Commonwealth of Australia Explanatory Memoranda

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TAX AND SUPERANNUATION LAWS AMENDMENT (2013 MEASURES NO. 1) BILL 2013

                          2010-2011-2012-2013



    THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA




                    HOUSE OF REPRESENTATIVES




TAX AND SUPERANNUATION LAWS AMENDMENT (2013 MEASURES No. 1)
                         BILL 2013




         SUPPLEMENTARY EXPLANATORY MEMORANDUM




                     (Circulated by the authority of the
       Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)
Table of contents

Glossary .................................................................................................. 1

General outline and financial impact ....................................................... 3

Chapter 1               Amendments to the Tax and Superannuation
                        Laws Amendment (2013 Measures No. 1)
                        Bill 2013 ........................................................................ 5
Glossary
     The following abbreviations and acronyms are used throughout this
     supplementary explanatory memorandum.


              Abbreviation                         Definition
      TSLAB1 2013                  Tax and Superannuation Laws Amendment
                                   (2013 Measures No. 1) Bill 2013




                                                                           1
General outline and financial impact

Amendments
      The amendments to the Tax and Superannuation Laws Amendment
      (2013 Measures No. 1) Bill 2013 (TSLAB1 2013) seek to ensure that
      corporate tax entities can carry losses back to the year they came into
      existence.

      Date of effect: The loss carry-back measure applies to assessments for the
      2012-13 and later income years.

      Proposal announced: These amendments have not previously been
      announced.

      Financial impact: Nil.

      Human rights implications: Nil.

      Compliance cost impact: Nil.




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Chapter 1
Amendments to the Tax and
Superannuation Laws Amendment
(2013 Measures No. 1) Bill 2013

Outline of chapter
         1.1     This chapter explains the amendments to the Tax and
         Superannuation Laws Amendment (2013 Measures No. 1) Bill 2013
         (TSLAB1 2013).

         1.2      The amendments are explained by way of modification to the
         explanatory memorandum to TSLAB1 2013.



Detailed explanation of the amendments

Amendments 1 and 2

         1.3       The loss carry-back measure in Schedule 5 to TSLAB1 2013
         proposes to allow corporate tax entities to carry a tax loss they make in the
         current income year back to either of the two previous years (the `earliest
         year' and the `middle year'). If they paid income tax in those years, they
         can get a refund of that tax (up to a maximum of $300,000) in the form of
         a tax offset in the current year. A loss made in the middle year can also be
         carried back to the earliest year.

         1.4        A corporate tax entity is a company, a public trading trust, a
         corporate unit trust or a corporate limited partnership. These are all entity
         types that are taxed in broadly the same way as a company, ensuring that
         the tax offset is worked out using the flat corporate rate of tax, not a tax
         rate that varies according to the entity's taxable income.

         1.5       To carry a loss back two years from the current year, the entity
         must be a corporate tax entity for the current year (paragraph 160-10(a))
         and throughout the earliest year and the middle year
         (subsection 160-25(1)).

         1.6      The Bill uses the expression `throughout the earliest year and the
         middle year' because some of these entity types can change from year to
         year. For example, an entity could be a public trading trust for one year

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Tax and Superannuation Laws Amendment (2013 Measures No. 1) Bill 2013 amendment



            but be an ordinary trust for the next year (it therefore would no longer be a
            corporate tax entity taxed in the same way as a company).

            1.7       However, that expression also raises the possible interpretation
            that an entity (for example, a `start-up' entity) cannot be a corporate tax
            entity throughout the income year during which it comes into being
            because it did not exist as an entity for the whole of that year.

            1.8       Amendments 1 and 2 remove that possibility by disregarding
            any part of a year before the entity came into existence in deciding if it
            was a corporate tax entity throughout the relevant period.
            [Amendments 1 and 2]

            1.9      No similar amendments are made for the part of a year after a
            corporate tax entity ceases to exist. This reflects the fact that the loss
            carry-back measure is not intended to compensate entities after they have
            failed. Therefore, an entity must still be a corporate tax entity throughout
            the whole of the year for which it claims a loss carry-back tax offset.

            1.10       Replace paragraph 6.13 of the Explanatory Memorandum with:

                   6.13 It must also have been a corporate tax entity throughout the
                   income year the loss is carried back to (disregarding any part of the
                   year before the entity came into existence) and throughout any
                   intervening income year. [Schedule 5, item 2, section 160-25]




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