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2008-2009-2010
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
tax laws amendment (2010 measures No. 4) bill 2010
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary 1
General outline and financial impact 3
Chapter 1 GST amendments to third party payment adjustment provisions 9
Chapter 2 Capital gains tax treatment of water entitlements and
termination fees 21
Chapter 3 Amendments to the taxation of financial arrangements
provisions 47
Chapter 4 Amendments to foreign currency gains and losses provisions
73
Chapter 5 Scrip for scrip alignment 83
Chapter 6 Increase in the medical expenses tax offset claim threshold
89
Chapter 7 Deductible gift recipients 93
Chapter 8 Extending gift deductibility to volunteer fire brigades
95
Index 111
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
|Abbreviation |Definition |
|AAS |Australian Accounting |
| |Standards |
|AASB |Australian Accounting |
| |Standards Board |
|ABN |Australian Business Number |
|ASIC |Australian Securities and |
| |Investments Commission |
|ASIC Act |Australian Securities and |
| |Investments Commission Act |
| |2001 |
|ASX |Australian Securities |
| |Exchange |
|ATO |Australian Taxation Office |
|CFA |Victorian Country Fire |
| |Authority |
|CFA Fund |CFA & Brigades Donations Fund|
|CGT |capital gains tax |
|Commissioner |Commissioner of Taxation |
|Corporations Act |Corporations Act 2001 |
|Debt and Equity Act |New Business Tax System (Debt|
|2001 |and Equity) Act 2001 |
|DGR |deductible gift recipient |
|forex |foreign exchange |
|GL |gigilitre |
|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 |
|ML |megalitre |
|Operator |irrigation infrastructure |
| |operator |
|PBI |public benevolent institution|
|TOFA Act 2009 |Tax Laws Amendment (Taxation |
| |of Financial Arrangements) |
| |Act 2009 |
|Water Act |Water Act 2007 |
|Water Charge Rules |Water Charge (Termination |
| |Fees) Rules 2009 |
|Water Market Rules |Water Market Rules 2009 |
General outline and financial impact
GST amendments to third party payment adjustment provisions
Schedule 1 to this Bill amends the A New Tax System (Goods and
Services Tax) Act 1999 to ensure the third party payment adjustment
provisions operate appropriately where there are third party
payments relating to a supply by the payer that is not taxable or a
supply to the payee that is goods and services tax (GST)-free, not
connected with Australia or subject to a refund under the Tourist
Refund Scheme.
Date of effect: 1 July 2010.
Proposal announced: This measure was announced in the
Assistant Treasurer's Media Release No. 119 of 26 May 2010.
Financial impact: Nil.
Compliance cost impact: Low.
Capital gains tax treatment of water entitlements and termination fees
Schedule 2 to this Bill amends the Income Tax Assessment Act 1997
to provide a capital gains tax (CGT) roll-over for taxpayers who
replace an entitlement to water with one or more different
entitlements.
This Schedule will also allow taxpayers to include any termination
fees they incur in relation to an asset in the asset's cost base.
Date of effect: The water entitlement roll-over applies to CGT
events that happen in the 2005-06 and later income years. However,
taxpayers will be able to choose whether they obtain the roll-over
if the relevant transactions qualifying for the roll-over happen in
the period from the 2005-06 income year to the day that the
amendments receive Royal Assent.
The termination fee cost base changes apply to CGT events happening
on or after 1 July 2008. However, taxpayers will be able to choose
whether they include a termination fee in the asset's cost base if
the relevant CGT event happens in the period from 1 July 2008 to
the day that the amendments receive Royal Assent.
The retrospective date of effect ensures that taxpayers who have
undertaken specific transactions before the amendments receive
Royal Assent may qualify for the relief. However, the optional
nature of these rules ensures that this retrospectivity does not
disadvantage taxpayers.
Proposal announced: On 27 February 2009, the then Assistant
Treasurer and Minister for Competition Policy and Consumer Affairs
announced in Media Release No. 011 that the Government would
provide a CGT roll-over for transformation arrangements and allow
termination fees to be included in an asset's cost base.
On 2 December 2009, the Assistant Treasurer and the Minister for
Climate Change and Water jointly announced in Media Release No. 102
that the Government would extend the CGT roll-over for
transformation arrangements to water entitlements more generally.
Financial impact: These amendments will have a small but
unquantifiable revenue impact.
Compliance cost impact: Low. This impact comprises a low
implementation impact and a low decrease in ongoing compliance
costs relative to the affected group.
Amendments to the taxation of financial arrangements provisions
Part 1 of Schedule 3 to this Bill amends Division 230 of the Income
Tax Assessment Act 1997 (ITAA 1997) and the consequential and
transitional provisions inserted by the Tax Laws Amendment
(Taxation of Financial Arrangements) Act 2009 (TOFA Act 2009) to
make minor policy refinements and technical amendments and
corrections to the provisions.
Part 2 of Schedule 3 to this Bill extends the transitional
arrangements relating to the application of the debt/equity rules
made by the New Business Tax System (Debt and Equity) Act 2001
(Debt and Equity Act 2001) to 1 July 2010 for Upper Tier 2
instruments issued before 1 July 2001.
Date of effect: The amendments to Division 230 of the ITAA 1997
and other provisions inserted by the TOFA Act 2009 apply for income
years commencing on or after 1 July 2010, unless a taxpayer elects
to apply Division 230 for income years commencing on or after 1
July 2009.
The amendments to the debt/equity transitional provisions commence
from Royal Assent and apply to Upper Tier 2 instruments that are
issued before 1 July 2001.
Proposal announced: The amendments to Division 230 of the
ITAA 1997 and other provisions inserted by the TOFA Act 2009 were
announced in the Assistant Treasurer's Media Release No. 043 of
4 September 2009.
The amendments to the debt/equity transitional provisions were
announced in the Assistant Treasurer's Media Release No. 066 of
20 April 2010.
Financial impact: The revenue impact of the TOFA Act 2009 was
unquantifiable. As these amendments make minor policy refinements
to the provisions inserted by the TOFA Act 2009 and otherwise
ensure the provisions operate as intended, the revenue impact is
unquantifiable but not expected to be significant.
Compliance cost impact: Division 230 of the ITAA 1997 lowered
ongoing compliance costs by providing greater coherency, clarity
and certainty, using financial accounting concepts from relevant
financial accounting standards, basing the tax treatment of
financial arrangements on the functional purpose, and removing
uncertainties about relevant tax timing treatments. These
amendments are intended to further clarify the law, make
refinements and correct minor errors in Division 230 and will
contribute to the lowering of ongoing compliance costs.
Amendments to the foreign currency gains and losses provisions
Part 3 of Schedule 3 to this Bill amends Division 775 (foreign
currency gains and losses provisions) of the Income Tax Assessment
Act 1997 (ITAA 1997) to extend the scope of a number of compliance
cost saving measures, and to make technical amendments to ensure
that the provisions operate as intended.
Date of effect: These amendments apply from 17 December 2003.
Proposal announced: The Treasurer and the then Assistant Treasurer
and Minister for Competition Policy and Consumer Affairs, announced
in Media Release No. 054 of 13 May 2008 that the Government would
proceed with these amendments. The amendments were initially
announced by the previous government on 5 August 2004, and were to
have effect from 1 July 2003.
Financial impact: The revenue impact of these amendments is
unquantifiable but they are expected to have a low or no revenue
impact.
Compliance cost impact: These amendments extend the scope of a
number of compliance cost saving measures in the law and make
technical amendments to ensure that the provisions operate as
intended. Therefore, these amendments will contribute to the
lowering of compliance costs. The amendments were developed
following extensive industry consultation on the implementation of
the provisions.
Scrip for scrip alignment
Schedule 4 to this Bill amends the Income Tax Assessment Act 1997
to make it easier for takeovers and mergers regulated by the
Corporations Act 2001 to qualify for the capital gains tax (CGT)
scrip for scrip roll-over.
Date of effect: These amendments apply to CGT events that happen
on or after 6 January 2010.
Proposal announced: This measure was announced in the Assistant
Treasurer's Media Release No. 004 of 6 January 2010.
Financial impact: These amendments are expected to have an
insignificant revenue impact.
Compliance cost impact: Low. This impact comprises a low
implementation impact and a low decrease in ongoing compliance
costs relative to the affected group.
Increase in the medical expenses tax offset claim threshold
Schedule 5 to this Bill amends the Income Tax Assessment Act 1936
to increase the threshold above which a taxpayer may claim the
medical expenses tax offset and commence annually indexing the
threshold to the consumer price index.
Date of effect: These amendments apply to the income year starting
on or after 1 July 2010.
Proposal announced: This measure was announced by the Treasurer on
11 May 2010 as part of the 2010-11 Budget.
Financial impact: This measure will have these revenue
implications:
|2009-10 |2010-11 |2011-12 |2012-13 |2013-14 |
|Nil |Nil |$95m |$115m |$140m |
Compliance cost impact: Low. This comprises a low implementation
impact and no change to the ongoing compliance costs relative to
the affected group.
Deductible gift recipients
Schedule 6 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) to update the list of deductible gift recipients (DGRs)
to make one entity a deductible gift recipient, extend the period
of listing of one entity and change the name of another entity.
Date of effect: The changes generally apply to gifts received
after the day the organisation is notified of its specific listing
or changes to its specific listing.
Proposal announced: The listing of One Laptop per Child Australia
Ltd as a DGR was announced in the Assistant Treasurer's Media
Release No. 122 of 27 May 2010. The extension of the listing of
Xanana Vocational Educational Trust was announced in the 2010-11
Budget.
Financial impact: This measure will have the following revenue
implications:
|Organisation |2010-11 |2011-12 |2012-13 |2012-13 |
|One Laptop |- |-$1.2m |-$1.2m |- |
|per Child | | | | |
|Australia Ltd| | | | |
|Xanana |-$0.06m |-$0.03m |- |- |
|Vocational | | | | |
|Educational | | | | |
|Trust | | | | |
|Total |-$0.06m |-$1.23m |-$1.2m |- |
Compliance cost impact: Negligible.
Extending gift deductibility to volunteer fire brigades
Schedule 7 to this Bill adds three new general deductible gift
recipient (DGR) categories into the Income Tax Assessment Act 1997.
This measure widens the accessibility of tax deductible donations
to all entities providing volunteer based emergency services,
including volunteer fire brigades. This measure also extends DGR
status to all state and territory government bodies that coordinate
volunteer fire brigades and State Emergency Services.
Date of effect: These amendments commence from the date of
Royal Assent.
Proposal announced: This measure was announced in the
Assistant Treasurer's Media Release No. 032 of 28 February 2010.
Financial impact: This measure is estimated to have the following
revenue implications:
|2009-10 |2010-11 |2011-12 |2012-13 |2013-14 |
|Nil |Nil |-$6.0m |-$6.0m |-$6.0m |
Compliance cost impact: Low.
Chapter 1
GST amendments to third party payment adjustment provisions
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 the third party payment
adjustment provisions operate appropriately where there are third
party payments relating to a supply by the payer that is not
taxable or a supply to the payee that is goods and services tax
(GST)-free, not connected with Australia or subject to a GST refund
under the Tourist Refund Scheme.
Context of amendments
2. Where a registered entity supplies a thing to another entity
(intermediary) and that intermediary on sells that thing to a third
party, the original supplier of the thing (the payer), sometimes
makes a payment (a third party payment), to the third party (the
payee). Under Division 134 (that is, the third party payment
adjustment provisions), which comes into effect on 1 July 2010, the
payer remits GST based on the price for which it sells the thing to
the intermediary but can also claim a decreasing adjustment for the
third party payment. If the payee is a registered entity, it is
required to make an increasing adjustment to reflect the effective
decrease in the consideration paid for the thing. No increasing
adjustment arises if the payee is not registered for GST. The net
outcome should be that the appropriate amount of GST is collected
throughout the supply chain - that is, in the case of taxable
supplies, one-eleventh of the final (GST-inclusive) purchase price.
3. The third party payment adjustment provisions can result in
inappropriate outcomes where the supply by the payer to another
entity is taxable but the eventual supply to the payee is GST-free
(such as exports or pharmaceuticals), or not connected with
Australia (such as sales by an overseas retailer to its customers
overseas). If third party payments are made and a decreasing
adjustment is claimed, the net GST payable through the supply chain
may be negative for supplies that should have a net GST amount of
zero over the supply chain.
4. By increasing the price charged to an interposed entity but using
rebates to maintain the same price to the payee, a payer could use
the payment of rebates to produce a more favourable GST outcome,
thereby obtaining an advantage over competitors who were paying an
appropriate amount of GST. This is shown in Example 1.1.
1. : Impact of third party payment adjustments on GST outcomes where
supply to the payee is GST-free or not connected with Australia
[pic]
[pic]
CWA: connected with Australia
ITC: input tax credit
In this example in Diagram A, the manufacturer is originally
making supplies to the wholesaler for $550. As the supply
is a taxable supply the manufacturer remits GST of $50. The
wholesaler adds a $220 margin and sells the items to their
customer (who may or may not be registered for GST) for
$770. The supply by the wholesaler to its customer is GST-
free so no GST is remitted and the wholesaler has an input
tax credit of $50. Hence no net GST is collected on the
supply - the appropriate outcome for a GST-free supply.
In Diagram B, the manufacturer now pays a $110 rebate to the
final customers and covers this cost by increasing the price
to the wholesaler by $110 to $660. The manufacturer has a
GST liability of $60 in relation to the supply but is also
entitled to a $10 decreasing adjustment in relation to the
rebate so their net GST liability is $50. As the wholesaler
acquires the items for $660 it has an input tax credit of
$60. As before, it adds a margin of $220 and sells the
items to its customers for $880. The effective price to
these customers remains $770 due to the rebate received from
the manufacturer. The net GST on the supply is a loss to
the revenue of $10.
5. The third party payment adjustment provisions can also result in
inappropriate GST outcomes where the supply to the payee is subject
to a refund of GST under the Tourist Refund Scheme, as this has a
similar outcome to where the supply is GST-free. By increasing the
price charged to an interposed entity but using rebates to maintain
the same price to a payee who was eligible to obtain a refund of
GST under the Tourist Refund Scheme, a payer could use the payment
of rebates targeted specifically to those customers to produce a
more favourable GST outcome in this situation, thereby obtaining an
advantage over competitors who were paying an appropriate amount of
GST.
6. This is shown in Example 1.2.
1. : Impact of third party payment adjustments on GST outcomes where
supply to the payee is eligible for a GST refund under the Tourist
Refund Scheme
[pic]
[pic]
ITC: input tax credit
In this example in Diagram A, the wholesaler is originally
making a supply of an opal ring to a retailer for $1,100.
As the supply is a taxable supply the wholesaler remits GST
of $100. The retailer adds a $550 margin and sells the
items to their customer (who is not registered for GST) for
$1,650. The retailer has a GST liability of $150 and an
input tax credit of $100 so it remits net GST of $50. A
total of $150 of GST has been remitted in respect of the
ring. The purchaser presents the ring and their tax invoice
on leaving Australia and receives a refund of $150 under the
Tourist Refund Scheme. Effectively no net GST is collected
on the supply - the appropriate outcome for a supply subject
to a refund of GST under the Tourist Refund Scheme.
In Diagram B, the wholesaler now pays a $1,100 rebate to the
final customer and covers this cost by increasing the price
to the retailer by $1,100 to $2,200. The wholesaler has a
GST liability of $200 in relation to the supply but is also
entitled to a $100 decreasing adjustment in relation to the
rebate so its net GST liability is $100. As the retailer
acquires the items for $2,200 it has an input tax credit of
$200. As before, the retailer adds a margin of $550 and
sells the items to its customers for $2,750. It has a GST
liability of $250 and an input tax credit entitlement of
$200 so remits net GST of $50. The total GST collected in
respect of the ring is $150 and the effective price to the
customers is $1,650 due to the $1,100 rebate received from
the wholesaler. However, the purchaser presents the ring
and their tax invoice on leaving Australia and receives a
refund of $250 under the Tourist Refund Scheme. The
effective net GST on the supply is a loss to the revenue of
$100.
7. It is also possible for there to be an inappropriate outcome where
the initial supply by the payer is not taxable but the final supply
is taxable. In these cases, if an increasing adjustment were to
apply to the payee receiving the third party payment, too much GST
would be remitted through the supply chain. This is shown in
Example 1.3.
1. : Impact of third party payment adjustments on GST outcomes where
supply by the payer is non-taxable but supply to the payee is a
creditable acquisition
[pic]
[pic]
ITC - input tax credits
In this example a manufacturer sells wheelchairs to a
wholesaler as a GST-free supply. Normally, when the
manufacturer on sells the wheelchairs they remain GST-free.
However, the wholesaler sells some of those wheelchairs to
an airline which uses them as an input into making taxable
supplies - that is, the supply of travel services to its
customers. To simplify its GST reporting, the airline has
agreed with the wholesaler that these supplies will be
treated as taxable, which section 38-45 of the GST Act
allows.
In Diagram A, the manufacturer originally makes the supply
to the intermediary for $550. As this supply is a not a
taxable supply the manufacturer does not remit GST. The
wholesaler adds a $220 margin and sells the items to the
airline (which is registered for GST) for $770. The supply
by the wholesaler to the airline is treated as taxable so
the wholesaler remits GST of $70 and has no input tax
credit. The acquisition of the wheelchairs by the airline
is a creditable acquisition so an input tax credit of $70 is
claimed. Hence no net GST is collected on the supply of the
wheelchairs to the airport, which is the appropriate outcome
for a business input.
In Diagram B, the same effective transaction is taking place
but the manufacturer is paying a $110 rebate to the final
customers and the price it charges the wholesaler is $660.
As the sale to the wholesaler is not a taxable supply, the
manufacturer has no GST liability and is not entitled to a
decreasing adjustment in relation to the rebate, so its net
GST liability is $0. The wholesaler acquires the items for
$660 and has no input tax credit entitlement. As in Diagram
A, it adds a margin of $220 and sells the items to its
customers for $880. The effective price to its customers is
$770 due to the rebate received from the manufacturer. As
the supply to the airline is treated as a taxable supply the
wholesaler has a GST liability of $80. The airline has a
corresponding input tax credit of $80 but is required to
make an increasing adjustment of $10. As a result there is
$10 of embedded GST through the supply chain on these
business inputs.
Summary of new law
8. From 1 July 2010 third party payment adjustments will not arise
where there are payments which would give rise to such adjustments,
but the supply by the payer is not taxable or the supply to the
payee is GST-free, not connected with Australia or subject to a GST
refund under the Tourist Refund Scheme.
Comparison of key features of new law and current law
|New law |Current law |
|A decreasing third party |A decreasing third party |
|payment adjustment does |payment adjustment arises|
|not arise if the supply |if the payer of the third|
|to the payee by an |party payment makes a |
|intermediary is a |taxable supply to an |
|GST-free supply, is not |intermediary and the |
|connected with Australia |supply from an |
|or is subject to a GST |intermediary to the payee|
|refund under the Tourist |is a GST-free supply, is |
|Refund Scheme and the |not connected with |
|payer knows or has |Australia or is subject |
|reasonable grounds to |to a GST refund under the|
|suspect this. |Tourist Refund Scheme. |
|An increasing third party|An increasing third party|
|payment adjustment does |payment adjustment arises|
|not arise if the supply |if the acquisition by the|
|by the payer to an |payee from the |
|intermediary is not a |intermediary is a |
|taxable supply. |creditable acquisition |
| |and the supply by the |
| |payer to an intermediary |
| |is not a taxable supply. |
Detailed explanation of new law
9. Subsection 134-5(1A) provides that a decreasing adjustment for a
third party payment will not arise if the supply by an intermediary
to the payee, which would otherwise give rise to such an
adjustment, is a GST-free supply, is not connected with Australia
or is subject to a refund of GST under the Tourist Refund Scheme,
and the payer knows, or had reasonable grounds to suspect this.
10. In some cases the payer may have information from which it may
conclude that a supply to the payee is likely to be GST-free, not
connected with Australia or is subject to a refund under the
Tourist Refund Scheme. For example, where the nature of the
product is such that its final supply may be GST-free (such as
pharmaceuticals), where the receipt provided by the payee indicates
payment of a refund under the Tourist Refund Scheme or where the
payee provides details to the payer to facilitate the payment which
indicate that the payee is located outside of Australia. In these
cases, the payer would have reason to suspect that the supply is
GST-free, not connected with Australia or subject to a refund under
the Tourist Refund Scheme. Accordingly, it could not make a
decreasing adjustment, unless it takes steps which establish that
the supply to the payee is not in fact a GST-free supply, a supply
not connected with Australia or a supply for which the payee
obtained a refund of GST under the Tourist Refund Scheme.
11. Where there are no circumstances that indicate to the payer that
the supply to the payee may be GST-free, not connected with
Australia or a supply subject to a refund of GST under the Tourist
Refund Scheme, it is not intended that the supplier would need to
make any specific inquiries to determine the GST treatment of the
supply to the payee.
12. Subsection 134-10(1A) provides that an increasing adjustment for a
third party payment will not arise if the supply to an intermediary
by the payer, which would give rise to such an adjustment, is not a
taxable supply.
13. However, paragraph 134-10(1A)(b) provides that where the supply to
an intermediary by the payer, is not a taxable supply only because
the payer and the intermediary are members of the same GST group,
or GST religious group, or the payer is the joint venture operator
for a GST joint venture and the intermediary is a participant in
the GST joint venture, the increasing adjustment will nevertheless
arise.
14. The following examples show the impact of these amendments on the
situations outlined in the previous examples.
1. : Impact of the new law on GST outcomes where supply to the payee
is GST-free or not connected with Australia
[pic]
CWA - connected with Australia
ITC - input tax credits
In Diagram C, the manufacturer pays a $110 rebate to the
final customers and covers this cost by increasing the price
to the wholesaler by $110 to $660. The manufacturer has a
GST liability of $60 in relation to the supply but, because
the supply to the payee is a GST-free supply and it knows or
has reason to expect this, it is not entitled to a
decreasing adjustment in relation to the rebate so its net
GST liability is $60. As the wholesaler acquires the items
for $660 it has an input tax credit of $60. The net GST
collected on the supply over the supply chain is zero - the
correct outcome for a GST-free supply.
2. : Impact of the new law on GST outcomes where supply to the payee
is subject to a GST refund under the Tourist Refund Scheme
[pic]
ITC - input tax credits
TRS - Tourist Refund Scheme
In this scenario a wholesaler introduces a cash-back
arrangement that is targeted at tourists who are about to
travel overseas. The tourists are required to provide a
copy of their tax invoice, which is stamped as having
received a refund under the Tourist Refund Scheme. As the
wholesaler is aware that the supply to the payee is
subject to a refund under the Tourist Refund Scheme the
decreasing adjustment is not available to the payer.
However, there may be circumstances in which the payer
would not know, nor could they reasonably be expected to
know, that a supply to a payee was subject to a refund
under the Tourist Refund Scheme. For example, a
distributor of laptop computers may offer a rebate on
sales of a soon to be superseded line of laptops to end
customers. They are sold through a range of retail
outlets. Customers are able to claim the rebate by
sending a copy of their receipt together with details such
as a postal address or a bank account number to the
distributor to enable payment to be made. If the
purchaser supplied a copy of the receipt together with an
Australian address or Australian bank account number, the
distributor would not be expected to consider that the
supply had been subject to a claim under the Tourist
Refund Scheme.
If the copy of the receipt provided, showed that the
receipt had been stamped as being subject to a refund
under the Tourist Refund Scheme, the distributor would
know this. If the address or bank details provided were
not for an Australian address or an Australian bank, the
distributor would need to ascertain whether the supply to
the payee was subject to a refund under the Tourist Refund
Scheme before claiming a decreasing adjustment in respect
of the rebate.
15. Example 1.6 shows the impact of these amendments in situations
where the supply by the payer is not a taxable supply.
1. : Impact of the new law on GST outcomes where supply by the payer
is non-taxable but supply to the payee is a creditable acquisition
[pic]
ITC - input tax credits
In this scenario the airline can establish, by reference to
the nature of the goods and its agreement with the
wholesaler to treat the supply of the wheelchairs as a
taxable supply, that the supply by the payer to an
intermediary was not a taxable supply. Consequently the
airline is not required to make an increasing adjustment
with regard to the rebate it receives from the payer. As
before, the wholesaler has a GST liability of $80 and the
airline has a corresponding input tax credit of $80. Zero
GST is collected through the supply chain to that point,
which is the correct outcome for a business input.
Application and transitional provisions
16. These amendments apply to third party payments made on or after
1 July 2010, which is the date on which third party payment
adjustment provisions contained in Division 134 of the GST Act take
effect.
Chapter 2
Capital gains tax treatment of water entitlements and termination fees
Outline of chapter
17. Schedule 2 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) to provide a capital gains tax (CGT) roll-over for
taxpayers who replace an entitlement to water with one or more
different entitlements.
18. This Schedule will also allow taxpayers to include any termination
fees they incur in relation to an asset in the asset's cost base.
19. All references to legislative provisions in this chapter are
references to the ITAA 1997 unless otherwise stated.
Context of amendments
20. Irrigators may own an entitlement to water directly in the form of
a statutory licence or they may own it indirectly in the form of a
right against a third party such as an irrigation infrastructure
operator (an operator).
. In these latter situations, the operator typically owns an
entitlement to water in the form of a statutory licence.
. The irrigator typically owns a membership interest in the
operator (such as shares) which gives them an entitlement
to water in the form of a legal or equitable right against
the operator. This entitlement may also include a right
to have the operator deliver the water.
21. The Water Market Rules 2009 (Water Market Rules), made under the
Water Act 2007 (Water Act), have the purpose of freeing up the
trade of water entitlements within the Murray-Darling Basin. The
rules do this by ensuring that operator policies or administrative
requirements do not represent a barrier to trade. The Water Market
Rules came into effect on 23 June 2009 with a transitional period
to 31 December 2009. The Water Market Rules state that operators
must not prevent or unreasonably delay the transformation or trade
from 1 January 2010.
22. Transformation is the process by which an irrigator permanently
changes (transforms) their right to water against an operator into
a statutory licence held by an entity other than the operator. In
most cases, it will be the individual irrigator who will own the
statutory licence. The Water Market Rules refer to an irrigator's
right to water against an operator as being the irrigator's
irrigation right. Consequently, it is the irrigator's irrigation
right that is transformed.
23. Operators may also have to undertake pre-transformation
transactions to facilitate the transformation process and ensure
member irrigators are treated equitably.
CGT water entitlement roll-over
24. In the absence of specific CGT relief, the transformation process
is likely to trigger immediate CGT consequences for the irrigator
and may trigger CGT consequences for the operator. This is because
the irrigator's entitlement to water against the operator ends and
part of the operator's statutory licence is cancelled. Depending
on how the operator is structured, the transactions may also
trigger CGT consequences for other member irrigators. This is
likely to be the case if the operator is a partnership and the
member irrigators own their water entitlements as joint tenants.
25. Subdivision 124-C provides an automatic CGT roll-over on the
cancellation of a taxpayer's statutory licence if another statutory
licence replaces it. However, this roll-over is not available when
either the original entitlement to water or the replacement
entitlement does not take the form of a statutory licence. An
irrigator's right against an operator is not a statutory licence.
1.
Water Drip Ltd (Water Drip) is an operator within the Murray-
Darling Basin that owns a statutory licence with a
200 megalitre (ML) entitlement to water. There are 200
shares in Water Drip that each contain an entitlement to
have up to 1 ML of water delivered. Bob owns 10 shares in
Water Drip and so is entitled to delivery of up to a total
of 10 ML of water.
. Bob has a total entitlement to 10 ML of water in the form of
legal rights against Water Drip. (This entitlement is not a
statutory licence.)
. For the purposes of the Water Market Rules, Bob's
entitlement to 10 ML of water is an irrigation right against
Water Drip.
. Should Bob choose to transform his 10 ML entitlement to
water against Water Drip into a statutory licence and a
separate delivery entitlement then, in the absence of this
roll-over, the following CGT consequences would typically
arise:
. Bob triggers a CGT taxing point when his 10 ML entitlement
to water against Water Drip ends (typically CGT event C2);
and
. Water Drip triggers a CGT taxing point when part of its
statutory licence is cancelled and reissued to Bob
(typically CGT event C2).
26. This roll-over will therefore facilitate transformation
arrangements.
27. While the Water Market Rules apply only to the water resources of
the Murray-Darling Basin, this roll-over applies more widely. This
will also facilitate other forms of water entitlement restructuring
without immediate CGT consequences. Consequently, the concept of
an entitlement to water for the purposes of this roll-over needs to
be wider than the terminology of the Water Market Rules.
Including termination fees in an asset's cost base
28. The CGT rules allow for the recognition of a taxpayer's costs of
acquiring, owning and disposing of an asset when calculating a
capital gain or capital loss on the asset. The rules do this by
including these costs in the asset's cost base and reduced cost
base.
29. The current CGT provisions allow some incidental costs of owning an
asset to be included in the asset's cost base. However, these
incidental costs do not include termination fees.
30. Although this cost base change applies to all CGT assets, it will
have particular importance for irrigators who choose to sell a
newly transformed water entitlement and end their delivery
entitlement with their operator. This is because operators may
charge the irrigator a termination fee when the irrigator
terminates their delivery entitlement. The Water Charge
(Termination Fees) Rules 2009 (Water Charge Rules) apply to
termination fees in relation to water resources in the Murray-
Darling Basin.
31. These rules do not modify the treatment of termination fees in the
hands of the entity that receives the fee.
Summary of new law
32. Part 1 of Schedule 2 amends the ITAA 1997 by inserting Subdivision
124-R. This Subdivision provides a CGT roll-over for taxpayers who
replace a water entitlement with one or more different water
entitlements (including by transformation). It also provides a
roll-over when a taxpayer owns a number of water entitlements and
there is a reduction in the number of entitlements but not in the
value of the total entitlement.
33. The concept of a water entitlement broadly encompasses any legal or
equitable right relating to water, including its delivery.
34. Subdivision 124-R also provides a roll-over for consequential
transactions arising as a direct result of this replacement.
35. Part 2 of Schedule 2 amends Division 110 of the ITAA 1997 by
allowing taxpayers to include any termination fees they incur in
relation to an asset in the second element of the asset's cost base
and reduced cost base as an incidental cost.
Comparison of key features of new law and current law
|New law |Current law |
|A taxpayer can roll over |The ending of a |
|a capital gain or capital|taxpayer's ownership of a|
|loss arising from their |water entitlement |
|ownership of a water |typically triggers the |
|entitlement ending if |realisation of a capital |
|they replace that water |gain or capital loss. |
|entitlement with another | |
|water entitlement. | |
|These capital gains and | |
|capital losses may be | |
|rolled over on a single | |
|entitlement or multiple | |
|entitlement basis. | |
|A taxpayer that incurs a |A taxpayer that incurs a |
|termination fee in |termination fee in |
|relation to an asset may |relation to an asset is |
|include the fee in the |unable to include the fee|
|second element of the |in the asset's cost base |
|asset's cost base and |and reduced cost base. |
|reduced cost base as an | |
|incidental cost. | |
Detailed explanation of new law
Water entitlement roll-overs
36. There are two types of water entitlement roll-over.
. The first applies if a taxpayer replaces a water
entitlement with one or more new water entitlements
(replacement roll-over). This roll-over may also apply
when a taxpayer replaces multiple water entitlements.
Paragraphs 2.29 to 2.60 provide further information about
this roll-over.
. The second applies if a taxpayer has a total water
entitlement made up of individual entitlements and their
ownership of some of those entitlements ends but the total
market value of the remaining entitlements remains the
same as the total market value of the original
entitlements (reduction roll-over). Paragraphs 2.61 to
2.77 provide further information about this roll-over.
37. Transactions that qualify for the replacement roll-over may also
have CGT consequences for other taxpayers. There is also a roll-
over for these consequences if they happen as a direct result of a
transaction that qualifies for the replacement roll-over (variation
roll-over). Paragraphs 2.78 to 2.83 provide further information
about this roll-over.
What is a water entitlement?
38. For the purpose of these roll-overs, a water entitlement is any
legal or equitable right that relates to water. This could include
groundwater. There is no restriction in the form that an
entitlement may take. [Schedule 2, item 6, subsection 124-1105(4)]
39. For example, a water entitlement could take the form of a
contractual right against a third party, such as an operator.
Alternatively, it could take the form of a statutory licence
against a state or territory government. A share in a company
would also be a water entitlement, if it has rights attaching to it
that relate to water. Similarly an interest in a trust or a
partnership interest would also be a water entitlement if the
interest has attached rights relating to water.
40. For example, the following rights relate to water:
. a right to receive water;
. a right to take water from a water resource;
. a right to have water delivered; or
. a right to deliver water.
[Schedule 2, item 6, subsection 124-1105(4)]
41. A right to take water from a water resource, such as a water
allocation, would be a water entitlement. A water use licence
would also be a water entitlement.
42. A separate identifiable right relating to the conveyance of water,
such as a conveyance licence, would also be a water entitlement.
43. There are three key rights in the Water Act that relate to water
and are relevant for transformation. These are:
. a water access right;
. a water delivery right; and
. an irrigation right.
For the purposes of these roll-overs, an asset that is such a
right, or consists of such a right, will be a water entitlement.
1.
The Wet Water Company Ltd (Wet Water) is an operator. It
has 200 shares on issue. Each share consists of a bundle of
rights, including the right to vote at Wet Water's annual
general meeting, receive dividends from the company and the
right to receive up to two ML of water and have it delivered
by Wet Water.
Wally owns 20 shares in Wet Water. Each of Wally's shares
is a water entitlement.
Wet Water owns a statutory entitlement to take up to 450 ML
of water from the Wet Creek. As this entitlement allows Wet
Water to take water from a water resource (Wet Creek), it is
a water entitlement.
2.
Jack and Jill form a partnership to jointly construct a well
and take water from it. Each interest in the partnership
includes the right to take 20 ML of water each year.
Each of Jack's and Jill's interest in the partnership is an
entitlement to water.
3.
The Rainy Day Trust (Rainy Day) is an operator that owns a
300 gigalitre (GL) statutory licence. Rebecca has an
equitable interest in Rainy Day which entitles her to
delivery of up to 100 GL of water.
Rebecca's interest in the trust is an entitlement to water.
If Rebecca held a right to have her water delivered that was
separate from her interest in the trust entitling her to 100
GL of water, she would own two separate water entitlements.
44. In some circumstances, a taxpayer may only be entitled to own a
contractual water entitlement against another entity if they also
own a membership interest in that entity, such as a share. The
membership interest may or may not relate to water. However, even
if it does not, it will still be a water entitlement if it is a
prerequisite for owning a water entitlement. [Schedule 2, item 6,
subsection 124-1105(4)]
Replacement of water entitlements
45. Two alternative replacement roll-overs are available when a
taxpayer replaces a water entitlement with one or more water
entitlements:
. The default replacement roll-over operates on a single
asset basis (single entitlement roll-over). This roll-
over applies when a taxpayer replaces a single water
entitlement with one or more different water entitlements
[Schedule 2, item 6, subsection 124-1105(1)].
. However, taxpayers may have more than one water
entitlement, each of which is replaced in the one
transaction. In these situations, the taxpayer may choose
an alternative replacement roll-over that operates on a
multiple asset basis (multiple entitlement roll-over).
This roll-over applies when a taxpayer replaces more than
one water entitlement with one or more different water
entitlements [Schedule 2, item 6, subsection 124-1105(2)].
46. The two alternative replacement roll-overs accommodate the
different ways taxpayers may structure their arrangements.
47. Specifically, providing the multiple entitlement roll-over on an
optional basis allows taxpayers to deal separately with part of a
water entitlement that is not replaced.
1.
Claire owns a 100 ML water entitlement which she replaces
with a 95 ML water entitlement.
Claire qualifies for the single entitlement roll-over in
respect of her 100 ML entitlement. She disregards any
capital gain or capital loss arising from this exchange.
Alternatively, Claire could split her original 100 ML water
entitlement into two separate water entitlements - a 95 ML
entitlement and a 5 ML entitlement.
If Claire splits her entitlement in this way and her new 95
ML water entitlement is cancelled and replaced with a new 95
ML water entitlement, she qualifies for the single
entitlement roll-over in respect of her replaced 95 ML
entitlement. Consequently, Claire disregards any capital
gain or capital loss arising from this exchange.
As Claire does not replace her 5 ML water entitlement with
another water entitlement, this entitlement does not need to
qualify for the single entitlement roll-over.
48. The way the taxpayer prepares their tax return is sufficient
evidence of them making this choice.
49. A statutory licence that relates to water may qualify as a water
entitlement. However, there is an existing automatic CGT roll-over
within Subdivision 124-C that applies to statutory licences. A
water entitlement that is a statutory licence and that qualifies
for the roll-over in Subdivision 124-C will not qualify for the
water entitlement roll-over. Consequently taxpayers that own a
statutory licence that is also a water entitlement should first
check whether they qualify for the roll-over in Subdivision 124-C
before seeing if they qualify for the water entitlement roll-over.
[Schedule 2, item 6, subsection 124-1105(3)]
1.
Ron owns a statutory licence to 500 ML of general security
water from the Running River. This statutory licence is a
water entitlement as it allows Ron to take water from a
water resource.
The state government cancels Ron's statutory licence
triggering CGT event C2. However, as a result of that
cancellation, the state government issues Ron with a new
statutory licence with an entitlement to 300 ML of high
security water from the Running River.
Ron qualifies for the statutory licence roll-over.
Consequently, he does not qualify for the replacement roll-
over.
2.
Rapid Water Ltd (Rapid Water), an operator, owns a
20 GL bulk water entitlement which is a statutory licence.
Each year, this statutory licence expires and the state
government issues Rapid Water with a new statutory licence
to reflect changes in water availability.
Rapid Water's 20 GL statutory licence expires and the state
government issues Rapid Water with a 19 GL statutory
licence.
Rapid Water qualifies for the statutory licence roll-over in
relation to this exchange. Rapid Water therefore does not
qualify for the replacement roll-over.
3.
Further to Example 2.7.
Rapid Water's member irrigators receive a total of up to 15
GL of water from Rapid Water. The remaining 4 GL of Rapid
Water's bulk water entitlement is accounted for by
conveyance losses that occur when Rapid Water delivers this
water to its member irrigators.
Rapid Water wishes to separate its bulk water entitlement
into two entitlements, one reflecting the amount of water
its member irrigators receive and the other, the water used
to deliver its members' entitlements.
Assume that the state government cancels Rapid Water's 19 GL
statutory licence and issues it with a 15 GL bulk water
entitlement and an additional 4 GL water entitlement to
cover the conveyance losses. As these replacement
entitlements are both statutory licences, Rapid Water
qualifies for the statutory licence roll-over in relation to
this exchange. Rapid Water therefore does not qualify for
the replacement roll-over.
Qualifying transactions
Single entitlement roll-over
50. A taxpayer (such as an irrigator or an operator) whose ownership of
one water entitlement ends will qualify for this roll-over if they
acquire one or more new water entitlements as a result of their
ownership of the original entitlement ending.
. A taxpayer that sells a water entitlement in exchange for
a cash payment and later chooses to acquire a new water
entitlement will typically not qualify for the replacement
roll-over. This is because the taxpayer did not acquire
the new entitlement as a result of their ownership of the
original entitlement ending. Instead the acquisition of
the new entitlement is an independent event.
. However, a taxpayer who disposes of a water entitlement
with the expectation of acquiring a replacement water
entitlement may qualify for the replacement roll-over when
they acquire the replacement entitlement. In this
situation, there is a relationship between the disposal of
the original entitlement and the acquisition of the
replacement entitlement.
[Schedule 2, item 6, paragraphs 124-1105(1)(a) and (b)]
51. It does not matter how the taxpayer's ownership ends. For example,
the taxpayer may dispose of their water entitlement or may have it
cancelled. Similarly, it does not matter whether the replacement
water entitlement is of the same nature as the original
entitlement. The roll-over simply requires the taxpayer to acquire
one or more water entitlements to replace the original entitlement.
52. If the taxpayer chooses that the multiple entitlement roll-over
applies to an original water entitlement in relation to a specific
transaction, then that entitlement will not also qualify for the
single entitlement roll-over. However, the replacement water
entitlement will be a separate asset and so may later qualify for a
single entitlement roll-over or as part of a multiple entitlement
roll-over. [Schedule 2, item 6, paragraph 124-1105(1)(d)]
53. If the taxpayer is a foreign resident for tax purposes (including a
trustee of a foreign trust), then they will only qualify for this
roll-over if the original water entitlement and each of the
replacement water entitlements is taxable Australian property.
[Schedule 2, item 6, paragraph 124-1105(1)(c)]
54. Paragraphs 2.42 to 2.60 set out the consequences of this roll-over
applying.
Multiple entitlement roll-over
55. A taxpayer whose ownership of more than one water entitlement ends
will qualify for this roll-over if they acquire one or more new
water entitlements as a result of the ownership of the original
entitlements ending and they choose to obtain this roll-over.
[Schedule 2, item 6, paragraphs 124-1105(2)(a), (b) and (d)]
56. If the taxpayer is a foreign resident for tax purposes (including a
trustee of a foreign trust), then they will only qualify for this
roll-over if each of the original water entitlements and
replacement water entitlement(s) is taxable Australian property.
[Schedule 2, item 6, paragraph 124-1105(2)(c)]
57. Paragraphs 2.42 to 2.60 set out the consequences of this roll-over
applying.
Roll-over consequences
Disregard capital gain or capital loss attributed to replacement
entitlement(s)
58. If the taxpayer satisfies the conditions for this roll-over (either
the single entitlement roll-over or the multiple entitlement roll-
over), then they disregard any capital gains or capital losses
arising from their ownership of each original water entitlement
ending. [Schedule 2, item 6, section 124-1110]
1.
Andy, Ben, Courtney, Dean and Emma each own 100 Class A
shares issued by Liquid Water Irrigation Ltd (Liquid Water).
Liquid Water is an operator within the Murray-Darling Basin
that owns a statutory licence with an 800 ML entitlement to
water. Each Class A share entitles its owner to 1 ML of
water, have Liquid Water deliver the water, one vote at the
annual general meeting and the right to receive dividends.
Andy chooses to transform his 100 ML entitlement against
Liquid Water. Consequently he exchanges each of his 100
Class A shares for a replacement 100 ML statutory licence
and 100 Class B shares, each of which has the same rights as
the Class A shares, except the right to 1 ML of water. As
the replacement statutory licence and each Class B share
relates to water, each asset is a water entitlement.
Andy qualifies for the single entitlement roll-over in
relation to each of his 100 Class A shares. (Alternatively,
Andy may choose to access the multiple entitlement roll-
over.)
Andy disregards any capital gains and capital losses arising
from this exchange.
Realise capital gain or capital loss attributed to ineligible
proceeds
59. However, if the taxpayer receives additional proceeds that do not
take the form of a replacement water entitlement or entitlements,
then the taxpayer will realise a partial capital gain or capital
loss in relation to these additional proceeds. These additional
proceeds (ineligible proceeds) do not qualify for the replacement
roll-over, as they represent a realisation of part of the original
water entitlement. [Schedule 2, item 6, subsection 124-1115(1)]
60. In this situation the taxpayer calculates a capital gain by
attributing part of the cost base of each of the original water
entitlements to the ineligible proceeds they receive. The taxpayer
may do this on a reasonable basis having regard to the number and
market value of the replacement water entitlement(s) relative to
the market value of the ineligible proceeds. [Schedule 2, item 6,
subsections 124-1115(2) and (4) and paragraph 124-1115(5)(a)]
1.
Further to Example 2.9.
Assume Courtney's 100 Class A shares in Liquid Water have a
cost base of $50 each. The total cost base of her shares is
$5,000.
Like Andy, Courtney exchanges her 100 shares in Liquid Water
for a 100 ML statutory licence. However, rather than
receive 100 Class B shares, Courtney chooses to receive a
cash payment of $10,000.
The 100 ML statutory licence has a market value of $90,000.
Courtney qualifies for the replacement roll-over in relation
to the 100 ML statutory licence. However the cash payment
is ineligible proceeds.
It would be reasonable for Courtney to calculate her capital
gain as follows:
. The total market value of Courtney's proceeds from her
100 Class A shares is $100,000. That is, $90,000 for the
statutory licence plus $10,000 for the cash payment.
. Consequently, the cash payment represents 10 per cent of her
capital proceeds. That is, $10,000 divided by $100,000.
. Therefore, 10 per cent of the cost base of Courtney's Class
A shares is attributable to the cash payment. That is, $5
per share.
. The total cost base of the Class A shares that is
attributable to the $10,000 cash payment is $500.
. Assuming Courtney incurs no other costs in relation to the
Class A shares, she realises a capital gain of $9,500. That
is, $10,000 capital proceeds less a $500 cost base.
61. The taxpayer calculates a capital loss by attributing part of the
reduced cost base of each of the original water entitlements to the
ineligible proceeds they receive in the same way. [Schedule 2,
item 6, subsections 124-1115(3) and (4) and paragraph 124-
1115(5)(b)]
Replacement of pre-CGT water entitlements
62. If the taxpayer acquired their original water entitlement (or all
of their entitlements) before 20 September 1985, then they will be
taken to have acquired each of their replacement water entitlements
before 20 September 1985. [Schedule 2, item 6, section 124-1125]
63. Assets acquired before 20 September 1985 are known as pre-CGT
assets. Capital gains and capital losses realised on these assets
are generally disregarded.
1.
Further to Example 2.9.
Assume Emma purchased her 100 Class A shares on 3 August
1984.
Emma exchanges her 100 Class A shares for a 100 ML statutory
licence and 100 Class B shares.
As Emma's shares were acquired before 20 September 1985, she
is taken to have acquired her statutory licence and each of
her Class B shares before 20 September 1985.
Replacement of post-CGT water entitlements
64. If the taxpayer acquired their original water entitlement (or all
of their entitlements) on or after 20 September 1985, then they
will acquire each of their replacement water entitlements on the
actual date of acquisition of those entitlements.
65. Assets acquired on or after 20 September 1985 are typically known
as post-CGT assets.
66. However, for the purposes of the CGT discount, the ownership period
of each of the replacement water entitlements includes the period
of ownership of the original water entitlement(s) (see
paragraph 2.100). [Schedule 2, item 2]
67. The taxpayer calculates the first element of the cost base of each
replacement water entitlement on a reasonable basis having regard
to:
. the total cost bases of the original water entitlement(s);
. the number and market value of the original
entitlement(s); and
. the number and market value of the replacement
entitlement(s).
[Schedule 2, item 6, paragraphs 124-1120(1)(a) and (b) and (2)(a)
to (c)]
68. Taxpayers should calculate the market values at the time of the
relevant events. Division 116 sets out various principles for
calculating these market values in different circumstances.
[Schedule 2, item 6, subsection 124-1120(4)]
69. However, there is no need for the taxpayer to obtain a detailed
valuation from a qualified valuer as to the relevant market values.
Taxpayers may choose to obtain such a valuation. However,
taxpayers may alternatively choose to calculate their own valuation
based on reasonably objective and supportable data.
1.
Further to Example 2.9.
Dean also chooses to exchange his 100 Class A shares for a
100 ML statutory licence and 100 Class B shares. Assume
each of Dean's 100 Class A shares has a cost base of $750.
The total cost base of these shares is $75,000.
It would be reasonable for Dean to calculate the cost base
of his statutory licence and his 100 Class B shares as
follows.
At the time of exchange, Dean's replacement 100 ML statutory
licence has a market value of $100,000. Each of Dean's
Class B shares has a market value of $100. (The combined
market value is $10,000.)
Based on these values, Dean's statutory licence represents
90.91 per cent of the total proceeds he receives (rounded to
two decimal places). This is calculated as follows:
. The value of the total proceeds received is $110,000; that
is $100,000 (for the statutory licence) plus $10,000 (for
the Class B shares).
. The value of the statutory licence relative to the total
proceeds is calculated by dividing the value of the
statutory licence by the total value of the proceeds; that
is $100,000 divided by $110,000.
The first element of the cost base of Dean's statutory
licence is $68,183 (rounded to the nearest dollar). This is
calculated as follows:
. 90.91 per cent of the $75,000 total cost base of the
original 100 Class A shares is $68,183.
The 100 Class B shares that Dean receives represent the
other 9.09 per cent of the total proceeds. Consequently the
first element of the cost base of each of these shares is
$68.18. This is calculated as follows:
. 9.09 per cent of the $75,000 total cost base of the original
shares is $6,817.50.
. $6,817.50 total cost base value divided by 100 shares is
$68.18 (rounded to two decimal places).
70. In addition, if the taxpayer has to pay an amount (including giving
other property) to acquire the replacement water entitlement or
entitlements, then they can include that amount in the cost base of
each replacement entitlement on a reasonable basis. [Schedule 2,
item 6, paragraphs 124-1120(1)(c) and (2)(d)]
1.
Further to Example 2.12.
Assume Dean had to pay a $2,000 administrative fee to
acquire the statutory licence. Dean includes this fee in
the cost base of his replacement statutory licence.
Assuming Dean incurs no other costs in relation to the
statutory licence, it has a cost base of $70,183. That is,
the first element of $68,183 plus the second element of
$2,000.
71. The first element of the reduced cost base of each of the
replacement water entitlements is calculated in the same way,
taking into account:
. the total reduced cost bases of the original water
entitlement(s);
. the number and market value of the original
entitlement(s);
. the number and market value of the replacement
entitlement(s); and
. any amount (including other property) to acquire the
replacement entitlement(s).
[Schedule 2, item 6, subsections 124-1120(3) and (4)]
Replacement of pre-CGT and post-CGT water entitlements
72. As the single entitlement roll-over applies on an asset-by-asset
basis, only taxpayers who choose to apply the multiple entitlement
roll-over will have a combination of pre-CGT and post-CGT water
entitlements. [Schedule 2, item 6, subsection 124-1130(1)]
73. In these situations, the taxpayer calculates how many of the
replacement water entitlement(s) will be taken to have been
acquired prior to 20 September 1985 (pre-CGT) on a reasonable basis
having regard to:
. the number and market value of the original water
entitlements; and
. the number and market value of the replacement
entitlement(s).
[Schedule 2, item 6, subsection 124-1130(2)]
1.
Further to Example 2.9.
Ben purchased 25 of his Class A shares in Liquid Water in
1984 and the remaining 75 Class A shares in 2000. The cost
base of each of the post-CGT shares is $800.
Ben exchanges his 100 Class A shares for a 100 ML statutory
licence and 100 Class B shares. At the time of this
exchange, each of Ben's Class A shares has a market value of
$1,000.
Ben's replacement 100 ML statutory licence has a market
value of $90,000. Each of Ben's Class B shares has a market
value of $100. (The combined market value is $10,000.)
Ben is taken to have acquired two statutory licences - one
pre-CGT and the other post-CGT.
Reflecting the number and market value of his pre-CGT Class
A shares, it would be reasonable for Ben to be taken to have
acquired a 25 ML pre-CGT statutory licence and a 75 ML post-
CGT statutory licence.
Similarly, Ben will be taken to have acquired 25 of his
Class B shares pre-CGT.
74. The taxpayer then calculates the first element of the cost base of
each replacement post-CGT water entitlement on a reasonable basis
having regard to:
. the total cost bases of the original post-CGT water
entitlement(s); and
. the number and market value of the replacement post-CGT
entitlement(s).
[Schedule 2, item 6, paragraphs 124-1130(3)(a) and (b)]
1.
Further to Example 2.14.
It would be reasonable for Ben to calculate the first
element of the cost base of his 75 ML (post-CGT) statutory
licence as follows:
. The total market value of all his replacement post-CGT water
entitlements is $75,000. Of this, his 75 ML statutory
licence has a market value of $67,500 and each of his 75
post-CGT Class B shares has a market value of $100 (and a
combined market value of $7,500).
. Consequently, his 75 ML represents 90 per cent of his total
post-CGT proceeds. That is, $67,500 divided by $75,000.
. Therefore, Ben apportions 90 per cent of the total cost base
of his post-CGT Class A shares to the 75 ML statutory
licence. The total cost base of his post-CGT Class A shares
is $60,000. That is, 75 shares multiplied by an $800 cost
base.
. The first element of the cost base of Ben's 75 ML statutory
licence is $54,000. That is, 90 per cent of $60,000.
It would be reasonable for Ben to calculate the first
element of the cost base of each of his post-CGT Class B
shares as follows:
. Ben's post-CGT Class B shares represent 10 per cent of his
total post-CGT proceeds.
. Therefore, Ben apportions 10 per cent of the total cost base
of his post-CGT Class A shares to the 75 Class B shares.
The total cost base of his post-CGT Class A shares is
$60,000.
. The total cost base of the 75 Class B shares is $6,000.
. The first element of the cost base of each of Ben's 75 Class
B shares is $80. That is, a $6,000 total cost base divided
by 75 shares.
75. In addition, if the taxpayer has to pay an amount (including giving
other property) to acquire the replacement water entitlement(s),
then they can include that amount in the cost base of the
replacement entitlement on a reasonable basis. [Schedule 2,
item 6, paragraph 124-1130(3)(c)]
76. The taxpayer calculates the first element of the reduced cost base
of the replacement post-CGT water entitlement in the same way.
[Schedule 2, item 6, subsection 124-1130(4)]
Reduction in water entitlements
77. A taxpayer may own a number of individual water entitlements that
together form their total entitlement to water. This entitlement
may include a conveyance loss component that the taxpayer never
receives. Conveyance losses represent the water lost in the
operator's network due to factors such as evaporation and seepage.
There may be changes to the taxpayer's individual water
entitlements to effectively remove this conveyance component that
have no effect on the total amount of water the taxpayer is
entitled to receive.
78. Although the taxpayer's remaining water entitlements effectively
replace the taxpayer's original water entitlements, these
transactions will not qualify for the replacement roll-over if the
taxpayer does not acquire a replacement water entitlement. The
reduction roll-over addresses this scenario.
79. This roll-over does not provide specific consequences for taxpayers
who acquired all of their original water entitlements before
20 September 1985, as capital gains and capital losses realised on
these assets are generally disregarded.
Qualifying transactions
80. A taxpayer who owns more than one water entitlement will qualify
for the reduction roll-over if, under a single arrangement:
. their ownership of at least one of the original water
entitlements ends but they retain at least one of the
original entitlements; and
. the total market value of all the original entitlements is
substantially the same as the retained entitlements.
[Schedule 2, item 6, section 124-1135]
81. Paragraphs 2.69 to 2.77 set out the consequences of this roll-over
applying.
82. If there is a close nexus between particular elements of a broader
transaction, then those elements form part of the same arrangement.
Interrelated and interdependent transactions typically form a
single arrangement. Typically transactions will be interrelated if
they happen as part of achieving a broader objective.
Alternatively, transactions will typically be interdependent if
they are contingent on other transactions happening.
83. If the taxpayer is entitled to receive the same total amount of
water following this reduction, then theoretically the sum of the
remaining water entitlements' market values should be equal to the
sum of the original water entitlements' market values. However,
the substantially the same market value test recognises that there
may be small changes in value simply arising as a result of the
changes. It also allows for rounding and other small adjustments.
84. More significant changes in value will result in the taxpayer
failing this test.
1.
River Irrigation Ltd (River Irrigation) is an operator that
owns a statutory licence with a 100 GL entitlement to water.
River Irrigation has 100 member irrigators, each with a
contractual right to water. The size of this entitlement
depends on the number of shares they own in River
Irrigation. Each share in River Irrigation entitles its
owner to 1 ML of water.
However, each member's contractual right to water includes a
conveyance component of 20 per cent. Consequently, each
member only receives up to 80 per cent of their contractual
entitlement.
Julie, a member of River Irrigation, owns 500 shares (that
she acquired in 1994) and consequently has a 500 ML
entitlement to water. However, due to the conveyance
component Julie only ever receives up to 400 ML of water.
River Irrigation reorganises its affairs and cancels 20 per
cent of each member's shares on a pro-rata basis. River
Irrigation, with the agreement of its member irrigators,
also cancels each member irrigator's contractual right and
reissues a new contractual right without a conveyance
component. (This cancellation and reissue of the
contractual rights qualifies for the replacement water
entitlement roll-over.) These transactions ensure that each
member's contractual entitlement and shareholding accurately
reflects the amount of water they receive.
Julie is one of River Irrigation's member irrigators. Julie
has her total water entitlement reduced to 400 ML through
the cancellation of 100 shares. However, as Julie continues
to receive the same amount of water, the total market value
of Julie's original water entitlements is the same as her
retained water entitlements.
Roll-over consequences
Disregard capital gain or capital loss attributed to retained
entitlement
85. If the taxpayer satisfies the conditions for this roll-over, then
they disregard any capital gains or capital losses arising from
their ownership of the original water entitlement or entitlements
ending. [Schedule 2, item 6, section 124-1140]
1.
Further to Example 2.16.
Julie disregards any capital gains or capital losses arising
from the cancellation of her 100 shares.
Retained post-CGT entitlements
86. If the taxpayer acquired all of their original water entitlements
on or after 20 September 1985, then they will have the following
consequences for the cost base of their retained water
entitlements.
87. The taxpayer calculates the first element of the cost base of each
retained water entitlement on a reasonable basis having regard to:
. the total cost bases of the original water entitlement(s);
. the number and market value of the original
entitlement(s); and
. the number and market value of the retained
entitlement(s).
[Schedule 2, item 6, subsections 124-1145(1) and (2)]
1.
Further to Example 2.17.
Each of Julie's 500 shares has a cost base of $500. Her
total cost base is $250,000.
At the time of the cancellation, each of her shares has the
same market value of $8,000.
It would be reasonable for Julie to calculate the first
element of the cost base of each of her 400 retained
entitlements by apportioning the total cost base of $250,000
over the 400 shares.
That is, $250,000 divided by 400 shares equals $625. As the
total market value of the retained entitlements has not
changed, Julie need only apportion the total cost base
between her retained shares according to the number of
shares.
The first element of the cost base of each of Julie's
retained shares is $625.
88. Taxpayers need to calculate the market values at the time of the
relevant events and, as noted in paragraph 2.52 according to the
principles set out in Division 116. [Schedule 2, item 6,
subsection 124-1145(4)]
89. The taxpayer calculates the reduced cost base of each retained
water entitlement in the same way. [Schedule 2, item 6,
subsection 124-1145(3)]
Retained pre-CGT and post-CGT entitlements
90. A taxpayer may have acquired some of their original water
entitlements before 20 September 1985 and the remainder of their
entitlements on or after 20 September 1985. [Schedule 2, item 6,
subsection 124-1150(1)]
91. In these situations, the taxpayer calculates how many of the
retained water entitlement(s) will be taken to have been acquired
prior to 20 September 1985 (pre-CGT) on a reasonable basis having
regard to:
. the number and market value of the original water
entitlements; and
. the number and market value of the retained
entitlement(s).
[Schedule 2, item 6, subsection 124-1150(2)]
92. The taxpayer then calculates the first element of the cost base of
each retained post-CGT water entitlement on a reasonable basis
having regard to:
. the total cost bases of the original post-CGT water
entitlement(s); and
. the number and market value of the retained post-CGT
entitlement(s).
[Schedule 2, item 6, subsection 124-1150(3)]
93. The taxpayer calculates the first element of the reduced cost base
of each retained post-CGT water entitlement in the same way.
[Schedule 2, item 6, subsection 124-1150(4)]
Consequential variations to other CGT assets
94. Transactions that qualify for the replacement roll-over may have
consequential effects on other taxpayers. For example, one member
of an operator may transform their water entitlements against their
operator and this can affect the water entitlements of the operator
and other members.
Qualifying transactions
95. A taxpayer that has a CGT event happen to any asset they own as a
direct result of circumstances that qualify for the replacement
roll-over will qualify for the variation roll-over when they
continue to own the asset. [Schedule 2, item 6, section 124-1155]
1.
Further to Example 2.9.
Andy exchanges each of his 100 Class A shares in Liquid
Water for a replacement 100 ML statutory licence and 100
Class B shares. As a result, Liquid Water's 800 ML
statutory licence is reduced to 700 ML and it cancels Andy's
100 Class A shares.
This reduction arises as a direct result of Andy
transforming his entitlement, an exchange that qualifies for
the replacement entitlement roll-over.
As Liquid Water continues to own its statutory licence, it
qualifies for the variation roll-over in respect of this
reduction.
Roll-over consequences
Disregard capital gain or capital loss attributed to the retained
asset
96. If the taxpayer satisfies the conditions for this roll-over, then
they disregard any capital gains or capital losses arising from the
CGT event happening. [Schedule 2, item 6, section 124-1160]
1.
Further to Example 2.19.
As Liquid Water does not receive any other proceeds, it
disregards any capital gains or capital losses arising from
this reduction.
Realise capital gain or capital loss attributed to ineligible
proceeds
97. However, if the taxpayer receives proceeds other than their
retained asset (ineligible proceeds), then they will realise a
partial capital gain or capital loss in relation to those proceeds.
[Schedule 2, item 6, subsection 124-1165(1)]
98. In this situation the taxpayer calculates a capital gain by
attributing part of the cost base of the original asset to the
ineligible proceeds they receive. The taxpayer may do this on a
reasonable basis having regard to the market value of the retained
asset relative to the market value of the ineligible proceeds.
[Schedule 2, item 6, subsections 124-1165(2) and (4)]
99. The taxpayer calculates a capital loss by attributing part of the
reduced cost base of the original asset to the ineligible proceeds
they receive in the same way. [Schedule 2, item 6, subsections 124-
1165(3) and (4)]
Termination fees
100. Typically, termination fees (and exit fees) are contractual fees
imposed by one party on the other as a result of the second party
breaking the contract.
101. An asset's cost base and reduced cost base consist of five
elements. The second element consists of specific incidental costs
that a taxpayer incurs in relation to the asset. These incidental
costs are set out in section 110-35.
102. A taxpayer that incurs a termination or a similar fee (such as an
exit fee) as a direct result of their ownership of an asset ending
includes that fee in the second element of the asset's cost base
and reduced cost base as an incidental cost. [Schedule 2,
item 200]
1.
Linda enters a contract with Gold Property Development Ltd
(Gold) to build a residential investment property for
$500,000.
The contract provides that if Linda does not arrange the
necessary approvals so that Gold can commence building
within four months of signing the contract, the contract
will be terminated and Linda must pay Gold a termination fee
equal to 2 per cent of the contract price.
Six months later, Linda has still not arranged the necessary
approvals. Her contract with Gold is terminated and she
pays Gold a termination fee of $10,000 in accordance with
the terms of the contract.
Linda includes the amount of the termination fee in the
second element of the cost base and reduced cost base of the
contract as an incidental cost.
103. The party that imposes a termination fee may impose that fee by
withholding part of the proceeds due to the other party. In this
situation the taxpayer that has to pay the termination fee cannot
reduce their capital proceeds by the amount of the withheld fee.
104. In the context of the irrigation industry, a termination fee is
typically any fee or charge payable to an operator for either
terminating access or surrendering a water delivery right. The
Water Charge Rules provide further information about these fees.
1.
Further to Example 2.12.
Dean sells his statutory licence to an irrigator outside
Liquid Water's irrigation district and elects to terminate
his access to Liquid Water's irrigation network, through the
cancellation of his 100 Class B shares.
Liquid Water charges Dean a $5,000 termination fee to cancel
his shares.
Dean includes the $5,000 fee in the cost base and reduced
cost base of the shares as an incidental cost on a pro-rata
basis. That is, $50 per share.
The first element of the cost base and reduced cost base of
each share is $68.18. Assuming Dean incurs no other costs
in relation to these shares, the second element of the cost
base and reduced cost base is $50.
The cost base and reduced cost base of each share is
$118.18.
105. Irrigators may choose to transform an irrigation right and
subsequently trade their water entitlement and terminate their
delivery entitlement. These subsequent transactions may occur at
different times.
106. Should an irrigator wish to offset a capital gain they realise on
the sale of their water entitlement with a capital loss they
realise on their delivery entitlement, then they may wish to ensure
that these transactions occur in the same income year. This is
because taxpayers can offset existing and future capital gains with
any realised capital losses. However, taxpayers cannot carry back
capital losses to prior income years.
Application and transitional provisions
107. Part 1 applies to CGT events that happen in the 2005-06 and later
income years. [Schedule 2, item 300]
108. However, once the amending legislation receives Royal Assent,
taxpayers can choose not to obtain the roll-over if the relevant
transactions qualifying for the roll-over happen in the period from
the 2005-06 income year to the day that the amendments receive
Royal Assent. [Schedule 2, subitems 305(1) and (2)]
109. If a taxpayer chooses not to obtain the roll-over, then they can
make this choice within 12 months of the amendments receiving Royal
Assent or within the time period set out in section 170 of the
Income Tax Assessment Act 1936 (ITAA 1936). [Schedule 2,
subitem 305(3)]
110. A taxpayer may choose not to obtain the roll-over in situations
when they realise a capital loss from the relevant transactions.
111. Part 2 applies to CGT events happening on or after 1 July 2008.
[Schedule 2, item 310]
112. However, once the amending legislation receives Royal Assent,
taxpayers can choose not to include a termination or similar fee in
the asset's cost base and reduced cost base if the relevant event
happens in the period from 1 July 2008 to the day that the
amendments receive Royal Assent. [Schedule 2, subitem 315(1)]
113. If a taxpayer chooses not to include the fee in the asset's cost
base, then they can make this choice within 12 months of the
amending legislation receiving Royal Assent or within the time
period set out in section 170 of the ITAA 1936. [Schedule 2,
subitem 315(2)]
Consequential amendments
114. A number of consequential amendments will be made to the ITAA 1997
to reflect the availability of the water entitlement roll-over in
Subdivision 124-R.
115. References to this roll-over will be added to Subdivision 112-B.
Subdivision 112-B lists situations when the general cost base and
reduced cost base rules are modified. [Schedule 2, item 1]
116. A reference to the water entitlement roll-overs will be added to
the table of replacement asset roll-overs in section 112-115. This
ensures that the ownership period of a replacement water
entitlement includes the period of ownership of the original
entitlement for the purposes of the CGT discount. [Schedule 2,
item 2]
117. References to Subdivision 124-R will be added to Division 124.
[Schedule 2, items 3 to 5]
118. The definition of a 'water entitlement' will be inserted into
section 995. [Schedule 2, item 7]
Chapter 3
Amendments to the taxation of financial arrangements provisions
Outline of chapter
119. Part 1 of Schedule 3 to this Bill amends:
. Division 230 of the Income Tax Assessment Act 1997
(ITAA 1997); and
. the consequential and transitional provisions inserted by
the Tax Laws Amendment (Taxation of Financial
Arrangements) Act 2009 (TOFA Act 2009).
120. Part 2 of Schedule 3 to this Bill extends the transitional
arrangements relating to the application of the debt/equity rules
made by the New Business Tax System (Debt and Equity) Act 2001
(Debt and Equity Act 2001) for Upper Tier 2 instruments to 1 July
2010, for instruments issued before 1 July 2001.
121. All references to legislative provisions in this chapter are
references to the ITAA 1997 unless otherwise stated.
Context of amendments
122. The TOFA Act 2009, which received Royal Assent on 26 March 2009,
inserted Division 230 into the ITAA 1997. Division 230 modernises
the financial taxation system by better reflecting the economic and
commercial substance of financial arrangements.
123. Division 230 applies for income years commencing on or after 1 July
2010, unless a taxpayer elects to apply the Division for income
years commencing on or after 1 July 2009.
124. Division 230 represents a major legislative reform that affects a
wide range of financial arrangements, including those of a complex
nature. The amendments to Division 230, announced by the Assistant
Treasurer in Media Release No. 043 on 4 September 2009, follow the
Government's monitoring of the implementation of this reform.
125. The Debt and Equity Act 2001 contains a transitional measure that
allowed taxpayers to apply the tax rules prior to the introduction
of Division 974 to instruments issued before 1 July 2001 (unless
taxpayers elect to bring those instruments within the scope of
Division 974).
Summary of new law
Amendments to Division 230 and the consequential and transitional
provisions inserted by the TOFA Act 2009
126. The amendments to Division 230 and the consequential and
transitional provisions inserted by the TOFA Act 2009 include:
. minor policy refinements;
. technical amendments to clarify and give better effect to
the policy intention of Division 230; and
. minor technical corrections to address drafting
oversights.
127. These amendments mandatorily take effect for income years starting
on or after 1 July 2010. The amendments take effect for income
years starting on or after 1 July 2009, if an election is made to
have the TOFA Act 2009 apply from that earlier time, except for
items 95, 131 and 135 which have different commencement dates as
set out in this Bill.
Minor policy and technical amendments
Core rules
128. This Schedule amends the scope of the term 'cash settlable', in
respect of a financial arrangement, so that if a financial benefit
is readily convertible into money or money equivalent and there is
a market for the financial benefit that has a high degree of
liquidity, then a right to receive, or an obligation to provide the
financial benefit is cash settlable if:
. the amount of the money, or money equivalent, in the hands
of the entity who has the right to receive the financial
benefit(s), is not subject to a substantial risk of
substantial decrease in value; or
. the purpose of entering into the arrangement, under which
the financial benefit is received or provided, is to
receive or provide the financial benefit to raise or
provide finance, or so that the financial benefit may be
liquidated or converted into money or money equivalent
(other than as part of a taxpayer's expected purchase,
sale or usage requirements).
129. This Schedule clarifies that a dividend on certain shares that are
'debt interests', as defined in Division 974, may be deductible in
certain circumstances, consistent with the corresponding
deductibility provision in section 25-85.
Accruals/Realisation
130. This Schedule clarifies that:
. for the purposes of the accruals tax timing methodology in
Subdivision 230-B, it is only that part of a financial
benefit which is, at the relevant time, fixed or
determinable with reasonable accuracy that is to be
treated as 'sufficiently certain';
. a pro-rata basis for attribution of a gain or loss in
relation to the effective interest method or portfolio
treatment of fees is not necessarily unreasonable; and
. for the purposes of determining if a financial benefit is
sufficiently certain, where all the financial benefits
provided and received under a financial arrangement are in
a particular foreign currency, they are not to be
translated into Australian currency or a taxpayer's
applicable functional currency.
Hedging
131. This Schedule ensures that:
. a financial arrangement can qualify as a hedging financial
arrangement where it hedges a risk in relation to multiple
hedged items;
. a hedging financial arrangement can exist where an
arrangement that hedges a risk in relation to foreign
currency is recorded as a hedging instrument in an
entity's own financial reports; and
. consequences arise where an entity ceases to have one or
more, but not all, hedged items and provides reasonable
attribution rules to ensure that appropriate gains and
losses are brought to account when this occurs.
Foreign currency retranslation
132. This Schedule amends the foreign currency retranslation provisions
to ensure that the wording of the provisions is consistent with the
relevant accounting standards.
Scope and exceptions
133. This Schedule clarifies that:
. an interest in a partnership or trust is subject to
Division 230 where a fair value or reliance on financial
reports election has been made. This is despite the fact
that an interest in a partnership or trust is carved out
of Division 230 for all other purposes; and
. certain guarantees and indemnities, although subject to an
exception to Division 230, are subject to Division 230
where a fair value or reliance on financial reports
election has been made.
134. This Schedule amends the assets threshold test so that it applies
to regulated superannuation funds and unregulated superannuation
funds on the same basis.
Amendments to consequential and transitional amendments in the
TOFA Act 2009
135. This Schedule makes the following technical amendments to the
consequential and transitional amendments in the TOFA Act 2009 to:
. put it beyond doubt that the net income of a transferor
trust disregards Division 230;
. modify the references to 'accounting standards' in
Division 230 so that they extend to accounting standards
formulated or made by the Australian Accounting Standards
Board (AASB); and
. modify the references to 'auditing standards' in Division
230 so that they encompass auditing standards formulated
or made by the Auditing and Assurance Standards Board.
136. This Schedule reinstates the anti-overlap rule that ensures that
the tax exempt asset financing provisions have priority over the
capital gains tax (CGT) provisions.
137. This Schedule extends the application of the transitional
provisions in the TOFA Act 2009 to include paragraph 230-165(1)(b).
An entity can then apply the portfolio treatment of premiums and
discounts, notwithstanding the entity held the financial
arrangement prior to the income year in which an election was made
under section 230-150.
Minor technical corrections
138. The minor technical corrections include:
. correcting referencing, including the use of asterisks;
. correcting typographical errors; and
. re-inserting provisions which were incorrectly repealed by
the TOFA Act 2009.
Amendments to transitional provisions in the Debt and Equity Act 2001
139. Part 2 of this Schedule extends the debt/equity transitional period
to 1 July 2010 for Upper Tier 2 instruments that were issued before
1 July 2001, to allow transition to the proposed regulations that
will facilitate the debt tax treatment of certain Upper Tier 2
instruments.
Comparison of key features of new law and current law
|New law |Current law |
|The new elements of the |The relevant current |
|definition of 'cash |elements of the definition |
|settlable' rights or |of 'cash settlable' rights |
|obligations are satisfied |or obligations are |
|where: |satisfied where: |
|the amount of the money or |the amount of the money or |
|money equivalent to the |money equivalent in respect|
|recipient of the relevant |of the relevant financial |
|financial benefit is not |benefit is not subject to a|
|subject to a substantial |substantial risk of change |
|risk of substantial decrease|in value; or |
|in value; or |the taxpayer's purpose for |
|the taxpayer's purpose for |entering into the |
|entering into the |arrangement (under which |
|arrangement (under which the|the financial benefit is to|
|financial benefit is to be |be provided or received) is|
|provided or received) is to |to either receive or |
|either receive or deliver |deliver the financial |
|the financial benefit: |benefit so that it may be |
|to raise or provide finance;|converted or liquidated |
|or |into money or a money |
|to convert or liquidate the |equivalent (other than in |
|financial benefit into money|the ordinary course of |
|or money equivalent (other |business). |
|than as part of the | |
|taxpayer's expected | |
|purchase, sale or usage | |
|requirements). | |
|Where a taxpayer does not |Only taxpayers with an |
|have an applicable |applicable functional |
|functional currency, and all|currency are not required |
|of the financial benefits |to translate where all of |
|under an arrangement are |the financial benefits |
|denominated in a particular |under an arrangement are |
|foreign currency, the |denominated in a particular|
|financial benefits are not |foreign currency, for the |
|to be translated into |purpose of determining |
|Australian currency for the |sufficient certainty. |
|purpose of determining | |
|whether the financial | |
|benefits are sufficiently | |
|certain. | |
|New 'events' are inserted |No tax 'event' occurred |
|into section 230-305 to |where a taxpayer ceased to |
|ensure that the allocation |have some, but not all, of |
|of a gain or loss from a |the hedged items. |
|hedging financial | |
|arrangement occurs where an | |
|entity ceases to have some, | |
|but not all, of the hedged | |
|items. | |
|The threshold test that |Regulated and unregulated |
|applies to regulated |superannuation funds have |
|superannuation funds is |different threshold |
|extended so that it also |requirements for the |
|applies to non-regulated |mandatory application of |
|superannuation entities. |Division 230. |
|References to 'accounting |The defined terms, |
|standards', 'auditing |'accounting standards' and |
|standards' and related |'auditing standards' are |
|references are replaced with|used. |
|references to 'accounting | |
|principles', 'auditing | |
|principles' and related | |
|references. | |
|The debt/equity transitional|The debt/equity |
|period is extended to 1 July|transitional period was to |
|2010 for Upper Tier 2 |1 July 2004 unless an |
|instruments that were issued|election to apply the |
|before 1 July 2001 unless an|debt/equity rules from |
|election to apply the |1 July 2001 is made. |
|debt/equity rules from | |
|1 July 2001 is made. | |
Detailed explanation of new law
Amendments to Division 230 and the consequential and transitional
provisions inserted by the TOFA Act 2009
Minor policy and technical amendments
Core rules
Amendments to the definition of 'cash settlable' rights or
obligations
140. This Schedule amends paragraph 230-45(3)(c) and inserts new
subsections 230-45(4) and (5) so that if:
. a financial benefit is readily convertible into money or
money equivalent; and
. there is a market for the financial benefit that has a
high degree of liquidity; and
- the amount of the money or money equivalent that the
financial benefit(s) can be converted into is not
subject to a substantial risk of substantial decrease in
value (for example, the investment amount is guaranteed)
in the hands of the entity who has the right to receive
the financial benefit(s) [Schedule 3, item 7, subsection
230-45(4)]; or
- the taxpayer's purpose for entering into the arrangement
(under which the financial benefit is to be provided or
received) is to receive or deliver the financial benefit
either:
: to raise or provide finance; or
: in other situations, so that it may be liquidated
or converted into money or money equivalent (other
than as part of the taxpayer's expected purchase,
sale or usage requirements) [Schedule 3, item 7,
subsection 230-45(5)],
then a right to receive, or an obligation to provide the
financial benefit, is cash settlable under paragraph 230-
45(2)(f).
141. Section 230-45 defines 'financial arrangement' for the purposes of
Division 230. Central to the meaning of 'financial arrangement' is
the definition of 'cash settlable' rights or obligations in
subsection 230-45(2). Subsection 230-45(3), together with either
subsection 230-45(4) or (5), seeks to bring within the scope of
'cash settlable' rights or obligations, a right to receive, or an
obligation to provide, a certain type of financial benefit that is
not in a formal sense money or money equivalent but is money-like.
142. One way in which a financial benefit is considered to be money-like
is where, in broad terms:
. it is convertible to money or money equivalent;
. it is liquid; and
. its value in monetary terms is not subject to a
substantial risk of substantial decrease in value.
143. As indicated above, a right to receive, or an obligation to
provide, a financial benefit which is liquid and convertible into
money is 'cash settlable' if the recipient of the financial
benefit(s) is entitled to receive at least a predetermined money
equivalent amount of the financial benefit(s). An example of this
would be a right to receive $100 worth of Big Bank shares. In this
case, while the Big Bank shares are not money or money equivalent
and the right to receive and the obligation to provide Big Bank
shares are not to be settled in money or money equivalent, the
monetary value of the financial benefits is at least $100.
Assuming that the Big Bank shares are readily convertible into
money and there is a liquid market for Big Bank shares, the right
to receive or the obligation to provide $100 of Big Bank shares is
economically akin to a right to receive, or an obligation to
provide, $100.
144. These amendments provide that a right or obligation is 'cash
settlable' if the value to the recipient of relevant cash-
convertible, liquid financial benefits is not subject to a
substantial risk of substantial decrease in value. Consistent with
ordinary tax principles, the assessment of this risk should be done
in nominal terms. [Schedule 3, item 7, subsection 230-45(4)]
145. These amendments seek to address, among other things, uncertainty
about whether the rights and/or obligations under certain deferred
purchase agreements are 'cash settlable'. The intention of the
amended definition is to ensure that substantially capital
protected deferred purchase agreements are 'cash settlable'
financial arrangements. It also clarifies that convertible and
similar instruments will generally be financial arrangements. More
broadly, it is consistent with the notion that in substance debt,
even with upside potential (whether through convertibility or
otherwise), should as a general principle be treated as a financial
arrangement.
1. : Deferred purchase agreement - capital protected
AEHR Co pays $10,000 to enter into an investment product,
commonly referred to as a deferred purchase agreement,
issued by Big Bank, on 1 July 2011. The terms of the
deferred purchase agreement entitles AEHR Co to an
unspecified number of shares in Edward Finance Co. They are
deliverable on 30 June 2015. Assume that Edward Finance Co
shares are listed on the Australian Securities Exchange
(ASX) and the market for them has a high degree of
liquidity.
Under the terms of the deferred purchase agreement, AEHR Co
is entitled to receive, on 30 June 2015, 95 per cent of the
initial investment (the $10,000) in the form of Edward
Finance Co shares. This is the basis of the capital
protection. AEHR Co is entitled to a further amount, the
value of which is contingent on changes in the level of a
nominated market index over the term of the deferred
purchase agreement. Thus AEHR Co receives shares in Edward
Finance Co at least equal in value to $9,500.
The requirements in subsections 230-45(3) and (4) are
satisfied for both Big Bank and AEHR Co as Edward Finance Co
shares are readily convertible into money, the market for
Edward Finance Co shares is highly liquid and the financial
benefits AEHR Co is entitled to receive under the
arrangement are not subject to a substantial risk of
substantial decrease in value. As such, AEHR Co's right to
receive, and Big Bank's obligation to provide, the Edward
Finance Co shares are 'cash settlable' rights and
obligations.
2. : Convertible note
On 1 January 2011 Nourt Co issued a converting note to
Nanfam Co, with a face value of $1,000 maturing on 31
December 2019. The convertible note entitles Nanfam Co to
annual payments of 10 per cent of the face value. At
maturity the note will convert into shares in Nourt Co.
Assume that shares in Nourt Co are listed on the ASX and the
market for them is highly liquid.
Nanfam Co's right to receive shares in Nourt Co is a cash
settlable right. The requirements in subsections 230-45(3)
and (4) are satisfied as Nourt Co shares are readily
convertible into money, the market for them is highly liquid
and the value of the financial benefits Nanfam Co will
receive under the arrangement (that is, $1,000 of Nourt Co
shares) is not subject to a substantial risk of substantial
decrease in value.
146. A right to receive, or an obligation to provide a cash convertible
and liquid financial benefit is also 'cash settlable' if the
taxpayer's purpose for entering into the arrangement (under which
the financial benefits are to be provided or received) is to
either:
. raise or provide finance; or
. receive or deliver the financial benefit, so they it may
be converted into money or money equivalent (other than as
part of the taxpayer's expected purchase, sale or usage
requirements).
147. These amendments are intended to cover cash convertible and liquid
financial benefits that are not money-like as described above, but
are intended to be used by taxpayers in a money-like manner.
148. That is, a financial benefit such as a commodity can be considered
to be money-like in certain situations. One such situation would
be where the financial benefit meets the convertibility and
liquidity criteria in paragraphs 230-45(3)(a) and (b), and the
purpose of obtaining the financial benefit is to convert it into
money, other than as part of the taxpayer's purchase, sale or usage
requirements. That is, while the financial benefit in this case is
not in the form of money, the dealing in it is money-like.
149. Similarly, the receipt of a cash-convertible and liquid commodity
could be used to raise finance and thereby be used in a money-like
way. So a right to receive, or an obligation to provide financial
benefits which are convertible into money, is cash settlable if the
purpose of the financial arrangement under which the financial
benefits are to be provided or received is financing. In such a
situation, the financial benefits are intended to be liquidated or
converted into money or money equivalent in a liquid market or
otherwise to be used as money or money equivalent. [Schedule 3,
item 7, paragraph 230-45(5)(a)]
1. : Gold loan
GI & L Co, a mining company, seeks to expand its operations.
To finance this, the company enters into an arrangement
under which it borrows 100 ounces of gold from Avlis Co with
an agreement to repay 120 ounces in two years time. For GI
& L Co, this arrangement consists of a right to receive 100
ounces of gold and an obligation to provide 120 ounces of
gold.
The right to receive, and the obligation to provide, the
gold are cash settlable. The requirements in subsection 230-
45(3) are satisfied as the gold is readily convertible into
money, there is a market for the gold which has a high
degree of liquidity and paragraph 230-45(5)(a) is satisfied
as the arrangement is for the purpose of obtaining finance.
150. A right to receive, or an obligation to provide, financial benefits
which are convertible into money, is cash settlable if the purpose
of the financial arrangement under which the financial benefits are
to be provided or received is to receive or deliver the financial
benefits so that they may be converted into money or money
equivalent (other than as part of the taxpayer's ordinary business
requirements). [Schedule 3, item 7, paragraph 230-45(5)(b)]
151. Depending on the purpose of the parties to a transaction, a right
to receive, or an obligation to provide financial benefits, which
may be converted into money, may be cash settlable for one party
but not the other. From the recipient's perspective, for the right
to receive the financial benefit (assuming it meets the
convertibility criterion) to be cash settlable, the recipient's
purpose for receiving the financial benefit has to be to convert
the financial benefit obtained into money or money equivalent and
the conversion is not to satisfy the recipient's ordinary business
requirements. From the provider's perspective, for the obligation
to provide the financial benefit to be cash settlable, the
provider's purpose of delivering the financial benefit has to be
that the financial benefit may be converted into money or money
equivalent and the conversion is not part of the provider's
ordinary business requirements.
1. : Derivatives
RI & CE Co, a wheat company, enters into a deliverable
forward contract to acquire 50 ounces of gold in one year
for $50,000. The contract provides that it must be settled
by way of delivery of the gold.
The right to receive the gold in one year's time is a cash
settlable right for RI & CE Co. The requirements in
subsection 230-45(3) are satisfied as the gold is readily
convertible into money, the market for gold is highly liquid
and paragraph 230-45(5)(b) will be satisfied if the purpose
of the arrangement for RI & CE Co is to receive the gold in
order to convert it into money and not as part of its
expected purchase, sale or usage requirements.
Deductibility of dividends on debt interests
152. Subsection 230-15(4) is intended to broadly reflect the effect of
section 25-85 in respect of financial benefits provided or received
under financial arrangements that are debt interests. However,
there have been doubts as to whether legal form dividends from debt
interests can be deductible under Division 230, given the absence
of a rule that replicates subsection 25-85(3). Subsection 25-85(3)
allows for deductibility of such dividends in certain
circumstances.
153. Accordingly, this Schedule inserts a new subsection 230-15(4A) to
allow, under certain conditions, for the deductibility of a
dividend to the extent that it would have been a deductible loss
under subsection 230-15(2). The timing of the deductibility is to
be determined in accordance with Division 230 [Schedule 3, item 6,
subsection 230-15(4A)]. The conditions are that:
. the payment of the amount of the dividend were the
incurring of a liability to pay the same amount as
interest [Schedule 3, item 6, paragraph 230-15(4A)(a)];
. the interest was incurred in respect of the finance raised
by the taxpayer and in respect of which the dividend was
paid or provided [Schedule 3, item 6, paragraph 230-
15(4A)(b)]; and
. the debt interest retains its character as a debt interest
for the purposes of subsection 230-15(4). In other words,
the interest continues to satisfy the debt interest test
in section 974-20 [Schedule 3, item 6, paragraph 230-
15(4A)(c)].
Accruals/Realisation
Allowing financial benefits to be sufficiently certain to an extent
154. This Schedule amends subsection 230-115(1) so that, in deciding
whether it is sufficiently certain at a particular time that a
taxpayer will make a gain or loss from a financial arrangement,
regard should be had only to financial benefits that the taxpayer
is sufficiently certain to receive or provide, to the extent that
the amount or value of the benefit is, at that time, fixed or
determinable with reasonable accuracy. [Schedule 3, item 11,
subsection 230-115(1)]
155. These amendments clarify that, for the purposes of Subdivision 230-
B, a financial benefit can be sufficiently certain even if not all
of the financial benefit is, at the relevant time, fixed or
determinable with reasonable accuracy. To the extent that only
part of the financial benefit is, at the relevant time, fixed or
determinable with reasonably accuracy, only that part is treated as
sufficiently certain.
1. : Financial benefits sufficiently certain to an extent
Investor Co has an investment that is a Division 230
financial arrangement under which it has a right to a
financial benefit, the amount of which is fixed at $100,
with a further amount of between $0 and $30 that is wholly
dependent on the profits of a company.
For the purpose of subsection 230-115(2), assume that:
. it is reasonably expected that Investor Co will receive the
financial benefit (assuming that it continues to have the
financial arrangement for the rest of its life); and
. at least some of the amount or value of the benefit, namely
the $100 (and only the $100), is fixed or determinable with
reasonable accuracy.
Accordingly, the financial benefit is one that Investor Co
is sufficiently certain to receive.
Subsection 230-115(1) provides that, for the purpose of
deciding whether it is sufficiently certain that Investor Co
will make a gain from the financial arrangement, only $100
is to be taken into account.
Pro-rata attribution of gain or loss not necessarily unreasonable
for accruals
156. When the effective interest method is used in applying the
compounding accruals tax timing methodology but the taxpayer's
income year and financial reporting year are different, section 230-
145 allows the results from more than one audited financial report
that covers the income year to be attributed - using a reasonable
methodology - to the income year.
157. While pro-rata attribution is not appropriate for the fair value,
retranslation and reliance on financial reports elections (because
of the unsystematic nature of the gains and losses that they
cover), a pro-rata basis for attribution of an accruals methodology
may be reasonable, particularly if the methodology uses straight-
line accruals appropriately. This Schedule repeals subsection 230-
145(5) so that for the purposes of paragraph 230-145(4)(a), a
methodology that attributes the gain or loss on a pro-rata basis is
not necessarily unreasonable. [Schedule 3, item 14, subsection 230-
145(5)]
Pro-rata attribution of portfolio treatment of fees not necessarily
unreasonable
158. In a similar vein to the repeal of subsection 230-145(5),
subsection 230-155(5) is repealed so that, for the purposes of
paragraph 230-155(4)(a), a methodology that attributes the
portfolio treatment of fees on a pro-rata basis is not necessarily
unreasonable. [Schedule 3, item 21, subsection 230-155(5)]
Foreign currency arrangements
159. This Schedule amends subsection 230-115(8) so that where all the
financial benefits under a financial arrangement are denominated in
a particular foreign currency they are not to be translated into
Australian currency for the purpose of determining whether the
financial benefits are sufficiently certain, even if the taxpayer
does not have an applicable functional currency. This ensures that
the law gives effect to the original policy intention of the
subsection. [Schedule 3, item 12, subsection 230-115(8)]
Hedging
Enabling one hedging financial arrangement to hedge more than one
hedged item
160. This Schedule inserts 'or items' after 'hedged item' in
paragraph 230-335(1)(a). This amendment is made to remove doubt
about whether the tax hedge rules in Subdivision 230-E can apply
when multiple hedged items are hedged by a single hedging financial
arrangement. The intention is that they can (subject to the
various requirements of Subdivision 230-E being satisfied) apply in
this situation. This amendment is intended to provide clarity for
this paragraph only and is not intended to affect the
interpretation of the rest of Division 230. [Schedule 3, item 65,
paragraph 230-335(1)(a)]
Hedged item recorded in own financial reports
161. This Schedule inserts 'your financial report or' before 'the
financial report of a consolidated entity' in subparagraph 230-
335(1)(c)(ii). [Schedule 3, item 68, subparagraph 230-
335(1)(c)(ii)]
162. This amendment ensures that the hedging item is, as intended, able
to be recorded in an entity's own financial reports.
Circumstances where an entity ceases to have one or more but not
all hedged items
163. This Schedule inserts 'events' into the table in section 230-305
where the entity ceases to have some, but not all, of the hedged
items. These events are:
. the entity ceases to have one or more, but not all, of the
hedged items;
. the entity ceases to expect that one or more, but not all,
of the hedged items will come into existence; or
. the entity ceases to expect that the entity will have one
or more, but not all, of the hedged items.
[Schedule 3, item 54, section 230-305 (after item 2 in the table)]
164. These amendments ensure that the allocation of gain or loss from a
hedging financial arrangement as worked out under subsection 230-
300(5) occurs where these events occur. [Schedule 3, items 50 and
52, subsections 230-300(5) and (11)]
165. Amendments are also made to section 230-305 to require that the
gain or loss from a hedging financial arrangement is attributed, on
a reasonable basis, to a particular hedged item that the hedging
financial arrangement hedges. [Schedule 3, items 53 and 55,
section 230-305]
166. The extent to which the gain or loss from a hedging financial
arrangement, as worked out under subsection 230-300(5), is
reasonably attributable to a particular hedged item that the
hedging financial arrangement hedges, must be determined on a
reasonable and objective basis, having regard to the following:
. the fair value of the particular hedged item;
. the length of time the entity has held the hedged item;
. commercially accepted valuation principles; and
. any other relevant factors.
1.
An entity that has a 30 June income year acquires a floating
rate loan portfolio on 1 July 2015. The entity enters into
a 10 year interest rate swap in order to hedge the interest
rate risk in relation to the loans in the portfolio. At
that time, the swap has a nil value.
The portfolio has two loans, one worth $900,000 and the
other one worth $100,000.
On 1 July 2020, the entity disposes of the loan that is
worth $100,000. At that time, the interest rate swap has a
fair value of $10,000.
On 1 July 2022, the entity disposes of the swap for its fair
value of $30,000.
On 1 July 2020, the gain from the swap as worked out under
subsection 230-300(5) is its fair value at the time, that
is, $10,000. In the absence of other factors relevant to
subsection 230-300(5), it would be reasonable to attribute
10 per cent of the gain ($1,000) to the loan being disposed
of, given the relative values of the loans in the portfolio.
167. The gain or loss that is reasonably attributable to the one or more
hedged items being disposed of is allocated to the income year in
which the event occurs, and the gain or loss that is reasonably
attributable to the remaining hedged item or items is allocated
over income years according to the basis determined under
subsection 230-360(1).
168. The above amendments make subsection 230-300(6) redundant as the
situation in which a taxpayer ceases to have one or more, but not
all, of the hedged items, is dealt with by the above amendments.
As such, the regulation-making power is no longer needed.
[Schedule 3, item 51, subsection 230-300(6)]
Foreign currency retranslation
Ensuring consistency with accounting standards
169. This Schedule amends the wording of some provisions to ensure
consistency with the Australian Accounting Standards (AAS) and the
equivalent International Accounting Standards. The following
changes are made:
. the words 'an amount in profit' in subsection 775-305(2)
are replaced by the words 'an amount of gain in profit or
loss' [Schedule 3, item 127, subsection 775-305(2)]; and
. the words 'an amount in loss' in subsection 775-305(3) are
replaced by the words 'an amount of loss in profit or
loss' [Schedule 3, item 128, subsection 775-305(3)].
Exceptions
Asset test applies to both regulated and unregulated superannuation
funds
170. This Schedule amends subparagraph 230-445(1)(a)(ii) to ensure that
the asset threshold test in subsection 230-455(2) applies to both
regulated and non-regulated superannuation funds on the same basis.
[Schedule 3, items 5 and 106, subparagraphs 230-5(2)(a)(ii) and
230-455(1)(a)(ii)]
171. Section 230-455 provides that Division 230 does not apply to the
financial arrangement gains or losses of certain taxpayers.
172. One such exclusion is contained in subparagraph 230-455(1)(a)(ii)
and relates to superannuation entities. The exclusion applies
where the value of a superannuation entity's assets for an income
year is less than $100 million.
173. Section 10 of the Superannuation Industry (Supervision) Act 1993
defines a superannuation entity as a regulated superannuation fund
or an approved deposit fund or a pooled superannuation trust. A
regulated superannuation fund has the meaning given by section 19
of the Superannuation Industry (Supervision) Act 1993. A non-
regulated superannuation fund is not covered by this definition.
Therefore, the non-regulated fund's financial arrangement gains or
losses are excluded from Division 230 essentially if:
. the value of the entity's aggregated turnover is less than
$100 million;
. the value of its financial assets is less than $100
million; and
. the value of its assets is less than $300 million.
174. Without these amendments, a non-regulated superannuation fund is
therefore excluded from Division 230 if the value of the entity's
assets is less than $300 million. This is anomalous where the
comparable threshold for regulated superannuation funds is $100
million.
175. Accordingly, the threshold test that applies to regulated
superannuation funds is extended so that it also applies to non-
regulated superannuation entities.
Interests in partnerships and trusts subject to fair value or
financial reports elections are Division 230 financial arrangements
176. This Schedule amends subsection 230-460(4) to correct an anomaly
that prevents the subsection from operating as intended.
177. By subsection 230-460(3), Division 230 does not apply to gains and
losses from specified interests in a partnership or trust. This
means that such interests are not Division 230 financial
arrangements.
178. Subsection 230-460(4) is intended to be a carve-out to the
subsection 230-460(3) exception. Subsection 230-460(4) is intended
to allow the fair value election or the election to rely on
financial reports to apply to an otherwise excluded interest in a
partnership or trust. However, for either election to apply, the
financial arrangement has to be a Division 230 financial
arrangement. The carve-out to the exception cannot operate as such
interests are not Division 230 financial arrangements.
179. To correct this anomaly and to enable the original intention of
subsection 230-460(4) to be restored, this Schedule amends
subsection 230-460(4) to allow a taxpayer to assume that the
financial arrangement is a Division 230 financial arrangement for
the purposes of subsection 230-460(4). If the fair value election
or the election to rely on financial reports applies to the entity,
subsection 230-460(3) does not apply to the financial arrangement.
[Schedule 3, item 108, subsection 230-460(4)]
Guarantees and indemnities subject to fair value or financial
reports elections are Division 230 financial arrangements
180. Similar to the above situation in relation to subsection 230-
460(4), subsection 230-460(8) operates so that Division 230 does
not apply to the gains and losses from a financial arrangement in
relation to a right or obligation under a guarantee or indemnity.
As such, the financial arrangement is not a Division 230 financial
arrangement.
181. Paragraph 230-460(8)(a) is intended to be a carve out to the
exception in subsection 230-460(8). Paragraph 230-460(8)(a) allows
the fair value election or the election to rely on financial
reports to apply to an otherwise excluded guarantee or indemnity.
However, for either election to apply, the financial arrangement
has to be a Division 230 financial arrangement. Paragraph 230-
460(8)(a) is amended so that the guarantee or indemnity is assumed
to be a Division 230 financial arrangement for the purposes of
paragraph 230-460(8)(a). [Schedule 3, item 109, paragraph 230-
460(8)(a)]
Amendments to consequential and transitional amendments in the
TOFA Act 2009
Anti-overlap rule for tax exempt asset financing
182. This Schedule reinstates the effect of the previous section 118-27
so as to give priority to Subdivision 250-E (relating to tax exempt
asset financing) over the CGT provisions. At the same time, the
effect of the new section 118-27 is retained. [Schedule 3, items 3
and 4, section 118-27(heading) and subsection 118-27(4)]
183. The original section 118-27 was an anti-overlap provision which
ensured that there was no double counting between financial
arrangements to which both Subdivision 250-E and the CGT provisions
apply.
184. Item 76 of the TOFA Act 2009 repealed section 118-27 and replaced
it with a new one that deals with Division 230 financial
arrangements only. As a consequence there is now the potential for
overlap between Subdivision 250-E and the CGT provisions. The
amendments remove this overlap.
Amendments to 'accounting standards' references
185. This Schedule changes all references to 'accounting standards' and
related references in Division 230 to 'accounting principles' and
related references.
186. The term 'accounting standards' is defined in subsection 995-1(1),
to have the same meaning as under the Corporations Act 2001
(Corporations Act). Section 9 of the Corporations Act limits
accounting standards to those the AASB makes for the purposes of
the Corporations Act. However, the Australian Securities and
Investments Commissions Act 2001 (ASIC Act) provides for the AASB
to formulate accounting standards for 'other purposes'. As these
standards do not fall within the definition of 'accounting
standards' in the Corporations Act, they do not satisfy the
definition of 'accounting standards' for the purposes of Division
230.
187. AAS 25 is such a standard, and is therefore not an accounting
standard within the meaning of Division 230 without these
amendments. AAS 25 is, however, the standard used by
superannuation funds that are reporting entities, to prepare their
financial reports. Consequently, the superannuation funds that use
AAS 25 are unable to make elections under Division 230 that depend
on the entity preparing a financial report in accordance with the
accounting standards.
188. The definition of 'accounting principles' was introduced in the Tax
Laws Amendment (2010 Measures No. 1) Act 2010 and is defined in
subsection 995-1(1) to include accounting standards and other
authoritative pronouncements of the AASB. This Schedule amends the
Tax Laws Amendment (Measures No. 1 2010) Act 2010 to ensure that
the definition of 'accounting principles' applies from the
commencement of the TOFA Act 2009. [Schedule 3, item 132,
subsection 2(1) (item 11 in the table) of the Tax Laws Amendment
(2010 Measures No. 1) Act 2010]
189. Amendments are made to Division 230 to replace various references
to 'accounting standards' with references to 'accounting
principles'. These amendments are:
. 'accounting standards' are replaced with 'accounting
principles' [Schedule 3, items 15, 22, 26, 27, 34, 41, 56,
57, 58, 73, 74, 75, 77, 80, 83, 92, 107, 113, 119 and 122,
subparagraphs 230-150(1)(a)(i) and 230-185(2)(e)(i),
subsection 230-190(8), subparagraphs 230-210(2)(a)(i), 230-
220(1)(c)(i) and 230-255(2)(a)(i), subsection 230-310(4),
paragraph 230-310(5)(a), subparagraph 230-315(2)(a)(i),
paragraphs 230-335(10)(c) to (e), and 230-355(1)(b),
subparagraph 230-365(c)(i), 230-395(2)(a)(i) and 230-
410(1)(d)(i), paragraphs 230-455(5)(b) and 230-500(a),
subparagraphs 230-530(3)(d)(i) and 230-530(4)(e)(i)];
. 'those standards' are substituted by 'the accounting
principles' [Schedule 3, items 16, 23, 28, 35, 42, 59, 84,
93, 120 and 123, subparagraphs 230-150(1)(a)(ii), 230-
185(2)(e)(ii), 230-210(2)(a)(ii), 230-220(1)(c)(ii), 230-
255(2)(a)(ii), 230-315(2)(a)(ii),230-395(2)(a)(ii), 230-
410(1)(d)(ii), 230-530(3)(d)(ii) and 230-530(4)(e)(ii)];
and
. 'comparable accounting standards' are substituted by
'comparable standards for accounting' [Schedule 3, items
17, 24, 29, 36, 43, 60, 85, 94, 121 and 124, subparagraphs
230-150(1)(a)(ii), 230-185(2)(e)(ii), 230-210(2)(a)(ii),
230-220(1)(c)(ii), 230-255(2)(a)(ii), 230-315(2)(a)(ii),
230-395(2)(a)(ii), 230-410(1)(d)(ii), 230-530(3)(d)(ii)
and 230-530(4)(e)(ii)].
190. The amendments broaden the definition so that superannuation funds
can make Division 230 elections.
Amendments to 'auditing standards' references
191. Similar to the above paragraphs, the term 'auditing standards', as
defined in subsection 995-1(1), is confined only to auditing
standards that are made under the Corporations Act. However, the
ASIC Act also confers power to the Auditing and Assurance Standards
Board to formulate auditing and assurance standards for 'other
purposes' not included in the Corporations Act.
192. Auditing Standard ASA 300 is an auditing standard prepared under
the power given to the Auditing and Assurance Standards Board in
section 227B of the ASIC Act, to formulate auditing and assurance
standards for 'other purposes'. Therefore, it is not an auditing
standard to which the definition in subsection 995-1(1) applies.
193. This Schedule inserts a new definition of 'auditing principles' in
subsection 995-1(1) which includes 'auditing standards' and other
authoritative pronouncements of the Auditing and Assurance
Standards Board. [Schedule 3, item 129, subsection 995-1(1)]
194. Amendments are made to Division 230 to replace various references
to 'auditing standards' with references to 'auditing principles'.
These amendments are:
. 'auditing standards' are replaced with 'auditing
principles' [Schedule 3, items 18, 19, 30, 31, 44, 45, 61,
62, 86, 87 and 114, subparagraphs 230-150(1)(b)(i) and
(ii), 230-210(2)(b)(i) and (ii), 230-255(2)(b)(i) and
(ii), 230-315(2)(b)(i) and (ii), 230-395(2)(b)(i) and (ii)
and paragraph 230-500(b)]; and
. 'comparable auditing standards' are replaced by
'comparable standards for auditing' [Schedule 3, items 20,
32, 46, 63 and 88, subparagraphs 230-150(1)(b)(ii), 230-
210(2)(b)(ii), 230-255(2)(b)(ii), 230-315(2)(b)(ii) and
230-395(2)(b)(ii)].
195. The amendments are intended to broaden the definition so that
superannuation funds can make Division 230 elections.
196. Consequential to the above amendments, the following amendments are
also made:
. 'Australian accounting and auditing standards' are
substituted by 'Australian accounting and auditing
principles' to reflect the intentions outlined above
[Schedule 3, items 33, 47, 64 and 89, subsections 230-
210(2) (note), 230-255(2)(note), 230-315(2)(note) and 230-
395(2)(note 1)];
. 'those standards' are replaced with 'those principles or
standards'; 'the standards' are replaced with 'the
principles or standards'; and 'standards' are replaced
with 'principles or standards' [Schedule 3, items 25, 37
to 40, 66, 69 to 72, 78, 79, 81, 90, 91, 96, 99 to 104 and
112, paragraphs 230-185(2)(e), 230-230(1)(a) to (c),
subsection 230-230(3), paragraph 230-335(1)(b),
subparagraph 230-335(3)(c)(i), paragraph 230-335(5)(b),
subsections 230-335(8) and (9), subparagraph 230-
355(5)(a)(ii), paragraphs 230-365(a) and (c) and 230-
405(2)(a) and (b), subsection 230-410(2), paragraphs 230-
420(1)(a) to (c), subsection 230-420(3), paragraphs 230-
430(4)(a) and (c) and 230-495(1)(d)]; and
. the heading to section 230-495 is amended and 'the
relevant standards' in paragraph 230-495(1)(b) is replaced
by 'the relevant principles or standards' [Schedule 3,
items 110 and 111, section 230-495 (heading),
paragraph 230-495(1)(b)].
Net income of a transferor trust disregards Division 230
197. To put the matter beyond doubt, this Schedule amends
subsection 102AAW(2) of the Income Tax Assessment Act 1936
(ITAA 1936) to ensure that Division 230 is disregarded for the
purposes of the transferor trust provisions in Division 6AAA of
Part III of the ITAA 1936. [Schedule 3, items 1 and 2, paragraphs
102AAW(2)(a) and (b) of the ITAA 1936]
Transitional election for portfolio discounts and premiums
198. This Schedule amends the transitional provisions in the
TOFA Act 2009 to allow a taxpayer to make an election for portfolio
treatment of fees, discounts and premiums in relation to pre-
existing financial arrangements provided certain conditions are
satisfied.
199. Under section 230-150, an entity can make an election under that
section if it satisfies the requirements of that section. The
effect of making such an election is that the entity satisfies both
paragraphs 230-160(1)(a) and 230-165(1)(a) so that it can use the
portfolio treatment of fees as per section 230-160 and premiums and
discounts as per section 230-165.
200. An additional requirement in paragraphs 230-160(1)(b) and 230-
165(1)(b) is that the entity must have started to have the
financial arrangement that is the subject of the portfolio
treatment in the income year in which the election is made, or a
subsequent income year. In other words, the portfolio treatment of
fees, discounts and premiums can only apply in relation to
financial arrangements that entities start to have in the income
year in which they make the election or subsequent income years.
201. Subitem 104(7) of the TOFA Act 2009 provides an exception to the
above requirement. Subitem 104(7) is intended to have the effect
of allowing entities that have made an election under section 230-
150 to apply the portfolio treatment of fees, premiums and
discounts in relation to financial arrangements they started to
have prior to the income year in which the election is made,
notwithstanding the limitation in paragraphs 230-160(1)(b) and 230-
165(1)(b). A technical amendment to insert paragraph 230-165(1)(b)
is needed to achieve the intended outcome. [Schedule 3, item 133,
subitem 104(7) of Schedule 1 to the TOFA Act 2009]
202. This Schedule also inserts a new provision in item 104 of the
TOFA Act 2009 to provide that an election made under section 230-
150 extends to a financial arrangement that the entity started to
have in the income years preceding the making of the election only
if:
. the election is made on or before the entity's first
lodgement date that occurs after the start of the first
Division 230 applicable income year;
. the requirements in subsection 230-160(3) or 230-165(3)
are satisfied, at the time of making the election; and
. the requirements in subsection 230-160(4) or 230-165(4)
are satisfied at, or soon after the time, the election is
made.
[Schedule 3, item 134, subitem 104(7A) of Schedule 1 to the TOFA
Act 2009]
203. These amendments ensure that the transitional arrangements for the
application of portfolio treatment of fees, premiums and discounts
are consistent with the rest of the transitional arrangements and
are consistent with the integrity measures in sections 230-160 and
230-165.
Minor technical corrections
Amendments to correct asterisks in various provisions
204. This Schedule removes asterisks in front of terms that are not
defined in section 995-1 and inserts asterisks where the term is
defined but no asterisk was inserted by the TOFA Act 2009.
205. The word 'cease' is not defined in section 995-1. This Schedule
removes the asterisks in front of 'cease', 'ceases' and 'ceasing'
in:
. paragraph 230-70(1)(b);
. paragraph 230-75(1)(b);
. paragraph 230-110(1)(c);
. subparagraph 230-130(5)(b)(ii); and
. subsection 230-435(5).
[Schedule 3, items 8 to 10, 13 and 105, paragraph 230-70(1)(b), 230-
75(1)(b) and 230-110(1)(c), subparagraph 230-130(5)(b)(ii), and
subsection 230-435(5)]
206. The term 'foreign currency' is defined in section 995-1. This
Schedule inserts an asterisk in front of 'foreign currency' in
subsection 230-115(8), subparagraph 230-335(1)(c)(ii) and
subsection 230-530(1). [Schedule 3, items 12, 67 and 118,
subsection 230-115(8), subparagraph 230-335(1)(c)(ii) and
subsection 230-530(1)]
207. The term 'direct value shift' is defined in section 995-1. This
Schedule amends the asterisked reference in paragraph 230-520(1)(b)
from value shift to 'direct value shift'. [Schedule 3, item 115,
paragraph 230-520(1)(b)]
Amend provisions which were incorrectly amended or repealed.
208. The TOFA Act 2009 incorrectly amended or repealed some provisions
within the ITAA 1997. To correct these errors, the following
provisions are amended:
. the original text of subsections 230-275(1) and 230-275(2)
is to be restored because the subsequent changes made to
those provisions should have been made to subsection 230-
380(1) [Schedule 3, items 48, 49 and 82, subsections 230-
275(1) to (3) and 230-380(1)];
. the original paragraph (aa) of the definition of 'special
accrual amount' in section 995-1 is to be reinstated as it
was incorrectly repealed by item 28 of the TOFA Act 2009.
Paragraph (aa) was repealed on the basis that
Subdivision 250-E would be repealed. However, Subdivision
250-E has not been repealed [Schedule 3, item 130,
subsection 995-1(1)]; and
. current paragraph (aa) of the definition of 'special
accrual amount' referring to Subdivision 230-A is to be
renumbered as paragraph (ab) [Schedule 3, item 130,
subsection 995-1(1)].
209. The Tax Laws Amendment (Transfer of Provisions) Bill 2010 proposes
to undo the amendments mentioned in paragraph 1.90. The original
paragraph (aa) which refers to Subdivision 250-E needs to be
reinstated if the Tax Laws Amendment (Transfer of Provisions) Bill
2010 is enacted. [Schedule 3, item 131, subsection 995-1(1)]
Correcting typographical errors in the TOFA Act 2009
210. Some typographical errors were made in the TOFA Act 2009. This
Schedule corrects these errors by:
. reversing the sequence of the words 'financial' and
'hedging' in the heading of section 230-340. The heading
of section 230-340 will read: 'Generally whole arrangement
must be hedging financial arrangement' [Schedule 3, item
76, section 230-340(heading)];
. making the reference in paragraph 775-295(1)(c) a
reference to paragraph 230-255(2)(a), not paragraph 230-
255(1)(a) [Schedule 3, item 125, paragraph 775-295(1)(c)];
. making the reference in paragraph 775-305(1)(b) a
reference to paragraph 230-255(2)(a), not paragraph 230-
255(1)(a) [Schedule 3, item 126, paragraph 775-305(1)(b)];
. making the reference in subparagraph 230-410(1)(e)(ii) to
subsection (1) a reference to 'this subsection' [Schedule
3, item 95, subparagraph 230-410(1)(e)(ii)];
. making the reference in subsection 230-410(5) to
paragraph (3)(b) a reference to subsection (3) [Schedule
3, item 97, subsection 230-410(5)]; and
. making the reference in subsection 230-410(6) to
paragraph 3(b) a reference to subsection (3) [Schedule 3,
item 98, subsection 230-410(6)].
Addressing incorrect references to provisions in Division 230
211. This Schedule corrects the following incorrect references in
Division 230:
. the reference in subsection 230-520(2) to paragraph 230-
520(1)(d) is incorrect and is removed. The 'realisation
event' definition did not apply to the repealed value
shifting provisions [Schedule 3, item 117, subsection 230-
520(2)]; and
. the reference to Division 723 contained in paragraph 230-
520(1)(d) is removed. That Division is about a type of
value shifting that was not dealt with under the repealed
provisions [Schedule 3, item 116, paragraph 230-
520(1)(d)].
Amendments to transitional provisions in the Debt and Equity Act 2001
212. Part 2 of this Schedule extends the debt/equity transitional period
to 1 July 2010 for Upper Tier 2 instruments that were issued before
1 July 2001, provided the issuer does not make an election under
paragraph 118(6)(b) of the Debt and Equity Act 2001 to have the
debt/equity rules in Division 974 apply from 1 July 2001.
[Schedule 3, Part 2, item 135]
213. Upper Tier 2 instruments are instruments known as Upper Tier 2
capital instruments for prudential regulation purposes.
214. For the purposes of determining whether an Upper Tier 2 instrument
was issued before 1 July 2001, minor alterations that do not affect
rights and obligations in relation to the interest are disregarded.
So are alterations that permit or require any deferred payments
under the instrument to accumulate.
215. Issuers of Upper Tier 2 instruments have an opportunity to amend
their instruments so as to come within the terms of the proposed
Upper Tier 2 regulations prior to the first transaction in relation
to the interest on or after 1 July 2010.
Application and transitional provisions
216. The amendments to Division 230 and the consequential and
transitional provisions inserted by the TOFA Act 2009 (except for
items 95, 131 and 132) apply for income years commencing on or
after 1 July 2010, unless a taxpayer elects to apply Division 230
for income years commencing on or after 1 July 2009. [Clause 2,
items 2, 4 and 7 in the table]
217. Item 95 commences on Royal Assent. [Clause 2, item 3 in the table]
218. Item 131 commences immediately after the commencement of Part 2 of
Schedule 3 to the Tax Laws Amendment (Transfer of Provisions) Bill
2010. However, the item does not commence at all if Part 2 of
Schedule 3 to the Tax Laws Amendment (Transfer of Provisions)
Bill 2010 does not commence. [Clause 2, item 5 in the table]
219. Item 132 commences immediately after the commencement of section 2
of the Tax Laws Amendment (2010 Measures No. 1) Act 2010. [Clause
2, item 6 in the table]
220. The amendments to the debt/equity transitional provisions commence
on Royal Assent and apply to Upper Tier 2 instruments issued before
1 July 2001. [Clause 2, items 1 and 8 in the table]
Chapter 4
Amendments to foreign currency gains and losses provisions
Outline of chapter
221. Part 3 of Schedule 3 to this Bill amends Division 775 (foreign
currency gains and losses provisions) of the Income Tax Assessment
Act 1997 (ITAA 1997) to extend the scope of a number of compliance
cost saving measures in the law, and to make technical amendments
to ensure that the provisions operate as intended.
222. All references to legislative provisions in this chapter are
references to the ITAA 1997 unless otherwise stated.
Context of amendments
223. The foreign currency gains and losses provisions contained
in Division 775, Subdivision 960-C and Subdivision 960-D of the
ITAA 1997 bring to account, for income tax purposes, gains and
losses made by taxpayers due to exchange rate movements. They also
provide for the translation of amounts of foreign currency into
Australian currency or into the taxpayer's applicable functional
currency.
Summary of new law
224. This Schedule amends Division 775 to ensure that:
. 'forex realisation gains' (of a private or domestic
nature) from ceasing to have a right to receive foreign
currency are assessable where, apart from Division 775,
the gain would be taken into account under Part 3-1 or 3-3
of the ITAA 1997;
. forex realisation gains are exempt income or non-
assessable non-exempt income to the extent that, if the
gain had been a loss, the loss would have been made in
gaining or producing exempt income or non-assessable non-
exempt income and would have been disregarded under the
loss provisions in Division 775;
. there is consistent treatment of 'forex realisation
losses' made in the course of producing exempt income and
non-assessable non-exempt income;
. forex realisation event 3 occurs when an obligation to
receive foreign currency ceases if the obligation is under
an option to sell foreign currency;
. forex realisation event 4 occurs when an obligation to pay
foreign currency ceases if the obligation is under an
option to buy foreign currency;
. forex realisation event 5 occurs when a right to pay
foreign currency ceases if the right is under an option to
sell foreign currency; and
. forex realisation gains or losses from forex realisation
event 2 are disregarded on the conversion or exchange of a
'traditional security' into ordinary shares.
Detailed explanation of new law
Certain foreign exchange gains from forex realisation event 2 should not be
excluded from assessable income
225. Part 3 of Schedule 3 amends the table under paragraph 775-15(2)(b),
to ensure that forex realisation gains (of a private or domestic
nature) arising from ceasing to have a right to receive foreign
currency are assessable where, apart from Division 775, the gain
would be taken into account under Part 3-1 or 3-3 of the ITAA 1997.
[Schedule 3, item 138, paragraph 775-15(2)(b) (item 1 in the
table, column 2)]
226. The basic rule in Division 775 is that a forex realisation gain
that is of a private or domestic nature is not included in an
entity's assessable income.
227. However, if the forex realisation gain would have been taken into
account under the capital gains tax (CGT) provisions (disregarding
Division 775), then, generally speaking, the forex realisation gain
should be included in the entity's assessable income, regardless of
whether the gain is of a private or domestic nature.
228. Note, in this regard, that private gains that do not qualify for
the personal use asset exclusions in the CGT provisions are
taxable. Examples include collectables that are artwork,
jewellery, rare folios and postage stamps, if the asset's
acquisition value is more than $500.[1]
229. The amendments are intended to ensure that certain forex
realisation gains of a private or domestic nature that would have
been taken into account under the CGT provisions (disregarding
Division 775), are included in an entity's assessable income under
Division 775. These gains are those in respect of:
. an entity ceasing to have a right to receive foreign
currency (but not disposing of that right); and
. the right having been created or acquired in return for
the entity paying, or agreeing to pay, an amount of
Australian currency or foreign currency (forex realisation
event 2).
An example of this scenario would be the withdrawal of an amount
from a foreign currency denominated bank account.
Ensuring forex realisation gains are assessable where they are made in
relation to deductible obligations that were incurred in gaining or
producing exempt income or non-assessable non-exempt income
230. Part 3 of Schedule 3 inserts a new section 775-27 to ensure that
forex realisation gains are only exempt income or non-assessable
non-exempt income, if the gain had been a forex realisation loss,
the loss would have been disregarded under section 775-35.
[Schedule 3, item 141, section 775-27]
231. Forex realisation gains and losses can be made in gaining or
producing exempt income or non-assessable non-exempt income.
Usually, losses made in gaining or producing exempt income or non-
assessable non-exempt income are not deductible. As such, any
forex realisation gain or loss in respect of those losses should
not be included in assessable income, or allowable as a deduction.
232. In this regard, a forex realisation gain made by an entity is
exempt income where, if the gain had been a loss, the loss would
have been made in gaining or producing exempt income (see section
775-20).
233. Similarly, under section 775-25 a forex realisation gain an entity
makes is non-assessable non-exempt income where, if the gain had
been a loss, the loss would have been made in gaining or producing
non-assessable non-exempt income.
234. However, some losses that are made in gaining or producing exempt
income or non-assessable non-exempt income are deductible (under,
for example, section 25-90). Reflecting this, forex realisation
losses in respect of losses made in gaining or producing exempt
income or non-assessable non-exempt income that are nonetheless
deductible, are deductible under Division 775. In this situation,
forex realisation gains made in respect of those losses should be
included in assessable income.
235. Under subsection 775-35(2), a forex realisation loss an entity
makes from forex realisation event 3, 4 or 6 is disregarded if it
is made in gaining or producing exempt income or non-assessable non-
exempt income, unless the obligation that ceases or is discharged
gives rise to a deduction.
236. The amendments ensure that a forex realisation gain made in this
situation is included in assessable income so that such forex
realisation gains and losses receive consistent treatment.
1. (a)
An entity borrows US$1,000,000 for 20 years. The borrowing
requires the entity to make interest payments of 10 per cent
per annum, with complete repayment of the principal due in
20 years.
The entity uses the US$1,000,000 to finance the purchase of
shares. That investment produces dividends which are non-
assessable non-exempt income by virtue of section 23AJ of
the Income Tax Assessment Act 1936 (ITAA 1936).
Assume that the interest payments of 10 per cent are
deductible by virtue of section 25-90.
When the entity borrows the US$1,000,000, it incurs an
obligation to pay foreign currency (being the US$100,000
interest payments). When the entity actually makes an
interest payment, forex realisation event 4 occurs. If the
amount the entity deducted under section 25-90 in relation
to the interest payment is less than the amount the entity
actually pays (say due to an increase in the value of the
USD relative to the AUD), the entity will have made a forex
realisation loss which it can then deduct. The amount of
the deduction is equal to the extent that the difference
between the amount initially deducted and the amount paid
relates to a currency exchange rate effect (subsection 775-
55(5)).
So, while the forex realisation loss is made in gaining or
producing non-assessable non-exempt income, the loss is not
prevented from being deductible because the obligation that
gave rise to the loss (being the obligation to make interest
payments) is deductible by virtue of section 25-90 (the loss
is also not disregarded under paragraph 775-35(2)(b)).
Example 1.1(b)
Assume the same scenario as above except that the amount the
entity deducted under section 25-90 is more than the amount
it actually paid (say the value of the USD decreased). In
this case, the entity will make a forex realisation gain to
the extent that the difference between the amount initially
deducted and the amount actually paid relates to a currency
exchange rate effect (subsection 775-55(3)).
However, this is arguably a gain to which section 775-25
applies. This is because, if the forex realisation gain
mentioned above had been a loss, the loss would have been
made in gaining or producing non-assessable non-exempt
income.
Therefore, without the amendment, the forex realisation gain
is not included in the entity's assessable income by virtue
of section 775-25. This is despite the fact that a forex
realisation loss made in exactly the same situation is
deductible by virtue of paragraph 775-35(2)(b).
Ensuring losses are disregarded where they are made from forex realisation
event 1, 2 or 5 if the loss is made in gaining or producing non-assessable
non-exempt income
237. Part 3 of this Schedule amends subsection 775-35(1) to ensure that
a forex realisation loss is disregarded for the purposes of
Division 775 if the loss is made:
. as a result of forex realisation event 1, 2 or 5
happening; and
. in gaining or producing non-assessable non-exempt income.
[Schedule 3, item 142, subsection 775-35(1)]
238. Subsection 775-35(1) disregards forex realisation losses where they
are made:
. as a result of forex realisation event 1, 2 or 5
happening; and
. in gaining or producing exempt income.
239. Subsection 775-35(2) disregards forex realisation losses where they
are made:
. as a result of forex realisation event 3, 4 or 6
happening;
. in gaining or producing exempt income or non-assessable
non-exempt income; and
. in respect of an obligation that does not give rise to a
deduction.
240. Without the amendment, there is no provision in Division 775 that
has the effect of disregarding a forex realisation loss that is
made:
. as a result of forex realisation event 1, 2 or 5
happening; and
. in gaining or producing non-assessable non-exempt income.
Recognising forex realisation gains on the expiration of foreign currency
put options
241. Part 3 of this Schedule amends section 775-50 to ensure that forex
realisation event 3 occurs when:
. an entity ceases to have an obligation to receive foreign
currency; and
. the obligation is under an option to sell foreign
currency.
[Schedule 3, item 144, subparagraph 775-50(1)(b)(iii)]
242. While Division 775 is primarily concerned with gains and losses
that are attributable to currency exchange rate effects, the
Division also brings to account gains and losses that are made when
an option to buy or sell foreign currency expires without being
exercised.
243. If:
. an entity ceases to have an obligation, or a part of an
obligation, to receive foreign currency;
. the event happens because an option to sell foreign
currency (a foreign currency put option) expires without
having been exercised, or is cancelled, released or
abandoned; and
. had the option been exercised immediately before the
event, the entity would have been obliged to buy the
foreign currency,
then the entity should have a forex realisation gain equal to the
premium or amount received in return for granting the option.
Recognising forex realisation gains on the expiration of foreign currency
call options
244. Part 3 of this Schedule amends section 775-55 to ensure that:
. forex realisation event 4 occurs when an entity ceases to
have an obligation to pay foreign currency, and that
obligation is under an option the entity issued to buy
foreign currency [Schedule 3, item 145, subparagraph 775-
55(1)(b)(xi)]; and
. a forex realisation gain is made in respect of any premium
received on such an option upon that option expiring
without being exercised, or is cancelled, released or
abandoned [Schedule 3, item 146, paragraph 775-55(4)(a)].
245. A foreign currency call option gives the option holder the right
but not the obligation to buy foreign currency.
246. From the issuer's perspective, the foreign currency call option
gives it:
. a right to receive consideration for entering into the
option;
. an obligation to pay the foreign currency to the holder of
the foreign currency call option, which is contingent on
the holder exercising its option; and
. in exchange for paying the foreign currency to the holder
if the option is exercised, the receipt of either another
foreign currency, or Australian currency.
247. Where an entity receives a premium to grant a foreign currency call
option, and that option expires without being exercised, a forex
realisation gain should happen to the entity. Section 775-55 is
amended to ensure that this is the outcome. The amount of the gain
should be the premium the entity received on the expired option.
Recognising forex realisation losses on the expiration of foreign currency
put options
248. Part 3 of this Schedule amends section 755-60 to ensure that forex
realisation event 5 happens when a put option expires, provided
that the option was acquired in exchange for a right to receive
foreign currency or Australian currency. [Schedule 3, item 147,
subparagraph 775-60(1)(b)(iii)]
249. A foreign currency put option gives the option holder:
. an obligation to pay a premium to the issuer; and
. the right but not the obligation to sell foreign currency
to the issuer, and receive either foreign currency or
Australian currency in exchange.
250. Where an entity pays a premium in order to be granted a foreign
currency put option, and that option expires without it being
exercised (or is cancelled, released or abandoned), a forex
realisation loss should happen to the entity. The amount of the
loss should be the premium the entity paid in order to acquire the
now expired option.
Disposal or redemption of traditional securities
251. Part 3 of this Schedule inserts a new section 775-168 to ensure
that a forex realisation gain or loss an entity makes as a result
of forex realisation event 2 occurring, is disregarded if the event
happened because of a disposal or redemption that occurred under
the circumstances described in subsections 26BB(4) and (5) and
70B(2B) and (2C) of the ITAA 1936. [Schedule 3, item 148,
section 775-168]
252. Sections 26BB and 70B of the ITAA 1936 generally provide that
certain gains or losses made upon the disposal or redemption of a
'traditional security' are included in an entity's assessable
income.
253. Subsections 26BB(4) and (5) and 70B(2B) and (2C) of the ITAA 1936
provide that this rule does not apply under certain circumstances.
254. However, without the amendment, there is nothing in Division 775
that prevents a forex realisation gain or loss occurring in these
circumstances from being brought to account in respect of a gain or
loss made from the disposal or redemption of a traditional
security.
255. This is inconsistent with the broad aim of subsections 26BB(4) and
(5) and 70B(2B) and (2C), which is to ensure that
subsections 26BB(2) and 70B(2) do not apply in respect of gains and
losses made in the circumstances described in subsections 26BB(4)
and (5) and 70B(2B) and (2C).
Typographical and miscellaneous amendments
256. A number of amendments to include the provisions in Division 775
that cause income to be exempt or non-assessable non-exempt income
are made to the relevant provisions of the ITAA 1997 that list the
provisions about these types of income. [Schedule 3, items 136 and
137, sections 11-10 and 11-55]
257. Another set of amendments add asterisks to defined terms.
[Schedule 3, items 139, 140 and 143, sections 775-20, 775-25 and
paragraph 775-35(2)(a)]
258. A further amendment has been included to ensure that the
Commissioner of Taxation (Commissioner) is able to amend an
assessment in relation to the foreign currency amendments contained
in Part 3 of this Schedule. The amendment provides a period of
four years from the date this Bill receives Royal Assent for the
Commissioner to amend an assessment that is issued before the date
of Royal Assent to give effect to the provisions contained in Part
3 of this Schedule. [Clause 4]
Date of application
259. These amendments (apart from clause 4) commence on Royal Assent and
apply from 17 December 2003. [Clause 2, item 8 in the table;
Schedule 3, item 149]
260. Clause 4 commences on Royal Assent. [Clause 2, item 1 in the
table]
Chapter 5
Scrip for scrip alignment
Outline of chapter
261. Schedule 4 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) to make it easier for takeovers and mergers regulated
by the Corporations Act 2001 (Corporations Act) to qualify for the
capital gains tax (CGT) scrip for scrip roll-over.
262. All references to legislative provisions in this chapter are
references to the ITAA 1997 unless otherwise stated.
Context of amendments
263. The exchange of shares in one company for shares in another company
as part of a merger or takeover typically triggers a CGT taxing
point and the realisation of a capital gain or capital loss. The
capital gain or capital loss is generally calculated by reference
to the market value of the proceeds - the replacement shares.
264. The scrip for scrip roll-over, contained in Subdivision 124-M,
ensures that CGT is not an impediment to mergers and takeovers. It
allows taxpayers exchanging shares in one company for shares in
another to defer the realisation of any capital gains from this
transaction. Relief is also available for the exchange of trust
interests. A taxpayer that receives cash in addition to
replacement interests may qualify for a partial roll-over.
265. A merger or takeover arrangement must meet a number of requirements
to qualify for the roll-over. These include:
. that all holders of voting interests in the target entity
be able to participate in the arrangement; and
. that this participation must be on substantially the same
terms.
266. These participation requirements differ to some extent and
duplicate to some extent the requirements in the Corporations Act,
the principal legislation for regulating member participation. As
a result, a merger or takeover arrangement that meets the
requirements of the Corporations Act may not qualify for the scrip
for scrip roll-over.
. The Corporations Act requires that, subject to some
limited exceptions, all offers under an off-market
takeover bid be the same. This ensures equal
participation by members.
. Schemes of arrangement provide more flexibility than
takeovers and may be used for mergers. A scheme of
arrangement is an agreement between a company and its
members and/or creditors that may be used as an
alternative to a takeover. The Corporations Act ensures
the arrangement becomes legally binding on the company's
members and creditors if a court approves it. The scheme
of arrangement process, including the role of the court
and the Australian Securities and Investments Commission
(ASIC), is aimed at protecting members against the scheme
operating unfairly. ASIC has a published policy on its
role in relation to schemes of arrangement.
267. These amendments ensure that the scrip for scrip roll-over operates
more effectively.
Summary of new law
268. These amendments carve-out arrangements from having to meet the
roll-over requirements, in paragraphs 124-780(2)(b) and (c), that
the arrangement be one in which the target company's shareholders
can participate on substantially the same terms, if the arrangement
includes:
. a takeover bid that does not contravene key provisions in
Chapter 6 of the Corporations Act; and/or
. a compromise or arrangement approved by a court under
Part 5.1 of the Corporations Act (scheme of arrangement).
269. These amendments provide a similar carve-out for arrangements
involving trusts. Paragraphs 124-781(2)(b) and (c) set out the
requirement that the arrangement be one in which the target trust's
interest or unit holders can participate on substantially the same
terms. However, as trusts cannot undertake schemes of
arrangements, this carve-out only applies in relation to takeover
bids that do not contravene key provisions in Chapter 6 of the
Corporations Act.
270. The amendments do not repeal the requirements contained in
paragraphs 124-780(2)(b) and (c) and 124-781(2)(b) and (c), which
remain as an alternative test.
Comparison of key features of new law and current law
|New law |Current law |
|An arrangement may |An arrangement may only |
|qualify for the scrip for|qualify for the scrip for|
|scrip roll-over if: |scrip roll-over if: |
|holders of voting |holders of voting |
|interests in the target |interests in the target |
|entity can participate in|entity can participate in|
|the merger or takeover on|the merger or takeover on|
|substantially the same |substantially the same |
|terms; |terms. |
|it includes a takeover | |
|bid that does not | |
|contravene key provisions| |
|in Chapter 6 of the | |
|Corporations Act; or | |
|if the target entity is a| |
|company - it includes a | |
|scheme of arrangement | |
|approved by a court under| |
|Part 5.1 of the | |
|Corporations Act. | |
Detailed explanation of new law
Replacement of shares
271. A taxpayer that exchanges shares (original interests) in one
company (the original entity) for shares in another may qualify for
the scrip for scrip roll-over if that exchange is in consequence of
a single arrangement that meets a number of requirements. Options
and rights to acquire shares in the original entity may also be
original interests. Subsection 124-780(1) sets out these rules.
[Schedule 4, item 1, paragraph 124-780(1)(b)]
272. Broadly, the single arrangement must result in another company (the
acquiring entity):
. if it is not a member of a wholly owned group - becoming
the owner of at least 80 per cent of the original
interests in the original entity; or
. if it is a member of a wholly owned group - increasing the
percentage of original interests that it owns in the
original entity to at least 80 per cent.
Paragraph 124-780(2)(a) sets out these rules. [Schedule 4, item 2,
paragraph 124-780(2A)(a)]
1.
Silver Ltd (Silver) makes a takeover bid that complies with
Chapter 6 of the Corporations Act for the voting shares in
Gold Ltd (Gold) and subsequently acquires a total of
30 per cent of Gold's voting shares before the takeover bid
lapses.
This single arrangement does not qualify for the scrip for
scrip roll-over as Silver does not become the owner of at
least 80 per cent of Gold's voting shares.
273. In addition, the single arrangement must consist of, be part of, or
include:
. a takeover bid for the original interests by the acquiring
entity that is not carried out in contravention of the
provisions mentioned in section 612 of the Corporations
Act (a non-contravening takeover bid); or
. a compromise or arrangement entered into by the original
entity under Part 5.1 of the Corporations Act, approved by
a court under paragraph 411(4)(b) of the Corporations Act
(an approved scheme of arrangement).
[Schedule 4, item 2, paragraph 124-780(2A)(b)]
274. It is a question of fact as to what forms a single arrangement. If
there is a close nexus between particular elements of a broader
transaction, then those elements would form part of the same
arrangement. A scheme of arrangement may include a number of
elements where only some of those elements form the single
arrangement.
275. An arrangement that comprises a non-contravening takeover bid
and/or a scheme of arrangement, and some interrelated and/or
interdependent transactions not subject to the Corporations Act,
will also meet the requirement set out in paragraph 5.13. An
arrangement that is part of a broader non-contravening takeover bid
or an approved scheme of arrangement will also meet this
requirement.
1.
Green Ltd (Green) and Yellow Ltd (Yellow) jointly announce a
proposal to merge where Yellow's voting shares are
transferred to Green.
Yellow's shareholders will participate in the merger on the
following basis:
. Green acquires shares owned by a cornerstone shareholder
(Blue Ltd) for cash by way of a sale agreement.
. Owners of the remaining voting shares in Yellow receive one
share in Green for each share they hold in Yellow. This
acquisition is by way of a scheme of arrangement under Part
5.1 of the Corporations Act.
. The merger is conditional upon Green successfully completing
both acquisitions.
Obtaining court approval under paragraph 411(4)(b) of the
Corporations Act will satisfy the requirements of
paragraph 124-780(2A)(b).
276. If some of the provisions mentioned in section 612 of the
Corporations Act do not apply to a takeover bid and the bid does
not contravene the remaining provisions (applicable provisions),
then that bid will be a non-contravening takeover bid for the
purposes of these amendments. For example, paragraph 612(g) of the
Corporations Act requires compliance with a number of procedural
steps for market bids and therefore would not be applicable for off-
market bids.
277. Similarly, if a takeover bid does not contravene the applicable
provisions mentioned in section 612 of the Corporations Act because
of the modification of some or all of those provisions, then that
bid will be a non-contravening takeover bid for the purposes of
these amendments.
. For example, ASIC has the power under Part 6.10 of the
Corporations Act to modify or exempt compliance with
provisions of Chapter 6 (including the provisions
mentioned in section 612).
. The Takeovers Panel also has the power to review ASIC
orders and make interim and final orders which may affect
the manner in which Chapter 6 applies to a takeover bid
(see, for example, sections 656A and B of the
Corporations Act).
. In addition, a court has the power under section 1325D of
the Corporations Act to make an order than an act,
document or matter is not invalid or has effect as if it
was not in contravention of Chapter 6.
278. There is no specific form of evidence to show that an arrangement
includes a non-contravening takeover bid or an approved scheme of
arrangement. The available evidence will depend on the types of
transactions.
Replacement of trust interests
279. A taxpayer that exchanges trust interests (original interests) in
one trust (the original entity) for interests in another may
qualify for the scrip for scrip roll-over if that exchange is in
consequence of a single arrangement that meets a number of
requirements. Options and rights to acquire interests in the
original entity may also be original interests. Subsection 124-
781(1) sets out these rules. [Schedule 4, item 3, paragraph 124-
781(1)(c)]
280. Broadly, the arrangement must result in another trust (the
acquiring entity) becoming the owner of at least 80 per cent of the
trust voting interests or units. Paragraph 124-781(2)(a) sets out
this rule. [Schedule 4, item 4, paragraph 124-781(2A)(a)]
281. In addition, the arrangement must consist of, be part of, or
include, a non-contravening takeover bid for the original interests
by the acquiring entity. [Schedule 4, item 4, paragraph 124-
781(2A)(b)]
282. Section 411 of the Corporations Act does not apply to trusts.
Application and transitional provisions
283. These amendments apply to CGT events that happen on or after
6 January 2010.
Chapter 6
Increase in the medical expenses tax offset claim threshold
Outline of chapter
284. Schedule 5 to this Bill amends the Income Tax Assessment Act 1936
(ITAA 1936) to increase the threshold (the claim threshold) above
which a taxpayer may claim the medical expenses tax offset to
$2,000. It also commences annually indexing the claim threshold to
the consumer price index (CPI).
Context of amendments
285. Currently a taxpayer may claim a tax offset for 20 per cent of net
medical expenses exceeding the claim threshold of $1,500 in an
income year.
286. Net medical expenses are the total medical expenses paid by a
taxpayer less available reimbursements which a taxpayer, or any
other person, has received or is entitled to receive in respect of
those medical expenses. Reimbursements may include refunds from
Medicare and/or private health insurers.
287. A taxpayer may combine net medical expenses paid in respect of
resident dependants as well as themselves in order to reach the
claim threshold.
288. The claim threshold has been periodically increased in the past.
It was last increased in 2002 and since that time both medical
costs and wages have increased significantly, making it easier for
taxpayers to become eligible to claim the medical expenses tax
offset.
289. The changes detailed in this Schedule will help reduce the long
term cost to the budget of a rapidly growing expenditure and place
the medical expenses tax offset on a more sustainable footing.
Summary of new law
290. These amendments increase the claim threshold from $1,500 to $2,000
per annum, with effect from 1 July 2010.
291. These amendments also commence annually indexing the claim
threshold to the CPI. The first indexation adjustment to the claim
threshold will occur on 1 July 2011.
Comparison of key features of new law and current law
|New law |Current law |
|In 2010-11, the amount of|The amount of medical |
|medical expenses tax |expenses tax offset is |
|offset is calculated as |calculated as 20 per cent|
|20 per cent of net |of net medical expenses |
|medical expenses |exceeding the claim |
|exceeding the claim |threshold of $1,500 per |
|threshold of $2,000. |annum. |
|From 2011-12, the claim |The claim threshold is |
|threshold will be |not indexed. |
|annually indexed on the | |
|basis of changes in the | |
|CPI. | |
Detailed explanation of new law
292. Currently section 159P of the ITAA 1936 allows a taxpayer to claim
a tax offset for 20 per cent of net medical expenses exceeding the
claim threshold of $1,500 in an income year.
293. This Schedule increases the claim threshold above which a taxpayer
can claim the medical expenses tax offset from $1,500 to $2,000.
[Schedule 5, item 4]
294. This Schedule also inserts provisions to index the claim threshold
in future years. It adds the claim threshold to the list of
amounts indexed in accordance with the formula specified in section
159HA of the ITAA 1936. [Schedule 5, items 2 and 3]
295. The formula in section 159HA indexes specified amounts on the basis
of changes in the CPI.
296. Should the indexation factor calculated in accordance with
subsection 159HA(3) be less than one (meaning the CPI was negative
for the year), the claim threshold will continue to be indexed by
this amount. This means the claim threshold for an income year can
be lower than the claim threshold in respect of the previous income
year.
297. This Schedule amends the heading to section 159HA to reflect the
fact that, from the 2011-12 income year, this section will apply to
the indexation of the medical expenses tax offset claim threshold
as well as other specified rebate amounts. It also corrects the
heading by removing the reference to section 159K, which is no
longer indexed. [Schedule 5, item 1]
Application and transitional provisions
298. The amendment made by item 4 applies to assessments for the 2010-11
income year and later income years.
299. The amendments made by items 1 to 3 apply to assessments for the
2011-12 income year and later income years.
. This ensures the claim threshold is set at $2,000 for the
2010-11 income year and the indexation of the claim
threshold applies for the 2011-12 income year and later
income years.
.
Outline of chapter
300. Schedule 6 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) to update the list of deductible gift recipients (DGRs)
to make one entity a deductible gift recipient, extend the period
of listing of one entity and change the name of another entity.
301. All references to legislative provisions in this chapter are
references to the ITAA 1997.
Context of amendments
302. The income tax law allows taxpayers who make gifts of $2 or more to
DGRs to claim income tax deductions. To be a DGR, an organisation
must fall within one of the general categories set out in Division
30 of the ITAA 1997, or be listed by name in that Division.
303. DGR status assists eligible funds and organisations to attract
public support for their activities.
Summary of new law
304. These amendments add One Laptop Per Child Australia Ltd to the list
of specifically listed DGRs, extend the period of listing of the
Xanana Vocational Education Trust until 30 December 2010 and change
the name of a currently listed DGR from 'The Clontarf Foundation
Inc.' to 'Clontarf Foundation'.
Detailed explanation of new law
One Laptop per Child Australia Ltd
305. This Schedule allows taxpayers to claim a deduction for gifts made
to One Laptop per Child Australia Ltd after 26 May 2010 and before
1 July 2012. [Schedule 6, item 2, item 2.2.38 in the table in
subsection 30-25(2)]
306. One Laptop per Child Australia Ltd was established in 2008 and aims
to improve the lives of Indigenous children living in disadvantaged
communities in rural and remote Australia. It is working to
achieve this goal by giving remote Indigenous school children
laptops. The laptops are designed to be durable, energy efficient
and appropriate for children.
Xanana Vocational Educational Trust
307. This Schedule also extends the period of the specific listing of
the Xanana Vocational Educational Trust. Donors will be able to
claim a tax deduction in respect of a gift made after 20 July 2005
and before 1 January 2011. [Schedule 6, item 3, item 9.2.17 in the
table in subsection 30-80(2)]
Clontarf Foundation
308. This Schedule changes the name of 'The Clontarf Foundation Inc.' to
'Clontarf Foundation'. [Schedule 6, item 1, item 2.2.32 in the
table in subsection 30-25(2]
Application and transitional provisions
309. The change to the name of 'The Clontarf Foundation Inc.' has effect
from 1 April 2010. The addition of One Laptop per Child Australia
Ltd and the extension to the listing of Xanana Vocational
Educational Trust have effect for gifts made after and before the
dates outlined in paragraphs 1.6 and 1.8.
Consequential amendments
310. Changes have been made to update the index in Division 30 of the
ITAA 1997 to add One Laptop per Australia Ltd as well as reflect
the change in name of The Clontarf Foundation Inc. [Schedule 6,
items 4 and 5, items 81A and 31B in the table in section 30-315]
.
Outline of chapter
311. Schedule 7 to this Bill adds three new general deductible gift
recipient (DGR) categories into the Income Tax Assessment Act 1997
(ITAA 1997).
312. This measure widens the accessibility of tax deductible donations
to all entities providing volunteer based emergency services,
including volunteer fire brigades. The measure also extends DGR
status to all state and territory government bodies that coordinate
volunteer fire brigades and State Emergency Services.
Context of amendments
313. Volunteer fire brigades aim to prevent, respond to, and help with
recovery from a range of fire-related emergencies. Volunteer
brigades have a long history in Australia, providing a clearly
recognisable and highly regarded public benefit based on a system
of volunteering. The activities of some brigades extend beyond
fire-related emergencies into other kinds of emergencies.
314. There are currently more than 6,200 rural volunteer brigades in
Australia. Approximately 1,800 of these are currently endorsed by
the Commissioner of Taxation (Commissioner) as public benevolent
institutions (PBIs). PBIs are not-for-profit organisations that
provide direct relief to individuals from poverty, sickness,
suffering, distress, misfortune, disability, destitution, or
helplessness, as arouses compassion in the community. PBIs are
eligible for a range of tax concessions, including entitlement to
endorsement as DGRs by way of the general DGR category for PBIs.
315. Recent legal cases have led the Commissioner to the view that
volunteer brigades do not meet the PBI criteria because the main
purpose of brigades is to protect property, which is not consistent
with the purpose of a PBI.
316. Without legislative amendment, 1,800 affected volunteer fire
brigades stand to lose their ability to collect tax deductible
donations.
317. Depending on how they are structured, some volunteer fire brigades
can be endorsed as tax concession charities, and will continue to
be able to access charitable tax concessions, including income tax
exemption, by way of their charitable status. Those operating as
government entities will be eligible for income tax exemption as
state and territory government bodies and public authorities.
318. Targeted consultation undertaken by Treasury also revealed a trend
toward the creation of 'hybrid' volunteer brigades - organisations
that undertake multiple volunteer based emergency services
activities (for example, fire-fighting, as well as general
emergency services). The growth is attributable in-part to the
efficiency gains in combining these services, particularly in
smaller communities.
319. The way that volunteer fire brigades are coordinated differs
between states and territories. For example, in some states and
territories, brigades are coordinated by government departments
that oversee several emergency services (such as the Fire and
Emergency Services Authority of Western Australia), while in other
states and territories volunteer brigades are coordinated by a
dedicated fire department. The level of local government oversight
of brigades differs between and within states and territories. All
states and territories have one or more associations representing
volunteer fire fighters in that state or territory.
320. The state and territory government agencies coordinating State
Emergency Services in all states and territories except for the
Northern Territory are specifically listed as DGRs (see the table
in section 30-102 of the ITAA 1997). The state and territory
government agencies coordinating brigades in Victoria, Queensland,
Western Australia, Tasmania and the Australian Capital Territory
are also listed (see the table in section 30-102 of the ITAA 1997).
321. These listings followed an announcement by the then government on
23 December 2003 that it would legislate to ensure that the Country
Fire Authority, the Victoria State Emergency Service and equivalent
coordinating bodies in other states and territories could benefit
from being able to receive tax deductible gifts.
Summary of new law
322. New DGR categories are created for:
. government entities that have statutory responsibility for
coordinating volunteer fire brigades or State Emergency
Services;
. public funds established and maintained by such entities -
solely for the purpose of supporting the volunteer based
emergency service activities of not-for-profit entities or
government entities that principally provide volunteer
based emergency services (including fire-related services)
that are regulated by a state or territory law; and
. public funds established and maintained by not-for-profit
entities or government entities that principally provide
volunteer based emergency services (including fire-related
services) that are regulated by a state or territory law -
solely for the purpose of supporting the volunteer based
emergency service activities of the establishing entity.
Comparison of the key features of the new law and the current law
|New law |Current law |
|Volunteer fire brigade |In support of their |
|and State Emergency |activities, certain state|
|Services coordinating |and territory government |
|entities in the remaining|agencies that have |
|states and territories |responsibility for |
|can be endorsed as DGRs |coordinating brigades or |
|under a newly established|State Emergency Services,|
|general category. |are specifically listed |
| |in the tax law as DGRs. |
| |Listings include |
| |volunteer fire brigade |
| |coordinating bodies in |
| |Victoria, Queensland, |
| |Western Australia, |
| |Tasmania and the |
| |Australian Capital |
| |Territory, and State |
| |Emergency Services |
| |coordinating bodies in |
| |all states and |
| |territories except the |
| |Northern Territory. |
|Public DGR donation funds|Volunteer fire brigades |
|can be established to |cannot be DGRs or get |
|support volunteer based |access to DGR support |
|emergency services |(except for brigades in |
|activities that are |Victoria). |
|undertaken by |'Hybrid' brigades |
|not-for-profit entities |providing volunteer fire |
|or government entities |as well as other |
|that principally provide |emergency service |
|volunteer based emergency|activities may also not |
|services (including |be DGRs. |
|fire-related services) |Although many volunteer |
|that are regulated by a |based emergency services |
|state or territory law. |entities may qualify as |
|Donation funds can be |PBIs, only some are |
|established by: |endorsed as such. |
|government entities that | |
|have statutory | |
|responsibility for | |
|coordinating volunteer | |
|fire brigades or State | |
|Emergency Services; or | |
|not-for-profit or | |
|government entities that | |
|principally provide | |
|volunteer based emergency| |
|services that are | |
|regulated by a state or | |
|territory law. | |
Detailed explanation of new law
New general categories
323. This measure establishes three new general DGR categories.
324. New DGR categories are created for:
. government entities that have statutory responsibility for
coordinating volunteer fire brigades or State Emergency
Services [Schedule 7, item 1, item 12A.1.1 in the table in
section 30-102 of the ITAA 1997];
. public funds established and maintained by such entities -
solely for the purpose of supporting the volunteer based
emergency service activities (including fire-related
services) of not-for-profit entities or government
entities that principally provide volunteer based
emergency services that are regulated by a state or
territory law [Schedule 7, item 1, item 12A.1.2 in the
table in section 30-102 of the ITAA 1997]; and
. public funds established and maintained by not-for-profit
entities or government entities that principally provide
volunteer based emergency services (including fire-related
services) that are regulated by a state or territory law -
solely for the purpose of supporting the volunteer based
emergency service activities of the establishing entity
[Schedule 7, item 1, item 12A.1.3 in the table in section
30-102 of the ITAA 1997].
325. The Commissioner requires that all entities or funds endorsed under
these new categories must be established in Australia, and their
purposes must be in Australia (this is an interpretation of item 1
in the table in subsection 30-15(2) of the ITAA 1997, which states
that any fund, authority or institution covered by any item in the
tables in Subdivision 30-B of the ITAA 1997 must be 'in
Australia').
New general DGR category for government entities that coordinate
volunteer fire brigades and State Emergency Services
326. Government entities with statutory responsibility for coordinating
volunteer fire brigades or State Emergency Services can seek
endorsement to be DGRs. Gifts to these DGRs must be made for the
purpose of supporting the entity's coordination of volunteer fire
brigades or State Emergency Services. [Schedule 7, item 1, item
12A.1.1 in the table in section 30-102 of the ITAA 1997]
327. This part of the measure creates a general DGR category that
predominantly captures state and territory government agencies
already listed as DGRs in the tax law. This new general category
makes the DGR concession available to equivalent entities in the
remaining states and territories. Organisations currently listed
in the ITAA 1997 as DGRs include volunteer fire brigade
coordinating bodies in Victoria, Queensland, Western Australia,
Tasmania and the Australian Capital Territory, and State Emergency
Services coordinating bodies in all states and territories except
the Northern Territory.
328. Volunteer fire brigades are entities that aim to prevent, respond
to, and help with recovery from a range of fire-related
emergencies. The State Emergency Services provide emergency and
rescue services dedicated to assisting the community.
329. Volunteer fire brigades and State Emergency Services are made up
almost entirely of volunteers. Coordination of volunteer fire
brigades and State Emergency Services is provided by a central
coordinating body that is a state or territory government entity.
330. A gift condition has been introduced for donors, that the gift must
be made for the purpose of supporting the entity's coordination of
volunteer fire brigades or State Emergency Services. Coordination
includes registration and oversight responsibilities. Entities
whose functions include, but extend beyond, the coordination of
volunteer fire brigades or State Emergency Services (for example,
some state departments of justice may be said to include those
functions) cannot use the deductible donations they receive in
support of those unrelated functions. [Schedule 7, item 12A.1.1 in
the table in section 30-102 of the ITAA 1997]
331. DGR status is restricted to those entities that are Australian
government entities with statutory responsibility for coordinating
volunteer fire brigades or State Emergency Services. Where
legislation places a burden of obligation upon an entity, that
entity has statutory responsibility.
332. An Australian government entity includes state and territory
government departments and agencies responsible for coordinating
volunteer fire brigades and State Emergency Services. It does not
include non-government organisations nor local governments.
New general DGR category for public funds to support volunteer
based emergency services (including volunteer fire brigades)
333. A public donation fund can be endorsed as a DGR if it is
established and maintained to support volunteer based emergency
service activities undertaken by not-for-profit entities or
government entities that principally provide volunteer based
emergency services that are regulated by a state or territory law.
The fund must be established either:
. by entities that principally provide volunteer based
emergency services (including volunteer fire brigades); or
. by coordinating entities (described in paragraph 1.16).
[Schedule 7, item 1, items 12A.1.2 and 12A.1.3 in the table in
section 30-102 of the ITAA 1997]
334. This new category gives entities providing emergency services
(including volunteer fire brigades) the flexibility to establish a
DGR fund in their own right, or to collaborate with their relevant
state or territory volunteer fire brigade coordinating body to
collect donations through a central fund, taking advantage of gains
in efficiency that may arise through a centralised fund model.
335. By being open to entities providing volunteer based emergency
services more generally, this new category is available to 'hybrid'
volunteer fire brigades - organisations that undertake fire-
fighting as well as other kinds of volunteer based emergency
services activities that are regulated by a state or territory law.
Such hybrid brigades can use all funds donated to them to support
all their volunteer based emergency activities, not just fire-
fighting activities.
336. Not all volunteer fire brigades will want or need DGR status. Some
will be too small, others will be fully state or territory
government supported.
337. For volunteer fire brigades that do want to collect tax deductible
donations, those that see efficiency, administrative and other
advantages in collecting through a central fund such as that which
currently exists in Victoria will still have that option - provided
that a centralised public fund has been established by the
government coordinating body in that particular state or territory.
This option may be particularly attractive to smaller volunteer
fire brigades that may find it too onerous to meet the
accountability requirements to establish their own DGR fund.
[Schedule 7, item 1, item 12A.1.2 in the table in section 30-102 of
the ITAA 1997]
338. Volunteer fire brigades who want DGR status in their own right will
need to establish their own public fund. [Schedule 7, item 1, item
12A.1.3 in the table in section 30-102 of the ITAA 1997]
339. This new category does not displace the PBI status of those
volunteer based emergency service units (for example, State
Emergency Services and marine rescue units) that are presently
endorsed as PBIs in their own right. A PBI is a not-for-profit
institution organised for the direct relief of poverty, sickness,
suffering, distress, misfortune, disability or helplessness. The
endorsement of PBIs is a responsibility of the Commissioner.
Funds established by brigades
340. A public donation fund can be endorsed as a DGR if it is
established and maintained:
. by a not-for-profit entity or government entity that
principally provides volunteer based emergency services
that are regulated by a state or territory law; and
. solely for the purpose of supporting the volunteer based
emergency service activities of the establishing entity.
[Schedule 7, item 1, item 12A.1.3 in the table in section 30-102 of
the ITAA 1997]
341. A not-for-profit organisation is one which is not operating for the
profit or gain of its individual members, whether these gains would
have been direct or indirect. Any profit made by the organisation
goes back into the operation of the organisation to carry out its
purposes and is not distributed to any of its members. The
Commissioner accepts an organisation as not-for-profit where its
constituent or governing documents prevent it from distributing
profits or assets for the benefit of particular people - both while
it is operating and when it winds up. These documents should
contain acceptable clauses showing the organisation's not-for-
profit character. The organisation's actions must be consistent
with this requirement. The Australian Taxation Office (ATO)
provides further guidance on acceptable constitutional clauses at
the Non-Profit section of its website.
342. Examples of the types of not-for-profit entities or government
entities that may provide volunteer based emergency services are
volunteer fire brigades, State Emergency Services, volunteer marine
rescue units, groups of volunteer ambulance officers, and hybrid
emergency service units that may cover a combination of these
functions.
343. The fund can only be used in support of activities that are
'volunteer based emergency service activities' of the establishing
entity.
344. Volunteer based entities predominantly consist of individuals
performing public services for no financial gain. Emergency
services are public services that deal with sudden and urgent
occasions for action, usually relating to the safety or protection
of people or property. To carry out their core objective of
providing emergency services, emergency service organisations may
undertake activities to prepare for emergencies such as training,
as well as activities that seek to prevent imminent or expected
emergencies - for example, a volunteer fire brigade may oversee a
controlled burn prior to a fire season to reduce the risk of a
catastrophic bushfire.
1. : Funds can be used for emergency service activities
The Redcliffe Volunteer Fire Brigade decides to purchase
fire retardant protective clothing for volunteers to use
when fighting fires. Donations to the brigade's public fund
can be used to purchase the new clothing because the
clothing is a requirement for the brigade in the undertaking
of an emergency service activity (fire fighting).
2. : Funds cannot be used for other activities
The Redcliffe Volunteer Fire Brigade is planning a dinner
for brigade members and their extended families. The dinner
is an annual event, held with the general aim of encouraging
the social links within the brigade. The dinner is not a
fundraising event. Donations to the brigade's DGR fund
cannot be used to purchase provisions for the dinner,
because the dinner is not an emergency service activity.
345. This measure is intended to only capture officially recognised
emergency services, such as volunteer fire and State Emergency
Services. State or territory law must regulate the provision of
those emergency services (the emergency service must be controlled
or directed by a set of requirements set out in state or territory
legislation).
346. If the state or territory law requires minimum qualifying
conditions for an entity to provide regulated emergency services,
individual entities seeking endorsement must meet those conditions
as evidence that the entity provides state or territory regulated
services. For example, if a state or territory law requires
licensing, then the entity must be licensed before their public
fund is endorsed.
1. : Emergency services that are regulated by a state law or
territory law
A volunteer fire brigade in WA wants to seek DGR endorsement
for its public fund, but can only do so if its activities
are regulated under a state law.
In WA, the establishment (including registration) and
regulation of most volunteer bush fire brigades is done
under the authority of the Bush Fires Act 1954 (WA).
Establishment and regulation of other kinds of emergency
service brigades, including multifunctional (hybrid)
volunteer fire service brigades, volunteer marine rescue
service units and volunteer State Emergency Services, is
provided by the Fire and Emergency Services Authority of
Western Australia Act 1998 (WA).
The brigade is registered under the Bush Fires Act 1954
(WA). The brigade is regulated by a state law.
347. Local government by-laws are state or territory laws because they
are delegated legislation made under a state or territory
enactment.
348. The ATO will typically provide guidance as to the kinds of
organisations covered by a measure.
Funds established by coordinating bodies
349. Public DGR donation funds can be established by state or territory
government entities that have a statutory responsibility to
coordinate volunteer fire brigades or State Emergency Services.
[Schedule 7, item 1, item 12A.1.2 in the table in section 30-102 of
the ITAA 1997]
350. The Victorian Country Fire Authority (CFA) has operated a public
fund to support Victorian volunteer fire brigades since 2005, when
the CFA & Brigades Donations Fund (CFA Fund) was specifically
listed in the tax law (see item 12A.2.4 in the table in section 30-
102 of the ITAA 1997). This model was implemented in Victoria to
reduce the administrative burden for smaller brigades that still
wanted to collect tax deductible donations.
351. The model currently operated in Victoria allows the CFA to operate
the CFA Fund and act as a centralised accounting body, while giving
brigades the freedom to collect tax deductible donations on behalf
of the CFA Fund. By agreement between the CFA and individual
brigades, the donations collected at a local level by brigades may
be used in support of local brigade activities. Under the
Victorian arrangement, individual brigades collect donations and
bank them into the CFA Fund, also issuing receipts in the name of
the CFA Fund. Funds collected by individual brigades are provided
back to those brigades by the CFA immediately upon request.
Brigades provide relevant information back to the CFA for
accounting and auditing purposes. The CFA Fund has seven trustees;
two representing the Victorian CFA and five representing Volunteer
Fire Brigades Victoria (a representative body for CFA volunteers).
Hybrids
352. Some states operate hybrid volunteer fire brigades. Such brigades
undertake fire-fighting as well as other kinds of volunteer based
emergency services activities.
353. Hybrid entities can collect donations through central DGR funds
established by a state or territory government entity (coordinating
body), or through a DGR fund established by the entity itself.
[Schedule 7, item 1, items 12A.1.2 and 12A.1.3 in the table in
section 30-102 of the ITAA 1997]
354. The entity must be a not-for-profit entity or government entity
that principally provides volunteer based emergency services
regulated by a state or territory law.
1. : Hybrid emergency service entities
The Murrumberg volunteer fire and rescue brigade is a hybrid
emergency service entity - providing volunteer fire fighting
as well as remote rescue services. Both of these services
are emergency services.
It is a not-for-profit volunteer brigade. The brigade is
registered and regulated under a State Emergency Service
Act.
The brigade is planning to undertake a fundraising campaign
to purchase GPS navigation equipment for use in both its
remote rescue service and fire-fighting activities. The
brigade chooses to establish a public fund for the purposes
of supporting its emergency service activities. The public
fund is eligible for endorsement by the ATO as a DGR.
The Murrumberg volunteer fire and rescue brigade can use its
tax deductible donations to support all their volunteer
based emergency activities, not just those activities
relating to volunteer fire fighting.
Reporting requirements
355. While section 161 of the Income Tax Assessment Act 1936 requires
annual reporting, the Commissioner has generally exempted DGRs and
charities from this requirement.
356. Nevertheless, the tax law requires a DGR public fund to maintain
adequate accounting and other records to verify that tax deductible
gifts or contributions are used only for the principle purpose of
the fund. The Commissioner will consider whether annual reporting
of these funds is necessary, and the form any such reporting should
take.
357. In the case of public funds established by coordinating bodies, it
is a decision for those who control the fund to decide:
. whether volunteer fire brigades can act as agents and
issue receipts on behalf of the fund;
. whether volunteer fire brigades will then be able to
retain monies collected by brigades at the local level;
and
. the record keeping and reporting arrangements (including
arrangements with volunteer fire brigades acting as agents
of the fund) that will best allow it to meet its gift fund
and public fund obligations.
1. : How the centralised fund model could work in practice
The Queensland Fire and Rescue Service and individual
brigades in Queensland enter into agreements about the
collection, receipting, accounting and reporting of gift
deductible donations collected by local brigades. They
discuss their agreement with the ATO to ensure all
requirements under the law are met.
Throughout the 2010-11 income year, the Caboolture volunteer
fire brigade receives gifts totalling $1,000 from Peter and
$2,000 from Teresa.
Under an agreement with the Queensland Fire and Rescue
Service (the government coordinating body), a volunteer
issues Peter and Teresa with receipts in the name of the
central DGR fund at the time of their respective donations.
Under agreement with the Queensland Fire and Rescue Service,
the local volunteer brigade in Caboolture retains custody of
the funds collected locally to use for appropriate purposes.
At the end of the financial year, the Caboolture brigade
reports the total donations ($3,000) to the Queensland Fire
and Rescue Service (as overseer of the public fund
established by the Service), as well as details of how the
funds have been used and if any funds have been retained.
The Queensland Fire and Rescue Service assumes
responsibility to the ATO for accounting and any reporting
in relation to the central DGR fund.
358. Coordinating bodies may wish to make use of independent audits,
declarations by individual volunteer fire brigades or explicit
annual reporting (e.g. receipt reporting) to meet the
accountability, reporting and record keeping requirements.
359. Where receipts for gifts are issued, the receipt must specify:
. that the receipt is for a gift,
. the name of the DGR fund receiving the gift, and
. the Australian Business Number (ABN) of the DGR fund.
Other useful information may include the amount of money donated
and the name of the donor.
360. Those responsible for the central fund are free to enter into other
reporting arrangements with volunteer fire brigades to ensure that
gifts to the fund have been used to further the principal purpose
of the fund, and that it can explain all transactions and other
acts that brigades engage in that are relevant to the public fund's
status as a DGR.
361. In addition to maintaining proper records, if the fund allows the
volunteer brigade to retain the donations they should ensure those
in control of the fund have the discretion to call back the
donation at any time to be applied in accordance with the purposes
of the fund. Whilst this clause may not be applied in practice, it
ensures that a sub-fund (which will not have endorsement) is not
created.
The gift fund requirements and public fund requirements
362. The gift fund requirements apply to coordinating bodies endorsed
under the new general DGR category for state and territory
government entities that coordinate brigades.
363. Both the gift fund and public fund requirements will apply to DGR
donation funds established by volunteer emergency service entities
(including volunteer fire brigades) and state or territory
coordinating bodies under the new general DGR category for public
funds to support volunteer based emergency services.
364. The public fund and gift fund requirements are explained in the
ATO's GiftPack - Guide for deductible gift recipients and donors
publication.
365. There is some overlap between the gift fund and public fund
requirements.
366. The existence of a public fund does not necessarily satisfy the
gift fund requirement. However, if the public fund only receives
gifts or deductible contributions, and the appropriate winding up
rules exist, the public fund may itself be the gift fund (in this
case there would be no need for a separate gift fund).
Gift fund requirements
367. The gift fund requirements are found in section 30-130 of the ITAA
1997.
368. A gift fund is a fund, maintained for the principle purpose of the
DGR fund, authority or institution. All gifts, and deductible
contributions, of money or property for that purpose are made to it
and credited to it.
369. A gift fund does not receive any other money or property, and the
fund is used only for the principal purpose of the fund, authority
or institution.
370. The DGR fund, authority or institution must be required (by law,
its constituent documents or governing rules) to transfer any
surplus assets of the gift fund to another similar DGR fund,
authority or institution when the fund, authority or institution is
wound up or the DGR endorsement is revoked, whichever occurs first.
Public fund requirements
371. The basic requirements for public funds are laid out in Taxation
Ruling TR 95/27.
372. Approximately half of the general DGR categories require that a
public fund be established. The public fund requirement ensures
that there are administrative and legal frameworks in place which
will help safeguard property and moneys donated to the fund,
authority or institution, and help ensure that tax deductible
donations are used for the purpose for which endorsement was given.
373. The basic requirements for public funds include that:
. the fund must be managed by members of a Committee, a
majority of whom have a degree of responsibility to the
general community (this requirement does not apply to
funds established and controlled by a governmental or
quasi-governmental authority);
. the objects of the fund must be clearly set out and
reflect the purpose of the fund;
. gifts to the fund must be kept separate from any other
funds of the sponsoring organisation;
. a separate bank account and clear accounting procedures
are required to explain all transactions relevant to the
DGR status of the fund;
. receipts must be issued in the name of the fund. Receipts
must state the name of the fund to which the gift has been
made; the fund's ABN and the fact that the receipt is for
a gift;
. the public must be invited to contribute to the fund;
. the fund must operate on a not-for-profit basis (that is,
moneys must not be distributed to members of the managing
committee or trustees of the fund except as reimbursement
for out-of-pocket expenses incurred on behalf of the fund
or proper remuneration for administrative services);
. should the fund be wound-up, any surplus money or other
assets must be transferred to some other qualifying fund;
and
. the ATO is to be notified of any changes to the fund's
constitution or other founding documents.
374. While a public fund is required to be controlled by an executive
committee made up of a majority of responsible persons, the day-to-
day running of the organisation need not be carried out by those
persons. The fund must, however, be set up in such a way that it
is not possible for public control to lapse for any period.
Ancillary funds
375. It remains an option under existing arrangements in the tax law for
non-government organisations wishing to support volunteer fire
brigades to establish an ancillary fund (a fund established and
maintained under will or instrument of trust for the purpose of
providing money, property or benefits to DGRs or for their
establishment), to collect tax deductible donations in its own
right and to give to public funds established to directly support
brigades.
Enforcement
376. The ATO has a wide range of enforcement powers, including powers to
obtain information and revoke DGR status. DGR funds are subject to
the ATO's regular compliance program.
What is a gift?
377. Gifts of $2 or more of money or property to DGRs are tax deductible
to donors, provided that the gift complies with all relevant
conditions.
378. The donation must be a gift and voluntary. A transaction which is
mandatory or where the giver receives a benefit or advantage in
return, is not a gift. Accordingly, compulsory levies to pay for
fire services are not tax deductible as a gift. Further
information on what is a gift can be found in Taxation Ruling
2005/13.
Transitional provisions
379. Certain state and territory government entities that coordinate
volunteer fire brigades and State Emergency Services, and the CFA &
Brigades Donations Fund, are already specifically listed as DGRs in
the ITAA 1997. These entities will be taken to have been endorsed
by the Commissioner under the new categories. The normal
endorsement rules continue to apply after this date. [Schedule 7,
item 3, section 30-102 of the Income Tax (Transitional Provisions)
Act 1997]
380. Entities that were specifically listed as DGRs in the law do not
need to seek re-endorsement under the new general DGR category for
such organisations.
Application provisions
381. The measure commences from Royal Assent, and applies to gifts made
after that time. [Schedule 7, item 4]
Consequential amendments
382. Specifically listed entities are removed from the index table (in
subsection 30-315(2) of the ITAA 1997) in Division 30 of the
ITAA 1997. These entities are state and territory government
bodies, and the CFA & Brigades Donations Fund, which are treated as
endorsed under the new general categories by way of the
transitional provisions. [Schedule 7, item 2, subsection 30-315(2)
of the ITAA 1997]
Index
Schedule 2: CGT treatment of water entitlements and termination fees
|Bill reference |Paragraph |
| |number |
|Item 1 |2.99 |
|Item 2 |2.50, 2.100 |
|Items 3 to 5 |2.101 |
|Item 6, subsection 124-1105(1) |2.29 |
|Item 6, paragraphs 124-1105(1)(a) and (b) |2.34 |
|Item 6, paragraph 124-1105(1)(c) |2.37 |
|Item 6, paragraph 124-1105(1)(d) |2.36 |
|Item 6, subsection 124-1105(2) |2.29 |
|Item 6, paragraphs 124-1105(2)(a), (b) and |2.39 |
|(d) | |
|Item 6, paragraph 124-1105(2)(c) |2.40 |
|Item 6, subsection 124-1105(3) |2.33 |
|Item 6, subsection 124-1105(4) |2.22, 2.24, |
| |2.28 |
|Item 6, section 124-1110 |2.42 |
|Item 6, subsection 124-1115(1) |2.43 |
|Item 6, subsections 124-1115(2) and (4) and |2.44 |
|paragraph 124-1115(5)(a) | |
|Item 6, subsections 124-1115(3) and (4) and |2.45 |
|paragraph 124-1115(5)(b) | |
|Item 6, paragraphs 124-1120(1)(a) and (b) |2.51 |
|and (2)(a) to (c) | |
|Item 6, paragraphs 124-1120(1)(c) and (2)(d)|2.54 |
|Item 6, subsections 124-1120(3) and (4) |2.55 |
|Item 6, subsection 124-1120(4) |2.52 |
|Item 6, section 124-1125 |2.46 |
|Item 6, subsection 124-1130(1) |2.56 |
|Item 6, subsection 124-1130(2) |2.57 |
|Item 6, paragraphs 124-1130(3)(a) and (b) |2.58 |
|Item 6, paragraph 124-1130(3)(c) |2.59 |
|Item 6, subsection 124-1130(4) |2.60 |
|Item 6, section 124-1135 |2.64 |
|Item 6, section 124-1140 |2.69 |
|Item 6, subsections 124-1145(1) and (2) |2.71 |
|Item 6, subsection 124-1145(3) |2.73 |
|Item 6, subsection 124-1145(4) |2.72 |
|Item 6, subsection 124-1150(1) |2.74 |
|Item 6, subsection 124-1150(2) |2.75 |
|Item 6, subsection 124-1150(3) |2.76 |
|Item 6, subsection 124-1150(4) |2.77 |
|Item 6, section 124-1155 |2.79 |
|Item 6, section 124-1160 |2.80 |
|Item 6, subsection 124-1165(1) |2.81 |
|Item 6, subsections 124-1165(2) and (4) |2.82 |
|Item 6, subsections 124-1165(3) and (4) |2.83 |
|Item 7 |2.102 |
|Item 200 |2.86 |
|Item 300 |2.91 |
|Subitems 305(1) and (2) |2.92 |
|Subitem 305(3) |2.93 |
|Item 310 |2.95 |
|Subitem 315(2) |2.97 |
|Subitem 315(1) |2.96 |
Schedule 3: Taxation of financial arrangements
|Bill reference |Paragraph |
| |number |
|Items 1 and 2, paragraphs 102AAW(2)(a) and |3.79 |
|(b) of the ITAA 1936 | |
|Part 2, item 135 |3.94 |
|Items 3 and 4, section 118-27(heading) and |3.64 |
|subsection 118-27(4) | |
|Items 5 and 106, subparagraphs |3.52 |
|230-5(2)(a)(ii) and 230-455(1)(a)(ii) | |
|Item 6, subsection 230-15(4A) |3.35 |
|Item 6, paragraph 230-15(4A)(a) |3.35 |
|Item 6, paragraph 230-15(4A)(b) |3.35 |
|Item 6, paragraph 230-15(4A)(c) |3.35 |
|Item 7, subsection 230-45(4) |3.22, 3.26 |
|Item 7, subsection 230-45(5) |3.22 |
|Item 7, paragraph 230-45(5)(a) |3.31 |
|Item 7, paragraph 230-45(5)(b) |3.32 |
|Items 8 to 10, 13 and 105, paragraph |3.87 |
|230-70(1)(b), 230-75(1)(b) and | |
|230-110(1)(c), subparagraph | |
|230-130(5)(b)(ii), and subsection 230-435(5)| |
|Item 11, subsection 230-115(1) |3.36 |
|Item 12, subsection 230-115(8) |3.41 |
|Items 12, 67 and 118, subsection 230-115(8),|3.88 |
|subparagraph 230-335(1)(c)(ii) and | |
|subsection 230-530(1) | |
|Item 14, subsection 230-145(5) |3.39 |
|Items 15, 22, 26, 27, 34, 41, 56, 57, 58, |3.71 |
|73, 74, 75, 77, 80, 83, 92, 107, 113, 119 | |
|and 122, subparagraphs 230-150(1)(a)(i) and | |
|230-185(2)(e)(i), subsection 230-190(8), | |
|subparagraphs 230-210(2)(a)(i), | |
|230-220(1)(c)(i) and 230-255(2)(a)(i), | |
|subsection 230-310(4), paragraph | |
|230-310(5)(a), | |
|subparagraph 230-315(2)(a)(i), | |
|paragraphs 230-335(10)(c) to (e), and | |
|230-355(1)(b), subparagraph 230-365(c)(i), | |
|230-395(2)(a)(i) and 230-410(1)(d)(i), | |
|paragraphs 230-455(5)(b) and 230-500(a), | |
|subparagraphs 230-530(3)(d)(i) and | |
|230-530(4)(e)(i) | |
|Items 16, 23, 28, 35, 42, 59, 84, 93, 120 |3.71 |
|and 123, subparagraphs 230-150(1)(a)(ii), | |
|230-185(2)(e)(ii), 230-210(2)(a)(ii), | |
|230-220(1)(c)(ii), 230-255(2)(a)(ii), | |
|230-315(2)(a)(ii),230-395(2)(a)(ii), | |
|230-410(1)(d)(ii), 230-530(3)(d)(ii) and | |
|230-530(4)(e)(ii) | |
|Items 17, 24, 29, 36, 43, 60, 85, 94, 121 |3.71 |
|and 124, subparagraphs 230-150(1)(a)(ii), | |
|230-185(2)(e)(ii), 230-210(2)(a)(ii), | |
|230-220(1)(c)(ii), 230-255(2)(a)(ii), | |
|230-315(2)(a)(ii), 230-395(2)(a)(ii), | |
|230-410(1)(d)(ii), 230-530(3)(d)(ii) and | |
|230-530(4)(e)(ii) | |
|Items 18, 19, 30, 31, 44, 45, 61, 62, 86, 87|3.76 |
|and 114, subparagraphs 230-150(1)(b)(i) and | |
|(ii), 230-210(2)(b)(i) and (ii), | |
|230-255(2)(b)(i) and (ii), 230-315(2)(b)(i) | |
|and (ii), 230-395(2)(b)(i) and (ii) and | |
|paragraph 230-500(b) | |
|Items 20, 32, 46, 63 and 88, subparagraphs |3.76 |
|230-150(1)(b)(ii), 230-210(2)(b)(ii), | |
|230-255(2)(b)(ii), 230-315(2)(b)(ii) and | |
|230-395(2)(b)(ii) | |
|Item 21, subsection 230-155(5) |3.40 |
|Items 25, 37 to 40, 66, 69 to 72, 78, 79, |3.78 |
|81, 90, 91, 96, 99 to 104 and 112, | |
|paragraphs 230-185(2)(e), 230-230(1)(a) to | |
|(c), subsection 230-230(3), paragraph | |
|230-335(1)(b), | |
|subparagraph 230-335(3)(c)(i), | |
|paragraph 230-335(5)(b), | |
|subsections 230-335(8) and (9), | |
|subparagraph 230-355(5)(a)(ii), paragraphs | |
|230-365(a) and (c) and 230-405(2)(a) and | |
|(b), subsection 230-410(2), | |
|paragraphs 230-420(1)(a) to (c), | |
|subsection 230-420(3), | |
|paragraphs 230-430(4)(a) and (c) and | |
|230-495(1)(d) | |
|Items 33, 47, 64 and 89, subsections |3.78 |
|230-210(2) (note), 230-255(2)(note), | |
|230-315(2)(note) and 230-395(2)(note 1) | |
|Items 48, 49 and 82, subsections 230-275(1) |3.90 |
|to (3) and 230-380(1) | |
|Items 50 and 52, subsections 230-300(5) and |3.46 |
|(11) | |
|Item 51, subsection 230-300(6) |3.50 |
|Items 53 and 55, section 230-305 |3.47 |
|Item 54, section 230-305 (after item 2 in |3.45 |
|the table) | |
|Item 65, paragraph 230-335(1)(a) |3.42 |
|Item 68, subparagraph 230-335(1)(c)(ii) |3.43 |
|Item 76, section 230-340(heading) |3.92 |
|Item 95, subparagraph 230-410(1)(e)(ii) |3.92 |
|Item 97, subsection 230-410(5) |3.92 |
|Item 98, subsection 230-410(6) |3.92 |
|Item 108, subsection 230-460(4) |3.61 |
|Item 109, paragraph 230-460(8)(a) |3.63 |
|Items 110 and 111, section 230-495 |3.78 |
|(heading), paragraph 230-495(1)(b) | |
|Item 115, paragraph 230-520(1)(b) |3.89 |
|Item 116, paragraph 230-520(1)(d) |3.93 |
|Item 117, subsection 230-520(2) |3.93 |
|Item 125, paragraph 775-295(1)(c) |3.92 |
|Item 126, paragraph 775-305(1)(b) |3.92 |
|Item 127, subsection 775-305(2) |3.51 |
|Item 128, subsection 775-305(3) |3.51 |
|Item 129, subsection 995-1(1) |3.75 |
|Item 130, subsection 995-1(1) |3.90 |
|Item 131, subsection 995-1(1) |3.91 |
|Item 132, subsection 2(1) (item 11 in the |3.70 |
|table) of the Tax Laws Amendment (2010 | |
|Measures No. 1) Act 2010 | |
|Item 133, subitem 104(7) of Schedule 1 to |3.83 |
|the TOFA Act 2009 | |
|Item 134, subitem 104(7A) of Schedule 1 to |3.84 |
|the TOFA Act 2009 | |
|Items 136 and 137, sections 11-10 and 11-55 |4.36 |
|Item 138, paragraph 775-15(2)(b) (item 1 in |4.5 |
|the table, column 2) | |
|Items 139, 140 and 143, sections 775-20, |4.37 |
|775-25 and paragraph 775-35(2)(a) | |
|Item 141, section 775-27 |4.10 |
|Item 142, subsection 775-35(1) |4.17 |
|Item 144, subparagraph 775-50(1)(b)(iii) |4.21 |
|Item 145, subparagraph 775-55(1)(b)(xi) |4.24 |
|Item 146, paragraph 775-55(4)(a) |4.24 |
|Item 147, subparagraph 775-60(1)(b)(iii) |4.28 |
|Item 148, section 775-168 |4.31 |
Schedule 4: Scrip for scrip alignment
|Bill reference |Paragraph |
| |number |
|Item 1, paragraph 124-780(1)(b) |5.11 |
|Item 2, paragraph 124-780(2A)(a) |5.12 |
|Item 2, paragraph 124-780(2A)(b) |5.13 |
|Item 3, paragraph 124-781(1)(c) |5.19 |
|Item 4, paragraph 124-781(2A)(a) |5.20 |
|Item 4, paragraph 124-781(2A)(b) |5.21 |
Schedule 5: Medical expenses tax offset claim threshold
|Bill reference |Paragraph |
| |number |
|Item 1 |6.14 |
|Items 2 and 3 |6.11 |
|Item 4 |6.10 |
Schedule 6: Deductible gift recipients
|Bill reference |Paragraph |
| |number |
|Item 1, item 2.2.32 in the table in |7.9 |
|subsection 30-25(2 | |
|Item 2, item 2.2.38 in the table in |7.6 |
|subsection 30-25(2) | |
|Item 3, item 9.2.17 in the table in |7.8 |
|subsection 30-80(2) | |
|Items 4 and 5, items 81A and 31B in the |7.11 |
|table in section 30-315 | |
Schedule 7: Extending gift deductibility to volunteer fire brigades
|Bill reference |Paragraph |
| |number |
|Item 1, item 12A.1.1 in the table in section|8.14, 8.16 |
|30-102 of the ITAA 1997 | |
|Item 1, item 12A.1.2 in the table in section|8.14, 8.27, |
|30-102 of the ITAA 1997 |8.39 |
|Item 1, items 12A.1.2 and 12A.1.3 in the |8.23, 8.43 |
|table in section 30-102 of the ITAA 1997 | |
|Item 1, item 12A.1.3 in the table in section|8.28, 8.30 |
|30-102 of the ITAA 1997 | |
|Item 2, subsection 30-315(2) of the ITAA |8.72 |
|1997 | |
|Item 3, section 30-102 of the Income Tax |8.69 |
|(Transitional Provisions) Act 1997 | |
|Item 4 |8.71 |
|Item 12A.1.1 in the table in section 30-102 |8.20 |
|of the ITAA 1997 | |
Do not remove section break.
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