Explanatory note
This explanatory note relates to this Bill as introduced into Parliament.

This Bill is cognate with the Appropriation Bill 2008.

Overview of Bill

The objects of this Bill are as follows:

(a) to amend the Duties Act 1997:

        (i) to bring forward the date for abolition of duty on transfers of business
assets, statutory licences and permissions and poker machine
entitlements, to 1 January 2011, and
        (ii) to provide a duty exemption for certain restructure arrangements known
as “top hatting” arrangements, and
        (iii) to ensure that duty on transfers of shares in commercial fisheries is
abolished on 1 January 2009 (when duty on transfers of marketable
securities is abolished),

(b) to amend the Payroll Tax Act 2007 so that:

        (i) the current payroll tax rate of 6% will be reduced to 5.5% over 3 years,
and
        (ii) the tax-free threshold will be indexed annually (starting on 1 July 2008)
so that it will increase in line with increases in the Consumer Price Index
for Sydney, and
        (iii) special arrangements will apply in the 3 financial years over which the
reduction in tax rate will be phased in (including arrangements for the
allocation of any unused portion of tax-free threshold for a half-year to
the other half of the year),

(c) to amend the Public Finance and Audit Act 1983 as a consequence of the
introduction of a new Australian Accounting Standard, and for other purposes,

(d) to amend the Public Sector Employment and Management Act 2002 to ensure
that the prohibition on an executive officer undertaking paid work outside the
duties of his or her position without the approval of the officer’s employer
extends to paid work of any kind (whether or not employment to which that
Act applies).

Outline of provisions

Clause 1 sets out the name (also called the short title) of the proposed Act.

Clause 2 provides for the commencement of the proposed Act.

Clause 3 is a formal provision that gives effect to the amendments to the Duties Act
1997, the Payroll Tax Act 2007, the Public Finance and Audit Act 1983 and the
Public Sector Employment and Management Act 2002 set out in Schedules 1–4.

Clause 4 provides for the repeal of the proposed Act after all the amendments made
by the proposed Act have commenced. Once the amendments have commenced the
proposed Act will be spent and section 30 of the Interpretation Act 1987 provides
that the repeal of an amending Act does not affect the amendments made by that Act.

Schedule 1 Amendment of Duties Act 1997
Abolition of duty on transfers of business assets, statutory licences
and permissions and poker machine entitlements
Duty on the transfer of business assets, and on the transfer of statutory licences and
permissions, and poker machine entitlements, is due to be abolished on 1 July 2012.

Schedule 1 [6] brings forward that abolition date to 1 January 2011.

Schedule 1 [1] and [2] are consequential amendments.

Exemption for “top hatting” arrangements
A “top hatting” arrangement is a scheme for interposing a unit trust scheme (whether
a new or existing unit trust scheme) between persons who have an ownership interest
in 2 or more unit trust schemes, or in one or more companies and one or more unit
trust schemes, and the unit trust schemes or companies in which they have an
ownership interest. The interests of the unit holders or shareholders are stapled
together to form stapled securities and the interposed unit trust becomes the owner of
all the stapled interests.

Schedule 1 [7] grants an exemption from duty on a transfer of marketable securities
(or an agreement for transfer or vesting of marketable securities) in connection with
such an arrangement if the Chief Commissioner is satisfied that the scheme
concerned would qualify as a roll-over under Subdivision 124-Q of the Income Tax
Assessment Act 1997 of the Commonwealth. (That Act provides for capital gains tax
relief in respect of such schemes.)
Schedule 1 [8] grants an exemption from land rich duty on an acquisition that is
made for the purpose of such an arrangement. The Chief Commissioner must be
satisfied that:

(a) the acquisition is made for the purpose of giving effect to a scheme that would
qualify as a roll-over under Subdivision 124-Q of the Income Tax Assessment
Act 1997 of the Commonwealth, and

(b) when the scheme is completed, the interposed trust will be a listed trust, widely
held trust or a land rich landholder, and

(c) the acquisition is not part of a scheme a purpose of which is to minimise duty
otherwise payable under the Duties Act 1997.

The exemption will cease to apply (and will be taken never to have applied) if the
interposed trust ceases to be a listed trust, widely held trust or a land rich landholder
within 12 months after the scheme is completed.

Shares in commercial fisheries
At present, a transfer of shares in a commercial fishery (that is, a share management
fishery under the Fisheries Management Act 1994) is dutiable on the basis that it is
a transfer of a statutory licence or permission (as shares in a fishery entitle the holder
to take fish in the fishery). However, a transfer of such shares is charged at the same
rate as a transfer of marketable securities.

Schedule 1 [3] ensures that shares in commercial fisheries are treated as equivalent
to marketable securities for duties purposes and that duty on a transfer of shares in a
commercial fishery will be abolished on 1 January 2009 (the date on which
marketable securities duty will be abolished).

Schedule 1 [4], [5] and [9] are related amendments.

Savings and transitional provisions
Schedule 1 [10] enables savings and transitional regulations to be made as a
consequence of the proposed Act.

Schedule 1 [11] provides for the application of the “top hatting” exemption in
respect of transactions occurring on or after 1 July 2008 (except transfers made as a
consequence of agreements entered into before that date).

Schedule 2 Amendment of Payroll Tax Act 2007
Reduction of tax rate
Schedule 2 [2] reduces the rate at which payroll tax is charged from 6% to 5.5% over
3 years.

The new tax rates will be as follows:

(a) 5.75% from 1 January 2009,

(b) 5.65% from 1 January 2010,

(c) 5.5% from 1 January 2011.

Indexation of the tax-free threshold
Schedule 2 [3] and [4] provide for the tax-free threshold for payroll tax to be
increased at the start of each financial year in line with increases in the Consumer
Price Index for Sydney. The first increase is to occur on 1 July 2008 and will increase
the threshold from $600,000 to $623,000. The method of calculation of the CPI
increase gives a result that is the same as the annual percentage change in the CPI
published by the Australian Bureau of Statistics. Schedule 2 [1] makes a
consequential amendment.

Transitional arrangements for phasing in of new tax rates
Schedule 2 [5] and [6] provide the following special arrangements for the
calculation of payroll tax during the 3 financial years over which the reductions in
the payroll tax rate will be phased in:

(a) For the calculation of tax payable on a monthly return basis, the tax-free
threshold will be apportioned according to the number of days in the month to
which the return relates.

(b) For the purposes of the end of financial year reconciliation of payroll tax,
separate calculations of tax will be performed for the 2 half-years of the
financial year and the 2 amounts then aggregated (to allow for the fact that the
change in tax rate will occur half way through the 2008, 2009 and 2010
financial years).

(c) If the wages paid in a half-year are less than the tax-free threshold apportioned
to that half-year, any unused portion of the threshold will be applied in the
other half-year to reduce the amount of taxable wages in that other half-year.

Schedule 2 [7] enables savings and transitional regulations to be made as a
consequence of the proposed Act.

Schedule 3 Amendment of Public Finance and Audit
Act 1983
Introduction of new accounting standard
In October 2007, the Australian Accounting Standards Board issued a new
accounting standard for public sector financial reporting (AASB 1049: Whole of
Government and General Government Sector Financial Reporting), which applies
from 1 July 2008. The amendments to the Public Finance and Audit Act 1983 are
proposed largely as a consequence of that new accounting standard.

Year-end and other financial reports by Treasurer
At present, the Treasurer is required to prepare a consolidated financial report for the
total state sector at the end of each financial year (referred to as the total state sector
accounts).

Consistent with the new accounting standard, it is now proposed that the Treasurer
will be required to prepare the following reports (in accordance with that standard):

(a) a whole of government financial report (this is the equivalent of the total state
sector accounts), and

(b) financial statements for the general government sector.

The whole of government financial report relates to all entities controlled by the New
South Wales Government. For consistency with other States, this report will now be
referred as the consolidated financial statements, rather than the total state sector
accounts.

The general government sector financial statements relate to a subset of the entities
to which the consolidated financial statements relate (mostly Government
Departments and public authorities).

The Treasurer will be permitted to present the consolidated financial statements and
the general government sector financial statements in the form of a single report.

Schedule 3 [3] gives effect to the amendments described above.

The Auditor-General will be required to audit the general government sector
financial statements (in addition to the consolidated financial statements). Similarly,
the Public Accounts Committee of Parliament is given power to examine the general
government sector financial statements (in addition to the consolidated financial
statements). See Schedule 3 [15], [18] and [23].

In addition, monthly statements and half-yearly reviews in relation to Budget
aggregates and estimates prepared by the Treasurer under the Act will no longer be
required by the Act to be prepared on a Government Finance Statistics or GFS basis,
as the new accounting standard harmonises (or incorporates) those GFS principles.

See Schedule 3 [4] and [6].

Schedule 3 [1], [2], [5], [7], [9], [10], [16], [17], [19]–[22] and [24] are
consequential amendments.

Budget Papers
At present, the Budget Papers are required to include primary financial statements
prepared in accordance with Australian Accounting Standards and primary financial
statements prepared in accordance with GFS principles. This requirement is replaced
with a requirement that the Budget Papers include the following statements, prepared
in accordance with Australian Accounting Standards (which will incorporate GFS
principles):

(a) a statement of financial position for the general government sector,

(b) an operating statement for the general government sector,

(c) a cash flow statement for the general government sector.

These statements have been generally understood to be the equivalent of primary
financial statements. See Schedule 3 [14].

The Treasurer will continue to be required to report to Parliament on any departure
from Australian Accounting Standards in the preparation of the primary financial
statements. However, provisions relating to the Treasurer’s Accounting Advisory
Panel are removed. (At present, the Act provides that the Treasurer may consult with
the Panel before departing from an accounting standard.) Also, it will not be
necessary for the primary financial statements to be presented with notes (such as
notes explaining significant accounting policies). This is not required at present.

Schedule 3 [11], [14] and [15] give effect to the amendments described above.

The reference to “GFS”, in the context of Budget aggregates, is removed (again,
because the new accounting standard incorporates GFS principles). See Schedule
3 [12].

Other amendments
The Budget Papers will be required to include information about the results and
services of, and total expenses of, service groups (rather than a statement of
outcomes, outputs and total expenses for Budget programs). See Schedule 3 [13].

The Treasurer will be given power to issue directions to accounting officers and
authorities relating to budgeting generally (at present this power is limited to
program budgeting). See Schedule 3 [8].

The general government sector will be defined in the Act (rather than by
cross-reference to the Fiscal Responsibility Act 2005). However, the proposed
definition is exactly the same as the current definition in the Fiscal Responsibility Act
2005. See Schedule 3 [1].

Schedule 3 [25] enables savings and transitional regulations to be made as a
consequence of the proposed Act.

Schedule 3 [26] provides for the application of the amendments from the 2008–2009
financial year.

Schedule 4 Amendment of Public Sector
Employment and Management Act 2002
Section 83 of the Public Sector Employment and Management Act 2002 prohibits an
executive officer from undertaking paid work outside the duties of his or her
executive position without the consent of the officer’s employer. The amendment in
Schedule 4 makes it clear that this prohibition extends to any paid work (whether or
not employment in the New South Wales Government Service).

Note: If this Bill is not modified, these Explanatory Notes would reflect the Bill as passed in the House. If the Bill has been amended by Committee, these Explanatory Notes may not necessarily reflect the Bill as passed.

 

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