4.10 |
|Item 4, subsection 707-415(2) |4.11 |
|Item 4, subsection 707-415(3) |4.12 |
|Item 4, subsection 707-415(4) |4.16 |
|Item 4, subsection 707-415(5) |4.19 |
|Item 4, subsection 707-415(6) |4.22 |
|Item 4, subsection 707-415(7) |4.13 |
|Item 5 |4.23 |
Schedule 5: Minor amendments
|Bill reference |Paragraph |
| |number |
|Item 1, subsection 4(1) |5.16 |
|Items 2 and 3, subsection 4(1) |5.16 |
|Items 4, 5, 10 and 11, subsections 162B(5), |5.16 |
|165A(11) and (12) | |
|Items 6 and 7, paragraphs 165A(1)(b) and |5.16 |
|(2)(b), items 7 to 9, subsections 165A(3) | |
|and (4) | |
|Item 12, subsection 3(1) |5.16 |
|Item 13, subsection 3A(1) |5.16 |
|Items 14 to 16, subsection 3(1) |5.16 |
|Item 17, subsection 7(1) |5.16 |
|Item 18, subsection 7(1) |5.16 |
|Item 19, paragraph 47(8)(b) |5.16 |
|Item 20, subsection 136(1) |5.16 |
|Items 21 to 43 and 45 to 50, subsection 6(1)|5.16 |
|Item 44, subsection 6(1) |5.16 |
|Items 51 and 52, paragraph 16(4)(e) |5.16 |
|Item 53, paragraph 16(4)(ea) |5.16 |
|Items 54 to 56, paragraph 16(4)(f) |5.16 |
|Item 57, paragraph 16(4)(f) |5.16 |
|Items 58 and 59, paragraph 16(4)(fc) |5.16 |
|Items 60 and 61, paragraph 16(4)(h) |5.16 |
|Items 62 and 63, paragraph 16(4)(hb) |5.16 |
|Items 64 and 65, paragraph 16(4)(hd) |5.16 |
|Items 66 to 68, paragraph 16(4)(j) |5.16 |
|Items 69 and 70, subsections 16(5B) and (5C)|5.16 |
|Items 71 to 73, subsections 23AF(11) to (14)|5.16 |
|and (18) | |
|Item 74, subsection 73A(6) |5.16 |
|Items 75 to 101, subsections 124K(1), (1A), |5.16 |
|(1B), (1D), 124ZAA(1) and (11) and | |
|124ZAB(1), paragraph 124ZAB(2)(c), | |
|subsections 124ZAB(3) to (5), | |
|paragraph 124ZAB(6)(a), | |
|subsections 124ZAB(6A) and (7) and | |
|124ZAC(1), paragraph 124ZAC(2)(c), | |
|subsections 124ZAC(3) and (5), | |
|section 124ZAD and subsections 124ZADAA(1), | |
|124ZADAB(1) and (2) | |
|Item 102, subsection 159J(6) |5.16 |
|Item 103, subsection 159J(6) |5.16 |
|Item 104, subsection 202CB(6) |5.16 |
|Items 105 and 107, subsections 202CB(7) and |5.16 |
|202CE(8) | |
|Item 106, subsection 202CE(7) |5.16 |
|Item 108, paragraph 251R(5)(d) |5.16 |
|Items 109 to 111, paragraph 251U(1)(f) |5.16 |
|Item 112, subsection 264AA(1) |5.16 |
|Item 113, section 25-7 (note) |5.16 |
|Item 114, item 2.1.7 in the table in |5.16 |
|subsection 30-25(1) and items 115 and 116, | |
|paragraphs 30-30(1)(c) and (d) | |
|Item 117, section 30-75 |5.16 |
|Items 118 to 121, item 9.1.2 in the table in|5.16 |
|subsection 30-80(1), paragraphs 30-85(2)(a) | |
|and (b) and subsection 30-85(5) | |
|Items 122 to 124, 148 and 149, subsections |5.16 |
|30-210(1), 30-230(5), 30-235(1) and | |
|30-289(4), section 30-295, | |
|subsections 30-300(7), 30-305(1) and (4), | |
|30-310(1) and paragraphs 375-865(2)(b), | |
|376-10(1)(b) and (c), 376-230(1)(a) and (b) | |
|and 376-240(3)(d) | |
|Items 125 to 129, section 30-287, |5.16 |
|subsections 30-289(4), 30-289A(3), | |
|30-289B(1) and (4), and 30-289C(1) | |
|Items 130 to 135, section 30-295 and |5.16 |
|subsections 30-295, 30-300(6) and (7), | |
|30-305 (1) and (4) and 30-310(1) | |
|Item 136, subsection 34-25(1) |5.16 |
|Item 137, section 34-65 |5.16 |
|Items 138 and 139, item 10 in the table in |5.16 |
|subsection 40-180(2), item 11 in the table | |
|in subsection 40-300(2) | |
|Item 140, paragraph 40-670(1)(a) |5.16 |
|Items 141 and 142, paragraphs 40-670(1)(a) |5.16 |
|and (b) | |
|Items 143 and 144, paragraph 51-32(3)(b), |5.16 |
|subsection 51-32(3) | |
|Item 145, subsection 52-131(9) (note) |5.16 |
|Items 146 and 147, subsections 61-630(3) and|5.16 |
|(5) | |
|Items 150 to 168 and 171 and 172, |5.16 |
|sections 396-5 and 396-40, | |
|subsections 396-65(1) and (2), section | |
|396-70, subsections 396-70(1) and (5) to | |
|(7), 396-75(1) and (2), 396-80(1) and (4), | |
|paragraph 396-80(5)(b), subsection 396-90(2)| |
|and sections 396-100, 396-105 and 396-110 | |
|Items 169 and 170, section 396-105 |5.16 |
|Items 173 to 204, subsection 995-1(1) |5.16 |
|Items 205 to 208, section 3-10, subsection |5.16 |
|30-15(1) and section 30-20 | |
|Items 209 to 211, section 2 |5.16 |
|Items 212 to 226, subsections 18(2) and (3) |5.16 |
|and 20(1), paragraph 20(2)(b), | |
|subsections 20(7) and (8), and | |
|paragraph 20(12)(a) | |
|Item 227, subsection 36B(1) |5.16 |
|Items 228 to 230, subsections 36B(2), (3) |5.16 |
|and (5) and 108(5) | |
|Items 231 and 232, section 3, subsection |5.16 |
|6(1) | |
|Items 233 to 236, subsections 2(1) and |5.16 |
|14Q(1), subparagraph 14S(4)(b)(i) and | |
|subsection 14S(5) | |
|Items 237 and 238, section 995-1, clause 2 |5.16 |
|Item 244, Schedule 1, paragraph (g) |Table 5.3 |
|Item 245, section 39B |Table 5.2 |
|Items 246 to 257, Part IV, sections 14ZZN, |Table 5.1 |
|14ZZO, 14ZZP and 14ZQ (definition of | |
|'appealable objection decision'), | |
|subsections 3(1), 3(2), 3B(4) (definition of| |
|'this Act') and 3C(9) (definition of this | |
|Act), and paragraphs 3B(1AA)(a), 8J(2)(p), | |
|14ZR(1)(a), 14ZZ(a) to (c) and 14ZZ(1)(a) | |
|and (b) | |
|Item 258, subsection 770-135(1) |Table 5.4 |
|Items 259 and 260, section 770-1 |Table 5.5 |
|Items 261 to 267, paragraphs 770-5(1)(a) and|Table 5.5 |
|(b), subsection 770-5(3), and section 770-10| |
|Items 268 and 269, section 770-30 |Table 5.5 |
|Items 274 to 276, paragraphs 770-95(b) and |Table 5.5 |
|(c), section 770-95 (notes 1 and 2), | |
|subsections 770-100(2) and (3), | |
|paragraphs 770-165(1)(a) and (b), subsection| |
|770-165(3), section 770-170 (heading) | |
|Items 277 to 281, paragraphs 770-165(1)(a) |Table 5.5 |
|and (b), subsection 770-165(3), and | |
|section 770-170 | |
|Item 282 |5.18 |
|Items 283 to 287, subsection 25(2) (note 1),|Table 5.6 |
|and section 41 | |
|Items 288 to 292, sub-subparagraph |Table 5.7 |
|10(3)(a)(v)(B), and paragraph 10(3D)(c) | |
|Items 293 and 296 to 303, subsection 42(1) |Table 5.7 |
|Items 294 and 295, subparagraphs 42(1)(a)(i)|Table 5.7 |
|and (b)(ii) | |
|Items 304 and 305, section 148 |Table 5.7 |
|Item 306, subsection 6(1) |Table 5.8 |
|Item 307 |Table 5.8 |
|Items 308 to 310, subsections 16(5BA) and |Table 5.8 |
|(5C), and paragraph 16(5C)(a) | |
|Items 311 to 312, paragraphs 82KZL(1)(a) and|Table 5.8 |
|(b) and 82KZL(2)(a) | |
|Item 313, paragraph 99H(1)(c) |Table 5.8 |
|Items 314 and 315, subsections 128W(1) to |Table 5.8 |
|(3) and (7) | |
|Item 316 |Table 5.8 |
|Item 317, paragraph 161AA(d) |Table 5.8 |
|Item 318 |Table 5.8 |
|Item 319, item 2.1.7 in the table in |Table 5.9 |
|subsection 30-25(1) | |
|Item 320, subsection 30-86(4) |Table 5.9 |
|Item 321, subsection 40-425(2) |Table 5.9 |
|Items 322, 323 and 341, paragraphs |Table 5.9 |
|54-10(1)(e) and (1A)(e), | |
|subsections 54-10(2) and 995-1(1) | |
|Item 324, subsection 124-10(3) (note 2) |Table 5.9 |
|Items 325 and 326, subsection 124-140(1) |Table 5.9 |
|Items 327 and 328, |Table 5.9 |
|subparagraphs 130-90(3)(a)(i) and (ii) and | |
|paragraph 130-90(3)(c) | |
|Items 329 to 335, subsections 149-30(1) and |Table 5.9 |
|(2), 152-110(1), subparagraph | |
|152-125(1)(a)(iii), paragraph 152-125(1)(a) | |
|Item 336 |Table 5.9 |
|Items 337 and 338, paragraph 855-20(a) |Table 5.9 |
|Item 339, item 3 in the table in subsection |Table 5.9 |
|960-190(1) | |
|Item 340, section 995-1, paragraphs (a) and |Table 5.9 |
|(b) for the definition of 'legal personal | |
|representative' | |
|Item 342, subsections 16(4) and (5) |Table 5.10 |
|Item 343, item 14 of Schedule 7 |Table 5.11 |
|Items 1070 to 1090, subsection 2(1), |5.16 |
|paragraphs 3ED(1)(b)(i) and (ii) and | |
|(3)(a)(i), (ii) and (b)(i) and subsection | |
|3ED(5), clause 2 | |