TAX LAWS AMENDMENT (2006 MEASURES NO. 3) BILL 2006 Explanatory Memorandum

Commonwealth of Australia Explanatory Memoranda

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TAX LAWS AMENDMENT (2006 MEASURES NO. 3) BILL 2006

2004-2005-2006 THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA HOUSE OF REPRESENTATIVES TAX LAWS AMENDMENT (2006 MEASURES No. 3) BILL 2006 SUPPLEMENTARY EXPLANATORY MEMORANDUM Amendments to be moved on behalf of the Government (Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Table of contents General outline and financial impact ....................................................... 3 Chapter 1 Amendments 1 to 4 to Schedule 1 -- Cyclone Larry income support payments....................... 5 Chapter 2 Amendments 9 to 12 to Schedule 2 -- Non-assessable, non-exempt income relating to Cyclone Larry................................................................. 7

General outline and financial impact Amendments 1 to 4 to Schedule 1 -- Cyclone Larry income support payments Amendments 1 to 4 amend Schedule 1 to extend eligibility for the beneficiary tax offset to farmers and small business owners in receipt of Cyclone Monica income support payments. Date of effect: The beneficiary tax offset applies to Cyclone Monica income support payments for the 2005-06, 2006-07 and 2007-08 years of income. Proposal announced: The amendments that relate to extending the beneficiary tax offset to Cyclone Monica income support payments have not previously been announced. Cyclone Monica income support payments were announced in the Prime Minister's Press Release of 26 May 2006. Financial impact: This measure has an estimated impact on revenue of nil in 2006-07 and negligible in 2007-08. Compliance cost impact: Negligible. Amendments 5 to 8 to Schedule 2 -- Non-assessable, non-exempt income relating to Cyclone Larry Amendments 5 to 8 amend Schedule 2 to allow payments to those adversely affected by flooding due to the combined impacts of both Cyclones Monica and Larry to be non-assessable, non-exempt income. Date of effect: 26 May 2006. Proposal announced: These changes were announced in the Prime Minister's Press Release of 26 May 2006. Financial impact: The cost to revenue is expected to be negligible. 3

Tax Laws Amendment (2006 Measures No. 3) Bill 2006 Compliance cost impact: The implementation costs related to this measure are expected to be small, and the ongoing compliance costs are expected to be minimal. 4

Chapter 1 Amendments 1 to 4 to Schedule 1 -- Cyclone Larry income support payments Explanation of amendments 1 to 4 1.1 Amendments 1 to 4 amend Schedule 1 to include Cyclone Monica income support payments as a rebatable benefit to which the beneficiary tax offset applies. These amendments ensure consistent taxation treatment with Cyclone Larry income support payments which are included in the Tax Laws Amendment (2006 Measures No. 3) Bill 2006 and Newstart allowance. 1.2 The Cyclone Monica income support payments provide income support to farmers and small business owners who have been adversely affected by the cumulative effects of Cyclone Larry and Cyclone Monica and were announced in the Prime Minister's Press Release of 26 May 2006. 1.3 The Cyclone Monica income support payments, similar to the Cyclone Larry income support payments, are equivalent to the maximum rate of Newstart allowance and are available for six months from 29 May 2006. 1.4 These amendments include Cyclone Monica income support payments in the heading of Schedule 1. [Amendment 1] 1.5 The amendments also include Cyclone Monica income support payments in the definition of a `rebatable' benefit to which the beneficiary tax offset applies in subsection 160AAA(1) of the Income Tax Assessment Act 1936. [Amendment 2] 1.6 Amendment 3 includes Cyclone Monica income support payments in the list of payments that attract a tax offset and directs readers to the item in the table headed `social security and other benefit payments' in section 13-1 of the Income Tax Assessment Act 1997. [Amendment 3] 5

Tax Laws Amendment (2006 Measures No. 3) Bill 2006 1.7 Amendment 4 includes Cyclone Monica income support payments in the item in the table headed `social security and other benefit payments' in section 13-1 of the Income Tax Assessment Act 1997. [Amendment 4] Application and transitional provisions 1.8 These amendments are to apply to the 2005-06, 2006-07 and 2007-08 years of income. 6

Chapter 2 Amendments 5 to 8 to Schedule 2 -- Non-assessable, non-exempt income relating to Cyclone Larry Explanation of amendments 5 to 8 2.1 Amendments 5 to 8 amend Schedule 2 to include payments to businesses adversely affected by flooding due to the combined impacts of Cyclones Larry and Monica as non-assessable, non-exempt income, as announced by the Prime Minister on 26 May 2006. 2.2 These amendments define payments made under the Cyclones Monica and Larry Business Assistance Fund as non-assessable, non-exempt income. [Amendment 7] 2.3 As a transitional arrangement, until the Cyclones Monica and Larry Business Assistance Fund is established, the amendments provide that payments to eligible businesses will be made from the Cyclone Larry Business Assistance Fund. [Amendment 7] 2.4 It is noted that businesses that have already received assistance payments from the Cyclone Larry Business Assistance Fund will not be eligible for payments from the Cyclones Monica and Larry Business Assistance Fund. 2.5 These amendments also ensure references are made to both Cyclones Larry and Monica. [Amendments 5, 6 and 8] 2.6 There are no changes to the application and transitional provisions as set out in the explanatory memorandum to the Tax Laws Amendment (2006 Measures No. 3) Bill 2006. 7

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