Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008-2009
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
tax laws amendment (2009 measures No. 5) 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 GST and representatives of incapacitated entities 11
Chapter 2 Pay as you go instalments and taxation of financial
arrangements interactions 35
Chapter 3 Outer regional and remote payment made under the Helping
Children with Autism package 43
Chapter 4 Continence Aids Payment Scheme 45
Chapter 5 Interest withholding tax - extension of eligibility for
exemption to Commonwealth issued debt 47
Chapter 6 2009 Victorian Bushfire Appeal Trust Account 51
Index 61
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
|Abbreviation |Definition |
|Commissioner |Commissioner of Taxation |
|DGR |deductible gift recipient |
|GST |goods and services tax |
|GST Act |A New Tax System (Goods and |
| |Services Tax) Act 1999 |
|ITAA 1936 |Income Tax Assessment Act |
| |1936 |
|ITAA 1997 |Income Tax Assessment Act |
| |1997 |
|IWT |interest withholding tax |
|PM Developments |Deputy Commissioner of |
| |Taxation v PM Developments |
| |Ltd (2008) FCA 1886 |
|TAA 1953 |Taxation Administration Act |
| |1953 |
|the Appeal Fund |2009 Victorian Bushfire |
| |Appeal Trust Account |
|the Panel |Victorian Bushfire Appeal |
| |Fund Independent Advisory |
| |Panel |
|the Red Cross |Australian Red Cross Society |
General outline and financial impact
GST and representatives of incapacitated entities
Schedule 1 to this Bill amends the A New Tax System (Goods and
Services Tax) Act 1999 (GST Act) to ensure that a representative of
an incapacitated entity is responsible for the goods and services
tax (GST) consequences that arise during its appointment. This is
the stated policy intention of the current law however, a recent
Federal Court decision held that the current law does not achieve
this intention. The proposed amendments will restore the policy
intention of the GST Act relating to the GST consequences for a
representative of an incapacitated entity.
The proposed amendments will also ensure that the GST consequences
that arise from an action performed by the representative are the
same as those that would have arisen had the action been performed
by the incapacitated entity.
Date of effect: The main operative provisions will take effect
from 1 July 2000, the introduction date of the GST. The
consequential amendment to the Fuel Tax Act 2006 will take effect
from 1 July 2006 which is the commencement date for that Act. The
remaining consequential and minor amendments will commence from the
date of Royal Assent.
Proposal announced: This measure was announced in the then
Assistant Treasurer and Minister for Competition Policy and
Consumer Affairs' Media Release No. 005 of 6 February 2009.
Financial impact: This measure has the following revenue
implications:
|2008-09 |2009-10 |2010-11 |2011-12 |2012-13 |
|Nil |Negligible|Negligible|Negligible|Negligible|
The proposed amendments will have an insignificant impact on
revenue as they will give effect to the stated policy intention as
at the commencement of the GST law on 1 July 2000. The proposed
amendments are also generally consistent with the way the law has
been administered by the Commissioner of Taxation.
Compliance cost impact: Low.
Pay as you go instalments and taxation of financial arrangements
interactions
Schedule 2 to this Bill amends the pay as you go instalment
provisions to address a number of issues arising out of amendments
to the Taxation Administration Act 1953 contained in the Tax Laws
Amendment (Taxation of Financial Arrangements) Act 2009 (TOFA Act).
Date of effect: The amendments generally apply to entities with
effect from their first applicable income year (within the meaning
of item 102 of Schedule 1 to the TOFA Act) and later income years.
Proposal announced: These amendments were announced in the
Assistant Treasurer's Media Release No. 043 of 4 September 2009.
Financial impact: This measure will have an unquantifiable gain to
revenue over the forward estimates. This gain represents a timing
impact only, with no net increase in tax receipts.
Compliance cost impact: Compliance costs are expected to be low.
Outer regional and remote payment made under the Helping Children with
Autism package
Schedule 3 to this Bill amends the Income Tax Assessment Act 1997
to ensure that the outer regional and remote payment made under the
Helping Children with Autism package is not subject to income tax.
Date of effect: This measure applies retrospectively to amounts
received in the 2008-09 income year and later income years and does
not adversely affect taxpayers.
Proposal announced: This measure has not previously been
announced. The outer regional and remote payment was announced via
a joint press release from the Minister for Families, Housing,
Community Services and Indigenous Affairs, the Minister for Health
and Ageing, the Acting Minister for Education and the Parliamentary
Secretary for Disabilities and Children's Services on 25 June 2008.
Financial impact: Nil. There is no impact on the forward
estimates, as no related revenue was recorded in the Portfolio
Additional Estimates Statements 2007-08 where the Helping Children
with Autism package was announced by the Department of Families,
Housing, Community Services and Indigenous Affairs.
Compliance cost impact: Low.
Continence Aids Payment Scheme
Schedule 4 to this Bill amends the Income Tax Assessment Act 1997
to ensure that payments made under the Continence Aids Payment
Scheme are not subject to income tax.
Date of effect: This measure applies to amounts received in the
2009-10 income year and later income years.
Proposal announced: The income tax exemption for this payment has
not previously been announced. However, the Continence Aids
Payment Scheme was announced as part of the 2009-10 Budget.
Financial impact: Nil. As clients do not pay any income tax on
the value of benefits received under the current subsidised
products scheme and will not pay any income tax on receiving the
replacement income tax exempt cash payments, there is no impact on
the forward estimates.
Compliance cost impact: Low.
Interest withholding tax - extension of eligibility for exemption to
Commonwealth issued debt
Schedule 5 to this Bill amends section 128F of the Income Tax
Assessment Act 1936 to extend eligibility for exemption from
interest withholding tax to debt issued in Australia by the
Commonwealth or Commonwealth authorities.
Date of effect: This amendment applies to interest paid on or
after the commencement date. The commencement date is the day
after Royal Assent.
Proposal announced: This measure was announced in the Treasurer's
Media Release No. 092 of 21 August 2009.
Financial impact: This measure has the following revenue
implications:
|2009-10 |2010-11 |2011-12 |2012-13 |2013-14 |
|-$13.4m |-$22.1m |-$13.5m |-$4.5m |$1.1m |
Compliance cost impact: Nil.
2009 Victorian Bushfire Appeal Trust Account
Schedule 6 to this Bill provides the Victorian Bushfire Appeal Fund
Independent Advisory Panel (the Panel) with greater scope to
support communities and individuals affected by the 2009 Victorian
bushfires.
The Panel oversees the expenditure of funds from the 2009 Victorian
Bushfire Appeal Trust Account (the Appeal Fund). The amendments
permit funds in the Appeal Fund to be used for a broader range of
purposes than the law considers charitable, without jeopardising
the charitable status of the Australian Red Cross Society (the Red
Cross), which is the charity that collected the donations.
The charitable status of the Red Cross will be protected so long as
the funds are used for the purposes specified in these amendments
(the allowable purposes).
The purposes for which the funds may be expended are extended by
this Bill but are contained to provide assurance to the donors that
their charitable donations will be used appropriately.
Date of effect: This measure applies to payments made by the Red
Cross to the Appeal Fund after 28 January 2009 and before 6
February 2014.
Proposal announced: This measure was announced in the Assistant
Treasurer and the Parliamentary Secretary for Victorian Bushfire
Reconstruction's Joint Press Release No. 031 of 17 August 2009.
Financial impact: Nil.
Compliance cost impact: Low.
Chapter 1
GST and representatives of incapacitated entities
Outline of chapter
1. Schedule 1 to this Bill amends the A New Tax System (Goods and
Services Tax) Act 1999 (GST Act) to ensure that a representative of
an incapacitated entity is responsible for the goods and services
tax (GST) consequences that arise during its appointment. This is
the stated policy intention of the current law however, a recent
Federal Court decision held that the current law does not achieve
this intention. The proposed amendments will restore the policy
intention of the GST Act relating to the GST consequences for a
representative of an incapacitated entity.
2. The proposed amendments will also ensure that the GST consequences
that arise from an action performed by the representative are the
same as those that would have arisen had the action been performed
by the incapacitated entity.
3. The main operative provisions will take effect from 1 July 2000,
the introduction date of the GST. The consequential amendment to
the Fuel Tax Act 2006 will take effect from 1 July 2006 which is
the commencement date for that Act. The remaining consequential
and minor amendments will commence from the date of Royal Assent.
Context of amendments
4. Division 147 of the GST Act contains provisions relating to
representatives of incapacitated entities. The explanatory
memorandum to the A New Tax System (Goods and Services Tax) Bill
1999, at paragraphs 6.272 and 6.273, states that the intention of
Division 147 is to ensure that:
'The representative is personally liable for the GST payable
and for the other requirements (of the GST legislation).
The representative is liable from the date on which he or
she becomes entitled to act for you (the principal) until he
or she ceases to be entitled. The representative is liable
for GST, entitled to input tax credits and has any
adjustments attributable to that period.
During that period the effect of Division 147 is that the
representative rather than the principal is carrying on the
enterprise. The representative is not personally liable for
GST attributable before he or she becomes entitled to act
for the principal.'
5. However, Division 147 does not expressly deem the representative to
be liable for the GST consequences that arise during its
appointment. Rather, it:
. requires the representative to register for GST in its
capacity as a representative, if the entity it represents
is registered or required to be registered (current
section 147-5);
. specifies when the Commissioner of Taxation (Commissioner)
is required to cancel the representative's GST
registration (current section 147-10);
. requires the representative to notify the Commissioner if
and when it ceases to represent the incapacitated entity
(current section 147-15);
. specifies that increasing adjustments that arise in
relation to pre-appointment transactions undertaken by the
incapacitated entity are, if the representative provides
written notice to the Commissioner, to be treated as
adjustments that the incapacitated entity has (instead of
the representative) (current section 147-20); and
. specifies that the tax periods applying to the
representative, in that capacity, are the same as those
applying to the incapacitated entity (current section 147-
25).
6. The Federal Court decision Deputy Commissioner of Taxation v PM
Developments Ltd [2008] FCA 1886 (PM Developments) handed down on
12 December 2008 held that a liquidator is not liable for the GST
arising from a transaction occurring during the period of the
liquidator's appointment. Instead the Court held that the GST
liability is a liability of the company in liquidation.
7. The PM Developments decision is contrary to the stated policy
intention (contained in the explanatory memorandum) that the
representative of an incapacitated entity (for the purposes of
Division 147 of the GST Act) is liable for GST on transactions
within the scope of its appointment. It is also contrary to the
Commissioner's administration of Division 147.
8. Following the Federal Court decision the Government decided to
amend the GST law with effect from 1 July 2000 to ensure the law
achieves the stated policy objective.
9. Retrospective amendment of the GST law is considered appropriate as
the proposed amendments will give effect to the stated policy
intention as at the commencement of the GST law on 1 July 2000.
The proposed amendments are also generally consistent with the way
the law has been administered by the Commissioner.
10. Consequently, retrospective application of the law is not expected
to adversely impact taxpayers with one exception. Supplies by
representatives to associates of incapacitated entities for no
consideration or inadequate consideration may have a different GST
outcome as a result of the retrospective amendments. A
transitional provision will apply to ensure that the amendments
will not adversely impact those taxpayers affected.
11. In addition, a transitional provision provides protection for
representatives from retrospective GST liabilities in certain
circumstances. Protection is provided from liability under the GST
law for acts or omissions by a representative up until the date of
the then Assistant Treasurer and Minister for Competition Policy
and Consumer Affairs' announcement to amend the law in Media
Release No. 005 of 6 February 2009.
Summary of new law
12. Schedule 1 inserts new Division 58 into the GST Act to provide that
any supply, acquisition or importation by a representative of an
incapacitated entity in his or her representative capacity will be
treated as a supply, acquisition or importation of the
incapacitated entity. This ensures that the GST consequences that
arise from a supply, acquisition or importation of the
representative are the same as the consequences that would have
arisen as if they were a supply, acquisition or importation of the
incapacitated entity.
13. New Division 58 also ensures that the representative is responsible
for certain GST consequences which arise from a supply, acquisition
or importation that falls within the scope of the representative's
responsibility or authority for managing the incapacitated entity's
affairs.
14. The main operative provisions relating to a supply, acquisition or
importation of a representative and the provisions ensuring the
representative is responsible for certain GST consequences will
take effect from the date of the introduction of the GST on
1 July 2000. The consequential amendment to the Fuel Tax Act 2006
will take effect from 1 July 2006 which is the commencement date
for that Act. The remaining consequential and minor amendments
will commence from the date of Royal Assent of this Bill.
Comparison of key features of new law and current law
|New law |Current law |
|A supply, acquisition or |No equivalent. |
|importation by a | |
|representative, in its | |
|capacity as a | |
|representative, is taken,| |
|for GST purposes, to be a| |
|supply, acquisition or | |
|importation of the | |
|incapacitated entity. | |
|Further, any act or | |
|omission of a | |
|representative in its | |
|capacity as a | |
|representative, is taken,| |
|for GST purposes, to be | |
|an act or omission of the| |
|incapacitated entity for | |
|the purposes of applying | |
|any provision in the GST | |
|law which determines | |
|whether: | |
|a supply or importation | |
|made by an incapacitated | |
|entity is a taxable | |
|supply or a taxable | |
|importation or the amount| |
|of GST payable on the | |
|supply or importation; | |
|an acquisition or | |
|importation made by an | |
|incapacitated entity is a| |
|creditable acquisition or| |
|creditable importation, | |
|or the amount of the | |
|input tax credit for the | |
|acquisition or | |
|importation; or | |
|an adjustment arises in | |
|relation to a supply, | |
|acquisition or | |
|importation made by an | |
|incapacitated entity or | |
|the amount of any such | |
|adjustment. | |
|However, the | |
|representative (and not | |
|the incapacitated entity)| |
|is liable for or entitled| |
|to certain GST | |
|consequences that arise | |
|from a supply, | |
|acquisition or | |
|importation or related | |
|acts or omissions during | |
|the representative's | |
|appointment. | |
|A representative of an |No equivalent. |
|incapacitated entity must| |
|give to the Commissioner | |
|a GST return for a tax | |
|period applying to the | |
|incapacitated entity if | |
|the incapacitated entity | |
|has failed to give such a| |
|return and the | |
|Commissioner directs the | |
|representative to give | |
|the Commissioner the | |
|return. In directing a | |
|representative to give | |
|such a return, the | |
|Commissioner must take | |
|into account a number of | |
|factors. | |
|If a representative |Increasing adjustments |
|becomes aware, or could |that arise in relation to|
|reasonably be expected to|pre-appointment |
|have become aware of, any|transactions undertaken |
|increasing adjustments, |by an incapacitated |
|or that an incapacitated |entity are, if a |
|entity is liable for GST,|representative provides |
|and the amount of GST or |written notice to the |
|increasing adjustment has|Commissioner, to be |
|not been reported in a |treated as adjustments |
|GST return that has been |that an incapacitated |
|given to the |entity has (instead of a |
|Commissioner, the |representative). |
|representative must | |
|notify the Commissioner | |
|of the amount of GST or | |
|increasing adjustment. | |
|The notification is | |
|required to be provided | |
|prior to the declaration | |
|of a dividend to | |
|unsecured creditors. | |
|Tax periods applying to a|Tax periods applying to a|
|representative, in that |representative, in that |
|capacity, are the same as|capacity, are the same as|
|those applying to the |those applying to an |
|incapacitated entity. |incapacitated entity. |
|The tax period applying | |
|to an incapacitated | |
|entity at the time it | |
|becomes incapacitated | |
|ends at the end of the | |
|day before the entity | |
|became incapacitated. | |
|The Commissioner must |No equivalent. |
|revoke the approval of a | |
|member of a GST group if | |
|the member becomes | |
|incapacitated and the | |
|representative of the | |
|incapacitated entity | |
|applies to the | |
|Commissioner for the | |
|member's approval to be | |
|revoked. | |
|If a member of a GST |No equivalent. |
|group becomes | |
|incapacitated, the | |
|representative member of | |
|that group may elect to | |
|have the tax periods that| |
|apply to group members | |
|cease at the same time as| |
|the incapacitated | |
|entity's tax period | |
|ceases. | |
|A representative member |No equivalent. |
|of a GST group that | |
|becomes incapacitated | |
|will not be able to | |
|continue as the | |
|representative member of | |
|the GST group unless all | |
|of the members of the GST| |
|group are incapacitated. | |
|An individual that is |No equivalent. |
|appointed as a | |
|representative of two or | |
|more incapacitated | |
|entities may elect to | |
|lodge one consolidated | |
|GST return per tax period| |
|(rather than a separate | |
|return for each | |
|incapacitated entity) if | |
|the incapacitated | |
|entities are members of | |
|the same GST group. | |
|A representative is |No equivalent. |
|entitled to apply any | |
|money which the | |
|representative receives | |
|in his or her capacity as| |
|representative in order | |
|to pay liabilities that | |
|arise as a result of the | |
|operation of new Division| |
|58. | |
|A representative is not |No equivalent. |
|liable to civil or | |
|criminal proceedings in | |
|relation to an act done, | |
|or omitted to be done, in| |
|good faith, in the | |
|performance or exercise | |
|of his or her duties or | |
|powers under, or in | |
|relation to, the GST Act.| |
Detailed explanation of new law
15. Schedule 1 replaces Division 147 of the GST Act with new Division
58 to ensure that a representative of an incapacitated entity is
responsible for certain GST consequences that arise during the
representative's appointment. It is intended that a supply,
acquisition or importation of the representative will be treated as
a supply, acquisition or importation of the incapacitated entity
for the purposes of determining the GST consequences for the
representative.
Supplies, acquisitions or importations by representatives of incapacitated
entities
16. New subsection 58-5(1) provides that a supply, acquisition or
importation by a representative, in its capacity as representative,
is taken, for GST purposes, to be a supply, acquisition or
importation by the incapacitated entity and not the representative.
[Schedule 1, item 8]
17. Under new subsection 58-5(2), any act or omission of a
representative is taken, for GST purposes, to be an act or omission
of the incapacitated entity for the purposes of applying any
provision in the GST law which determines whether:
. a supply or importation is a taxable supply or a taxable
importation or the amount of GST payable on the supply or
importation;
. an acquisition or importation is a creditable acquisition
or a creditable importation, or the amount of the input
tax credit for the acquisition or importation; or
. an adjustment arises in relation to a supply, acquisition
or importation made by an incapacitated entity or the
amount of any such adjustment.
[Schedule 1, item 8]
18. The intention of subsections 58-5(1) and (2) is to ensure that the
GST consequences that arise for the representative are the same as
the consequences that would have arisen if they were supplies,
acquisitions or importations or related acts or omissions of the
incapacitated entity. For example, these provisions will ensure
that:
. any method that the incapacitated entity would have been
eligible to use to work out the amount of GST payable on a
supply (such as the margin scheme under Division 75) can
be used;
. a supply the representative makes for no consideration to
an associate of the incapacitated entity is subject to GST
if it would have been subject to GST had it been made by
the incapacitated entity; and
. supplies made by the representative in that capacity are
taken into account in determining whether the
incapacitated entity is required to be registered (which,
in turn, will determine whether the representative is
required to be registered).
19. Any acts or omissions of a representative will be taken to be acts
or omissions of the incapacitated entity for the purposes of
determining whether a supply is GST-free or input taxed. This is
on the basis that such acts or omissions of the representative will
be relevant in determining whether a supply is a taxable supply or
the amount of GST payable on a supply. For example, the entry into
a written agreement by a representative that a supply is a supply
of a GST-free going concern will be taken to be an act of the
incapacitated entity.
20. Paragraph 58-5(2)(c) ascribes acts and omissions that give rise to
an adjustment to the incapacitated entity. New section 58-10 is
the relevant provision that allocates the relevant liability or
entitlement arising from the adjustment to the representative in
specified circumstances. [Schedule 1, item 8]
21. New subsection 58-5(3) ensures that a seamless transition occurs in
cases where the incapacitated entity continues to operate after the
representative's appointment has ended. For example, an entity
that was previously incapacitated will not be prevented from
claiming an input tax credit in relation to a supply of second-hand
goods it makes on the technicality that the goods were acquired by
the representative while the entity was an incapacitated entity.
This subsection is limited to supplies, acquisitions or
importations or acts or omissions that were undertaken during the
period that the entity was an incapacitated entity. [Schedule 1,
item 8]
22. The accounting basis of a representative need not be the same
as the accounting basis of the incapacitated entity and under
subsection 58-5(2) the decision of a representative to account on a
cash basis would not be an act of the representative that would be
taken to be an act of the incapacitated entity. However for the
avoidance of doubt, subsection 58-5(4) will ensure that for the
purposes of the provisions relating to bad debts in Division 21 of
the GST Act, the act of a representative to account on a cash basis
will not be taken to be an act of the incapacitated entity. In
particular, subsection 58-5(4) ensures that the action by a
representative to account for GST on a cash basis does not prevent
an adjustment that would otherwise have arisen under Division 21
from arising due to subsections 21-5(2) and 21-15(2). [Schedule 1,
item 8]
23. The overall effect of section 58-5 will be to ensure that all
supplies, acquisitions and importations, and certain acts or
omissions made during the period of a representative's appointment
will be taken to be those of the incapacitated entity, regardless
of whether it was the incapacitated entity or the representative
that undertook the transactions or undertook the relevant acts or
omissions.
24. It is recognised that in light of the decision in PM Developments,
where the Federal Court held that the liquidator does not
ordinarily makes supplies, acquisitions or importations, rather
such supplies are made by the incapacitated entity, section 58-5
may only have limited application. However, section 58-5 will
apply in circumstances where the representative, as a matter of
law, makes the supply, for example, in the case of bankruptcy or
where a vesting order is obtained.
25. Section 58-5 places all types of representation on common footing
and provides a consistent base from which the representative
becomes liable for relevant liabilities and becomes entitled to
relevant entitlements.
Representative liable for GST, entitled to input tax credits or has
adjustments in some circumstances
26. New section 58-10 sets out the circumstances in which a
representative of an incapacitated entity will be liable for GST on
a taxable supply or a taxable importation, entitled to an input tax
credit for a creditable acquisition or creditable importation and
have any adjustments. [Schedule 1, item 8]
27. New subsection 58-10(1) provides that a representative of an
incapacitated entity is liable for any amount of GST, is entitled
to any input tax credit, and has any adjustment that would, in the
absence of this subsection, be an amount that the incapacitated
entity is liable for, or entitled to. However, this only applies
to the extent that the making of the supply, acquisition or
importation to which the amount of GST, input tax credit, or
adjustment relates is within the scope of the representative's
responsibility or authority for managing the incapacitated entity's
affairs. [Schedule 1, item 8]
1. : Representative continues an existing lease under a new agreement
In August LeaseCo Pty Ltd enters into a two-year agreement
to lease commercial premises to a tenant. Prior to
December, when a receiver is appointed with respect to the
premises subject to a lease, LeaseCo Pty Ltd invoices and
receives payment from the tenant for the previous four
months rent at $1,100 per month.
The receiver notifies the tenant of their appointment and
negotiates the continuation of the lease under a new
agreement. Pursuant to subsection 58-10(1) the receiver is
liable for the GST applicable to the supply of the premises
under the new lease agreement.
The incapacitated entity remains liable for $400 GST, being
the GST applicable to the supply of the premises for the
four months prior to the representative's appointment. The
supply of the premises for the period prior to the
representative's appointment is not within the scope of the
representative's responsibility or authority for managing
LeaseCo Pty Ltd's affairs.
2. : Concurrent representatives
A receiver is appointed with respect to a commercial
property from which JimCo Pty Ltd operates a printing
business. The receiver is appointed with respect to the
property to protect the interests of a secured creditor. At
the same time a liquidator is separately appointed to wind
up JimCo Pty Ltd.
With the acquiescence of the liquidator, the receiver enters
into a contract of sale and sells the property with respect
to which they were appointed. The receiver will be liable
for the GST liability arising on the sale of the property,
as the sale is within the scope of responsibility or
authority of the receiver's appointment.
The liquidator will not be liable for any GST pertaining to
the sale of the property, as the sale of the property is not
within the scope of the liquidator's responsibility or
authority.
28. The references to sections 48-40, 40-45 and 48-50 in paragraphs 58-
10(1)(a), (b) and (c) respectively, provide for circumstances where
the liability or entitlement would not be with the incapacitated
entity because the incapacitated entity is a member of a GST group,
and pursuant to Subdivision 48-B it is the representative member of
the GST group that otherwise would have the relevant liability or
entitlement. In these circumstances, the representative of the
incapacitated entity will be liable for or entitled to the GST
amount and not the representative member of the group. [Schedule
1, item 8]
29. Subsections 58-10(2) and (3) provide a number of exceptions from
the general rule in subsection 58-10(1). In particular, the
representative of an incapacitated entity is not liable for or
entitled to any GST related amounts to the extent that
consideration for a taxable supply or creditable acquisition was
received or provided before the representative became a
representative of the incapacitated entity. In these
circumstances, the incapacitated entity would remain liable or
entitled in respect of such amounts. [Schedule 1, item 8]
1. : Lay-by sales
RetailCo Pty Ltd offers a lay-by service to its customers.
In August, prior to the appointment of a liquidator,
RetailCo Pty Ltd had entered into a number of lay-by
arrangements with customers, for which some instalment
payments had been received, that were yet to be finalised.
Upon appointment, the liquidator agrees to continue with the
lay-by arrangements with customers and continues to collect
lay-by payments from customers. Upon finalisation of a lay-
by arrangement when the relevant goods are made available to
the customer, the liquidator will be liable for GST
applicable to the supply of the goods, as the supply of
those goods is within the scope of the liquidator's
responsibility or authority for managing the incapacitated
entity's affairs.
However the liquidator will not be liable for GST to the
extent of payments received from the customer prior to their
appointment. The incapacitated entity will remain liable
for the amount of GST applicable to the payments received
prior to the liquidator's appointment under new paragraph 58-
10(2)(a).
2. : Deposit received prior to representative's appointment
ShedCo Pty Ltd enters into a contract to construct and
supply a shed. The contract price is $22,000, and upon
entry into the contract ShedCo Pty Ltd receives a deposit of
$2,200. Prior to the commencement of the construction of
the shed an administrator is appointed to manage the affairs
of ShedCo Pty Ltd.
The administrator agrees with the customer that the
construction of the shed will continue. It is agreed that
the $2,200 deposit paid to ShedCo Pty Ltd will be applied as
part of the consideration for the shed.
The administrator will be liable for the GST applicable to
the supply of the shed, but will not be liable to the extent
of the $2,200 deposit paid to ShedCo Pty Ltd, prior to the
administrator's appointment.
30. Paragraphs 58-10(2)(b) and (c) provide two further exceptions to
the requirement that the representative is liable for GST on
taxable supplies or importations within the scope of its authority.
These relate to reverse-charged GST and vouchers. The
representative is not liable for GST if under Divisions 83 or 84
the GST is payable by the recipient of the supply and the
incapacitated entity provided any of the consideration for this
supply before the representative became a representative.
[Schedule 1, item 8]
31. The representative is also not liable for any GST payable on a
supply a representative makes to honour a voucher issued by the
incapacitated entity, to which Division 100 applies. This applies
to the extent that the consideration provided for the
representative's supply does not exceed the consideration provided
for the incapacitated entity's supply of the voucher. [Schedule 1,
item 8]
32. The intention of paragraph 58-10(2)(c) is to ensure that a
representative who honours a voucher issued by the incapacitated
entity is not liable to remit GST on their supply as, effectively,
the payment for the supply was provided to the incapacitated
entity. The representative will only be liable to pay GST on the
supply made on redemption of the voucher to the extent that it is
entitled to receive additional consideration (that is,
consideration in addition to the voucher itself). In these
circumstances the representative's GST liability will be limited to
the extent of GST applicable to the additional consideration
received. [Schedule 1, item 8]
1. : Voucher redeemed and additional consideration provided
In August a customer purchased a voucher for $1,500 from
ResortCo Pty Ltd. The customer was entitled to redeem the
voucher for $1,500 worth of accommodation at any of ResortCo
Pty Ltd's holiday resort complexes.
In December a representative was appointed to manage
ResortCo Pty Ltd's affairs.
In January the customer redeemed their voucher for
accommodation at one of ResortCo Pty Ltd's resorts, and also
paid an additional $770 to upgrade their accommodation to a
luxury suite. The representative will only be liable for
the GST applicable to the supply of the accommodation to the
extent of the additional $770 consideration. The
incapacitated entity will be liable for the GST applicable
to the extent of $1,500, being the monetary value of the
voucher that was redeemed.
33. New subsection 58-10(4) provides that the representative does not
have adjustments in certain circumstances. Paragraphs 58-10(4)(a)
and (b) provide that the representative does not have an adjustment
to the extent that the incapacitated entity received consideration
for the supply or provided consideration for the acquisition to
which the adjustment related before the representative's
appointment. [Schedule 1, item 8]
34. Paragraph 58-10(4)(c) provides that the representative does not
have an adjustment to the extent that the adjustment would not be
attributable to a tax period applying to the representative. For
example, this provision ensures that a representative whose
appointment has ceased will not have adjustments arising for a
change in extent of creditable purpose, under Division 129, after
the cessation of their appointment even though the relevant
acquisition may have been made during the period of their
appointment. [Schedule 1, item 8]
35. Finally, new subsection 58-10(5) provides that an incapacitated
entity, (or a representative member of an incapacitated entity if
the incapacitated entity is a member of a GST group), is not liable
for GST, entitled to input tax credits or has any adjustment if a
representative is liable or entitled to such amounts. This
provision makes it clear that there cannot be more than one entity
liable or entitled to GST related amounts. [Schedule 1, item 8]
Adjustments for bad debts
36. Division 21 of the GST Act provides for adjustments to arise where
debts of an entity are written off. The adjustments are intended
to ensure that any GST paid or input tax credits claimed where
consideration is not received or provided is refunded or repaid.
This is only necessary in circumstances where an entity accounts on
a non-cash basis and consequently liability and entitlement can be
attributed before consideration is received or provided.
37. Where a representative is appointed to an incapacitated entity,
depending on the accounting basis of the representative and the
incapacitated entity, Division 21 may not operate effectively.
38. New section 58-15 ensures that the bad debt provisions in Division
21 operate to ensure that bad debt adjustments cannot arise where
GST has not been paid or an input tax credit has not been claimed.
[Schedule 1, item 8]
39. For example, without this provision, if a representative that
accounts for GST on a cash basis 'makes' a taxable supply but does
not receive the consideration for the supply within 12 months of
the due date for payment, a bad debt adjustment may arise if the
incapacitated entity accounts on a non-cash basis. This is because
under new section 58-5 it is the incapacitated entity and not the
representative that would be taken to have made the supply for the
purposes of subsection 21-5(1) as the incapacitated entity accounts
on a non-cash basis, subsection 21-5(2) will not prevent the
incapacitated entity from claiming a decreasing adjustment.
Attribution rules
40. The interaction of the attribution rules in Division 29 with new
Division 58 should not result in entitlements or liabilities not
being attributable to a tax period that applies to the entity for
which the relevant entitlement or liability arises (under section
58-10). In the absence of new section 58-40 circumstances may
arise where an amount of GST or input tax credit that a
representative is liable for or entitled to may be attributable to
a period that ends prior to the representative's appointment and
prior to the representative's registration in that capacity. In
such cases, the relevant amount of GST or input tax credit would
not be included in the net amount of any entity.
41. New section 58-40 ensures that any amount of GST or input tax
credit that a representative is liable for or entitled to (under
section 58-10) is, to the extent the amount would have been
attributable to a tax period that ended prior to the time the
representative became a representative of the incapacitated entity,
instead attributable to the first tax period applying to the
representative that begins on or after this time. This will only
apply to a representative that does not account for GST on a cash
basis. [Schedule 1, item 8]
Registration
42. New sections 58-20, 58-25 and 58-30 are consistent with sections
147-5, 147-10 and 147-15 of the current law. These provisions
ensure that a representative of an incapacitated entity is required
to be registered in that capacity if the incapacitated entity is
registered or required to be registered. When the appointment of a
representative ends, the representative must notify the
Commissioner within 21 days of the end of the appointment. The
Commissioner must cancel a representative's registration if the
Commissioner is satisfied that the representative is not required
to be registered in that capacity. [Schedule 1, item 24]
GST returns and notifications
43. New section 58-45 allows a representative that is appointed to two
or more incapacitated entities that are members of a GST group to
give the Commissioner one return for a tax period in respect of the
entities. [Schedule 1, item 24]
44. New section 58-50 provides that a representative of an
incapacitated entity must give to the Commissioner a GST return for
a tax period applying to the incapacitated entity if the
incapacitated entity has failed to give such a return and the
Commissioner directs the representative to give the Commissioner
the return. Any direction by the Commissioner to a representative
of an incapacitated entity to provide a GST return is a reviewable
decision. [Schedule 1, item 25]
45. A direction by the Commissioner in relation to a tax period may be
in relation to any tax period applying to the incapacitated entity
including a tax period that ends before the representative became a
representative and a tax period that starts after the
representative became a representative. It would not, however,
include a tax period that occurs after a representative's
appointment has ended.
46. Subsection 58-50(4) provides, without limiting the matters that the
Commissioner may take into account in deciding whether to give a
direction to a representative to give a return, the Commissioner
must take into account the following four factors:
. the prospect for, and likely size of a dividend being paid
to unsecured creditors;
. the likelihood that the return would, if lodged, reveal a
liability to pay an amount to the Commissioner;
. the availability of books and records which would make it
possible to prepare the return; and
. the likelihood that the representative's cost of preparing
the return would be covered by the assets of the
incapacitated entity without resulting in an unreasonable
impact on other creditors.
[Schedule 1, item 25]
47. While the Commissioner must take into account these four factors,
the Commissioner is not limited to these factors. For example,
another relevant factor would be the scope of the representative's
responsibility or authority for managing the affairs of the
incapacitated entity.
48. Subsection 58-50(6) is included to assist readers as the direction
of the Commissioner is not a legislative instrument within the
meaning of section 5 of the Legislative Instruments Act 2003.
49. New section 58-55 recognises that in some circumstances the
requirement under Division 31 for an incapacitated entity to lodge
GST returns while a representative is appointed will not be
necessary. This section provides that an incapacitated entity is
not required to lodge a GST return where the entity's net amount
for the tax period is zero, the entity does not have an increasing
adjustment that is attributable to the tax period and the entity is
not liable for GST that is attributable to the tax period.
[Schedule 1, item 25]
50. New section 58-60 provides that a representative must notify the
Commissioner of certain liabilities of the incapacitated entity
that it could reasonably be expected to become aware of for which a
GST return has not been given to the Commissioner. The
representative is required to notify the Commissioner of such
amounts prior to declaring a dividend to unsecured creditors.
[Schedule 1, item 25]
51. In cases where there is more than one dividend to be paid to
creditors, for example an interim dividend followed by a final
dividend, notification will be required prior to the declaration of
each dividend. Each successive notification will only need to
notify relevant liabilities that have not been included in prior
notifications.
52. Where a representative does not comply with section 58-60 a penalty
may arise under section 286-75 of Schedule 1 to the Taxation
Administration Act 1953 (TAA 1953) for failing to lodge documents
on time.
Tax periods
53. New section 27-39 specifies what happens in relation to an entity's
tax periods if it becomes incapacitated. In particular, the tax
period applying to an incapacitated entity at the time it becomes
incapacitated ends at the end of the day before the entity became
incapacitated. The next tax period starts on the day after the tax
period ends and ends when the first tax period would have ended.
This amendment ensures that all incapacitated entities have a tax
period that ends on the day before they become incapacitated.
Currently, an incapacitated entity may or may not have a tax period
that concludes the day before they become incapacitated, depending
on the type of representation to which it is subject. [Schedule 1,
item 15]
54. A consequential amendment is made to subsection 27-40(1) which
currently provides for an entity's concluding tax period in certain
circumstances. As a result of new section 27-39, which
specifically applies to incapacitated entities, references to
liquidation, receivership and bankruptcy have been removed from
subsection 27-40(1). [Schedule 1, item 16]
55. Consistent with existing section 147-25, new section 58-35 provides
that if a representative of an incapacitated entity is required to
be registered, the tax periods applying to the representative are
the same tax periods that apply to the incapacitated entity.
[Schedule 1, item 24]
56. These amendments relating to tax periods will assist in separating
pre-appointment and post-appointment liabilities. It will also
ensure that all incapacitated entities will be required to pay any
net GST liability for their concluding tax period on or before the
21st day of the month following the end of the concluding tax
period under section 33-5.
GST groups and incapacitated entities
57. Division 48 of the GST Act provides that two or more closely-
related entities may form a GST group if they satisfy certain
requirements. In particular, all group members must have the same
tax periods and the group must nominate one member as the
representative member of the GST group. The representative member
of a group is the only member of the group required to lodge a GST
return. It is liable for the GST payable on supplies made by group
members and is entitled to any input tax credits arising from
acquisitions group members make. Intra-group transactions are
effectively ignored.
58. A member of a GST group that becomes incapacitated will generally
be required to exit the GST group. Under section 27-39, such an
entity's current tax period would end on the day before the entity
became incapacitated, and as this tax period would differ from
those applying to other members, the entity would no longer satisfy
the membership requirements of the group.
59. In these circumstances, the incapacitated entity would be required
to exit the GST group from the start of a tax period applying to
group members. Thus, the incapacitated entity will be required to
exit the group 'retrospectively' (that is, from the start of the
tax period that applied to group members at the time it became
incapacitated). This creates difficulties for the group as a whole
as, during the first part of that tax period, they would have
accounted for GST as though they were a group.
60. New section 48-73 provides that if a member of a GST group becomes
incapacitated, the representative member of that group may elect to
have the tax periods that apply to group members cease at the same
time as the incapacitated entity's tax period ceases. [Schedule 1,
item 22]
61. If the representative member elects to have the group members' tax
periods cease, it must lodge a GST return (for the group, including
the incapacitated entity) on or before the 21st day of the month
following the end of the tax period. The representative member of
the GST group will also be required to pay any net GST liability
for the tax period on or before this day. As a result of this
election, the tax periods applying to all group members will be the
same and the incapacitated entity will not be required to exit the
group on the basis that it has different tax periods to other
members of the GST group.
62. Alternatively if an incapacitated entity does exit the group, the
representative member of the group can still elect to have the
group members' tax period cease at the same time as the
incapacitated entity's tax period ceases. This will eliminate the
need for revision of GST group transactions that occurred prior to
the relevant group member becoming incapacitated.
63. If the representative member does not make an election under
section 48-73 when a member of the GST group becomes an
incapacitated entity, it is likely that the incapacitated member
will no longer satisfy the grouping eligibility requirements and
will be required to exit the group.
64. New section 48-73 will provide the opportunity for an incapacitated
entity to remain part of a GST group. This may reduce compliance
costs especially where an incapacitated entity continues to trade
in its own right during the period of the representative's
appointment.
65. New section 48-72 provides that an incapacitated entity cannot be a
representative member of a GST group unless all the members of the
GST group are incapacitated. [Schedule 1, item 22]
66. Consequential amendments are made to section 48-70 to provide that
the Commissioner must revoke the approval of a member of a GST
group if the member becomes incapacitated and the representative of
the incapacitated entity applies to the Commissioner for the
member's approval to be revoked. [Schedule 1, item 21]
67. Consequential amendments are also made to section 48-75 to provide
that the Commissioner must revoke the approval of a GST group if a
member of the group has ceased to be the representative member of
the group because the entity has become an incapacitated entity.
However, the approval will not be revoked if within 21 days the
Commissioner has approved another member of the group to replace
that member as the representative member of the group. [Schedule
1, item 23]
68. A representative may be appointed as a representative of two or
more incapacitated entities that are part of the same GST group.
In accordance with subsection 184-1(3) of the GST Act, the
representative is taken to be a different entity in relation to
each incapacitated entity that it represents. Thus, it will be
required to account for GST separately in relation to each of these
entities.
69. However, new section 58-45 provides that where a representative is
appointed as a representative of two or more incapacitated
entities, the representative may elect to lodge one consolidated
GST return per tax period (rather than a separate return for each
incapacitated entity) if the incapacitated entities are members of
the same GST group. [Schedule 1, item 25]
70. The intention of the amendments in relation to GST groups is to
provide flexibility and reduce compliance costs in circumstances
where one or more members of a GST group becomes incapacitated.
Indemnity
71. Under new section 58-65 a representative will be indemnified for
any payment it makes to meet its GST obligations. [Schedule 1,
item 25]
72. Even though a representative may be appointed to an incapacitated
entity, in most but not all cases (such as where the assets are
vested in the representative), the incapacitated entity retains
both the legal and beneficial ownership of any property even though
it can no longer deal with that property. As the funds received by
the representative in such cases will still belong to the
incapacitated entity, an indemnification provision is required to
ensure that the legal representative can use the incapacitated
entity's assets to make GST payments to meet its obligations.
73. Further, new section 58-70 provides protection against civil or
criminal proceedings in relation to an act done or omitted to be
done in good faith in the performance of the representative's
duties under the GST law. [Schedule 1, item 25]
Application and transitional provisions
74. New provisions 58-1 to 58-15, 58-40 and minor related consequential
amendments will commence from 1 July 2000. The consequential
amendment to the Fuel Tax Act 2006 will take effect from
1 July 2006 which is the commencement date for this Act. The
remainder of the amendments will take effect from the date of Royal
Assent.
Protection for representatives from liabilities arising from retrospective
application
75. A transitional provision provides protection for representatives
from GST liabilities in limited circumstances. This provision
provides protection from liability under the GST Act for acts or
omissions by a representative up until the date of announcement to
amend the law by the then Assistant Treasurer and Minister for
Competition Policy and Consumer Affairs in Media Release No. 005 of
6 February 2009. [Schedule 1, item 55]
76. The relevant GST liability must also be within the scope of the
representative's authority and obligations as a representative of
the incapacitated entity.
77. Protection from liability under the GST Act is limited. Protection
will be available in circumstances where GST obligations arising
during the period of appointment of a representative have been
reported and paid in full by the incapacitated entity (and not the
representative).
78. Protection will also be available in circumstances where, due to
insufficient funds, the relevant GST obligations arising during the
period of appointment of a representative have only been paid in
part by the incapacitated entity or not at all. In such cases the
protection will be limited to cases where the representative no
longer had access to company assets or an indemnity by which the
outstanding liability may be satisfied at the time of the
announcement of the proposed retrospective amendments on 6 February
2009.
79. The limited protection afforded by this provision is not intended
to apply in cases where, after 6 February 2009, a representative
has retrospectively revised a net amount or GST liability in
accordance with the Federal Court's decision in PM Developments.
Supplies to associates of incapacitated entities
80. The proposed retrospective amendments may give rise to an
inconsistent outcome in relation to supplies by a representative of
an incapacitated entity to an associate of the incapacitated entity
for no consideration or inadequate consideration.
81. Division 72 of the GST Act provides that a supply between
'associates' may be a taxable supply even though there is no
consideration. In most cases an associate of an incapacitated
entity will not be an 'associate' of the representative.
Consequently under the existing GST Act a supply made by a
representative to an associate of the incapacitated entity would
not be treated as a taxable supply if there was no consideration
provided by the associate.
82. In contrast, under new section 58-5, a supply by a representative
to an associate of the incapacitated entity for no consideration
will be covered by Division 72 as the supply will be taken to be a
supply of the incapacitated entity.
83. A transitional provision will prevent Division 72 from applying to
past supplies by representatives to associates of incapacitated
entities for no consideration or inadequate consideration. The new
provisions will apply in respect of any such supplies made after
the date of Royal Assent. [Schedule 1, item 50]
84. Further, in the case of members' voluntary liquidations Division 72
will not apply to any supplies by representatives to associates of
incapacitated entities where the members' voluntary liquidation
commenced before the day on which this Bill is introduced into the
House of Representatives. This provides transitional protection
against GST liability on distributions of assets by the liquidator
to an associate of the company on the basis that such liquidations
commenced prior to the introduction of this Bill into Parliament.
[Schedule 1, item 50]
Repeal of Division 147
85. The repeal of Division 147 will take effect from the date of Royal
Assent. The provisions in new Division 58 requiring notifications
and returns by representatives will also take effect from the date
of Royal Assent. In light of this a number of transitional
provisions are required.
86. Section 147-20 is amended to ensure it only applies to increasing
adjustments for the period between 1 July 2000 and the date of
Royal Assent. Currently section 147-20 applies to both increasing
and decreasing adjustments. In addition, current section 147-20 is
predicated on the basis that the relevant adjustments are
adjustments of the representative. However due to the operation of
new section 58-5 the adjustments to which this section relates will
always be adjustments that the incapacitated entity has. Therefore
this section, as currently worded, would have no application.
[Schedule 1, item 10]
87. Transitional provisions will also ensure that cancellations of
registration under section 147-10 and notices under section 147-15
still have effect under the new relevant provisions in Division 58
that is, sections 58-25 and 58-30 respectively. [Schedule 1,
items 51 and 52]
Time limit on recovery by the Commissioner
88. Section 105-50 of Schedule 1 to the TAA 1953 provides for a four-
year time limit on the Commissioner's ability to recover unpaid
indirect tax. That is, an unpaid amount ceases to be payable if
four years have passed after the date it was due for payment.
89. If a refund of GST previously paid is made in accordance with the
law between the date of the Federal Court decision
(12 December 2008) and the commencement of Schedule 1, the proposed
amendments will have the effect of reimposing that liability upon
the representative unless the liability falls outside the four-year
limit.
90. A transitional provision provides the Commissioner with an
extension to the four-year time limit to ensure that the
Commissioner has the ability to recover the liability imposed by
the retrospective amendments in circumstances where refunds may
have been paid between the Federal Court decision and commencement
of the proposed amendments.
91. In particular, the four-year period within which the Commissioner
may recover unpaid tax will be extended to four years from the date
on which the refund was claimed. [Schedule 1, item 53]
Refunds of amounts wrongly paid by incapacitated entities
92. A transitional provision is inserted to ensure that if an amount is
payable by a representative of an incapacitated entity to the
Commissioner, but was paid by the incapacitated entity after the
appointment of the representative, the incapacitated entity is not
entitled to a refund of the amount unless the representative has
paid the amount to the Commissioner. [Schedule 1, item 54]
Consequential amendments
93. The proposed amendments insert a new Division 58 dealing with
representatives of incapacitated entities. As a result existing
Division 147 is repealed. A number of consequential provisions
ensure there are no anomalous outcomes as a result of the
retrospective commencement of new Division 58 and repeal of
Division 147.
94. Section 444-70 of the TAA 1953 is amended to clarify its
interaction with new Division 58. [Schedule 1, item 49]
95. Section 444-70 provides that two or more representatives of an
incapacitated entity are jointly and severally liable to pay any
amount that is payable under an indirect tax law. Section 58-10
provides that a representative is liable for GST to the extent that
a supply is within the scope of the representative's responsibility
or authority for managing the incapacitated entity's affairs.
96. The amendment to section 444-70 ensures that in the case of
successive appointments a representative is not liable in relation
to actions of an earlier representative where the appointment of
that representative has ceased prior to its appointment. It is
further provided that a representative is not liable in relation to
concurrent appointments where the representatives are appointed to
act in different capacities as representatives. Section 444-70
will still apply in the case of concurrent appointments where the
representatives are appointed to act in similar capacities.
[Schedule 1, item 49]
97. A number of minor consequential amendments will also be made to
subsection 110-50(2) of the TAA 1953. These amendments insert or
remove references to decisions under subsection 58-25(1),
paragraph 58-50(1)(b) and subsection 147-10(1) as reviewable
decisions. [Schedule 1, items 47 and 48]
98. A consequential amendment will be made to the definition of
'representative' in Division 195 to include a reference to a
'controller'. A controller is a form of external administrator
relating to corporations and should therefore be included as a
representative for the purposes of the GST Act. [Schedule 1,
item 42]
99. Division 156 is amended to clarify the treatment of periodic and
progressive supplies and acquisitions under Division 58.
Division 156 provides that in relation to attributing GST or an
input tax credit on progressive or periodic supplies, the GST
payable or input tax credit is attributable as if each progressive
or periodic component of the supply were a separate supply.
100. New section 156-17 is inserted to provide that each periodic or
progressive component of a supply or acquisition is to be treated
as a separate supply or acquisition for the purposes of
Division 58. This should assist representatives in determining
whether a periodic or progressive supply is within the scope of
their authority. [Schedule 1, item 35]
1. : Representative continues with an existing lease agreement
In August CrashCo Pty Ltd enters into a one-year agreement
for the lease of premises from which it operates a car
repair business. The lessor invoices CrashCo Pty Ltd on a
monthly basis for monthly rent of $2,200; with the rent
being payable one month in advance.
On 15 December an administrator is appointed to manage
CrashCo Pty Ltd's affairs. At the time of appointment of
the administrator CrashCo Pty Ltd had paid five monthly
instalments of rent of $2,200. The amounts paid by CrashCo
Pty Ltd include payment in advance for the lease of the
premises for the month of December.
The acquisitions of the premises by way of lease for the
period subsequent to the administrator's appointment on 15
December, and up until the cessation of the administrator's
appointment will be made within the scope of the
administrator's responsibility or authority for managing
CrashCo Pty Ltd's affairs. The administrator will be
entitled to any input tax credits arising with respect to
the acquisitions of the premises for that period.
However, although the administrator was appointed part way
through the month of December, the administrator will not be
entitled to any input tax credits with respect to the
acquisition of the premises during the month of December
because CrashCo Pty Ltd has provided the consideration for
the lease of the premises for entire month of December, see
paragraph 58-10(3)(a).
101. There are also a number of amendments reorganising headings and
notes and amending other provisions that need to be removed or
changed because of the introduction of the new provisions.
[Schedule 1, items 1 to 7, 9, 12 to 14, 17 to 20, 26 to 34, 36 to
41, 43 to 45]
102. Consequential amendments will be made to section 70-25 of the Fuel
Tax Act 2006 to replace the reference to 'Division 147' with a
reference to 'Divisions 58 and 147' from 1 July 2006 until the date
of Royal Assent of this Bill. From the date of Royal Assent the
reference in section 70-25 will be to 'Division 58' only.
[Schedule 1, items 11 and 45]
103. The amendments to the Fuel Tax Act 2006 will ensure that the fuel
tax law continues to apply to an incapacitated entity and its
representative in the same way as the GST Act would apply to them
under proposed Division 58.
104. Primarily, this would mean that a representative would be entitled
to any fuel tax credit for an acquisition or importation of fuel to
the extent that:
. the making of the acquisition or importation is within the
scope of the representative's responsibility or authority
for managing the incapacitated entity's affairs; and
. in the case of an acquisition - the incapacitated entity
did not provide consideration for the acquisition prior to
the representative's appointment.
105. Similarly, the representative would have any fuel tax adjustment
that arises in relation to an acquisition or importation of fuel if
the making of the acquisition or importation was within the scope
of the representative's responsibility or authority for managing
the incapacitated entity's affairs. In the case of an acquisition,
the representative would not have the adjustment to the extent that
the consideration for the acquisition was provided by the
incapacitated entity before its appointment commenced.
Chapter 2
Pay as you go instalments and taxation of financial arrangements
interactions
Outline of chapter
106. Schedule 2 to this Bill amends the pay as you go (PAYG) instalment
provisions in Schedule 1 to the Taxation Administration Act 1953
(TAA 1953).
107. The amendments address a number of issues arising out of amendments
to the TAA 1953 contained in the Tax Laws Amendment (Taxation of
Financial Arrangements) Act 2009 (TOFA Act).
Context of amendments
108. These amendments were announced in the Assistant Treasurer's Media
Release No. 043 of 4 September 2009.
109. The effect of the PAYG amendments in the TOFA Act is arguably to
substantially change the basis on which a PAYG instalment liability
is calculated. The result of this change may be to decrease PAYG
instalment payments. Any decrease will result in a deferral of
revenue, which will be recouped after the relevant taxpayer lodges
their income tax return.
Summary of new law
110. The amendments reverse the changes the TOFA Act made to the PAYG
instalments system, thus preventing the potential decrease in the
amount of PAYG instalments paid.
111. In addition, the amendments will ensure that where an entity has
become liable to pay a decreased amount of PAYG instalments prior
to the commencement of this Bill, there will be a catch-up payment
of the decreased amount in the quarter that ends after the
commencement of this Bill.
Comparison of key features of new law and current law
|New law |Current law |
|An entity's instalment |The net result of gains |
|income, including income |and losses made on a |
|from Division 230 |Division 230 financial |
|financial arrangements, |arrangement is included |
|is generally the ordinary|in an entity's instalment|
|income the entity derived|income for PAYG |
|during a period, but only|instalments purposes. |
|to the extent that the |That is, the net result |
|income is assessable |of the gains must exceed |
|income of the income year|the losses made in an |
|that is or includes that |income year in respect of|
|period. |the financial arrangement|
|An entity's instalment |under Division 230 to be |
|income for a particular |recognised for PAYG |
|quarter that starts after|purposes. |
|the start of an income | |
|year that starts on or | |
|after 1 July 2009 may | |
|also include an | |
|additional amount worked | |
|out under these | |
|amendments. This will | |
|only be the case if the | |
|entity has chosen to | |
|apply the TOFA Act in | |
|relation to income years | |
|starting before 1 July | |
|2010. | |
|The net result of gains |An entity's instalment |
|and losses made on a |income, including income |
|financial arrangement |from a financial |
|that is subject to |arrangement subject to |
|Subdivision 250-E is |Subdivision 250-E, is |
|included in an entity's |generally the ordinary |
|instalment income for |income the entity derived|
|PAYG purposes. |during a period, but only|
|That is, the net result |to the extent that the |
|of the gains must exceed |income is assessable |
|the losses made in an |income of the income year|
|income year in respect of|that is or includes that |
|the financial arrangement|period. |
|under Subdivision 250-E | |
|to be recognised for PAYG| |
|purposes. | |
Detailed explanation of new law
Background to the PAYG instalments system
112. The PAYG instalments system facilitates the collection of income
tax on business and investment income during the year in
anticipation of a taxpayer's final income tax liability on
assessment. The provisions are in Part 2-10 of Schedule 1 to the
TAA 1953.
113. Typically, for large businesses, instalments are paid every
quarter, and are calculated by multiplying an instalment rate
notified by the Commissioner of Taxation (Commissioner) by an
entity's instalment income (which is essentially the gross ordinary
assessable income derived by the entity) during the quarter. The
Commissioner calculates the instalment rate in accordance with the
formula provided for in the TAA 1953. In general, the instalment
rate is calculated as a proportion of an entity's tax liability for
the previous year divided by the entity's instalment income for
that year.
114. As a general rule, in calculating instalment income, losses and
deductions are not offset against the gross income. That is, the
instalment income, as a general rule, is calculated on a gross
basis.
Issues caused by the changes that the TOFA Act made to PAYG instalments
115. The changes made by the TOFA Act in relation to the PAYG
instalments provisions (item 101 of Schedule 1 to that Act) give
rise to two issues.
. First, the TOFA Act made amendments to provide that the
PAYG instalments system recognises the gain or loss, or
the part of the gain or loss, on a Division 230 financial
arrangement that is attributable to the relevant income
year.
. Second, the TOFA Act unintentionally repealed an existing
provision that applied to working out the instalment
income of entities that have financial arrangements
subject to Subdivision 250-E of the Income Tax Assessment
Act 1997 (ITAA 1997).
116. These two amendments apply to entities for income years commencing
on or after 1 July 2009 if the entity made or makes an election
under item 103 of the TOFA Act. If the 'early adoption' of the
TOFA Act is not made, the amendments apply to entities for income
years commencing on or after 1 July 2010.
The first issue: Division 230 financial arrangements and the
definition of instalment income for PAYG instalments purposes
117. Generally, an entity's instalment income for a quarter is the
entity's ordinary income derived during that quarter, to the extent
that that income is assessable (subsection 45-120(1) of Schedule 1
to the TAA 1953).
118. However, where an entity has a Division 230 financial arrangement,
there is a different method for calculating the entity's instalment
income. Under that method, the net result of gains and losses made
on the arrangement is included in an entity's instalment income for
PAYG instalments purposes. This was inserted by item 101 of
Schedule 1 to the TOFA Act.
119. As indicated above, instalment income is, as a general rule,
calculated on a gross basis. The new method of calculating
instalment income on a net basis could have the effect of reducing
the entity's instalment income. The application of a given
instalment rate to a reduced amount of instalment income would
produce a reduced instalment payment.
120. It should be noted that any difference between the instalments the
entity is liable to pay under the law prior to the insertion of
subsection 45-120(2B) and the law after the insertion of that
subsection would be picked up after the entity lodges its income
tax return. However, the effect would be a deferral of payment of
instalments on some part of the relevant entity's taxable income.
The result would be inconsistent with the scheme of the PAYG
instalments system as outlined above.
The second issue: Financial arrangements subject to Subdivision
250-E and the definition of instalment income for PAYG instalment
purposes
121. In addition to inserting the new subsection 45-120(2B) of Schedule
1 to the TAA 1953 discussed above, item 101 of Schedule 1 to the
TOFA Act also repealed a previous version of subsection 45-120(2B).
That subsection was about the instalment income of entities that
have financial arrangements subject to Subdivision 250-E of the
ITAA 1997.
122. The previous version of subsection 45-120(2B) was introduced to
ensure that only the net amount of the gains and losses on
financial arrangements subject to Subdivision 250-E that are
attributable to an instalment period, are included in the
instalment income for that period. Subdivision 250-E itself was
not altered by the TOFA Act. Accordingly, there was no reason for
the TOFA Act to repeal the old version of subsection 45-120(2B).
The amendments contained in this Bill
123. Schedule 2 makes three amendments in order to address the two
issues outlined above.
. First, it repeals the version of subsection 45-120(2B)
that was inserted by item 101 of Schedule 1 to the TOFA
Act.
. Second, it provides for a 'catch-up' payment where a
PAYG instalment is underpaid by an entity as a result of
subsection 45-120(2B) applying to that entity.
. Third, it re-inserts the previous version of subsection 45-
120(2B) that was unintentionally repealed by item 101 of
Schedule 1 to the TOFA Act.
Amendment 1: Repeal of subsection 45-120(2B)
124. To clarify that the TOFA Act was not intended to significantly
reduce the amount of instalments an entity is liable to pay under
the PAYG instalments system, subsection 45-120(2B) of Schedule 1 to
the TAA 1953 is repealed. [Schedule 2, Part 1, item 1]
125. The repeal applies to entities for income years commencing on or
after 1 July 2009 if the entity made or makes an election under
item 103 of the TOFA Act. If no election is made, the repeal will
apply to entities for income years commencing on or after 1 July
2010. [Schedule 2, Part 1, item 2]
126. The timing of the repeal relies on the TOFA Act. The insertion
will only take effect for income years commencing on or after 1
July 2009 if the entity made or makes an election under item 103 of
the TOFA Act.
127. The effect of the repeal is that entities will rely on the other
provisions of section 45-120 in order to determine their instalment
income for a particular quarter. Therefore, in general, an
entity's instalment income would be equal to its ordinary income to
the extent that the income is assessable. This would be the case,
regardless of whether the entity derives income from Division 230
financial arrangements or not.
Amendment 2: A 'catch-up' of PAYG instalments
128. For entities that do not have substituted accounting periods, their
first instalment quarter for the income year starting on 1 July
2009 will end on 30 September 2009.
129. If this Schedule does not commence by 30 September 2009,
a decreased payment of PAYG instalments could occur for the first
instalment quarter. If this Bill does not commence prior to
31 December 2009, a decreased payment could also arise for the
second instalment quarter.
130. To address these possibilities, the second amendment contained in
this Bill provides for a 'catch-up' of any decreased payment of
PAYG instalments for instalment quarters prior to the commencement
of this Schedule commencing. [Schedule 2, Part 1, item 3]
Who needs to consider this amendment?
131. This catch-up payment provision only applies in a very specific
scenario. The amendment requires all of the below to occur in
order to apply:
. The entity must make or have made an election under
item 103 of the TOFA Act to apply TOFA early (that is,
from income years starting on or after 1 July 2009)
[Schedule 2, Part 1, sub-subitem 3(1)(b)].
. Schedule 2 to this Bill commences after 30 September 2009
[Schedule 2, Part 1, sub-subitem 3(1)(b)].
. The entity must be part of the PAYG instalments system,
and be a quarterly payer of instalments that pays on the
basis of instalment income [Schedule 2, Part 1, sub-
subitem 3(1)(a)].
. The entity's first instalment quarter for the income year
starting on or after 1 July 2009 must end before the
commencement of this Schedule. For example, assume that
an entity has an income year starting on 1 October 2009
and this Schedule commences on 15 December 2009. In that
case, the amendment will not apply to the entity because
its first instalment quarter ends on 31 December 2009,
which is after the commencement of Schedule 2 in December
2009 [Schedule 2, Part 1, sub-subitem 3(1)(b)].
132. The reason that the catch-up provision only applies in this
scenario is because in all other scenarios there would be no
decrease in the amount of PAYG instalments an entity is liable to
pay.
What quarter does the catch-up of the decreased PAYG instalment
occur in?
133. Where the provision applies to an entity, the catch-up will occur
when the entity becomes liable to pay a PAYG instalment for the
quarter during which the commencement of this Schedule occurs.
[Schedule 2, Part 1, subitem 3(4)]
134. If the entity has an income year starting on 1 July 2009, and
Schedule 2 commences during December 2009, the Bill has commenced
during the entity's second instalment quarter. In that case, the
catch-up will occur when the entity becomes liable to pay a PAYG
instalment in relation to its second instalment quarter. [Schedule
2, Part 1, subitem 30(4)]
135. If, however, Schedule 2 commences during January 2010, the Bill has
commenced during the entity's third instalment quarter. In that
case, the catch-up will occur when the entity becomes liable to pay
a PAYG instalment in relation to its third instalment quarter.
[Schedule 2, Part 1, subitem 30(4)]
How is the 'catch-up' of a decreased PAYG instalment calculated?
136. The catch-up of the decreased PAYG instalment amount involves the
entity including an additional amount in its instalment income for
the relevant instalment quarter (see above). This additional
amount is over and above what the entity's actual instalment income
for the relevant quarter was. [Schedule 2, Part 1, subitems 3(2)
and (3)]
137. The additional amount of instalment income is the difference
between:
. the entity's instalment income for all the instalment
quarters preceding the quarter during which this Schedule
commenced which started on or after 1 July 2009, taking
into account the fact that amendment 1 repealed
subsection 45-120(2B) of the TAA 1953; and
. the entity's actual instalment income for all the
instalment quarters preceding the quarter during which
this Schedule commenced which started on or after 1 July
2009, assuming that subsection 45-120(2B) was not
repealed.
[Schedule 2, Part 1, subitems 3(2) and (3)]
138. Essentially, the aim of this provision is to catch up any decreased
PAYG instalment payment that was caused by applying the new
subsection 45-120(2B). It is also designed to ensure that there is
no double-counting of any instalments already paid.
1.
An entity has made an election under item 103 to apply the
TOFA Act early, is a quarterly payer of instalments that
pays on the basis of instalment income, and has an income
year starting on 1 July 2009. Also, this Schedule commences
during December 2009.
This is a scenario to which the catch-up provision would
apply.
The catch-up would occur when the entity becomes liable to
pay a PAYG instalment in relation to the second instalment
quarter. This is because this Schedule commenced during the
entity's second instalment quarter.
Assume that because subsection 45-120(2B) applied during the
entity's first instalment quarter, the entity's instalment
income was only $10. However, if subsection 45-120(2B) did
not apply during the entity's first instalment quarter
assume that, its instalment income would have been $40.
When the entity becomes liable to pay a PAYG instalment for
its second instalment quarter, its instalment income for
that quarter will include an additional $30 ($40 - $10).
This is over and above any instalment income the entity
actually had during the second instalment quarter (not
applying subsection 45-120(2B)).
Amendment 3: Re-insertion of the old version of subsection 45-
120(2B)
139. As noted above, item 101 of Schedule 1 to the TOFA Act
unintentionally repealed the old version of subsection 45-120(2B).
Amendment 3 re-inserts it in identical terms to the version that
was introduced by item 169 of Schedule 1 to the Tax Laws Amendment
(2007 Measures No. 5) Act 2007. [Schedule 2, Part 2, item 4,
subsection 45-120(2B) of Schedule 1 to the TAA 1953]
140. The re-insertion applies for income years commencing on or after 1
July 2009 if the entity made an election under item 103 of the TOFA
Act. If no election had been made, the repeal will apply to
entities for income years commencing on or after 1 July 2010.
[Schedule 2, Part 2, item 5]
Commencement and application
141. Amendments 1 and 2 will commence on Royal Assent. Amendment 1 will
apply in the manner described in paragraph 2.24. [Schedule 2,
item 4 in the table in clause 2]
142. Amendment 3 will commence immediately after Royal Assent [Schedule
2, item 5 in the table in clause 2]. This ensures that there is no
confusion between the version of subsection 45-120(2B) of Schedule
1 to the TAA 1953 that is being repealed by Amendment 1, and the
version of subsection 45-120(2B) that is being inserted by
Amendment 3. The amendment will apply in the manner described in
paragraph 2.35.
Chapter 3
Outer regional and remote payment made under the Helping Children with
Autism package
Outline of chapter
143. Schedule 3 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) to ensure that the outer regional and remote payment
made under the Helping Children with Autism package is exempt from
income tax.
Context of amendments
144. The outer regional and remote payment was announced via press
release on 25 June 2008, as part of a review of the Helping
Children with Autism package.
145. The outer regional and remote payment is provided to families
living in outer regional and remote areas when a child is diagnosed
with autism spectrum disorder.
146. The payment is designed to assist families living in outer regional
and remote areas with the additional costs of accessing early
intervention as well as training, respite and other resources.
147. This amendment will retrospectively exempt from income tax,
payments made in the 2008-09 income year and later income years.
Summary of new law
148. This amendment provides that no income tax will be paid by
recipients on the receipt of the outer regional and remote payment.
This amendment will apply retrospectively for the 2008-09 income
year and later income years.
Comparison of key features of new law and current law
|New law |Current law |
|The outer regional and |Payments made to |
|remote payment made under|recipients of the outer |
|the Helping Children with|regional and remote |
|Autism package is |payment may be subject to|
|expressly exempt from |income tax. |
|income tax. | |
Detailed explanation of new law
149. The outer regional and remote payments made under the Helping
Children with Autism package are exempt from income tax. [Schedule
3, item 2, section 52-170]
Application and transitional provisions
150. This amendment applies retrospectively for the 2008-09 income year
and later income years.
151. As such, these payments will be subject to the provisions of the
ITAA 1997 dealing with amounts of exempt income.
Consequential amendments
152. The checklist of exemptions from income tax has been updated.
[Schedule 3, item 1, section 11-15]
Chapter 4
Continence Aids Payment Scheme
Outline of chapter
153. Schedule 4 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) to ensure that payments made under the Continence Aids
Payment Scheme are exempt from income tax.
Context of amendments
154. The Continence Aids Payment Scheme was announced as part of the
2009-10 Budget to replace the existing Continence Aids Assistance
Scheme. The Continence Aids Assistance Scheme involved the direct
provision of continence products to eligible recipients.
155. Payments under the Continence Aids Payment Scheme will assist
eligible people who have permanent and severe incontinence to meet
some of the costs of their continence products.
156. The provision of a direct payment to clients will allow recipients
increased flexibility and choice in their continence products.
157. The direct provision of products under the current Continence Aids
Assistance Scheme is not subject to income tax. However, as other
similar welfare type payments are subject to tax, the specific
exemption is required to ensure that recipients of this payment are
not disadvantaged.
Summary of new law
158. This amendment provides that from 2009-10 income year, no income
tax will be paid by recipients on the receipt of a payment under
the Continence Aids Payment Scheme.
Comparison of key features of new law and current law
|New law |Current law |
|A specific exemption from|Payments made to |
|income tax for payments |recipients of the |
|made under the Continence|Continence Aids Payment |
|Aids Payment Scheme |Scheme may be subject to |
|package is expressly |income tax. |
|exempt from income tax. | |
Detailed explanation of new law
159. Payments made to eligible recipients under the Continence Aids
Payment Scheme are exempt from income tax. [Schedule 4, item 2,
section 52-170]
160. As such, these payments will be subject to the provisions of the
ITAA 1997 dealing with amounts of exempt income.
Application and transitional provisions
161. These amendments apply to amounts received in the 2009-10 income
year and later income years.
Consequential amendments
162. The checklist of exemptions from income tax has been updated.
[Schedule 4, item 1, section 11-15]
Chapter 5
Interest withholding tax - extension of eligibility for exemption to
Commonwealth issued debt
Outline of chapter
163. Schedule 5 to this Bill amends section 128F of the Income Tax
Assessment Act 1936 (ITAA 1936) to allow debentures and debt
interests issued in Australia by the Commonwealth or an authority
of the Commonwealth to be eligible for exemption from interest
withholding tax (IWT) in accordance with the public offer rules.
164. Unless otherwise stated, all legislative references are to the ITAA
1936.
Context of amendments
165. Broadly, IWT is imposed on the payment of interest from Australia
to non-residents, at a rate of 10 per cent of the gross amount of
interest. The obligation for collecting (withholding) the IWT is
on the person making the payment. However, exemptions from IWT may
apply to certain arrangements.
166. Section 128F provides that where an Australian resident company, or
a non-resident company carrying on a business at or through a
permanent establishment in Australia, issues a debenture or certain
specified debt interests and the issue satisfies the public offer
test, an exemption from IWT will apply. The public offer test is
contained in subsection 128F(3).
167. In 2008 eligibility for the exemption was extended to bonds issued
in Australia by a central borrowing authority of a State or
Territory to improve depth and liquidity in the relevant bond
markets. It was also expected this measure would enhance the
ability of the states and territories to raise funds to finance
important infrastructure projects.
168. The imposition of IWT on Commonwealth issued debt places the
Commonwealth Government bond issuance at a competitive disadvantage
in international markets, and potentially results in Commonwealth
Government bonds being issued at a higher yield than otherwise
would be the case. To address these concerns, the Government
announced its decision to extend eligibility for exemption from IWT
to Commonwealth issued debt.
169. It is anticipated that making Commonwealth issued debt, including
Commonwealth Government Securities eligible for IWT exemption will
improve the attractiveness of Commonwealth Government debt to
investors.
170. The increased demand from investors due to the removal of the tax
can be expected to result in a reduction in yields on new issuance,
resulting in a lower cost of borrowing for the Government.
171. Further, extending eligibility for exemption from IWT to
Commonwealth issued debt will provide the Commonwealth Government,
state and territory governments and corporate debt with the same
tax treatment, improving tax system neutrality.
Summary of new law
172. Schedule 5 removes the prohibition preventing Commonwealth issued
debt issued in Australia from being eligible for the section 128F
exemption from IWT. Accordingly, the exemption from IWT which
applies to a public offer of company debentures or debt interests
will now also apply to debt issued by the Commonwealth or an
authority of the Commonwealth. This amendment will commence the
day after Royal Assent.
Comparison of key features of new law and current law
|New law |Current law |
|Debt issued by the |Debt issued by the |
|Commonwealth is eligible |Commonwealth is not |
|for exemption from IWT |eligible for exemption |
|under section 128F. |from IWT under section |
| |128F. |
Detailed explanation of the law
173. This amendment will repeal subsections 128F(5A) and (5B).
[Schedule 5, item 1]
174. As a result of this amendment Commonwealth issued debt will be
eligible for exemption from IWT under section 128F of the
ITAA 1936.
175. The amendment will also ensure that corporate debt, state and
territory debt and Commonwealth debt receive the same treatment for
IWT purposes. The amendment will apply to interest paid on or
after the commencement date of this Schedule, irrespective of
whether the relevant debt arrangement was issued before or after
that date.
176. The requirements of the public offer test will continue to apply.
Accordingly, the exemption will only apply for interest payments on
current debt issues where the debt issue would have satisfied the
public offer test when made.
177. The legislation makes no provision for deeming current debt issues
to have satisfied the public offer test. This position is
reinforced by the Commonwealth Government's announcement that
Commonwealth debt will be eligible for exemption, and not simply
exempt.
178. This amendment also makes a technical change to subsection 128F(7)
to clarify that any debt issued by the Commonwealth in its own
right will also be eligible for the exemption. [Schedule 5, item
2]
Application and transitional provisions
179. This amendment applies to interest paid on or after the
commencement date. The commencement date is the day after
Royal Assent. [Schedule 5, item 3]
Chapter 6
2009 Victorian Bushfire Appeal Trust Account
Outline of chapter
180. Schedule 6 to this Bill provides the Victorian Bushfire Appeal Fund
Independent Advisory Panel (the Panel) with greater scope to
support communities and individuals affected by the 2009 Victorian
bushfires.
181. The Panel oversees the expenditure of funds from the 2009 Victorian
Bushfire Appeal Trust Account (the Appeal Fund). The amendments
permit funds in the Appeal Fund to be used for a broader range of
purposes than the law considers charitable, without jeopardising
the charitable status of the organisation that collected the
donations, the Australian Red Cross Society (the Red Cross).
182. The charitable status of the Red Cross will be protected so long as
the funds are used for the purposes specified in these amendments
(the allowable purposes).
183. The purposes for which the funds may be expended are extended by
this Bill but are contained to provide assurance to the donors that
their charitable donations will be used appropriately.
Context of amendments
184. Immediately after the February 2009 Victorian bushfires, the
Victorian Government and Red Cross established a joint public
appeal to raise money to support the victims of the fires.
185. Tax deductible donations were collected by the Red Cross and
transferred to the Appeal Fund. The expenditure of these funds is
overseen by the Panel, on which the Red Cross is represented.
186. Generally, money collected by a deductible gift recipient (DGR)
such as the Red Cross must be used by the DGR, however in this case
the money was transferred to the Appeal Fund. At the time, the
Appeal Fund could not be endorsed as a DGR under any of the general
categories, and nor could it be endorsed as a charity as the
trustee of the Appeal Fund is the Victorian Government, and the
functions of government are not charitable in a legal sense.
187. To ensure that the Red Cross could transfer this money to the
Appeal Fund without endangering its own DGR status, the Parliament
specifically listed the Appeal Fund as a DGR in the Tax Laws
Amendment (2008 Measures No. 6) Act 2009. Organisations with DGR
status are eligible to receive tax deductible gifts.
188. While the DGR listing of the Appeal Fund provided that the
Red Cross could transfer donations to the Appeal Fund, the tax law
that governs charitable tax concessions requires the funds be used
for purposes that the law considers to be charitable. As the tax
law requires that money donated to charities is used for charitable
purposes, if the funds in the Appeal Fund were expended for
purposes that were not charitable, the charitable endorsement of
the Red Cross would be jeopardised.
189. The current tax law provides a general DGR category of Australian
Disaster Relief Funds. Australian Disaster Relief Funds must be
established and maintained solely for providing money for the
direct relief of people in Australia in distress as a result of a
disaster, including relief by way of assistance to re-establish a
community. It must also be established for charitable purposes.
190. Such relief can cover a broad range of activities. These will vary
with the nature of the disaster and the types of distress being
suffered, and may include:
. providing emergency shelter;
. providing health care and food supplies;
. providing relief for people through trauma counselling and
through work on buildings, amenities, locations and
infrastructure;
. repairing and reconstructing infrastructure including:
- rebuilding community buildings such as aged persons
homes, halls, churches and schools damaged by a flood;
and
- replacing equipment used for the community by community
organisations that is damaged in a storm; and
. providing resources and facilities for use in relieving
the distress including:
- coordinating clean-up operations after a disaster; and
- transporting and storing emergency supplies for people
in outlying areas following a widespread fire or flood.
191. Under the current law, the Panel has been required to administer
the Appeal Fund consistently with the purposes of an Australian
Disaster Relief Fund.
192. Australian Disaster Relief Funds must be established and maintained
in relation to a declared disaster. The Treasurer and the then
Assistant Treasurer and Minister for Competition Policy and
Consumer Affairs declared the Victorian bushfires to be a disaster
that started on 29 January 2009.
193. This start date provides that Australian Disaster Relief Funds can
support those people affected by fires after 29 January 2009,
including those fires prior to the widespread devastation caused by
the fires on 7 February 2009.
Summary of new law
194. Recognising the extraordinary circumstances surrounding the
Victorian bushfires, these amendments broaden the scope of purposes
which the Appeal Fund can support beyond charitable purposes,
without endangering the charitable status of the Red Cross.
195. These amendments will provide the Panel with greater scope to
assist individuals and communities in towns and suburbs affected by
the 2009 Victorian bushfires. The Panel has full discretion over
the purposes for which it expends monies in the Appeal Fund.
196. The new additional purposes for which the funds in the Appeal Fund
may be expended are restricted to the allowable purposes outlined
in this chapter. The restrictions provide assurance to donors that
their charitable donations will be used appropriately.
197. Any purpose that is currently allowed under the general DGR
category of Australian Disaster Relief Funds will continue to be an
allowable purpose. An Australian Disaster Relief Fund must,
amongst other things, be established for charitable purposes.
198. In addition, a broad category of 'public benefit' purposes will be
an allowable purpose. 'Public benefit' purposes comprise a wide
category of newly permissible uses which would include building or
operating community centres, halls, libraries, and similar public
facilities.
199. A public benefit purpose is one consistent with the purpose of an
income tax exempt entity, that provides broad and accessible public
benefits where any private or commercial benefit is merely
incidental and ancillary, if present at all.
200. Income tax exempt entities are generally granted a tax exemption in
recognition of the public benefit that they provide.
201. Further, there are a number of specific additional purposes that
are allowable purposes. These purposes target sections of the
community which have been specifically identified as in need of
support as a result of the bushfires.
202. The further allowable purposes are:
. the provision of long-term support to orphans under 18;
. reimbursement to individuals or organisations who have
previously provided for eligible charitable or community
benefit projects;
. assisting individuals who lost their main residence in the
fires, if their residence had the character of an owner-
occupied residence, regardless of whether it was held in a
trust, company or other legal structure;
. assisting individuals who have had to live in transitional
housing; and
. assisting primary producers.
Comparison of key features of new law and current law
|New law |Current law |
|The charitable status of |The charitable and DGR |
|the Red Cross is |status of the Red Cross |
|protected so long as the |may be jeopardised if the|
|Appeal Fund undertakes |funds in the Appeal Fund |
|activities for one of the|are used for purposes |
|following purposes: |other than the purposes |
|Australian Disaster |of an Australian Disaster|
|Relief Fund purposes; |Relief Fund. |
|providing broad public | |
|benefits that are: | |
|consistent with the | |
|purposes of one or more | |
|exempt entities; | |
|widely and publicly | |
|accessible; and | |
|commercial or private | |
|only to an incidental and| |
|ancillary extent, if at | |
|all; | |
|reimbursing payments made| |
|by individuals or | |
|organisations for | |
|eligible charitable or | |
|public benefit | |
|activities; | |
|providing long term | |
|assistance to orphans who| |
|are less than 18 years | |
|old; | |
|providing assistance to | |
|individuals whose main | |
|residences were destroyed| |
|in the bushfires, if the | |
|residences had the | |
|characteristics of being | |
|the owner occupied main | |
|residences of the | |
|individuals (ignoring the| |
|actual legal ownership of| |
|the residences); | |
|assistance of up to | |
|$15,000 to individuals | |
|who, because of the | |
|bushfires, have lived or | |
|are living in | |
|transitional housing; or | |
|providing up to $10,000 | |
|assistance to individuals| |
|who carry on primary | |
|production businesses. | |
Detailed explanation of new law
203. These amendments provide the Panel with greater scope to support
communities affected by the 2009 Victorian bushfires.
204. The Panel oversees the expenditure of funds in the Appeal Fund.
The amendments permit funds in the Appeal Fund to be used for a
broader range of purposes than the law considers charitable,
without jeopardising the charitable status of the charity that
collected the donations, the Red Cross.
205. These amendments ensure that any funds transferred from the Red
Cross to the Appeal Fund, which is not itself a charitable fund or
institution, will be disregarded in considering the Red Cross'
status as a charitable institution and a public benevolent
institution, so long as the funds are used for the allowable
purposes. [Schedule 6, item 3]
206. The allowable purposes for which the funds may be expended are
restricted to provide assurance to donors that their charitable
donations will be used appropriately.
Allowable purposes
207. The allowable purposes fall broadly into three categories:
. Australian Disaster Relief Fund purposes;
. public benefit purposes; and
. other allowable purposes.
Australian Disaster Relief Fund purposes
208. Any purpose that is currently allowed under the general DGR
category of Australian Disaster Relief Funds will continue to be an
allowable purpose. [Schedule 6, item 2, paragraph 2(a)]
209. An Australian disaster relief fund is a public fund that is
established for charitable purposes. It must be established and
maintained solely for providing money for the relief of people in
Australia in distress as a result of a disaster. The relief may be
by way of assistance to re-establish a community.
210. In most cases providing for a person's second home will not be an
allowable purpose, as in most cases such assistance would neither
be an Australian Disaster Relief Fund purpose (as such purposes
must be charitable), nor otherwise an allowable purpose as provided
for by these amendments.
211. It is the role of the insurance market to enable people to fully
rebuild after a disaster. In many cases, providing funds to
rebuild second uninsured homes confers a significant private
benefit on an individual who is not in charitable need. Such
support would be inconsistent with general charitable principles,
and may be inconsistent with the expectations of donors, many of
whom would not have the means to own a second home.
212. However, where a clear charitable need is identified, the Appeal
Fund can provide for assistance towards rebuilding second homes.
Public benefit purposes
213. An allowable 'public benefit' purpose will be a purpose to provide
broad public benefits that are:
. consistent with the purposes of one or more income tax
exempt entities;
. widely and publicly accessible; and
. provide commercial or private benefits only to an
incidental and ancillary extent, if at all.
[Schedule 6, item 2, paragraph 2(b)]
214. Public benefit means the organisation must have a purpose aimed at
achieving a universal or common good; their benefits are
accessible; and are directed to the general community.
215. There are a number of categories of entity that are made income tax
exempt in the tax law, generally in recognition of their value to
the community. These categories include, amongst other things,
charitable institutions, community service organisations, cultural
organisations, health organisations, sporting organisations and
local government bodies.
216. To be consistent with the purpose of an income tax exempt entity,
the funds must be used for activities that would be undertaken by
an income tax exempt entity. This is a wide category of newly
permissible purposes for the Panel and would include rebuilding or
establishing community centres, youth centres, halls, libraries,
and for other similar purposes which meet the requirements of a
public benefit purpose.
217. Purposes consistent with local Governments are allowable purposes
if they have a broad public benefit, wide public access and no more
than an incidental and ancillary private benefit.
218. It may be that the local government itself is funded to undertake
these purposes, or that another service provider is contracted to
provide the service.
219. The Australian Government understands that the Panel will not fund
activities that are the responsibility of the Victorian State
Government.
Other allowable purposes
Orphans
220. Providing long term assistance to orphaned minors (that is, under
the age of 18 years) without any requirement for annual assessments
is an allowable purpose. [Schedule 6, item 2, paragraph 2(d)]
221. The requirement for annual assessments arose due to the fact that
long-term assistance is usually not permitted under charitable law.
Under the current law, the Appeal Fund is able to provide funds to
individuals with charitable needs, but is not generally permitted
to 'predict' distress in the long term. To provide longer term
assistance, orphaned minors would have been subjected to annual
personal assessments of need in order to access charitable
assistance from the Appeal Fund.
222. Under these amendments, the Appeal Fund can provide for orphaned
minors who are presently in need of charitable assistance as a
result of the bushfires. The charitable assistance which they
presently need can be projected until these orphaned minors reach
the age of 18 years, without further assessment of their needs.
Reimbursements
223. Reimbursing individuals or organisations who have paid for either
Australian Disaster Relief Fund activities or public benefit
activities to be performed is an allowable purpose (see paragraphs
6.34 to 6.40 for a discussion of public benefit purposes).
[Schedule 6, item 2, paragraph 2(c)]
224. Under the current law, if an individual can meet their expenses out
of their own pocket, or if some other person has relieved the
distress for them, they have not generally been considered to be in
charitable need. Australian Disaster Relief Fund activities must
be for charitable purposes.
225. The amendments provide for assistance to people who may have
provided for certain Australian Disaster Relief Fund or public
benefit purposes after the fires, and thus been ineligible to
receive assistance from the Appeal Fund that was provided to people
in similar situations who had not provided for themselves.
Alternatively, it may support organisations who paid for charitable
disaster relief services for people affected by the fires.
Transitional housing payments
226. Providing support to individuals who, because of the bushfires,
have lived or are living in transitional housing is an allowable
purpose. Grants of up to $15,000 per individual may be provided.
[Schedule 6, item 2, subparagraph 2(e)(ii)]
Primary producers
227. Assisting individuals who are primary producers is an allowable
purpose. The amendments allow the Appeal Fund to make grants of up
to $10,000 to primary producers. This payment would be open for
primary producers to use for repair and restoration of farm
activities, including in re-fencing properties. [Schedule 6, item
2, paragraph 2(f)]
228. Under the current law the Appeal Fund has not been able to provide
charitable assistance to businesses, including farmers. However,
they have been able to support farmers who are in personal distress
(rather than their business being in distress).
Principal residence
229. For determining assistance to families whose principal residence
has been destroyed or damaged, the changes allow the Appeal Fund to
ignore the legal structures in relation to the ownership of primary
residences. This has relevance to individuals who may use company
or trust structures to own their residence.
230. Providing assistance to individuals who lost a residence in the
fires that had the character of an owner-occupied residence,
despite the fact it may have been held in a trust, company or other
legal structure, will be an allowable purpose. [Schedule 6, item
2, subparagraph 2(e)(i)]
231. To date, Appeal Fund monies have not been able to be used to
provide assistance towards rebuilding property that does not belong
to an individual, for example, property that belongs to a business
or a trust. The proposed policy would allow the Appeal Fund to
disregard legal ownership structures to identify property that is
in essence an owner-occupied primary residence, and provide
assistance towards rebuilding the home.
Application and transitional provisions
232. This measure applies to payments made by the Red Cross to the
Appeal Fund after 28 January 2009 and before 6 February 2014.
[Schedule 6, item 4]
233. The amendments will not be inserted into the Income Tax Assessment
Act 1997 (ITAA 1997), as the amendments have application in the tax
law beyond just the ITAA 1997.
234. All expressions used in the amendments have the same meaning as in
the ITAA 1997. [Schedule 6, item 1]
Consequential amendments
235. This Schedule inserts a note into Division 30 of the ITAA 1997 as a
signpost to this measure. [Schedule 6, item 5]
236. This note, and the specific listing of the Appeal Fund (which will
no longer be eligible to receive tax deductible gifts), is repealed
on 30 June 2016. [Schedule 6, items 6 and 7]
Index
Schedule 1: GST and representatives of incapacitated entities
|Bill reference |Paragraph |
| |number |
|Items 1 to 7, 11 to 13, 16 to 19, 25 to 32, |1.101 |
|34 to 38, 40 to 42 | |
|Item 8 |1.16, 1.17, |
| |1.20, 1.21, |
| |1.22, 1.26, |
| |1.27, 1.28, |
| |1.29, 1.30, |
| |1.31, 1.32, |
| |1.33, 1.34, |
| |1.35, 1.38, |
| |1.41 |
|Item 9 |1.86 |
|Items 10 and 43 |1.102 |
|Item 14 |1.53 |
|Item 15 |1.54 |
|Item 20 |1.66 |
|Item 21 |1.60, 1.65 |
|Item 22 |1.67 |
|Item 23 |1.42, 1.55 |
|Item 24 |1.43, 1.44, |
| |1.46, 1.49, |
| |1.50, 1.69, |
| |1.71, 1.73 |
|Item 33 |1.100 |
|Item 39 |1.98 |
|Items 44 and 45 |1.97 |
|Item 46 |1.94, 1.96 |
|Item 47 |1.83, 1.84 |
|Items 48 and 49 |1.87 |
|Item 50 |1.91 |
|Item 51 |1.92 |
|Item 52 |1.75 |
Schedule 2: Taxation of financial arrangements
|Bill reference |Paragraph |
| |number |
|Part 1, item 1 |2.19 |
|Part 1, item 2 |2.20 |
|Part 1, item 3 |2.25 |
|Part 1, sub-subitem 3(1)(a) |2.26 |
|Part 1, sub-subitem 3(1)(b) |2.26 |
|Part 1, subitems 3(2) and (3) |2.31, 2.32 |
|Part 1, subitem 3(4) |2.28 |
|Part 1, subitem 30(4) |2.29, 2.30 |
|Part 2, item 4, subsection 45-120(2B) of |2.34 |
|Schedule 1 to the TAA 1953 | |
|Part 2, item 5 |2.35 |
|Item 4 in the table in clause 2 |2.36 |
|Item 5 in the table in clause 2 |2.37 |
Schedule 3: Helping Children with Autism package
|Bill reference |Paragraph |
| |number |
|Item 1, section 11-15 |3.10 |
|Item 2, section 52-170 |3.7 |
Schedule 4: Continence Aids Payment Scheme
|Bill reference |Paragraph |
| |number |
|Item 1, section 11-15 |4.10 |
|Item 2, section 52-170 |4.7 |
Schedule 5: Exempting Commonwealth Government Securities from interest
withholding tax
|Bill reference |Paragraph |
| |number |
|Item 1 |5.11 |
|Item 2 |5.16 |
|Item 3 |5.17 |
Schedule 6: 2009 Victorian Bushfire Appeal Trust Account
|Bill reference |Paragraph |
| |number |
|Item 1 |6.55 |
|Item 2, paragraph 2(a) |6.29 |
|Item 2, paragraph 2(b) |6.34 |
|Item 2, paragraph 2(c) |6.44 |
|Item 2, paragraph 2(d) |6.41 |
|Item 2, subparagraph 2(e)(i) |6.51 |
|Item 2, subparagraph 2(e)(ii) |6.47 |
|Item 2, paragraph 2(f) |6.48 |
|Item 3 |6.26 |
|Item 4 |6.53 |
|Item 5 |6.56 |
|Items 6 and 7 |6.57 |
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