Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2013-2014-2015
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TAX AND SUPERANNUATION LAWS AMENDMENT (2015 MEASURES No. 3)
BILL 2015
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon J. B. Hockey MP)
Table of contents
Glossary .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 Abolishing the seafarer tax offset .................................. 5
Chapter 2 Research and development tax incentive:
reducing the tax offset rates.......................................... 9
Index ..................................................................................................... 15
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
ITAA 1997 Income Tax Assessment Act 1997
TAA 1953 Taxation Administration Act 1953
1
General outline and financial impact
Abolishing the seafarer tax offset
Schedule 1 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) to abolish the seafarer tax offset.
Date of effect: This measure applies to assessment for 2015-16 and later
income years.
Proposal announced: This measure was announced in
the 2014-15 Budget.
Financial impact: This measure will have the following fiscal impact
over the forward estimates:
2013-14 2014-15 2015-16 2016-17 2017-18
- - $4m $4m $4m
Human rights implications: This Schedule does not raise any human
rights issues. See Statement of Compatibility with Human Rights --
Chapter 1, paragraphs 1.14 to 1.19.
Compliance cost impact: This measure was assessed as resulting in a
compliance cost reduction of around $4,000 each year.
Research and development tax incentive: reducing the tax
offset rates
Schedule 2 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) to reduce the rates of the tax offset available under the
research and development tax incentive for the first $100 million of
eligible expenditure by 1.5 percentage points. The higher (refundable) rate
of the tax offset will be reduced from 45 per cent to 43.5 per cent and the
lower (non-refundable) rates of the tax offset will be reduced from
40 per cent to 38.5 per cent.
Date of effect: This measure applies to income years starting on or
after 1 July 2014.
Proposal announced: This measure was announced in the
2014-15 Budget on 13 May 2014.
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Tax and Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015
Financial impact: This measure has the following fiscal impact over the
forward estimates period:
2013-14 2014-15 2015-16 2016-17 2017-18
- $70m $160m $200m $190m
Human rights implications: This Schedule does not raise any human
rights issues. See Statement of Compatibility with Human Rights --
Chapter 2, paragraphs 2.20 to 2.27.
Compliance cost impact: This measure does not affect compliance costs.
4
Abolishing the seafarer tax offset
Outline of chapter
1.0 Schedule 1 to this Bill amends the Income Tax Assessment
Act 1997 (ITAA 1997) to abolish the seafarer tax offset.
Context of amendments
1.1 The seafarer tax offset was introduced in 2012 to provide an
incentive for companies to employ Australian seafarers.
1.2 A company is entitled to the seafarer tax offset in an income
year in respect of an Australian resident individual if:
• the company engaged the individual for at least 91 days in
the income year under a contract of employment or an
arrangement that results in a payment that is subject to pay as
you go withholding under subsection 12-60(1) in
Schedule 1 to the Taxation Administration Act 1953;
• the individual was engaged as a seafarer (a master, deck
officer, integrated rating, steward or engineer) on a voyage to
or from a place outside Australia; and
• an entity holds a certificate for the vessel(s) on which the
individual is engaged under Part 2 of the Shipping Reform
(Tax Incentives) Act 2012 (broadly, for a company to obtain a
certificate, the vessel must meet certain tonnage, registration
and usage requirements).
(see section 61-705 of the ITAA 1997)
1.3 The amount of the tax offset is equal to 30 per cent of the
amounts either paid to the individual (or individuals) in respect of their
employment (including leave entitlements), or paid for the training of the
individual (or individuals) that is relevant to their employment
(section 61-710 of the ITAA 1997).
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Tax and Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015
1.4 The offset is refundable, allowing the company to receive a
refund of up to the full amount of the offset from the Commissioner of
Taxation if they have no income tax liability to firstly offset (see
section 67-23 of the ITAA 1997).
1.5 The rationale for the introduction of the seafarer tax offset was
to stimulate opportunities for Australian seafarers to be employed on
overseas voyages and to gain maritime skills. Since its introduction
in 2012, the seafarer tax offset has been claimed by fewer than five
taxpayers.
1.6 The low level of claims for the seafarer tax offset indicates that
it has not achieved its policy intent. It has not been an effective stimulant
for the employment of Australian seafarers on overseas voyages.
1.7 The savings from this measure will be redirected by the
Government to help repair the Budget and fund other policy priorities.
Summary of new law
1.8 Schedule 1 amends the ITAA 1997 by repealing
Subdivision 61-N of the ITAA 1997 to abolish the seafarer tax offset for
the 2015-16 income year and later income years.
Comparison of key features of new law and current law
New law Current law
The seafarer tax offset will no longer Companies that satisfy the eligibility
be available. requirements may claim the seafarer
tax offset.
Detailed explanation of new law
1.9 Schedule 1 amends the ITAA 1997 to repeal Subdivision 61-N
of the ITAA 1997. [Schedule 1, item 2, Subdivision 61-N of the ITAA 1997]
1.10 Subdivision 61-N provided for the seafarer tax offset, setting out
which entities were eligible and the amount of the offset. As a result of the
repeal, the offset will cease to be available.
6
Abolishing the seafarer tax offset
Consequential amendments
1.11 Schedule 1 also makes a number of minor consequential
amendments to the ITAA 1997 and the Shipping Reform (Tax Incentives)
Act 2012 to remove references to the seafarer tax offset elsewhere in these
Acts. [Schedule 1, items 1, 3, and 4, tables in sections 13-1 and 67-23 of the ITAA 1997
and the note to section 4 of the Shipping Reform (Tax Incentives) Act 2012]
Application and transitional provisions
1.12 The repeal of the seafarer tax offset (and the related
consequential amendments) will apply to assessments for 2015-16 and
later income years. [Schedule 1, item 5]
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Abolishing the seafarer tax offset
1.13 This Schedule is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3
of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
1.14 The seafarer tax offset is available to companies that employ
Australian residents as a seafarer on a voyage on an eligible vessel to or
from a location outside Australia. To be an eligible vessel, an entity must
hold a certificate under Part 2 of the Shipping Reform (Tax Incentives)
Act 2012 in respect of the vessel. Broadly, such a certificate can be
obtained where the vessel meets certain size requirements, is intended for
travel on international waters and is registered on an Australian shipping
register.
1.15 Companies eligible for the concession receive a tax offset for
30 per cent of the costs of the engagement of the Australian resident. This
offset is refundable.
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Tax and Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015
Human rights implications
1.16 This Schedule does not engage any of the applicable rights or
freedoms.
1.17 The offset is only available to companies and the benefit it
provides is, at most, minor.
Conclusion
1.18 This Schedule is compatible with human rights as it does not
raise any human rights issues.
8
Research and development tax incentive:
reducing the tax offset rates
Outline of chapter
2.0 Schedule 2 to this Bill amends the Income Tax Assessment
Act 1997 (ITAA 1997) to reduce the rate of the tax offsets available under
the research and development tax incentive for the first $100 million of
eligible expenditure by 1.5 percentage points. The higher (refundable) rate
of the tax offset for this expenditure will be reduced from 45 per cent to
43.5 per cent and the lower (non-refundable) rates of the tax offset will be
reduced from 40 per cent to 38.5 per cent.
Context of amendments
Research and development tax incentive
2.1 The research and development tax incentive is the primary
mechanism by which the Commonwealth seeks to encourage companies
to undertake research and development activities in Australia.
2.2 Broadly, the incentive provides:
• a 45 per cent refundable tax offset for the first $100 million
of eligible expenditure of eligible entities with a turnover of
less than $20 million, and which are not controlled by
income tax-exempt entities, for their expenditure on eligible
research and development activities in Australia;
• a 40 per cent non-refundable tax offset for the first $100
million of all other eligible entities for their expenditure on
eligible research and development activities in Australia; and
• a further tax offset at the company tax rate for the balance of
all eligible entities' expenditure.
(see section 355-100 of the ITAA 1997.)
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Tax and Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015
2.3 In determining what rate applies, an entity will be considered to
be controlled by an exempt entity or entities if, broadly, the exempt entity
or exempt entities hold an interest in the entity of at least 50 per cent at
any time in the income year (see section 355-100 of the ITAA 1997).
2.4 The tax offset rates of 40 per cent, 45 per cent or 30 per cent of
the eligible research and development expenditure replace any income tax
deduction or other offset that would otherwise be available in respect of
the expenditure. As a result, the first $100 million of research and
development expenditure generally results in a greater net benefit than an
income tax deduction for research and development expenditure at the
company tax rate.
2.5 Eligible research and development activities include both core
activities, being experimental activities undertaken for the purpose of
acquiring new knowledge, and supporting activities, which are activities
either directly related to core activities or are undertaken for the dominant
purpose of supporting core activities (sections 355-20 to 355-30 of the
ITAA 1997).
2.6 Eligible entities are Australian resident corporations, Australian
permanent establishments of foreign corporations and certain public
trading trusts (section 355-35 of the ITAA 1997) who have registered
under Part III of the Industry Research and Development Act 1986.
2.7 Provisions exist to claw back the additional tax benefit provided
by the research and development tax incentive for eligible expenditure
where an entity obtains a recoupment from government for the
expenditure or where the expenditure relates to feedstock that has been or
is sold (see Subdivisions 355-G and 355-H of the ITAA 1997).
2.8 The savings that will result from the measure will assist in the
repair of the budget. Following this change, the research and development
tax incentive will continue to provide a significant incentive for research
and development in Australia.
Consultation
2.9 Targeted confidential consultation was undertaken on exposure
draft legislation with affected stakeholder bodies. No concerns were raised
during consultation.
10
Research and development tax incentive: reducing the tax offset rates
Summary of new law
2.10 Schedule 2 to this Bill amends the ITAA 1997 to reduce the
refundable and non-refundable rates of the tax offset available under
the research and development tax incentive for the first $100 million
of eligible expenditure from 45 per cent to 43.5 per cent and from
40 per cent to 38.5 per cent (respectively).
2.11 The changes do not affect the eligibility of entities to claim the
research and development tax incentive or the administration of the
research and development tax incentive more generally.
Comparison of key features of new law and current law
New law Current law
Eligible entities: Eligible entities:
• with annual turnover of less than • with annual turnover of less than
$20 million; and $20 million; and
• which are not controlled by an • which are not controlled by an
exempt entity or entities exempt entity or entities
may obtain a refundable tax offset may obtain a refundable tax offset
equal to 43.5 per cent of their first equal to 45 per cent of their first
$100 million of eligible research and $100 million of eligible research and
development expenditure in an development expenditure in an
income year and a further refundable income year and a further refundable
tax offset equal to the amount by tax offset equal to the amount by
which their research and development which their research and development
expenditure exceeds $100 million expenditure exceeds $100 million
multiplied by the company tax rate. multiplied by the company tax rate.
All other eligible entities may obtain All other eligible entities may obtain
a non-refundable tax offset equal to a non-refundable tax offset equal to
38.5 per cent of their eligible research 40 per cent of their eligible research
and development expenditure and a and development expenditure and a
further non-refundable tax offset further non-refundable tax offset
equal to the amount by which their equal to the amount by which their
research and development research and development
expenditure exceeds $100 million expenditure exceeds $100 million
multiplied by the company tax rate. multiplied by the company tax rate.
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Tax and Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015
Detailed explanation of new law
2.12 Schedule 2 to this Bill amends the three rates of the tax offset
available as part of the research and development tax incentive detailed in
the table in section 355-100 of the ITAA 1997.
2.13 The first rate in the table in section 355-100 applies to entities
with a turnover of less than $20 million (and to which the second rate does
not specifically apply). These entities previously received a tax offset
equal to 45 per cent of their first $100 million of eligible research and
development expenditure. They will now receive an offset equal to
43.5 per cent of their first $100 million of eligible expenditure. [Schedule 2,
item 1, item 1 in the table in subsection 355-100(1) of the ITAA 1997]
2.14 The second rate in the table applies to entities which, at any time
during the income year, are controlled by an entity that is exempt from
income tax (an 'exempt entity'), including entities which would otherwise
meet the criteria for the first rate to apply. These entities previously
received a tax offset equal to 40 per cent of their first $100 million of
eligible research and development expenditure. They will now receive an
offset equal to 38.5 per cent of their first $100 million of eligible
expenditure. [Schedule 2, item 2, item 2 in the table in subsection 355-100(1) of the
ITAA 1997]
2.15 The third rate in the table applies to all other eligible entities.
These entities previously received a tax offset equal to 40 per cent of their
eligible research and development expenditure. They will now receive an
offset equal to 38.5 per cent of their eligible expenditure. [Schedule 2, item 3,
item 3 in the table in subsection 355-100(1) of the ITAA 1997]
2.16 There is also a note to the table which previously referred to the
45 per cent rate. The note now refers to the 43.5 per cent rate. [Schedule 2,
item 4, note to subsection 355-100(1) of the ITAA 1997]
2.17 For simplicity, no change has been made to the provisions
providing for the adjustment of tax benefits in respect of eligible research
and development expenditure where the entity obtains a recoupment for
the expenditure or sells feedstock to which the expenditure relates.
Application and transitional provisions
2.18 These amendments apply in respect of assessment for income
years commencing on or after 1 July 2014. [Schedule 2, item 5]
12
Research and development tax incentive: reducing the tax offset rates
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Research and development tax incentive: reducing the tax offset rates
2.19 This Schedule is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in
section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
2.20 The research and development tax incentive is the primary tax
mechanism by which the Commonwealth seeks to encourage companies
to undertake research and development activities in Australia.
2.21 Broadly, under the research and development tax incentive,
eligible entities (Australian resident corporations, Australian permanent
establishments of foreign corporations and certain public trading trusts
(section 355-35 of the ITAA 1997) who have registered under Part III of
the Industry Research and Development Act 1986) are entitled to receive a
tax offset for a certain percentage of their eligible expenditure on research
and development.
2.22 As a result of the amendments, the refundable tax offset rate will
be reduced from 45 per cent to 43.5 per cent for the first $100 million of
eligible expenditure by taxpayers with annual turnover under $20 million
that were not controlled by entities that are exempt from income tax at any
point during the income year, and the non-refundable tax offset rate will
be reduced from 40 per cent to 38.5 per cent for the first $100 million of
eligible expenditure for all other taxpayers.
2.23 The gain to revenue and savings from this measure will be
redirected to repairing the budget.
Human rights implications
2.24 This Schedule does not engage any of the applicable rights or
freedoms.
2.25 The change only affects the amount of tax offset that can be
claimed by corporate taxpayers which engage in eligible research and
development activities.
Conclusion
This Schedule is compatible with human rights as it does not raise any
human rights issues.
13
Index
Schedule 1: Abolishing the seafarer tax offset
Bill reference Paragraph number
Items 1, 3, and 4, tables in sections 13-1 and 67-23 of the 1.12
ITAA 1997 and the note to section 4 of the Shipping Reform (Tax
Incentives) Act 2012
Item 2, Subdivision 61-N of the ITAA 1997 1.10
Item 5 1.13
Schedule 2: Rates of R&D tax offset
Bill reference Paragraph number
Item 1, item 1 in the table in subsection 355-100(1) of the 2.14
ITAA 1997
Item 2, item 2 in the table in subsection 355-100(1) of the 2.15
ITAA 1997
Item 3, item 3 in the table in subsection 355-100(1) of the 2.16
ITAA 1997
Item 4, note to subsection 355-100(1) of the ITAA 1997 2.17
Item 5 2.19
15