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2022-2023
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
TREASURY LAWS AMENDMENT (2023 MEASURES NO.1) BILL 2023
SUPPLEMENTARY EXPLANATORY MEMORANDUM
Amendments to be moved on behalf of the Government
(Circulated by authority of the Assistant Treasurer and Minister for Financial Services,
the Hon Stephen Jones MP)
Table of Contents
Glossary................................................................................................. iii
General outline and financial impact ...................................................... 1
Parliamentary amendments to Schedule 3 -
Government response to the Review of the Tax
Practitioners Board ...................................................... 5
Parliamentary amendments to Schedule 4 - Off-market
share buy backs........................................................... 7
Parliamentary amendments to Schedule 5 - Franked
distributions funded by capital raisings ........................ 9
Corrections to the Explanatory Memorandum -
Treasury Laws Amendment (2023 Measures No.1) Bill
2023........................................................................... 13
Statement of Compatibility with Human Rights .......... 17
Glossary
This Supplementary Explanatory Memorandum uses the following abbreviations and
acronyms.
Abbreviation Definition
AFS Australian Financial Services
APRA Australian Prudential Regulatory
Authority
ASIC Australian Securities and Investments
Commission
Bill Treasury Laws Amendment (2023
Measures No. 1) Bill 2023
ITAA 1997 Income Tax Assessment Act 1997
Special Account TPB Special Account
TPB Review Independent Review of the TPB
TPB Tax Practitioners Board
General outline and financial impact
Parliamentary amendments to Schedule 3 -
Government response to the Review of the Tax
Practitioners Board
Outline
The parliamentary amendments to Schedule 3 to the Bill amend the commencement
date in Part 3 of Schedule 3 to the Bill from 1 July 2023, to 1 July 2024. This is as a
result of the Bill remaining in the Senate for consideration beyond 1 July 2023.
Date of effect
The amendments in Part 3 of Schedule 3 to the Bill apply from 1 July 2024. The
amendments in Part 1 and Part 2 of Schedule 3 to the Bill remain unchanged.
Financial impact
Nil.
Human rights implications
The parliamentary amendments to Schedule 3 to the Bill do not affect the analysis of
human rights issues. See Statement of Compatibility with Human Rights -- Chapter 5.
Compliance cost impact
The compliance cost impact is unchanged.
Parliamentary amendments to Schedule 4 -
Off-market share buy-backs
Outline
The parliamentary amendments to Schedule 4 to the Bill change the date of effect of
Part 2 of that Schedule to take effect on 18 November 2022, the day after the exposure
draft legislation was released for public consultation.
1
General outline and financial impact
Date of effect
Part 2 of Schedule 4 to the Bill, as amended, will apply to transactions announced on or
after 18 November 2022.
Financial impact
The parliamentary amendments to Schedule 4 to the Bill are not estimated to impact
the costing of the measure.
Human rights implications
The parliamentary amendments to Schedule 4 to the Bill do not raise any human rights
issues. See Statement of Compatibility with Human Rights -- Chapter 4.
Compliance cost impact
The compliance cost impact is unchanged.
Parliamentary amendments to Schedule 5 -
Franked distributions funded by capital raisings
Outline
The parliamentary amendments to Schedule 5 to the Bill will better address artificial
and contrived arrangements involving capital raising to fund franked distributions that
accelerate the release of franking credits. Where the schedule applies, the distribution
or a part of it is made unfrankable.
Date of effect
Schedule 5 to the Bill, as amended, will commence the day after Royal Assent.
Financial impact
The parliamentary amendment to Schedule 5 to the Bill to delay the start date from
15 September 2022 until after Royal Assent is estimated to have an unquantifiable cost
to receipts in 2023-24. The other parliamentary amendments to Schedule 5 are
estimated to have a negligible cost to receipts from 2023-24 onwards.
2
Treasury Laws Amendment (2023 Measures No.1) Bill 2023
Human rights implications
The parliamentary amendments to Schedule 5 to the Bill do not raise human rights
issues. See Statement of Compatibility with Human Rights -- Chapter 4.
Compliance cost impact
The compliance cost impact is unchanged.
3
Parliamentary
amendments to Schedule 3 -
Government response to the Review of
the Tax Practitioners Board
Table of Contents:
Outline of chapter .................................................................................. 5
Context of amendments ......................................................................... 5
Detailed explanation of amendments ..................................................... 5
Commencement, application, and transitional provisions ...................... 6
Outline of chapter
1.1 The parliamentary amendments to Schedule 3 to the Bill amend the
commencement date in Part 3 of Schedule 3 to the Bill from 1 July 2023, to
1 July 2024. This is as a result of the Bill remaining in the Senate for
consideration beyond 1 July 2023.
Context of amendments
1.2 The Bill was introduced to parliament on 16 February 2023, passed the House
of Representatives on 9 March 2023 and is currently in the Senate.
1.3 The Special Account originally had a commencement date of 1 July 2023,
however as this date has now passed, the parliamentary amendments to
Schedule 3 to the Bill amend this commencement date to 1 July 2024.
Detailed explanation of amendments
1.4 Part 3 of Schedule 3 to the Bill establishes a Special Account for the TPB, in
accordance with Recommendation 3.1 of the TPB Review. This Part was
5
Parliamentary amendments to Schedule 3 - Government response to the Review of the Tax
Practitioners Board
originally intended to commence on 1 July 2023, if the Bill was passed by both
houses prior to this date.
1.5 The Bill passed through the House of Representatives on 9 March 2023
however, is currently under consideration in the Senate. As the original
commencement date of the Special Account has now passed, the parliamentary
amendments to Schedule 3 to the Bill amend the commencement date from 1
July 2023, to 1 July 2024.
1.6 The amendment to 1 July 2024 provides a smooth transition into full financial
independence for the TPB from the next financial year and prevents the need
for complex funding arrangements if the Special Account commenced during
the course of a financial year. Additionally, the commencement of the Special
Account will now align with the commencement of the annual registration
period for tax practitioners, bringing further cohesion between the
implementation of the first tranche of recommendations from the TPB review.
Commencement, application, and transitional
provisions
1.7 The amendments in Part 3 of Schedule 3 to the Bill apply from 1 July 2024.
The amendments in Part 1 and Part 2 of Schedule 3 to the Bill remain
unchanged.
6
Parliamentary
amendments to Schedule 4 - Off-market
share buy backs
Table of Contents:
Outline of chapter .................................................................................. 7
Context of amendments ......................................................................... 7
Summary of amendments ...................................................................... 8
Detailed explanation of amendments ..................................................... 8
Outline of chapter
2.1 The parliamentary amendments to Schedule 4 to the Bill change the date of
effect of Part 2 of that Schedule so that part of the measure takes effect on
18 November 2022, the day after the exposure draft legislation was released
for public consultation.
Context of amendments
2.2 Schedule 4 to the Bill applies to an off-market buy-back or selective reduction
of capital undertaken by a listed public company that is either undertaken or
announced to the market on or after 7:30pm, by legal time in the Australian
Capital Territory, on 25 October 2022.
2.3 This was the date and time of the public announcement of the amendments in
the context of the October 2022-23 Budget.
2.4 The amendments in respect of selective reductions of capital is an integrity
measure designed to prevent companies seeking to obtain similar advantages to
those available for off-market buy-backs that existed prior to these
amendments via selective reductions of capital.
2.5 The changes to a selective reduction of capital were not specifically mentioned
in the October 2022-23 Budget announcement and therefore ensure listed
public companies can make informed decisions about their capital
management.
7
Parliamentary amendments to Schedule 4 - Off-market share buy backs
2.6 The Explanatory Memorandum to the Bill provides further information about
Schedule 4.
Summary of amendments
2.7 The amendments change the date of application of Part of Schedule 4 to the
Bill to 18 November 2022, the day after the exposure draft legislation was
released for public consultation.
Detailed explanation of amendments
2.8 Schedule 4 to the Bill applies to an off-market buy-back or selective reduction
of capital undertaken by a listed public company that is either undertaken or
announced to the market on or after 7:30pm, by legal time in the Australian
Capital Territory, on 25 October 2022.
2.9 This was the date and time of the public announcement of the amendments in
the context of the October 2022-23 Budget. The measure was announced as
part of the budget and the date of application was set to any transactions that
were announced or occurred after this announcement.
2.10 The October 2022-23 Budget announcement did not specifically refer to the
amendments to selective reductions of capital, which were designed as an
integrity measure.
2.11 Any selective reductions of capital that occurred or were announced between
25 October 2022 and 18 November 2022 would be subject to the amendments
made by Schedule 4 and may have included a franked distribution as part of
the payment.
2.12 To ensure listed public companies can make fully informed capital
management decisions, only such distributions made as part of a selective
reduction of capital announced or undertaken on or after 18 November 2022
are unfrankable.
2.13 The parliamentary amendments change this so that the amendments to
selective reductions of capital in Part 2 of Schedule 4 to the Bill only applies to
transactions announced or undertaken on or after the day after the exposure
draft legislation was released for public consultation.
8
Parliamentary
amendments to Schedule 5 - Franked
distributions funded by capital raisings
Table of Contents:
Outline of chapter .................................................................................. 9
Context of amendments ....................................................................... 10
Detailed explanation of amendments ................................................... 10
Franked distributions--application ................................................ 10
Franked distributions--substantial part of the distribution ............. 10
Franked distributions--proportionality ........................................... 11
Franked distributions--regulatory requirements ............................ 11
Outline of chapter
3.1 The parliamentary amendments to Schedule 5 to the Bill make the following
changes to the operation of the Schedule.
• Schedule 5 will now apply from the day after Royal Assent.
• A distribution is funded by capital raising if that capital raising funds
at least a substantial part of the distribution (rather than any part of the
distribution).
• Only the portion of the distribution that is funded by the capital raising
will be unfrankable.
• Where an equity issue is in response to a regulatory requirement,
directive or recommendation (e.g., by the Australian Prudential
Regulation Authority). That distribution will not be unfrankable
merely because of the amendments in Schedule 5.
3.2 These changes will improve the operation of Schedule 5 to the Bill by:
• operating after the day of Royal Assent thereby providing greater
certainty; and
9
Parliamentary amendments to Schedule 5 - Franked distributions funded by capital raisings
• ensuring the measure is more targeted to artificial and contrived
arrangements and mitigates any unintended impacts.
Context of amendments
3.3 Schedule 5 to the Bill amends the ITAA 1997 by making certain distributions
that are funded by capital raisings unfrankable.
3.4 The measure is intended to discourage arrangements that feature the raising of
capital to fund the payment of franked distributions and the release of those
franking credits in a way that does not significantly change the financial
position of the entity. These arrangements may be associated with driving
artificial and contrived tax outcomes without an underlying commercial
purpose.
3.5 The Bill was introduced to the Australian Parliament on the 16 February 2023
and was referred to the Senate Economics Legislation Committee for inquiry
and report by 26 May 2023. As part of that inquiry, the Committee received
submissions from a range of stakeholders, and concerns were raised about
Schedule 5 as it initially appeared in the Bill. The parliamentary amendments
to the provisions in Schedule 5 seek to address those concerns by providing
greater clarity and certainty in their application.
3.6 The Explanatory Memorandum to the Bill provides further information about
Schedule 5.
Detailed explanation of amendments
Franked distributions--application
3.7 Schedule 5 to the Bill will only apply to distributions that are made after
commencement of the schedule. This provides greater certainty in relation to
transactions that have already commenced and will ensure the amendments do
not impact transactions that cannot be reversed.
3.8 This amendment will change two aspects of the link between the equity issue
and the distribution that is made.
Franked distributions--substantial part of the
distribution
3.9 After this amendment, a distribution will only be unfrankable where the
principal effect of the equity issue is to fund, either directly or indirectly, the
10
Treasury Laws Amendment (2023 Measures No.1) Bill 2023
whole distribution or a substantial part of the distribution (rather than any part
of the distribution). It will also be necessary to show that the entity undertook
the capital raising with a purpose to fund at least a substantial part of the
relevant distribution.
3.10 The meaning of 'substantial' will depend on the facts and circumstance of each
distribution. A relevant factor is the proportion of the distribution funded by
the capital raising. This proportion does not need to be a majority but must be
more than a small or minor part of the distribution.
3.11 It may also be necessary to consider additional factors such as market
conditions or the size or performance of the entity that is making the
distribution.
Franked distributions--proportionality
3.12 The amount of the distribution that is unfrankable is only limited to the portion
funded by the capital raising.
3.13 Where the principal effect of the capital raising is to fund the entire
distribution, the entire distribution will be unfrankable. Conversely, if the
principal effect of the equity issue is to fund a substantial part of the
distribution, the amount of the distribution that is unfrankable will be
determined in proportion to the part of the distribution funded by the equity
issue.
Franked distributions--regulatory requirements
3.14 A distribution will not be made unfrankable if the capital raising that funded
that distribution is made in response to a requirement, direction or
recommendation from APRA or ASIC. In these circumstances, while the
transaction may not have an underlying commercial purpose, it would have
been made as a response to a regulatory requirement and be exempt from the
application of the integrity provisions under the amendments.
11
Corrections to the
Explanatory Memorandum - Treasury
Laws Amendment (2023 Measures No.1)
Bill 2023
Table of Contents:
Corrections to Chapter 1 ...................................................................... 13
Corrections to Chapter 5 ...................................................................... 14
Corrections to Chapter 1
4.1 Three corrections are made to Chapter 1 of the Explanatory Memorandum to
the Bill concerning the registration of relevant providers and assisted decision
making. These corrections respond to the recommendation of the Senate
Committee for the Scrutiny of Bills (Scrutiny Digest 6 of 2023) and provide
additional information about the safeguards and context for ASIC's use of
assisted decision making when dealing with applications for registration of
relevant providers.
4.2 In Chapter 1, at the end of paragraph 1.22, add the following:
"Where the AFS licensee makes all the required declarations, ASIC must grant
the registration application (without any requirement to scrutinise the validity
of the declarations). ASIC must refuse a registration application for a banned
or disqualified relevant provider."
4.2 In Chapter 1, paragraph 1.23, omit the last sentence
"The decision-making process lends itself to automation because the
circumstances in which ASIC must approve or refuse an application are
prescribed."
and substitute:
"The decision-making process lends itself to automation because the
circumstances in which ASIC must approve or refuse an application are
prescribed and non-discretionary. If the registration application is granted, the
decision making process will be fully automated. If it appears that ASIC must
refuse a registration application because the relevant provider is the subject of
13
Corrections to the Explanatory Memorandum - Treasury Laws Amendment (2023 Measures
No.1) Bill 2023
a banning or disqualification order, ASIC staff will take over the decision-
making process. This is an important and appropriate safeguard to ensure that
if the assisted decision process were to incorrectly refuse an application it
would not adversely affect a potential relevant provider.
4.3 In Chapter 1, after paragraph 1.24, insert:
"1.24A The following existing components of the regulatory regime support
the integrity and transparency of the assisted decision-making process:
• ASIC must notify the AFS licensee (if applicable) and the relevant
provider by sending out a notice of registration or notice of refusal;
• ASIC must display the registration status of a relevant provider on the
Financial Advisers Register (a public register); and
• affected parties have a right of review of any registration decision in
the Administrative Appeals Tribunal."
Corrections to Chapter 5
4.4 Three corrections are made to Chapter 5 of the Explanatory Memorandum to
the Bill concerning past distribution practice and the explanation of the
treatment of dividend reimbursement plans.
4.5 Firstly, paragraph 5.20 does not correctly describe the effect of the relevant
provision. When considering if an established practice exists, past distributions
to which the amendments would apply must not be considered. This ensures
that any practice involving the sort of mischief the amendments seek to prevent
does not protect future distributions.
4.6 In Chapter 5, paragraph 5.20, omit the last sentence:
"This is achieved by providing that the past distribution practice of an entity
cannot be established from a franked distribution or a distribution that would
be franked made either before on or after 15 September 2022 if these
amendments do not apply to treat it as unfrankable."
and substitute:
"This is achieved by providing that the past distribution practice of an entity
cannot be established from a franked distribution or a distribution that would
be franked made either before, on or after 15 September 2022 if these
amendments would apply to treat it as unfrankable."
4.7 Secondly, Chapter 5 of the Explanatory Memorandum to the Bill does not
sufficiently explain that dividend reinvestment plans undertaken for normal
commercial purposes are not intended to be affected by the amendments and
that family or commercial dealings of private companies to facilitate the
14
Treasury Laws Amendment (2023 Measures No.1) Bill 2023
departure of one or more shareholders from the company are not intended to be
affected by the operation of the measure.
4.8 In Chapter 5, after paragraph 5.45 of the Explanatory Memorandum to the Bill,
insert:
"5.45A Further, dividend reinvestment plans, including underwritten dividend
reinvestment plans, undertaken for normal commercial purposes are not
intended to be affected by the operation of the measure.
5.45B Also, while it is intended that contrived arrangements undertaken by
closely held companies to release franking credits to their shareholders are
captured by these amendments, family or commercial dealings of private
companies where the capital raising and distribution are initiated to facilitate
the departure of one or more shareholders from the company are not intended
to be affected by the operation of the measure. This would include, for
example, unless the facts and circumstances indicate another (other than
incidental) purpose:
• where, as part of a succession plan, a new generation of family members
funds and acquires equity in the company and the funds are applied to pay
a franked dividend to the exiting generation of shareholders; or
• to allow a particular shareholder to exit the company (e.g., due to a
falling-out between family members), where the departing shareholder is
paid a franked dividend funded by capital raised from those shareholders
who remain.
The company directors may need to consider whether, in the particular facts
and circumstances, existing anti-avoidance provisions in the tax law that deal
with, among other things, the streaming of franking credits, would apply."
4.9 Thirdly, example 5.2 of Chapter 5 the Explanatory Memorandum to the Bill
incorrectly implies that banks should not use dividend reinvestment plans or
underwritten dividend reinvestment plans if there is a risk that the dividend
will not materially change the company's financial position. This is corrected
to clarify that dividend reinvestment plans and underwritten dividend
reinvestment plans do not automatically have the principal effect and purpose
of funding a related dividend.
4.10 In Chapter 5, example 5.2 (Underwritten dividend reinvestment plan funds
special dividend):
in the third paragraph of the example, after "for a purpose other than to fund
the special dividend", insert:
"(for example, for the purpose of prudential capital management and capital
raisings via dividend reinvestment plans, including underwritten dividend
reinvestment plans, for general corporate purposes or acquisitions)"
15
Corrections to the Explanatory Memorandum - Treasury Laws Amendment (2023 Measures
No.1) Bill 2023
and add at the end:
"This example is illustrative only of a special dividend, and not of dividend
reinvestment plans (including underwritten dividend reinvestment plans) that
occur in respect of dividends that fall within an established practice of dividend
or distribution payments."
16
Statement of
Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011.
Parliamentary amendments to the Treasury Laws Amendment (2023
Measures No. 1) Bill 2023
Table of Contents:
Parliamentary amendments to Schedule 3 - Government response to
the Review of the Tax Practitioners Board ........................................... 18
Overview ....................................................................................... 18
Human rights implications ............................................................. 18
Conclusion .................................................................................... 18
Parliamentary amendments to Schedule 4 - Off market share buy backs
............................................................................................................. 18
Overview ....................................................................................... 18
Human rights implications ............................................................. 19
Conclusion .................................................................................... 19
Parliamentary amendments to Schedule 5 - Franked distributions by
capital raisings ..................................................................................... 19
Overview ....................................................................................... 19
Human rights implications ............................................................. 20
Conclusion .................................................................................... 20
17
Statement of Compatibility with Human Rights
Parliamentary amendments to Schedule 3 -
Government response to the Review of the Tax
Practitioners Board
Overview
5.1 The parliamentary amendments to Schedule 3 to the Bill are compatible with
the human rights and freedoms recognised or declared in the international
instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011.
5.2 The parliamentary amendments to Schedule 3 to the Bill amend the
commencement date in Part 3 of Schedule 3 to the Bill from 1 July 2023, to 1
July 2024. This is as a result of the Bill remaining in the Senate for
consideration beyond 1 July 2023.
Human rights implications
5.3 The parliamentary amendments to Schedule 3 to the Bill do not engage any of
the applicable rights or freedoms and do not affect the initial analysis of human
rights issues conducted for Schedule 3 to the Bill.
Conclusion
5.4 The parliamentary amendments to Schedule 3 to the Bill are compatible with
human rights as it does not raise any human rights issues.
Parliamentary amendments to Schedule 4 - Off
market share buy backs
Overview
5.5 The parliamentary amendments are compatible with the human rights and
freedoms recognised or declared in the international instruments listed in
section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
5.6 This amendment changes the date of application of Part 2 Schedule 4 to the
Bill.
18
Treasury Laws Amendment (2023 Measures No.1) Bill 2023
Human rights implications
5.7 The parliamentary amendments do not engage any of the applicable rights or
freedoms.
Conclusion
5.8 The parliamentary amendments are compatible with human rights as they do
not raise any human rights issues.
Parliamentary amendments to Schedule 5 -
Franked distributions by capital raisings
Overview
5.9 The parliamentary amendments are compatible with the human rights and
freedoms recognised or declared in the international instruments listed in
section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
5.10 The parliamentary amendments to Schedule 5 to the Bill make the following
changes to the operation of the Schedule.
• Schedule 5 will now apply from the day after Royal Assent.
• A distribution is funded by capital raising if that capital raising funds
at least a substantial part of the distribution (rather than any part of the
distribution).
• Only the portion of the distribution that is funded by the capital raising
will be unfrankable.
• Where an equity issue is in response to a regulatory requirement,
directive or recommendation (e.g., by the Australian Prudential
Regulation Authority). That distribution will not be unfrankable
merely because of the amendments in Schedule 5.
5.11 These changes will improve the operation of the Bill by:
• operating after the day of Royal Assent thereby providing greater
certainty; and
• ensuring the measure is more targeted to artificial and contrived
arrangements and mitigates any unintended impacts.
19
Statement of Compatibility with Human Rights
Human rights implications
5.12 The parliamentary amendments do not engage any of the applicable rights or
freedoms.
Conclusion
5.13 The parliamentary amendments are compatible with human rights as they do
not raise any human rights issues.
20
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