TAXATION LAWS AMENDMENT BILL (NO. 4) 1999 Explanatory Memorandum

Amends the income tax law to allow income tax deductions for gifts made to certain funds and organisations. Amendments are also made to ensure that grants paid to eligible businesses by the Katherine District Business Re-establishment Fund will be exempt from income tax. A number of minor amendments to the gift provisions will also be made.

Majority underlying interests in pre-CGT assets held by public entities

Part 1 amends the Income Tax Assessment Act 1936 to remove the Commissioner of Taxation’s (the Commissioner) power to disregard the ‘notional holder’ rule which public entities may use to calculate the majority underlying interests in their assets. Public entities are listed public companies, publicly traded unit trusts and mutual insurance organisations.

Part 2 amends the Income Tax Assessment Act 1997 to treat all public entities as having had a change in underlying interests at 30 June 1999, unless they can satisfy the Commissioner that they have maintained continuity of majority underlying interests.

Part 3 amends the Income Tax Assessment Act 1997 to ensure that public entities include those that are jointly owned by one or more public entities.

Financial impact: The financial impact for income years, to and including 2000-2001, is estimated to be insignificant. However, it is expected that this measure will increase revenue by $5 million for the 2001-2002 income year and by $10 million for the 2002-2003 income year.

Compliance cost impact: There will be a reduction in compliance costs for public entities that cannot demonstrate continuity of majority ownership as at 30 June 1999. However, there may be an increase in compliance costs for a small number of public entities.

Summary of Regulation Impact Statement

• The taxpayers affected by this measure are public entities. They are listed public companies, publicly traded unit trusts and mutual insurance organisations.

• These taxpayers will need to satisfy the Commissioner that they have maintained continuity of majority underlying interests in their assets.

• It is envisaged that many public entities will immediately realise that they cannot demonstrate continuity of ownership and will reduce their compliance costs by avoiding the time and expense of checking their ownership.

Policy objective: To reduce uncertainty in the practical application of the law and minimise the overall costs of compliance faced by public entities in determining if majority underlying interests have maintained continuity.

Beneficiary rebate for CDEP wages

Amends the Income Tax Assessment Act 1936 to extend the beneficiary rebate to wages paid to participants in the Community Development Employment Projects (CDEP) Scheme to the extent that they are paid from the wages component of grants made by the Aboriginal and Torres Strait Islander Commission or the Torres Strait Regional Authority.

Date of effect: applies to payments made on or after 1 July 1998.
Proposal announced: 1998-99 Budget, 12 May 1998.
Financial impact: This measure will cost the revenue approximately $7 million in 1998-99 and in each subsequent year.
Compliance cost impact: The compliance cost impact statement is incorporated into the Regulation Impact Statement which appears at the end of Chapter 4 of the Explanatory Memorandum.

Summary of Regulation Impact Statement

• The measure will allow participants in CDEP to claim the beneficiary tax rebate so that there is no tax liability on the income support component of their CDEP wages.

• To facilitate claims for the rebate by CDEP participants, the current group certificate requirements will need to be modified.

• The measure will impact on CDEP participants, CDEP employers, third party employers and the Australian Taxation Office.

Policy objective: To enable participants in CDEP to claim the beneficiary tax rebate in respect of the income support component of their CDEP wages. This will remove the taxation disadvantage for unemployed members of Indigenous communities who choose to forgo their social security entitlements to participate in the CDEP scheme.

Small business provisions and value shifting between companies

CGT - small business retirement exemption & roll-over

Amends the Income Tax Assessment Act 1997 (ITAA 1997) by inserting a rewrite of the:

made by an individual, private company or trust (other than a publicly traded unit trust) from a CGT event happening to an asset used in a business.

The amendments will also insert in the ITAA 1997 measures that extend these rules to land and buildings held by a taxpayer where the land and buildings are used by another entity connected with the taxpayer.

Date of effect: The rewrite of the small business retirement exemption and roll-over will apply to assessments for the 1998-99 income year and later income years. The amendments that extend the exemption and roll-over will apply to a CGT event happening to land and buildings after 13 August 1998.

Proposal announced: The rewrite of the small business retirement exemption and roll-over augments the rewrite of the capital gains tax provisions that were inserted in the ITAA 1997 by the Tax Law Improvement Act (No. 1) 1998 (Act No. 46 of 1998). The extension to the exemption and roll-over was announced in the Treasurer’s Press Release No. 76 of 1998 on 13 August 1998.

Financial impact: Only the extension to the exemption and roll-over will have a financial impact. The cost to revenue is difficult to estimate but is not expected to be large.

Compliance cost impact: There are no additional compliance costs associated with either the rewrite of the small business retirement exemption or roll-over. In relation to the measures announced in the Treasurer’s Press Release No. 76 of 1998, it is unlikely that there will be a significant impact on taxpayers’ compliance costs.

Summary of Regulation Impact Statement

Policy objectives: The Government recognises that many small businesses, for genuine commercial reasons, operate their business through structures that include non-operating entities, which own land and buildings and these assets are used by an entity connected with the non-operating entity.

CGT - value shifting

Amends the ITAA 1997 by inserting a rewrite of the value shifting rules that adjust the cost bases and reduced cost bases of shares and in some cases loans, or underlying interests in them, where there has been a value shift between companies under common ownership. The rules are an anti-avoidance measure that addresses tax deferral.

Date of effect: This amendment will apply to assessments for the 1998-99 income year and later income years.

Proposal announced: The rewrite of the value shifting rules augment the rewrite of the capital gains tax provisions that were inserted in the ITAA 1997 by Act No. 46 of 1998.

Compliance cost impact: There are no additional compliance costs associated with the rewrite.

Summary of Regulation Impact Statement

A Regulation Impact Statement is not required for the rewrite of the value shifting rules.

Corrections and minor amendments

CGT - assets register entries & M4/M5 Cashback Scheme

• rules that disregard a capital gain or loss a taxpayer makes from receiving an amount as reimbursement or payment of expenses under the M4/M5 Cashback Scheme.

The assets register rules allows a taxpayer to transfer some or all of the information contained in records held for capital gains tax purposes into an assets register. The measure will give taxpayers more flexibility in how they keep their records for determining their capital gains tax liability.

The M4/M5 Cashback Scheme is administered by the New South Wales State Government Roads and Traffic Authority. The scheme provides a reimbursement of tolls paid on the M4 and M5 toll roads. The reimbursement is limited to motorists driving motor vehicles and motor cycles privately registered in New South Wales. This amendment will replace the rules that currently exist in Income Tax Regulation 14E.

Date of effect: The amendments will apply to assessments for the 1998-99 income year and later income years.

Proposal announced: These rewritten rules augment the rewrite of the capital gains tax provisions that were inserted in the ITAA 1997 by Tax Law Improvement Act (No. 1) 1998 (Act No. 46 of 1998).

Compliance cost impact: There are no additional compliance costs associated with the rewrites.

Summary of Regulation Impact Statement

CGT - corrections

Amends the ITAA 1997 by correcting unintended consequences made by the rewrite of provisions of the Income Tax Assessment Act 1936 (ITAA 1936) that were inserted in the ITAA 1997 by Act No. 46 of 1998. These amendments will make minor drafting and technical changes to these rewritten provisions to more accurately reflect the effect of the ITAA 1936. None of the amendments change the policy reflected in the ITAA 1936.

Date of effect: The amendments will apply to assessments for the 1998-99 income year and later income years.

Proposal announced: The amendments augment the rewritten provisions of the ITAA 1936 that were inserted in the ITAA 1997 by Act No. 46 of 1998.

Compliance cost impact: There are no additional compliance costs associated with the corrections.

Summary of Regulation Impact Statement

CGT - minor amendments

Amends the ITAA 1997 by improving the readability of the rewritten provisions of the ITAA 1936 that were inserted in the ITAA 1997 by Act No. 46 of 1998. The amendments correct grammar, insert additional signposts and make slight changes that will improve the wording of the rewrite. There will also be some necessary minor amendments to the ITAA 1936 resulting from Act No. 46 of 1998. None of the amendments change the meaning of the law.

Date of effect: The amendments will apply to assessments for the 1998-99 income year and later income years.

Proposal announced: The amendments augment the rewritten provisions of the ITAA 1936 that were inserted in the ITAA 1997 by Act No. 46 of 1998.

Compliance cost impact: There are no additional compliance costs associated with the amendments.

Summary of Regulation Impact Statement

Providing taxation information to State law enforcement agencies

Amends the Taxation Administration Act 1953 to include the New South Wales Police Integrity Commission (PIC) and the Queensland Crime Commission (QCC) in the definition of ‘law enforcement agency’ and to include the Commissioner for the PIC and the Crime Commissioner for the QCC in the definition of ‘head’ of a law enforcement agency for the purposes of obtaining access to taxation information.

Proposal announced: Amendments in relation to the PIC were previously introduced on 2 April 1998 as Schedule 4 to the Taxation Laws Amendment Bill (No. 4) 1998 which lapsed on 31 August 1998. The proposal in relation to the QCC has not been previously announced.

Overview

1.1 Schedule 1 to the Bill will amend the Income Tax Assessment Act 1997 (ITAA 1997) to:

• allow income tax deductions for gifts of $2 or more to the funds and organisations listed in paragraph 1.3. This will be done by listing them in the relevant sections of the gift provisions in Division 30 of the ITAA 1997. The index to the gift provisions will also be updated;

• change the name of two organisations listed in Division 30 of the ITAA 1997 to reflect their current names;

• extend the period of time within which donations to the Australian National Korean War Memorial Trust Fund will be tax deductible;

• remove an inconsistency between the terms used in Division 30 of the ITAA 1997 and those used in the Marriage Act 1961 and the Family Law Act 1975; and

• make two minor technical corrections with respect to the National Nurses’ Memorial Trust.

• amend the ITAA 1997 to allow income tax deductions for gifts of $2 or more to the Katherine District Business Re-establishment Fund; and

• enable grants paid to eligible businesses from that Fund to be treated as exempt income.

Explanation of the amendments

Deductions for gifts

Fund/organisation	Proposed section and Item reference	Special conditions	Item number
*Schedule 1*
Omit ‘The Australian College of Obstetricians and Gynaecologists’ substitute ‘The Royal Australian and New Zealand College of Obstetricians and Gynaecologists’	Section 30-20(2) Item 1.2.1	None	Items 1, 17 and 24
The Australian Council of Christians and Jews Inc.	30-25(2) Item 2.2.17	The gift must be made after 6 December 1998	Items 2 and 18
Sir William Tyree Foundation of The Australia Industry Group	30-25(2) Item 2.2.18	The gift must be made after 28 February 1999	Items 2 and 25
The Business Against Domestic Violence Reserve	30-45(2) Item 4.2.15	The gift must be made after 22 April 1998	Items 3 and 19
Australian National Korean War Memorial Trust Fund	30-50(2) Item 5.2.6	The gift must be made before 2 September 1999	Item 4
Mount Macedon Memorial Cross Restoration, Development and Maintenance Trust Fund	30-50(2) Item 5.2.8	The gift must be made after 8 February 1998 and before 9 February 1999	Items 6 and 22
Omit ‘the Victoria Conservation Trust’ substitute ‘Trust for Nature (Victoria)’	30-55(2) Item 6.2.6	See section 30-60	Items 7, 27 and 29
The Stolen Children’s Support Fund	30-70(2) Item 8.2.2	The gift must be made after 28 February 1999	Items 9 and 26
Australian American Education Leadership Foundation Limited	30-80(2) Item 9.2.4	The gift must be made after 26 January 1998	Items 12 and 16
Sydney Talmudical College Association Refugees Overseas Aid Fund	30-80(2) Item 9.2.5	The gift must be made after 29 January 1998	Items 12 and 26
United Israel Appeal Refugee Relief Fund Limited	30-80(2) Item 9.2.6	The gift must be made after 29 January 1998	Items 12 and 28
The Asia Society AustralAsia Centre	30-80(2) Item 9.2.7	The gift must be made after 6 December 1998	Items 12 and 15
The Centenary of Federation Trust Fund	30-100(2) Item 12.2.3	The gift must be made after 26 November 1998 and before 1 July 2001	Items 13 and 19
St Patrick’s Cathedral Parramatta Rebuilding Fund	30-105 Item 13.2.1	The gift must be made after 24 February 1998 and before 25 February 2000	Items 14 and 26
*Schedule 2, Part 1*
Katherine District Business Re-establishment Fund	30-45(2) Item 4.2.16	None	Items 1 and 2

Marriage Guidance

1.4 Section 30-75 of the ITAA 1997 provides that a gift to a public fund providing money to be used in giving marriage guidance to persons in Australia through a voluntary organisation (or a branch or section of a voluntary organisation) will be deductible only if the organisation (or a branch or section of the organisation) has been declared by the Attorney-General to be a marriage guidance organisation.

1.5 Section 30-75 is being amended to align the taxation law with the criteria used in the Marriage Act 1961 and the Family Law Act 1975 for approval by the Attorney-General of voluntary organisations involved in marriage education, family and child counselling, and family and child mediation. Also, the requirement for the Attorney-General to sign an instrument to certify an organisation has satisfied the criteria is being removed. [Items 8, 10, 11, 20 and 21]

Technical amendments

1.7 The Bill will make minor technical corrections to the ITAA 1997 with respect to the National Nurses’ Memorial Trust. Item 5 renumbers the item reference in subsection 30-50(2) of the ITAA 1997 and Item 23 includes the Trust in the gifts or contributions index in subsection 30-315(2) of the ITAA 1997.

Overview

2.1 On 4 June 1998, the Treasurer announced that grants paid as part of a business re-establishment package to eligible businesses and primary producers in those parts of the Katherine region that were devastated by floods in January 1998 will be exempt from income tax.

2.2 The grants (up to a maximum of $10,000 for each business) are paid from the Katherine District Business Re-establishment Fund (the Fund) to provide direct financial assistance to small businesses and primary producers to allow them to recommence business activities and re-establish local jobs.

2.3 Specifically, Part 2 of Schedule 2 will ensure that such a grant paid directly to an eligible taxpayer:

• will not be taken into account in calculating their net exempt income for the purpose of determining whether or not tax losses of earlier income years are deductible; and [Item 4]

These amendments only apply in relation to the 1997-98 income year [Item 6] and are in addition to the gift deductible status for gifts or contributions made to the Fund (see paragraph 1.3 in Chapter 1).

Overview

• Division 20 of Part IIIA of the Income Tax Assessment Act 1936 (ITAA 1936) to remove the Commissioner of Taxation’s (the Commissioner) power to disregard the ‘notional holder’ rule (see paragraph 3.7) which public entities (listed public companies, publicly traded unit trusts and mutual insurance organisations) may use to calculate the majority underlying interests in their assets.

• Division 149 of the Income Tax Assessment Act 1997 (ITAA 1997) to provide that public entities will be taken to have had a change in majority underlying interests unless the Commissioner is satisfied or is able to reasonably assume that they have maintained the necessary continuity of underlying interests (more than 50%). It will also ensure that public entities include those that are jointly owned by one or more public entities.

Summary of amendments

Purpose of amendments

• provide certainty to public entities which have used the ‘notional holder’ rule to calculate the majority underlying interests in their assets at a test time (within the meaning of Division 20 of Part IIIA of the ITAA 1936) on or after 20 January 1997 to before 30 June 1999;

• treat the assets of public entities as having been acquired after 19 September 1985 unless the Commissioner is satisfied that they have maintained continuity of majority underlying interests in the assets;

• remove the concessional tracing rules including the ‘notional holder’ rule from 30 June 1999; and

• ensure that public entities include those that are jointly owned by one or more public entities.

Date of effect

Part 1 of Schedule 3 applies to a public entity if the test time (within the meaning of Division 20 of Part IIIA of the ITAA 1936) was on or after 20 January 1997;

Part 3 of Schedule 3 applies from the date of introduction of the Bill into Parliament.

Background to the legislation

Division 20 of Part IIIA of the Income Tax Assessment Act 1936
Division 149 of the Income Tax Assessment Act 1997

3.4 The Capital Gains Tax (CGT) provisions were originally introduced so that they did not apply to assets acquired by taxpayers before 20 September 1985. This could have allowed post-CGT shareholders to take control of existing companies and benefit from the pre-CGT status of the companies’ assets. Section 160ZZS of the ITAA 1936 provided that an asset acquired by a taxpayer before 20 September 1985 would be deemed to have been acquired on or after that date unless the Commissioner was satisfied or considered it reasonable to assume that continuity of majority underlying interests in the asset had been maintained.

3.5 Amendments were made to the ITAA 1936 in 1997 to make the rules expressed in section 160ZZS apply more appropriately to public entities. Division 149 of the ITAA 1997 reflect the provisions of Division 20 of Part IIIA of the ITAA 1936, including those amendments.

3.6 Under the arrangements in Division 149 of the ITAA 1997, public entities which had not previously been required to test, or had maintained continuity of underlying interests must determine whether the majority underlying interests in the assets owned by the public entity have changed since 19 September 1985. Public entities which had a change in majority underlying interests are taken to have acquired the asset for its market value on the date of the test, not the date when continuity was lost.

3.7 The current rules provide a range of streamlined tracing measures intended to help public entities in carrying out the test. All shareholdings or unitholdings in a public company or publicly traded unit trust that are less than 1% are taken to be owned in aggregate by a single notional holder (‘notional holder’ rule). Public entities, when testing for continuity of majority underlying interests may assume that the interests held by the notional holder have not changed. In practical terms, public entities with large notional holder interests (more than 50%), do not need to look further to demonstrate they have maintained continuity of majority underlying interests. However, this ‘notional holder’ rule is disregarded by the Commissioner if it gives an inappropriate result. That is if it produces continuity of majority underlying ownership that would not otherwise exist. Direct and indirect holdings of complying superannuation funds, complying approved deposit funds, foreign superannuation funds, certain companies and government bodies may in certain circumstances be treated as held by natural persons who held all the interests of the relevant fund, company or government body.

3.8 Effectively, for certain classes of shareholder or unitholder, a public company or publicly traded unit trust may choose not to identify the actual individuals who hold underlying interests in its assets. There is also a special concession provided where a mutual insurance organisation demutualises. Broadly, on demutualisation the members who are issued shares on demutualisation will be taken to have held those interests in the demutualised entities assets since 19 September 1985.

3.9 In the Government’s 1998-99 Budget Statement, the Treasurer announced that measures would be introduced to ensure that all public entities will be taken to have had a change in majority underlying interests at 30 June 1999, unless they satisfy the Commissioner that they have maintained continuity of majority underlying interests. Further, that the concessional tracing rules including the ‘notional holder’ rule would be removed.

3.10 Public entities which, despite relying on the ‘notional holder’ rule, cannot demonstrate continued majority underlying interests on the first test time of 20 January 1997 will still be required to examine their records to find the earliest time they were required under a public ruling issued by the Commissioner to examine their records for changes in majority underlying interests. Such assets will be treated as being acquired at market value on that earlier date.

3.11 Public entities that cannot demonstrate continued majority underlying interests for test times after 20 January 1997 will be taken to have acquired those assets at market value at that test time.

Explanation of the amendments

Removal of the Commissioner’s power to disregard the ‘notional holder’ rule

3.12 Removal of the Commissioner’s power to disregard the ‘notional holder’ rule enables a public entity, which has used that rule to determine the majority underlying interests in its assets at a test time (within the meaning of Division 20 of Part IIIA of the ITAA 1936) on or after 20 January 1997 and before 30 June 1999, to rely on that determination.

3.13 However, from 30 June 1999, other amendments in the Bill remove the ability for public entities to use the ‘notional holder’ rule – refer to the ‘tracing rules’ section for further explanation (see paragraphs 3.19 to 3.23).

Evidence must be given to the Commissioner

3.14 If public entities with a pre-CGT asset wish to retain their pre-CGT status, they must, within 6 months after the test day, give the Commissioner written evidence about the majority underlying interests in the asset on the test day. A test day is any of the following:

• a day where abnormal trading of shares in the company or units in the publicly traded unit trust, as the case may be, occurs. Abnormal trading is defined in Subdivision 960-H of the ITAA 1997 which sets out the relevant factors that must be taken into account. [New subsections 149-55(1) and (2)]

3.15 The evidence is to be given to the Commissioner in a form that makes the information about the asset’s majority underlying interests readily apparent. [New subsection 149-55(1A)]

3.16 The only consequence of a public entity, with a pre-CGT asset, not giving the Commissioner written evidence about the asset’s majority underlying interests is that the asset will stop being a pre-CGT asset from the test day the entity fails to provide the evidence. It is not a taxation offence if the entity fails to give the evidence. [New subsection 149-55(1B)]

3.17 The Commissioner must be satisfied, or think it reasonable to assume, from the evidence that continuity of majority underlying interests in the asset has been maintained from the starting day to the test day. The starting day is either:

• a day chosen by the entity during the period from 1 July 1985 to 30 June 1986 which could be demonstrated is a reasonable approximation of the owners who had underlying interests in the entity’s assets on 19 September 1985. [New section 149-60]

Consequence of evidence requirements not met

• fails to satisfy the Commissioner that continuity of majority underlying interests in the asset has been maintained the asset stops being a pre-CGT asset. [New section 149-70]

Tracing rules

3.19 The current tracing rules contained in Subdivisions 149-D and 149-E of the ITAA 1997 are considered to be unsatisfactory.

3.20 On one hand public entities may, for the purposes of the test, assume that registered holdings of less than 1% have always been held by a single ‘notional holder’ rule. On the other hand the Commissioner has the discretion to disregard the ‘notional holder’ rule if the Commissioner is satisfied that there has in fact been a change in majority underlying interests in the asset.

3.21 These amendments, therefore, repeal Subdivisions 149-D and 149-E and remove the current law’s uncertainty.

3.22 Public entities with pre-CGT assets will, however, from 30 June 1999 be required to test using less concessional rules. It will be assumed they have failed unless they provide written evidence to the Commissioner, within 6 months after the test day, which satisfies the Commissioner that there has not been a change in majority underlying interests in the asset.

3.23 In view of the period that has elapsed since the commencement of the CGT regime (19 September 1985) it is expected that only a handful of public entities will be able to provide evidence to satisfy the Commissioner that there has not been a change in majority underlying interests in their pre-CGT assets. If a public entity’s assets are to be treated as post-CGT assets, the asset’s cost base is its market value at the test day it stops being a pre-CGT asset – initially 30 June 1999.

Interposed entities

3.24 The Part 3 amendment items clarify the intention of the current law in relation to interposed entities. One interpretation of the current Subdivision 149-C of the ITAA 1997 is that it does not treat all wholly-owned subsidiaries of public entities as public entities.

3.25 To remove any doubt, the amendments make it clear that Subdivision 149-C applies to all wholly-owned, directly or indirectly, subsidiaries of public entities, including those that are jointly owned by one or more public entities. [New paragraphs 149-50(1)(e) and 149-55(2)(d)]

Example

A subsidiary that is 100% owned, directly or indirectly, by a mutual insurance organisation (10%), a listed public company via a wholly-owned subsidiary (50%) and a publicly traded unit trust (40%) will be treated as a public entity.

When should public entities make their determinations?

3.26 On 18 December 1998 the Commissioner announced that under Division 20 of Part IIIA of the ITAA 1936 and Division 149 of the ITAA 1997 public entities would not have to complete their determinations for the test time of 20 January 1997 and any subsequent test time until one month following the date of Royal Assent of this Bill. Public entities should ensure that they make the necessary determinations within this time.

3.27 Public entities can rely on the ‘notional holder’ rule to make any determinations for any test time up until 30 June 1999. It is possible that some public entities have already made determinations without relying on the ‘notional holder’ rule. These entities may make a new determination properly relying on the ‘notional holder’ rule before the extended time to make determinations ends.

REGULATION IMPACT STATEMENT

1. Specification of policy objective

3.28 The Government would like to reduce uncertainty in the practical application of the law and minimise the overall costs of compliance currently faced by public entities in determining if majority underlying interests have maintained continuity of ownership of their assets.

3.29 A measure to address this objective was announced by the Treasurer in his 1998-99 Budget.

2. Identification of implementation options

Background

3.30 The CGT provisions were designed not to apply to pre-CGT assets. Companies and similar entities present a difficulty for this rule, because of the possibility of retaining pre-CGT status for assets of a company that has been sold post-CGT. Therefore, section 160ZZS of the ITAA 1936 provided that assets acquired by a company or similar entity before 20 September 1985 would be treated as acquired on or after that date unless the Commissioner was satisfied or considered it reasonable to assume that there had been continuity of majority underlying interests in the assets. Section 160ZZS of the ITAA 1936 has been rewritten as sections 149-30 and 149-35 of the ITAA 1997.

3.31 Public entities faced considerable difficulties determining whether the majority underlying interests in the assets of the public entity had maintained continuity. This was particularly the case where a public entity had a large number of shareholders or unitholders where shares or units are constantly being traded.

3.32 As part of the 1996-97 Budget on 20 August 1996, the Government announced amendments to the rule expressed in section 160ZZS. The amendments allowed public entities which had so far not had to test or had maintained continuity of majority underlying interests to periodically test on prescribed dates (commencing on 20 January 1997, every 5 years thereafter, and whenever there is abnormal trading) to determine whether they had maintained continuity of majority underlying interests in their pre-CGT assets. If it is found continuity is not maintained at the test time, the pre-CGT assets of the entity will be taken to be acquired at the test time for their market value. This test has the benefit of a generous ‘notional holder’ rule (which broadly allows listed public companies and publicly traded unit trusts to treat registered holders of less than 1% as being owned by a single notional holder) which the Commissioner is to override if it appears likely to produce a wrong result in substance.

3.33 However, this power given to the Commissioner, as a result of the 1996-97 Budget changes, has caused public entities to be uncertain of their ability to rely on their determination when they have used the ‘notional holder’ rule. Public entities have also experienced increased compliance costs as a result of these changes.

Implementation option

3.34 The measure proposes that public entities’ pre-CGT assets held at 30 June 1999 be treated as post-CGT assets unless they can provide the Commissioner with sufficient evidence to be satisfied or reasonably assume that they have maintained continuity of majority underlying interests in their pre-CGT assets.

3.35 Under the measure, in the period to 30 June 1999, the test of whether an entity has maintained continuity of majority underlying interests in its pre-CGT assets will be determined by the application of the currently enacted law. The benefit of the ‘notional holder’ rule is retained but not the discretion available to the Commissioner to override that rule where it would produce a wrong result in substance (Part IVA of the ITAA 1936 – the general anti-avoidance provisions – would still be relied on in the case of artificial avoidance).

3.36 These amendments are the only option for implementing the Government’s policy objective.

Assessment of impacts (costs and benefits) of the implementation option

Impact group identification

3.37 The affected groups are ‘public entities’ within the meaning of Division 149 of the ITAA 1997 (rewritten Division 20 of Part IIIA of the ITAA 1936) who hold pre-CGT assets. The measure will make it very clear that Division 149 applies to all ‘100% subsidiaries’ of public entities, including those that are wholly-owned by one or more public entities. For example, a subsidiary that is 100% owned, directly or indirectly, by a mutual insurance organisation (10%), a listed public company via a wholly-owned subsidiary (50%) and a publicly traded unit trust (40%).

3.38 It is expected that the measure will reduce the Australian Taxation Office’s (ATO) administration costs.

Analysis of the costs and benefits associated with the implementation option

3.39 Quantitative data on the compliance and administrative costs of the measure is not available. Consequently, the assessment is of a qualitative nature.

3.40 Having public entities’ pre-CGT assets treated as post-CGT assets from a prescribed date unless they could demonstrate continuity of ownership of those assets, would reduce compliance costs to a considerable degree. This is because public entities would not have to test their continuity of ownership every five years and whenever there is abnormal trading. All affected public entities will need to get a market valuation for their pre-CGT assets on 30 June 1999. Thereafter, compliance costs will be small.

3.41 The measure will reduce compliance costs as most public entities will not demonstrate continuity of majority ownership as at 30 June 1999.

3.42 A public entity will be taken to have had a change in majority underlying interests unless it can demonstrate continuity of ownership at 30 June 1999, and thereafter every 5 years or at a time of abnormal trading. To avoid being taken to have had a change in majority underlying interests, the Commissioner must be satisfied, or think it reasonable to assume, from the evidence provided by the public entity that there has not been a change in majority underlying interest in its assets. This may be a costly exercise for public entities with widespread ownership.

3.43 It is envisaged that many public entities will immediately realise that they cannot demonstrate continuity of ownership and avoid the time and expense of checking their ownership. Public entities which believe they have had a change in majority underlying interests will not have to make a determination to that effect (as is currently required). This may also provide some public entities with cost savings.

3.44 However, a small number of public entities may be able to demonstrate to the Commissioner that they have maintained continuity of ownership. For these entities there is no reduction in compliance costs. These public entities, may face a higher cost of compliance than under the current arrangements, as they will be required to satisfy the Commissioner that they have maintained continuity of majority underlying interests in their assets, without the benefit of the current concessional tracing rules.

Taxation revenue

*Note: The estimated revenue forecasts for the amendments to Division 20 of Part IIIA of the ITAA 1936 announced in the 1996-97 Budget Statement have been revised down to ‘insignificant’ for the years 1997 to 2000 as a result of new data becoming available, which shows that collections under that amendment would be substantially deferred from those originally projected.

Consultation

3.47 The measure was developed in consultation with taxpayer representative bodies (Corporate Tax Association, Institute of Chartered Accountants, Australian Society of Certified Practicing Accountants, Taxation Institute of Australia, National Institute of Accountants, Business Council of Australia and the Law Council of Australia).

Conclusion

3.48 The proposed measure will not disadvantage public entities that can demonstrate continuity of majority underlying interests. These public entities will retain the pre-CGT status of their assets.

3.49 The proposed measure will improve certainty during the period to 30 June 1999 by allowing public entities to rely on the ‘notional holder’ rule to assume continuity without risk of being overridden. If a public entity does not pass the continuity test at 30 June 1999, the cost base of each asset will be calculated at that date. Also, public entities that cannot demonstrate continuity of majority ownership will have reduced compliance costs.

Overview

4.1 Schedule 5 to the Bill will amend the Income Tax Assessment Act 1936 (ITAA 1936) to enable participants in the Commonwealth Development Employment Projects (CDEP) Scheme to claim the beneficiary tax rebate in respect of the income support component of their CDEP wages.

Summary of amendment

Purpose of the amendment

4.2 To extend the beneficiary rebate to the income support component of wages paid to CDEP participants sourced from CDEP wage grants provided by the Aboriginal and Torres Strait Islander Commission (ATSIC) and the Torres Strait Regional Authority (TSRA).

Date of effect

4.3 The amendments will commence on the date of Royal Assent and will apply to payments made on or after 1 July 1998. [Item 2]

Background to the legislation

The CDEP Scheme

4.4 The CDEP Scheme is administered by ATSIC and TSRA to enable Indigenous Australian communities and organisations to manage their own economic and social development and to provide employment for people in their communities.

4.5 To participate in the scheme, unemployed members of the Indigenous communities choose to give up their entitlements to social security payments, for example, the Newstart Allowance. In place of the social security payments forgone, the community organisations pay wages to participants to undertake community managed activities out of the income support component of grants provided by ATSIC and the TSRA.

Current tax treatment

4.6 Section 160AAA of the ITAA 1936 provides a rebate, called the beneficiary rebate, to recipients of certain Commonwealth benefits. For example, recipients of the Newstart Allowance (who may work for their unemployment benefits) and participants in labour market programs such as Green Corps and the New Enterprise Incentives Scheme are entitled to the beneficiary rebate on the assessable income they receive from these programs.

4.7 The income support component of CDEP wages technically falls outside the scope of payments that are rebatable under section 160AAA of the ITAA 1936 because of the nature and calculation of the funding of the CDEP scheme.

4.8 The proposed amendment is in response to a recommendation by the Independent Review of the Community Development Employment Projects Scheme known as the Spicer Review. The extension of the beneficiary rebate to CDEP participants will remove the taxation disincentive for joining and remaining a participant in the CDEP scheme.

Explanation of amendment

4.9 The proposed amendment will provide that the income support component of CDEP wages will be rebatable under section 160AAA of the ITAA 1936. In particular, Item 1 of Schedule 5 inserts new paragraph 160AAA(1)(c), which will allow CDEP participants to claim the beneficiary tax rebate in respect of the income support component of their CDEP wages. Other components of the CDEP wage will not be rebatable.

Example:

Fred is a married participant in the CDEP Scheme and receives wages from his CDEP employer of $24,500. $21,000 is paid by way of income support from the ATSIC wages grant. Fred’s tax liability will be calculated as follows:

4.10 The proposed amendments will apply to payments made on or after 1 July 1998. [Item 2]

4.11 It is also proposed to amend the Income Tax Regulations to require CDEP employers to identify the income support component of CDEP wages separately on group certificates. The amendment is required to ensure that participants know how much of their CDEP wage is rebatable when completing their personal income tax return.

Regulation Impact Statement

Policy Objective

4.12 The policy objective of this measure is to remove a taxation disadvantage suffered by participants in the CDEP Scheme, compared with Newstart recipients and participants in other Commonwealth labour market programs, by allowing them to claim the beneficiary tax rebate in respect of the income support component of the CDEP wages.

4.13 The Government announced this measure in the 1998-99 Budget so that it will apply to claims for the beneficiary rebate in respect of wages paid to CDEP participants from 1 July 1998.

Background

4.14 Wages paid to CDEP participants may consist of amounts paid from sources other than the wages component of grants from ATSIC and TSRA. For example, CDEP wages may consist of ‘top-up’ amounts from profits made by the community organisations or from other Government sources. Payments may also be received from the operational funds grant from ATSIC and TSRA.

4.15 Under the current tax law CDEP employers are required to provide CDEP participants with a group certificate detailing the gross amount of salary or wages. Whilst ATSIC and TSRA require community organisations to account for the wages grant separately, CDEP employers are under no obligation to advise CDEP participants of the income support component of their CDEP wages.

Identification of implementation options

4.16 The only implementation option considered feasible was to amend section 160AAA of the ITAA 1936 to provide that the income support component of CDEP wages will be rebatable.

4.17 The implementation option required consideration of how to impose an obligation on CDEP employers to advise CDEP participants of the income support component of their CDEP wages. Participants in the CDEP Scheme need to know what part of their CDEP wage is rebatable so they can claim their rebate entitlement in their tax return.

4.18 The obligation could be imposed on employers by amending the ITAA 1936. Given the number of employers affected, this option is considered impracticable. The preferred approach is to amend the Income Tax Regulations to require CDEP employers to specify the income support component amount of CDEP wages separately on group certificates.

Blanket instalment variations

4.19 One of the key outcomes of extending the beneficiary rebate to the income support component of CDEP wages is to eliminate the need for CDEP participants with no other sources of income to lodge tax returns. To achieve this outcome the Commissioner of Taxation has facilitated the lodgement of blanket tax instalment variations by CDEP employers under section 221D of the ITAA 1936.

4.20 Generally speaking, once a variation is approved, the CDEP employer is no longer required to deduct tax instalment deductions from the income support component of the CDEP participant’s wage. If the CDEP participant has no other source of income, no tax return is required.

Group certificates

4.21 While it is proposed to impose an obligation on employers who pay CDEP wages, it is not intended to change group certificate stationery or specifications for electronic group certificates to provide for the separate disclosure of the income support component of CDEP wages on the group certificates. Changing existing stationery could increase compliance and administrative costs on all group employers, as those not affected by the measure may nonetheless inquire about the change.

4.22 Rather, employers who pay rebatable CDEP wages will need to adapt existing group certificate stationery and payroll systems in order to show the income support component of those wages.

Assessment of impacts (costs and benefits) of the implementation option

Impact group identification

Assessment of costs

Compliance costs

CDEP participants

4.24 CDEP participants may incur additional costs in learning about the tax change and ensuring tax instalment deductions are varied where their employer has not applied for a blanket variation.

4.25 The net compliance cost impact on CDEP participants should be minimal and limited to the year in which the measure is introduced.

CDEP employers and third party employers

4.26 Approximately 240 CDEP community organisation employers will be affected. An unknown number of third party employers contracted by community organisations to provide training to participants will also be affected.

4.27 Payers of CDEP wages will need to learn about the change, seek 221D variations, vary tax instalment deductions and separately notify CDEP participants of the amount of the income support component of CDEP wages paid. Additional costs will be incurred in adapting current group certificate stationery and payroll systems in order to show the income support component of CDEP separately.

4.28 The changes are expected to impose initial compliance costs of less than $200,000. Most of these will be incurred by those CDEP employers who need to change PAYE systems. Recurrent costs from the changes are expected to be minimal.

Assessment of benefits

CDEP participants

4.29 There are approximately 32,000 CDEP participants who will be affected by the proposed amendment. Approximately two thirds of CDEP participants live in remote areas and will no longer be required to lodge returns as the beneficiary rebate along with low income and zone rebates should extinguish any tax liability. A large number of the remaining one third not in remote areas receive additional wages that will not be rebatable, so will still be required to lodge tax returns. Where returns are no longer required, compliance costs will be reduced.

Administrative costs

Initial costs – internal

4.30 The ATO will need to devote additional resources in providing information support to the impact support groups. The ATO will provide information to individuals, community organisations and third party employers through field visits, direct mailing of information, and via TaxPack.

4.31 CDEP community organisations have all been sent information concerning the application of section 221D variations, which they need to fill out so the Commissioner can allow them to reduce the tax instalments from the income support component of CDEP wages paid to participants to nil.

4.32 They have also been provided with a briefing and examples to assist them to implement these changes and advise participants. The ATO has officers visiting Indigenous communities and CDEP community organisations advising of the changes. ATSIC has also provided briefings through their networks.

Recurrent costs – internal

4.33 The ATO anticipates some small administrative savings from the small reduction in the number of tax returns lodged. These savings will be partly offset by monitoring applications for blanket section 221D variations and improved compliance strategies to ensure that taxpayers receive the correct benefit.

Government revenue

4.34 Based on the number of participants likely to experience tax liabilities in respect of the income support component of their CDEP wages, the measure will cost the revenue approximately $7 million in 1998-99 and $7 million in each subsequent income year.

Transitional arrangements

4.35 The group certificate changes will only apply to payments made on or after 1 July 1999. Community organisations will be required under the ATSIC and TSRA terms and conditions of grants to advise third party employers of the income support component of the payments they make on or after 1 July 1999.

4.36 For the 1998–99 year of income, the ATO, ATSIC and TSRA will ask community organisations to request third party employers to advise CDEP participants the amount of any income support component paid to them. However, there is no obligation on them to do so in the 1998-99 year of income.

Consultation

4.37 In order to develop the best policy for implementation, numerous people from various different organisations were consulted. ATO Aboriginal liaison officers visited Aboriginal CDEP community organisations and participants to gauge their opinions. ATSIC was also involved throughout the project.

4.38 Accountants, employers, computer systems experts and payroll software providers were involved in providing advice about ways in which to minimise compliance costs.

Conclusion

4.39 Implementation of this tax measure removes a current inequity in the income tax law by ensuring that CDEP participants receive equivalent tax treatment to other social welfare recipients.

4.40 Whilst this tax measure has the effect of increasing compliance costs for CDEP employers, the supporting modifications to the current group certificate arrangements will provide employers with some flexibility in terms of the provision of information to participants.

4.41 The ATO and Treasury will monitor this measure, as part of the whole taxation system, on an continuing basis.

SECTION 1 – CGT – SMALL BUSINESS RETIREMENT EXEMPTION

Overview

5.1 The amendment contained in Schedule 5 Part 1 Item 1 to the Bill will amend the Income Tax Assessment Act 1997 (ITAA 1997) by inserting a rewrite of the small business retirement exemption rules that exempt a capital gain made by an individual, private company or a trust (other than a publicly traded unit trust) from a CGT event happening to an asset used in a business.

5.2 The amendment will also insert in the ITAA 1997, measures that extends this exemption to land and buildings held by a taxpayer where the land and buildings are used by another entity connected with the taxpayer.

Part A provides an explanation of the rules about small business retirement exemption.

Part C provides a Regulation Impact Statement for the amendments that relate to land and buildings.

Background

5.3 Division 17B of Part IIIA of the Income Tax Assessment Act 1936 (ITAA 1936) provides an exemption from tax for capital gains made on a CGT event happening to the assets of a small business where the proceeds are used for retirement.

5.4 Division 17B was inserted in the ITAA 1936 by Taxation Laws Amendment Act (No. 3) 1997 (Act No. 147 of 1997). Amendments to this Division were made by Taxation Laws Amendment Act (No. 1) 1998 (Act No. 16 of 1998).

5.5 The measure will extend these provisions to assets held by a taxpayer that is not carrying on a business if the assets are used by another entity connected with the taxpayer in the course of carrying on a business.

5.6 Division 17B is translated as Subdivision 118-F. No changes have been made to the substance of Division 17B in the course of its translation into the rewrite other than the above.

5.7 The Joint Committee of Public Accounts and Audit (JCPAA) reviewed the rewritten ITAA 1936 provision contained in the Tax Law Improvement Act (No. 1) 1998 (Act No. 46 of 1998). The JCPAA tabled their findings in Parliament on 12 March 1998 as Report 356: An Advisory Report on the Tax Law Improvement Bill (No. 2) 1997. Recommendation 3 of that report requested (among other things) delaying the introduction of the rewritten small business retirement exemption provisions pending further review by the JCPAA.

5.8 The JCPAA findings in that further review was tabled in Parliament on 21 December 1998 as Report 364: An Advisory Report on the Delayed Provisions of the Tax Law Improvement Bill (No. 2) 1997.

5.9 The amendments discussed in this Chapter reflect recommendation 3 of Report 356 and recommendation 3 of Report 364 made by the JCPAA.

Date of effect

5.10 The rewrite of the small business retirement exemption will apply to assessments for the 1998-99 income year and later income years [Part 5 Item 35]. The date of effect reflects the view expressed by the JCPAA in Report 364 paragraphs 2.9 to 2.12. The extension to the exemption will apply to a CGT event happening to land and buildings after 13 August 1998. [Item 2, new section 123-80]

Part A: Explanation of amendments

Guide to Subdivision 118-F: Small Business Retirement Exemption

What the Subdivision does

5.11 In qualifying situations the Subdivision exempts a capital gain made by an individual, private company or trust (other than a publicly traded unit trust) from a CGT event happening to an asset used in a business or an intangible asset (such as goodwill) inherently connected to the business. For example, a sale of such an asset would be a CGT event.

Treasurer’s Press Release No. 76 of 1998

5.12 The Treasurer announced in Press Release No. 76 of 1998 that the small business retirement exemption would be extended to include land and buildings held by a taxpayer if the land and buildings are used by another entity connected with the taxpayer. The extension to the exemption is achieved by modifying the definition of ‘active asset’. The extension will apply to a CGT event happening to land and buildings after 13 August 1998. [Item 2, new section 123-80]

Choosing the exemption

5.13 A taxpayer can disregard a capital gain if the requirements for exemption are satisfied. Generally these are:

• the net value of the taxpayer’s CGT assets (and that of other entities related to the taxpayer) must not exceed $5,000,000;

• the capital proceeds from the sale must be received within the period one year before, and ending 2 years after, the time of the CGT event happening; and

• if the capital proceeds give rise to an eligible termination payment (ETP) and the recipient is under 55 years of age, the ETP must be rolled-over.

5.14 For a company or trust, the exemption is also available if there is a controlling individual of the company or trust and the capital proceeds are paid to the controlling individual as an ETP. [New section 118-405]

Meaning of controlling individual

5.15 There are separate tests for determining whether an individual is a controlling individual of:

The tests generally require that the individual be entitled to at least 50% of all distributions of the company or trust. [New section 118-410]

Consequences of the exemption

5.16 There are other consequences if a taxpayer choose to treat part of a capital gain as exempt. There can be no roll-over for the CGT event and exemptions for goodwill and main residence cannot apply to any balance of the capital gain.

5.17 The capital proceeds that the taxpayer receives as a controlling individual are treated as an ETP. [New section 118-415]

Working out the exemption

5.18 The capital gain that the taxpayer can choose to treat as exempt is a CGT exempt amount. The CGT exempt amount is calculated as follows:

Step 1: Reduce the capital gain by any net capital loss the taxpayer may have, and would have applied in calculating a net capital gain in respect of the asset.

Step 2: Ensure that the remaining capital gain does not exceed the relevant CGT retirement exemption limit.

Step 3: If the asset was owned by a company or trust that was not controlled by the same individual for one of the following periods:

• start of the 1992-93 income year to just before the time of the CGT event; or

the Step 2 amount is further reduced. [New sections 118-420, 118-425 and 118-430]

Meaning of CGT retirement exemption limit

5.19 An individual’s CGT retirement exemption limit is $500,000 reduced by any previous exemptions the individual has received under these rules. [New section 118-435]

Additional requirements

• for determining the maximum net value of the taxpayer’s assets and those of entities related to the taxpayer; [New section 118-440]

• for determining when an asset needs to have been an active asset; [New section 118-445] and

• that deal with the making of an ETP by a company or trust. [New section 118-450]

Part B: Redundant Provisions

Provisions of the ITAA 1936 that have not been rewritten

Provision	Subject	Reason for omission
160ZZPZAA	Application provision continuing operation of Division 17B to assessment for income years beyond 1997-98	Operation of Division 17B closed off due to inserting the rewritten Division in the ITAA 1997.
160ZZPZB(1)	Sign posts reader to which Subdivision applies to individuals	Redundant
160ZZPZB(2)	Sign posts reader to which Subdivision applies to companies and trusts	Redundant
160ZZPZB(5)	Sign posts reader to Subdivision containing definitions	Redundant
160ZZPZH(1)	Guide material	Redundant
160ZZPZI(1)	Guide material	Redundant
160ZZPZI(3)	States second condition before being able to apply the exemption	Subsumed by the structure of the rewrite
160ZZPZJ(1)	Guide material	Redundant
160ZZPZL(6)	Provides an example	Redundant
160ZZPZM	Lists expressions used in the Division	The Dictionary in the ITAA 1997 removes the need for this provision
160ZZPZP(1)	Guide material	Redundant

Part C: Regulation Impact Statement

Policy objective

5.22 The Government announced in the Treasurer’s Press Release No. 76 of 1998, its intention to extend the capital gains tax (CGT) small business roll-over and retirement exemption initiatives.

5.23 The extended measures will allow a taxpayer to defer a capital gain under the roll-over provisions or seek an exemption from CGT in certain circumstances where a CGT event happens to land and buildings. Typically, this would apply to cases where land and buildings are owned by an entity that does not operate a business (non-operating entity) though these assets are used by another entity in carrying on a business (operating entity) and the two entities are either:

5.24 The Government recognises that many small businesses, for genuine commercial reasons, operate their businesses through structures that include non-operating entities, which own land and buildings and these assets are used by a connected entity.

5.25 The new measures are to operate for all CGT events happening to land and buildings after 13 August 1998. All of the existing conditions for the CGT roll-over and retirement exemption will continue to apply.

Background

5.26 The small business roll-over allows taxpayers to defer tax on capital gains made on a CGT event happening to a business asset, shares in a company or units in a unit trust, if the taxpayer acquires a replacement business asset or other shares or units.

5.27 The small business retirement exemption allows a taxpayer to claim an exemption from CGT on a CGT event happening to a business asset used to fund the retirement of an individual.

Implementation options

5.28 The new measures are designed to extend the existing small business roll-over and the retirement exemption provisions, to provide CGT roll-over or retirement exemption where small business structures have non-operating entities that own land and buildings that are used by an operating entity.

5.29 In considering the Government’s intention to extend the current small business roll-over and retirement exemption only one option was considered: amending the CGT provisions of the ITAA 1997 to give effect to the following features:

• to extend the CGT small business roll-over and retirement exemption to include a CGT event happening to land and buildings owned by a non-operating entity;

• to classify land and buildings as being an ‘active asset’ of the business if it is used, or is held ready for use by the taxpayer, in carrying on the business or by an entity that is the taxpayer’s ‘connected entity’ or ‘small business CGT affiliate’;

• if the non-operating entity’s replacement asset in obtaining small business roll-over is a share in a company or unit in a unit trust, the taxpayer or an entity connected with the taxpayer must be a controlling individual of the company or trust just after the taxpayer acquires the shares or units; and

• if the replacement assets are shares in a company or units in a unit trust, a capital gain will accrue to the taxpayer if the taxpayer, or another entity connected with the taxpayer, ceases to be a controlling individual of that company or trust. This would also apply where that other entity, which is a controlling individual, ceases to be connected with the taxpayer.

5.30 The implementation option reflects the Government’s original policy intention, and removes a potential anomaly which could have been introduced if the Treasurer’s Press Release No. 76 was strictly adhered to.

Assessment of impacts (costs and benefits) of the implementation option

Impact group identification

5.31 The new measures will impact on small business taxpayers providing they meet the existing small business roll-over or retirement exemption rules. This includes:

• small business taxpayers that roll-over land and buildings, integral to the operating entity, into either other business assets (including land and buildings), shares in a company or units in a unit trust; and

• small business taxpayers who dispose of land and buildings, in addition to other business assets to fund the retirement of the taxpayer.

5.32 Professional advisers to small business will also be affected by the measure.

Compliance costs

5.34 The proposal will impose additional requirements on taxpayers and professional advisers. Small business taxpayers and their advisers will need to become familiar with the new measures. Some taxpayers will need to keep additional records, and to provide copies of those records to the ATO to satisfy the small business roll-over threshold. Others will have to provide copies of existing records to the ATO in order to demonstrate compliance with the threshold. These requirements are unlikely to have a significant impact on taxpayers’ compliance costs and have not been quantified.

Administrative costs

5.35 The ATO does not expect the measures to require more resources beyond those already allocated to the current small business roll-over and the retirement exemption.

Government revenue

5.36 The cost to revenue for the proposal is difficult to estimate (primarily due to a lack of reliable data), but it is not expected to be large. This cost will be monitored by the ATO.

Consultation

5.37 the ATO and Treasury were consulted about the proposed measures. Previously, small businesses and Treasury were consulted.

Conclusion

5.38 The Government proposes to extend existing CGT small business roll-over and retirement exemption to all small businesses who, for genuine commercial reasons, operate their business through structures that include non-operating entities which own land and buildings, if these assets are used by a connected operating entity.

5.39 It is expected that compliance costs for small business taxpayers and administrative costs for the ATO will be similar to those presently being experience.

5.40 The Treasury and the ATO will monitor these taxation measures on an ongoing basis.

SECTION 2 – CGT SMALL BUSINESS ROLL-OVER

Overview

5.41 The amendment contained in Schedule 5 Part 1 Item 2 to the Bill will amend the ITAA 1997 by inserting a rewrite of the small business roll-over rules. A roll-over allows deferral of a capital gain or loss until a later CGT event happens.

5.42 The amendment will also insert in the ITAA 1997, measures that extend the roll-over to land and buildings held by a taxpayer where the land and buildings are used by another entity connected with the taxpayer.

• Part A provides an explanation of the rules about small business roll-over.

Background

5.43 Division 17 of Part IIIA of the ITAA 1936 deals with roll-overs for a CGT event happening to an asset of a small business where the taxpayer acquires new business assets. The general effect of the roll-over defers the determination of the capital gain until a CGT event happens to the new asset.

5.44 The roll-over is available if the net assets of the business entity, together with related entities, do not exceed $5 million in value.

5.45 Division 17A was inserted in the ITAA 1936 by the Taxation Laws Amendment Act (No. 1) 1997 (Act No. 122 of 1997). Amendments to this Division were made by Act No. 16 of 1998.

5.46 The measures will extend these provisions to assets held by a taxpayer that is not carrying on a business if the assets are used by another entity connected with the taxpayer in the course of carrying on a business. For example, a taxpayer owns land on which a plant nursery is carried on by the taxpayer’s family trust.

5.47 Division 17A is translated as Division 123. Two changes have been made to the substance of Division 17A in the course of its translation into the rewrite. The new Division 123 includes the extension to the small business roll-over and aligns the tax treatment of assets other than depreciable assets with that of depreciable assets. The later change removes the cost base adjustments that were required for the new business assets under Division 17A.

5.48 The JCPAA reviewed the rewritten ITAA 1936 provision contained in Act No. 46 of 1998. The JCPAA tabled their findings in Parliament on 12 March 1998 as Report 356: An Advisory Report on the Tax Law Improvement Bill (No. 2) 1997. Recommendation 3 of that report requested (among other things) delaying the introduction of the rewritten small business roll-over provisions pending further review by the JCPAA.

5.49 The JCPAA findings in that further review was tabled in Parliament on 21 December 1998 as Report 364: An Advisory Report on the Delayed Provisions of the Tax Law Improvement Bill (No. 2) 1997.

5.50 The amendments discussed in this Chapter reflect recommendation 3 of Report 356 and recommendations 4 and 5 of Report 364 made by the JCPAA.

Date of effect

5.51 The rewrite of the small business roll-over will apply to assessments for the 1998-99 income year and later income years. [Part 5, Item 35]. The date of effect accords with the view expressed by the JCPAA in Report 364 paragraphs 2.9 to 2.12. The extension to the roll-over will apply to a CGT event happening to land and buildings after 13 August 1998. [New section 123-80]

Part A: Explanation of amendments

Guide to Division 123: Small business roll-over

What the Division does

• a CGT event happens to an active asset (see paragraph 5.68), shares in a company or units in a unit trust;

What the roll-over consists of

• the amount of the capital gain (the notional capital gain) is disregarded to the extent it does not exceed the acquisition cost of the new business asset;

• the notional capital gain is offset against any capital losses of the current income year and net capital losses of previous income years, that would have been applied in calculating a net capital gain in respect of the asset.

Where all new business assets are goodwill

5.54 If the new business assets only consist of goodwill, the notional capital gain is disregarded from a CGT event happening to goodwill to the extent of the acquisition costs of acquiring new goodwill. [New section 123-30]

Where none of the new business assets are goodwill

5.55 If none of the new business assets are goodwill, the notional capital gain is disregarded to the extent of the acquisition costs of the new business assets. [New section 123-35]

Where the new business assets consist of both goodwill and other assets

5.56 Where the new business assets consist of both goodwill and other assets, the notional capital gain from a CGT event happening to goodwill is disregarded to the extent of the acquisition costs of acquiring new goodwill.

5.57 Any remaining notional capital gain (from a CGT event happening to both goodwill and other assets) is disregarded to the extent of the acquisition costs of acquiring new assets that are not goodwill. Notional capital gains from assets other than goodwill can not be disregarded with respect to the acquisition costs of acquiring goodwill. [New section 123-40]

Limit on notional capital gain from shares and units

5.58 If a CGT event happens to a share in a company, the amount of the capital gain that can be applied is limited to a pro rata share of unrealised net capital gains from active assets of the company.

5.59 A corresponding rule applies if the asset is a unit in a unit trust. [New section 123-20]

Limitation on disregarding notional capital gains where new business assets are shares or units

5.60 If the new business assets are shares in a company or units in a unit trust, the extent to which the notional capital gains can be disregarded is the proportion of the market value of the total active assets, of the company or trust, those shares or units represent at the time of acquiring the shares or units. [New section 123-45]

Limit on net assets

5.61 An entity is eligible for roll-over if the total net value of the entity’s assets, assets of connected entities, and assets of certain associates (the small business CGT affiliate) do not exceed $5 million. [New section 123-50]

Small business CGT affiliate

• a person that acts in accordance with the taxpayer’s wishes or in concert with the taxpayer.

5.63 Partners in a partnership will not be a small business CGT affiliate of another person merely because they act in concert. [New section 123-55]

Connected entities

5.64 The taxpayer’s and their small business CGT affiliate’s interest in another entity are combined to establish if the taxpayer has at least 50% interest in another entity. This control test is used for the purpose of determining whether 2 entities are connected entities. [New section 123-60]

• land and buildings held by the taxpayer are used by their connected entity or is their small business CGT affiliate.

These criteria need to be met before a taxpayer is eligible for a roll-over.

The test generally requires a taxpayer to have at least 50% interest in another entity. [New section 123-60]

What assets can be rolled over

• an active asset at the time of the CGT event happening and to have been an active asset for at least half the time it was owned by the entity claiming the roll-over;

• a share in an Australian resident private company of which the entity is the controlling individual; or

• a unit in an Australian resident unit trust, other than a publicly traded unit trust, of which the entity is the controlling individual. [New section 123-65]

Active assets

• an intangible asset such as goodwill that is inherently connected with that business; or

• land or a building the taxpayer holds and is used by its connected entity, or its small business CGT affiliate, in carrying on a business;

but not a share, an interest in a trust, an interest in a connected entity, a financial instrument or, an asset used predominantly to derive rent, interest, an annuity, royalties or foreign exchange gains.

5.69 For land and buildings held by a taxpayer where the land and buildings are used by the taxpayer’s connected entity or small business CGT affiliate, a roll-over will only apply to CGT events happening after 13 August 1998. [New section 123-80]

Controlling individual

5.70 An individual will be a controlling individual of a company if the individual:

• owns non-redeemable shares carrying at least 50% of the voting power and rights to distribution of income or capital.

• is beneficially entitled to at least 50% of the income and capital of the trust. [New section 123-70]

A replacement asset

• acquired within the period commencing one year before and ending 2 years after the last CGT event happening within the income year for which roll-over is sought. [New subsections 123-75(1) and (2)]

Share in a company or a unit in a unit trust as replacement assets

• the entity obtaining the roll-over must be the controlling individual of the company or unit trust and not be acting in the capacity of trustee; and

• the company or unit trust must be an Australian resident and at least 80% of its assets must be active assets. [New subsections 123-75(3) and (4)]

Individual obtaining roll-over dies

5.74 If the taxpayer obtaining the roll-over dies and a replacement asset passes:

• to the deceased’s personal legal representative – acts of the deceased in relation to the replacement asset are taken to be acts of the personal legal representative; or

• to the deceased’s beneficiary – acts of the deceased or the deceased’s personal legal representative in relation to the replacement asset are taken to be those of the beneficiary. [New section 123-85]

Replacement assets changes status

5.75 A CGT event happens if there is a change in the status of a CGT asset that was a replacement asset in a small business roll-over. For example, a replacement can change status by ceasing to be used as an active asset in the taxpayer’s business.

5.76 The taxpayer will make a capital gain equal to the amount of notional capital gain that was previously disregarded with respect to the replacement asset that changed status. The CGT event happens at the time of change. [Schedule 5 Part 3 Item 9, new section 104-185]

Change in circumstances where a share or a unit was a replacement asset

5.77 A CGT event happens where there is a change in the circumstances where a share in a company or a unit in a unit trust was a replacement asset in a small business roll-over. For example, a taxpayer ceases to be a controlling individual of the company in which the shares, as replacement asset, were acquired.

5.78 The taxpayer will make a capital gain equal to the amount of notional capital gain that was previously disregarded with respect to the acquisition costs of the shares or units. The CGT event happens at the time of change. [Schedule 5 Part 3 Item 9, new section 104-190]

Part B: Discussion of Changes to the small business roll-over

Treasurer’s Press Release No. 76 of 1998

5.79 The Treasurer announced in Press Release No. 76 of 1998 an extension to the small business roll-over relief. The extension allows the small business roll-over relief to apply to:

• used by its connected entity or small business CGT affiliate in the course of carrying on a business; and

5.80 The extension to the small business roll-over was achieved by modifying the definition of active assets to include such land and buildings. [New section 123-80]

5.81 The change to the definition of active asset required a consequential change to the calculation of the $5 million net asset value threshold. The amendment ensures that a small business CGT affiliate’s assets are taken into account for the $5 million threshold if a taxpayer seeks a roll-over or retirement exemption for land and buildings it holds is used by their small business CGT affiliate in carrying on a business. [New sections 118-440 and 123-50]

Aligning tax treatment of assets other than depreciable assets with depreciable assets

5.82 The existing small business roll-over provisions provides for the cost base of a replacement asset (other than depreciable assets) to be reduced by the amount of capital gain arising from a CGT event happening to a small business asset. The cost base could not be reduced to a negative amount.

5.83 When CGT event J2 or J3 happens to the replacement asset the cost base of that asset is restored. That is, the prior reduction is reversed. The amount the cost base is restored by is taken to have been incurred at the time of CGT event J2 or J3 happening.

• taxpayers were denied indexation of the amount the cost base is restored by for the period from when the cost base was initially reduced to when it is restored.

The cost base adjustment was not required for depreciable assets.

5.85 The rewrite aligned the tax treatment of assets other than depreciable assets with that of depreciable asset. This was achieved by removing the cost base adjustment for assets other than depreciable assets. This change will benefit the taxpayer by:

• removing the additional compliance costs caused by the prior cost base adjustment; and

Part C: Redundant Provisions

Provisions of the ITAA 1936 that have not been rewritten

Provision	Subject	Reason for omission
160ZZPJA	Application provision continuing operation of Division 17A to assessment for income years beyond 1997-98	Operation of Division 17A closed off due to inserting the rewritten Division in the ITAA 1997.
160ZZPK	List definitions	Replaced by the Dictionary in the ITAA 1997.
160ZZPNA(1)	Guide material	Redundant.
160ZZPT(2)	Denies an asset that is disposed of and immediately reacquired from being a replacement asset	Redundant concept in the CGT rewrite.
160ZZPU(2)(b), 160ZZPU(3)(a), 160ZZPU(3)(b), 160ZZPV(2)b), 160ZZPV(2)(c), 160ZZPV(2A), 160ZZPV(2B), 160ZZPW(3)(b), 160ZZPW(4)(b), 160ZZPW(5)(b), 160ZZPW(5)(c), 160ZZPW(5A)	Cost base adjustment	Cost base adjustment no longer required – JCPAA recommendation 5 of Report 364.
160ZZPW(1)	Definition	Redundant.

SECTION 3 – CGT – VALUE SHIFTING

Overview

5.86 The amendments contained in Schedule 5 Part 1 Item 3 will insert in the ITAA 1997, a rewrite of a measure in the ITAA 1936 that adjusts the cost bases and reduced cost bases of shares and in some cases loans, or underlying interests in them, where there has been a value shift between companies under common ownership. This is an anti-avoidance measure that addresses tax deferral.

Part A provides an explanation of the rules about value shifts between companies under common ownership.

Background

5.87 Division 19A of the ITAA 1936 deals with value shifting between companies under common ownership.

5.88 This Division has been rewritten as Division 138 of the ITAA 1997. In the course of the rewrite clarifications to the law have been made to bring it into line with administrative practice.

5.89 It is now made clear that reductions to cost bases and reduced cost bases of direct interests in the company from which value is shifted (the originating company) are made at the time of the CGT event that shifts value.

5.90 It is also clarified that the Division does not apply if the asset is transferred or created for market value, because there is no value shift.

5.91 In the case of depreciable plant, it is spelled out that if the plant is transferred for its residual value (usually its written down value) the Division does not apply. [New Subdivision 138-B]

5.92 Rules about whether there is an increase, and limitations on the amount of the increase, to the cost bases and reduced cost bases of direct and indirect equity interests in the company into which value is shifted (the recipient company) have been clarified. [New Subdivision 138-H] Relevant reductions to indirect interests in the originating company are taken into account in working out what are reasonable compensating increases.

5.93 The application of the safe harbour tests has also been made more prominent, and the requirements for the grouping provisions have been clarified.

5.94 The JCPAA reviewed the rewritten ITAA 1936 provisions contained in Act No. 46 of 1998. The JCPAA tabled their findings in Parliament on 12 March 1998 as Report 356: An Advisory Report on the Tax Law Improvement Bill (No. 2) 1997. Recommendation 3 of that report requested (among other things) delaying the introduction of the rewritten value shifting provisions pending further review by the JCPAA.

5.95 The JCPAA findings in that further review was tabled in Parliament on 21 December 1998 as Report 364: An Advisory Report on the Delayed Provisions of the Tax Law Improvement Bill (No. 2) 1997.

5.96 The amendments discussed in this Chapter reflect recommendation 3 of Report 356. The JCPAA made no further recommendations on the proposed value shifting rules in Report 364.

Date of effect

5.97 The rewrite of the value shifting rules will apply to assessments for the 1998-99 income year and later income years. [Part 5, Item 35] The date of effect reflects the view expressed by the JCPAA in Report 364 paragraphs 2.9 to 2.12.

Part A: Explanation of amendments

Guide to Division 138: Value shifting between companies under common ownership

What Subdivision 138-A does

5.98 Subdivision 138-A sets out the following circumstances under which the Division may require an adjustment of the cost base of an asset:

• the taxpayer has direct or indirect interests in post-CGT shares in or loans to a company (the originating company), out of which value is shifted;

• the taxpayer has direct or indirect interests in post-CGT shares in the company (the recipient company) into which value is shifted;

• the value shift arises from a CGT event (the trigger event) where the originating company transfers to or creates an asset in the recipient company; and

Meaning of ‘under common ownership’

• the ultimate beneficial ownership of both companies is held by the same individuals in the same proportions.

When reductions are required

5.100 Reductions to the cost base and reduced cost base of direct interests in shares or loans in the originating company are made at the time of the trigger event concerning the CGT asset that shifts value. [New subsection 138-15(6)]

5.101 Adjustments to other cost bases and reduced cost bases are made when a CGT event affects:

Trigger CGT events

5.102 CGT events A1, B1, D1, D2, D3, and F1 are the ‘trigger events’. [New subsection 138-15(4)]

When no adjustment necessary

• the trigger event involves a liquidation distribution and the company is dissolved within three years of the winding-up starting; or

5.104 There are also circumstances where CGT event B1 is not a ‘trigger’ event. [New subsection 138-15(5)]

Adjustment methods

5.105 Specific adjustment methods are set out for the situations covered by this Division so that the general market value substitution rule does not apply. [New section 138-30]

Value shifts involving plant—reductions of direct interests

What Subdivision 138-B does

5.106 Subdivision 138-B contains rules for adjusting the cost bases of shares in, or loans to, the originating company if it transfers (a CGT event A1 or B1) to the recipient company depreciable plant for less than its residual value. [New section 138-85]

Exclusion

5.107 It does not apply to depreciable plant where the originating company receives an amount equal to the residual value or in the range between residual value and market value if market value is greater. [New subsection 138-85(2)]

What may be adjusted

• the cost base or reduced cost base of post-CGT shares held in the originating company are reduced to nil; or

Amount of reduction

5.110 Rules are provided for calculating the reduction to the cost base and reduced cost base for shares and loans. [New sections 138-100 and 138-105]

Application to groups of depreciable plant

5.111 There are specific rules that apply when a taxpayer allocates assets that are depreciable plant to a depreciable plant group under Subdivision 138-F. [New section 138-110]

Value shifts involving CGT assets acquired before common ownership—reductions of direct interests

What Subdivision 138-C does

5.112 Subdivision 138-C contains rules for reducing the cost base and reduced cost base of post-CGT shares and loans in the originating company where it transfers to the recipient company assets it acquired before they came under common ownership. [New sections 138-155 and 138-160]

What assets are covered

• post-CGT assets, where the market value of the originating company’s assets substantially exceeds their cost bases when the companies came under common ownership.

5.114 Depreciable assets within Subdivision 138-B are outside Subdivision 138-C. [New section 138-165]

Exception

5.115 No reduction is necessary where the originating company receives an amount equal to the indexed common ownership market value of the asset or in the range between that value and the market value if market value is greater. [New subsection 138-160(4)]

Amount of reduction

5.116 The cost base and reduced cost base of post-CGT, shares in or loans to, the originating company are reduced by a reasonable amount having regard to specified criteria. [New sections 138-170 and 138-175]

Application to a pre-common ownership group

5.117 Specific rules apply when assets are allocated to a pre-common ownership group under Subdivision 138-F. [New section 138-180]

Value shifts involving pre-CGT assets acquired after common ownership—reduction of direct interests

What Subdivision 138-D does

5.118 Subdivision 138-D contains rules for reducing the cost base and reduced cost base of post-CGT shares and loans in the originating company where it transfers assets acquired after it came under common ownership with the recipient company. [New sections 138-182 and 138-185]

What assets are covered

5.119 Assets acquired pre-CGT by the originating company after the companies came under common ownership. [New section 138-185]

Amount of reduction

5.120 The cost bases of post-CGT shares in, or loans to, the originating company are reduced having regard to 2 criteria. [New section 138-185]

Depreciable assets covered by Subdivision 138-B are excluded. [New section 138-190]

Value shifts involving post-CGT assets—reduction of direct interests

What Subdivision 138-E does

5.121 Subdivision 138-E sets out how reductions to the cost base and reduced cost base of post-CGT shares in, and loans to, the originating company are calculated. [New sections 138-240 and 138-245]

Exclusions

5.122 The cost bases of a post-CGT share or loan is not reduced where CGT event A1 or B1 happens to an asset, if:

Reduction preconditions

5.123 The preconditions for cost base reductions are that the share in the originating company is acquired post-CGT and is held at the time of the trigger event. [New section 138-250]

5.124 The loan in the originating company is acquired post-CGT and is held at the time of the trigger event and either:

1. the cost bases of the post-CGT shares in the originating company are reduced to nil; or

2. there were no post-CGT shares in the originating company at the time of the trigger event.

Reduction rules for shares

5.125 There are three methods for calculating the reduction in the cost bases of shares depending on what trigger event applies. [New sections 138-265 and 138-270]

Reduction rules for loans

5.126 There are corresponding methods for loans. [New sections 138-285 and 138-290]

Application to a post-common ownership group

5.127 There are specific rules that apply when assets are allocated to a post-common ownership group under Subdivision 138-F. [New section 138-300]

Grouping of assets

What Subdivision 138-F does

5.128 Subdivision 138-F allows for the grouping of two or more assets that are transferred by CGT event A1 or B1. Grouping provides a simplified method of applying Division 138. Grouping can result in no reduction being required or a lesser reduction. [New section 138-350] Assets are only grouped if the originating company so chooses. [New section 138-355]

What are the groups

Conditions

5.130 There are rules for allocating assets to groups and for applying Division 138 to each group. [New sections 138-365 and 138-370]

Reductions of indirect interests

What Subdivision 138-G does

5.131 Subdivision 138-G sets out how to calculate reductions to the cost base and reduced cost base of indirect interests (through interposed companies or trusts) in shares in, and loans to, the originating company. [New sections 138-425 and 138-430]

When indirect interest in originating company is reduced

5.132 The cost bases of a post-CGT asset that is an indirect interest in a share in, or a loan to, the originating company is reduced by a reasonable amount if

No adjustment

5.133 No adjustment is made unless Subdivision 138-B, 138-C, 138-D or 138-E applies to the trigger event. [New section 138-435]

Increases in direct and indirect interests in recipient company

What Subdivision 138-H does

5.134 Subdivision 138-H sets out how to increase the cost base and reduced cost base of direct and indirect interests in shares in the recipient company. [New sections 138-433 and 138-435]

When equity interests in recipient company are increased

5.135 The cost bases of post-CGT direct and indirect interests in a share in the recipient company are increased by a reasonable amount if:

• the cost bases of a share in, or a loan to, the originating company has been reduced under Subdivision 138-B, 138-C, 138-D, 138-E or 138-G; and

No adjustment

5.136 No adjustment is made if Subdivision 138-B, 138-C, 138-D, 138-E or 138-G does not apply to the trigger event. [New section 138-440]

Part B:Discussion of changes to the value shifting rules

When reductions to cost bases are made

Change

5.137 The rewrite makes it clear that reductions to the cost base and reduced cost base of direct interests in the originating company are made at the time of the trigger event that shifts the value. [New subsection 138-15(6)]

Explanation

5.138 Division 19A of Part IIIA of the ITAA 1936 indicates that you make the reduction at the ‘first asset disposal time’ which is the equivalent of the time of the ‘trigger event’ in Division 138 of the ITAA 1997. Division 138 inserted by these amendments clarifies this issue.

Exception where asset is transferred or created for market value

Change

5.139 The rewrite makes it clear that Division 138 does not apply if the asset or group of assets is transferred or created for market value. [New subsection 138-20(2)]

Explanation

5.140 Division 138 does not apply if the company that transfers or creates the asset receives market value for it (because there is no value shift). It was technically possible under the ITAA 1936, for a reduction to be made in relation to the transfer of depreciable plant were the transfer was for market value if that was less than its written down value. That is no longer the case. There needs to be a value shift. This clarification is consistent with administrative practice.

Subdivision 138-B does not apply if plant is transferred for residual value

Change

5.141 The rewrite makes it clear that Subdivision 138-B does not apply if plant covered by Subdivision 138-B is transferred for its residual value or in the range between market value and residual value if market value is greater. [New subsection 138-85(2)]

Explanation

5.142 The Subdivision should not apply if depreciable plant covered by the Subdivision is transferred for residual value or in the range between market value and residual value if market value is greater. Under Division 19A of the ITAA 1936, the depreciable assets Subdivision only applies if depreciable plant is transferred for less than its written down. Therefore, it did not apply if the transfer was at written down value, and the other Subdivisions may have applied. Transfers at written down or residual value or in the range between market value and residual value if market value is greater were intended to be a safe harbour for taxpayers. This has been clarified and accords with administrative practice.

No reduction if asset is transferred for indexed common ownership market value

Change

5.143 The rewrite makes it clear that the no reduction is made if the asset is transferred for its indexed common ownership market value or in the range between market value and indexed common ownership market value if market value is greater. [New subsection 138-160(4)]

Explanation

5.144 Indexed common ownership market value was intended to be a safe harbour for any transfer at that value. Any transfer where the consideration is in the range between market value and indexed common ownership market value if market value is greater was also intended to be part of the safe harbour. This has been clarified and accords with administrative practice.

No reduction if asset is transferred for an amount equal to the lower of its cost base or market value

Change

5.145 The rewrite makes it clear that the no reduction is made if the post-CGT asset is transferred for an amount equal to the lower of its cost base or market value or in the range between market value and cost base if market value is greater. [New subsection 138-245(3)]

Explanation

5.146 The cost base of post-CGT assets under Subdivision 138-E was intended to be a safe harbour for any transfer. That is any transfers at that value were not to be caught. Any transfer where the consideration is in the range between market value and cost base if market value is greater was also intended to be part of the safe harbour. This has been clarified and accords with administrative practice.

Preconditions for increasing the cost bases of direct or indirect equity interests in the recipient company

Change

5.147 The rewrite makes it clear that Subdivision 138-H cannot unfairly limit what is a reasonable compensatory increases to the cost bases and reduced cost bases of direct and indirect interests in the recipient company by having reference to only the adjustments to the direct interests in the originating company. [New section 138-435]

Explanation

5.148 Division 138 reduces the cost base and reduced cost base of direct and indirect interests in the originating company to counter the possibility of created losses arising or losses being bought forward. It also makes compensatory increases to the corresponding cost bases of the recipient company to prevent deferred gains from arising in the future. Under the ITAA 1936 there are limitations on the compensatory increases that could unreasonably limit the cancelling out of the gains on the recipient company side. That outcome was not intended and those limitations have been removed.

Limits on when increases to the cost bases of direct or indirect equity interests in the recipient company can be made

Change

5.149 The rewrite makes it clear that Subdivision 138-H cannot unfairly limit compensatory increases to the cost bases and reduced cost bases of direct and indirect interests in the recipient company. [New section 138-440]

Explanation

5.150 If a reduction is made under Subdivision 138-G it was always intended that a compensatory increase would be possible under Subdivision 138-H. This accords with administrative practice.

Section 1 – CGT – asset register entries

Overview

6.1 The amendment contained in Schedule 6 Part 1 Item 39 to the Bill will amend the Income Tax Assessment Act 1997 (ITAA 1997) by inserting a rewrite of the assets register entries rules that allows a taxpayer to transfer some or all of the information contained in records held for capital gains tax purposes into an assets register. The measure will give taxpayers more flexibility in how they keep their records for determining their capital gains tax liability.

Background

6.2 Taxation Laws Amendment Act (No. 3) 1998 amended the CGT record keeping requirements in the Income Tax Assessment Act 1936 (ITAA 1936). This amendment occurred after the CGT rewrite was introduced in Parliament in November 1997.

6.3 That amendment gave CGT taxpayers more flexibility in how they keep records necessary to work out their CGT liability. Taxpayers can, from 1 January 1998, transfer some or all of the information contained in records held for CGT purposes into an asset register.

Date of effect

6.4 The rewrite of the asset register entries rules will apply to assessments for the 1998-1999 income year and later income years. [Part 3, Item 73]

Explanation of the amendment

What section 121-35 will do

6.5 The section will allow taxpayers to dispose of source documents otherwise required to be kept if certain information contained in those source documents are entered into an assets register. The source documents can be disposed of 5 years after the entries are certified by a third party (ie. a registered tax agent or other person approved by the Commissioner). [New section 121-35]

Section 2 – CGT – M4/M5 Cashback Scheme

Overview

6.6 The amendment contained in Schedule 6 Part 1 Item 34 to the Bill will amend the ITAA 1997 by inserting a rewrite of the exemption from capital gains tax for payments made to a taxpayer under the M4/M5 Cashback Scheme.

Background

6.7 Income Tax Regulation 14E lists prescribed schemes for the purpose of former subsection 160L(6A) of Part IIIA of the ITAA 1936. The effect of subsection 160L(6A) is to not apply the CGT provisions to the disposal of a right to reimbursements, or to payments under such prescribed schemes. This subsection was rewritten into the ITAA 1997 by the Tax Law Improvement Act (No. 1) 1998 (Act No. 46 of 1998).

6.8 Statutory Rules 1998 No. 92 inserted in the list of prescribed schemes the M4/M5 Cashback Scheme administered by the Roads and Traffic Authority of the New South Wales State Government. The scheme provides a reimbursement of tolls paid on the M4 and M5 toll roads. The reimbursement is limited to motorists driving motor vehicles and motor cycles privately registered in New South Wales.

6.9 This amendment to Income Tax Regulation 14E occurred after the CGT rewrite was introduced into Parliament in November 1997.

Date of effect

6.10 The rewrite of the exemption from capital gains tax for payments made to a taxpayer under the M4/M5 Cashback Scheme will apply to assessments for the 1998-1999 income year and later income years. [Part 3, Item 73]

Explanation of the amendment

What paragraph 118-37(2)(c) will do

6.11 The paragraph will disregard a capital gain or capital loss a taxpayer makes resulting from the taxpayer receiving an amount as reimbursement or payment of their expenses under the M4/M5 Cashback Scheme. [New paragraph 118-37(2)(c)]

Section 3 – CGT – corrections

Overview

6.1 2 Certain amendments contained in Schedule 6 Part 1 to the Bill will make corrections to the capital gains tax (CGT) provisions in the ITAA 1997. Further, amendments Item 68, 69 and 72 of Schedule 6 Part 2 will make corrections to two consequential amendments made to the ITAA 1936 by Act No. 46 of 1998.

Background

6.13 The CGT provision in the ITAA 1936 were rewritten and inserted into the ITAA 1997 by Act No. 46 of 1998. Since the CGT rewrite was inserted into the ITAA 1997 unintended consequences to the CGT provisions have been identified which resulted from the CGT rewrite process. Consequential amendments were also made to the ITAA 1936 by Act No. 46 of 1998. Two unintended consequences have been identified in the ITAA 1936.

6.14 These amendments will make minor drafting and technical changes to these rewritten provisions to more accurately reflect the effect of the ITAA 1936. None of the amendments change the policy reflected in the ITAA 1936.

6.15 The Joint Committee of Public Accounts and Audit (JCPAA) reviewed the CGT rewrite. The JCPAA tabled their findings in Parliament on 12 March 1998 as Report 356: An Advisory Report on the Tax Law Improvement Bill (No. 2) 1997. The amendments in this Chapter reflect recommendation 5 made by the JCPAA in Report 356.

Date of effect

6.16 The amendments will apply to assessments for the 1998-1999 income year and later income years. [Part 3, Item 73] The date of effect reflects the view expressed by the JCPAA in Report 356 paragraphs 2.89 to 2.100.

Explanation of the amendments

6.17 The effects of the amendments are set out in the third column of the table below. The first column in the table identifies the amendment number:

Amendments to the ITAA 1997

Item number in Schedule 6 Part 1	What the provision does.	What the amendment will do.
1 and 2	6-20(1) and (3): Defines exempt income.	Extends the definition of exempt income to include income that is made exempt by another Commonwealth law.
7	104-10(7): Describes when CGT event A1 (Disposal of a CGT asset) does not happen.	Excludes assets vested in a trustee or liquidator resulting from insolvency. Although this rule exists in Division 106 of the ITAA 1997 it has been replicated in 104-10 to avoid doubt.
9	104-25(1): Describes CGT event C2 (cancellation, surrender and similar endings to a CGT asset).	Clarifies that the exercise of an option and the conversion of a convertible note as a CGT event C2.
10	104-30(1)(e): CGT event C3 (end of an option to acquire shares, debentures or units in a unit trust) – where the entity releases or abandons it.	Clarifies that the CGT event applies if any entity releases or abandons the option and not just the entity that the option was granted to.
11	104-35(5)(c) and (d): CGT event D1 (creating contractual or other rights) – exceptions.	Deletes ‘to you’ which will remove an ambiguity in the current wording of the provision.
12	104-35(5) (Example): CGT event D1 (creating contractual or other rights) – exceptions.	Rewords the example to more accurately state the effect of the event.
13	104-40(5): CGT event D2 (granting an option) – exceptions.	The exception will be extended to where the option is exercised by any entity and not just by the entity to which it was granted to.
14; 15 and 16	104-65(3) & (4): CGT event E3 (converting a trust to a unit trust) – when a capital gain or capital loss is made.	Correctly identifies the beneficiary as the person who makes a capital gain or capital loss and not the trustee.
17	104-70(1)(a): CGT event E4 (capital payment for trust interest).	Clarifies that a payment received by a taxpayer in respect of a unit or interest in a trust must relate to that taxpayer’s unit or interest.
18	104-115(1)(b)(ii): CGT event F2 (granting a long term lease).	Claries that the granting of a long term sub lease is a CGT event F2.
19	104-155(5)(c) AND (d): CGT event H2 (receipt for event relating to a CGT asset) – exemptions.	Deletes ‘to you’ which will remove an ambiguity in the current wording of the provision.
23	110-25(3)(a): General rules about cost base – incidental costs.	Deletes ‘and’ and replaces it with ‘or’ to avoid incidental cost needing to relate to both the acquisition and disposal of an asset.
24	110-25(3)(b): General rules about cost base – incidental costs.	Identifies the relevant CGT event as the one happening to the asset of the taxpayer.
26 and 27	112-20(1)(a) and (2)(a): Market value substitution rule.	Corrects the calculation of an asset’s cost base for a CGT event D1 (creating contractual or other rights) where the market value substitution rules is relevant.
31	116-30(2)(b)(ii): Market value substitution rule for capital proceeds.	Ensures that the market value rule applies to all aspects of CGT event C2 (cancellation, surrender and similar endings) where the capital proceeds from that CGT event are greater or less than the market value of the asset.
33 and 34	118-15 and 118-37: Exempt capital receipts compensation and damages.	Increase the scope of the exemption from capital gains tax rules for capital receipts such as compensation for damages.
35	118-150(5): Build, repair or renovate a dwelling.	Ensures that the main residence exemption applies to occupancy cessations resulting from the need to build, repair, renovate or to finish building a dwelling.
40	126-50(3)(a): Same asset roll-over for wholly-owned group companies.	Clarifies that the rights or convertible notes are of a kind described in Division 130 and the options are the same as those described in Division 134.
41; 42 and 43	126-50(5): Same asset roll-over for wholly-owned group companies – Additional requirements table.	Clarifies that the CGT roll-over provisions relating to companies in the same wholly-owned group do not apply to prescribed dual residents.
47 and 48	130-20(3): Issue of bonus shares or units – Table item 2 and item 3.	Maintains the pre-CGT status for bonus equities that relate to pre 1985 equities if the bonus equities are partly paid on issue without a call being paid before a CGT event happens to the bonus equities.
49	130-40(6) Exercise of rights – Table.	Clarifies that the payment is for the rights and not for the shares, units or options obtained by exercising the rights acquired.
50	134-1(1): Exercise of options – Table.	Correctly recognises that expenditure associated with a share issue forms part of its cost base.
60	960-275(2): Indexation factor.	Correctly recognises that expenditure includes the giving of property.

Amendments to the ITAA 1936

Item number in Schedule 6 Part 2	What the provision does.	What the amendment will do.
68 and 69	159GZZZH(1) and (2): Post-cancellation disposals of eligible interests.	Correct the terminology to reflect those in the ITAA 1997.
72	304: Part IIIA to be primary code for CGT.	Correct the terminology to reflect the concepts in the ITAA 1997.

Section 4 – CGT – minor amendments

Overview

6.18 Certain amendments contained in Schedule 6 Part 1 to the Bill will make minor technical and non technical improvements to provisions in the ITAA 1997 that were inserted in that Act by Act No. 46 of 1998. Further, some amendments contained in Schedule 6 Part 2 will also make necessary minor technical corrections to the ITAA 1936 resulting from Act No. 46 of 1998.

Background

6.19 Act No. 46 of 1998 inserted in the ITAA 1997 rewritten provisions of the ITAA 1936, mainly the capital gains tax (CGT) provisions, and made consequential amendments to the ITAA 1936.

6.20 These amendments will improve the readability of those rewritten provisions. The amendments correct grammar, insert additional signposts and make slight changes that will improve the wording of the rewrite. There will also be some minor amendments to the ITAA 1936 resulting from Act No. 46 of 1998. None of the amendments change the meaning of the law.

Date of effect

6.21 The amendments will apply to assessments for the 1998-1999 income year and later income years. [Part 3, Item 73]

Explanation of the amendments

6.22 The effects of the amendments are set out in the third column of the table below. The first column in the table identifies the amendment number:

Amendments to the ITAA 1997

Item number in Schedule 6 Part 1	What the provision does	What the amendment will do
3	102-1: Guide to how net capital gains is included in assessable income.	Insert a note at the end of the section stating ‘This is the end of the Guide’.
4	102-20 (Note 2): Identified Divisions 17A, 17B and 19A continued to operate in the ITAA 1936.	Note is now redundant as these Divisions are to be inserted into the ITAA 1997. New Note will alert readers that certain exemptions and roll-over provisions apply.
5	103-1: Guide to general rules about CGT.	Insert a note at the end of the section stating ‘This is the end of the Guide’.
6	103-20: Provides the rules for converting foreign currency into Australian currency.	Rewords the section to make it clear when an amount of foreign currency is converted into Australian currency.
8	104-15: Provides the rules a CGT event B1 happening.	Insert a note alerting readers of a transitional provisions that currently exists in the Income Tax (Transitional Provisions) Act 1997.
20	108-50: Guide to rules about separate assets.	Insert a note at the end of the section stating ‘This is the end of the Guide’.
21	109-55 (table item 4): Table setting out the acquisition rules for CGT.	Corrects a cross reference from section 118-92 to 118-192.
22	109-55 (table item 7): Table setting out the acquisition rules for CGT.	Inserts the word ‘to’ to make the sentence grammatically correct.
25	110-35(2) (Note): Signposts the reader to a transitional provision in the Income Tax (Transitional Provisions) Act 1997.	Provides a more comprehensive Note.
28	112-30 (heading): Heading to apportionment rules for cost base.	Provides a more appropriate section heading.
29	112-35 (example): Provides an example of the assumption of liability rules.	Provides a more complete example.
30	112-35 (Note): Note signposts the reader to the rules about the first element of the cost base and reduced cost base of an asset.	Corrects a cross reference by replacing 110-30(2) with 110-25(2).
32	116-30(2) (Note): The note identifies examples of how an asset ends are examples of CGT Event C2.	The note is now redundant as the subsection will be amended to directly refer to CGT Event C2.
36	118-192(3): Provides rules for exemption from capital gains tax for a main residence.	Provides a grammatical correction by adding apostrophe ‘s’ after the word ‘deceased’’.
37	118-192: Provides rules for exemption from capital gains tax for a main residence.	Insert a note alerting readers of a transitional provisions that currently exists in the Income Tax (Transitional Provisions) Act 1997.
38	118-195(1) (Note 2): Signpost the reader to sections about how to disregard a gain or loss on a main residence.	Corrects a cross reference by replacing ‘118-45’ with 118-145’.
44 and 45	126-85(2): Provides conditions that must be satisfied before a roll-over on certain liquidations can be obtained.	Amalgamates paragraphs (a) and (b) of subsection 126-85(2) into a single paragraph.
51	140-10: States when this Division 140 (share value shifting) is relevant.	Reword the section to expressly state that Division 140 only applies if there is a CGT Event G2 rather than relying on an implied statement.
52	149-75(3): Details rules about cost bases of assets which cease to be pre-CGT assets.	Remove a superfluous provision.
53	373-30(2) (case 8 in the table): identifies expenditure incurred on an item of intellectual property.	Corrects a cross reference by replacing ‘373-60(3)’ with ‘373-60(2)’.
55	392-5: Provides an overview of the rules about long-term averaging of primary producer’s tax liability.	Remove inappropriate asterisks. The asterisks are inappropriate as only terms in operative material are asterisked.
55	392-30: Guide to rules about long-term averaging of primary producer’s tax liability.	Insert a note at the end of the section stating ‘This is the end of the Guide’.
56	392-65: Provides an overview of the rules about long-term averaging of primary producer’s tax liability.	Remove inappropriate asterisks. The asterisks are inappropriate as only terms in operative material are asterisked.
57	392-65: Guide to rules about long-term averaging of primary producer’s tax liability.	Insert a note at the end of the section stating ‘This is the end of the Guide’.
58 and 59	405-5 and 405-10: Provides overview for the rules about above-average special professional income.	Remove inappropriate asterisks. The asterisks are inappropriate as only terms in operative material are asterisked.
61 and 62	960-275(3): Provides the rules for indexation of the cost base of shares and units.	Remove the words ‘that were issued or allotted by the company’ and ‘that were issued or allotted by the trustee of the unit trust’ as these words add nothing to the subsection.
63	960-275(3) (Example): Provides an example of how the subsection operates.	Provide a more appropriate example.
64	995-1(1) (definition of general company tax rate): Defines general company tax rate.	Omits the definition to avoid duplication.
65	995-1(1) (definition of precluded asset): Defines precluded asset.	Provide a correct cross reference to subsection 122-25(3).
66	995-1(1) (definition of RSA): Defines RSA	Omits a definition to avoid duplication.

Amendments to the ITAA 1936

Item number in Schedule 6 Part 2	What the provision does	What the amendment will do
67	24AW: states the consequences of a body ceasing to by a State or Territory Body.	Corrects the terminology in 24AW(g) to reflect that used in the ITAA 1997.
70	159ZR(1): defines rebated tax.	Updates the definition to take account of amendments by Taxation Laws (Technical Amendments) Act 1998 to insert new tax offsets into the ITAA 1936.
71	160ZPA: limits certain capital losses incurred by corporate groups.	Provides an appropriate transitional link to the ITAA 1997.

Section 5 – CGT – finding tables
Overview

6.23 This Chapter provides finding tables to enable you to locate quickly the provision in Schedules 5 and 6 to this Bill that correspond to a particular provision in the ITAA 1936, and vice versa.

6.24 This Chapter will also make corrections to the finding table in the Explanatory Memorandum to Act No. 46 of 1998.

• No equivalent means that this is a new provision that has no equivalent in the ITAA 1936.

• Omitted means that the provision of the old law has not been rewritten in the new law.

• Press Release 76 of 1998 means that the provision reflects the measures announced in the Treasurer’s Press Release No. 76 of 1998.

New law	Old law
102-25(2)	No equivalent
102-25(2A)	No equivalent
102-25(2B)	No equivalent
104-185	160ZZPX(1), (2) 160ZZPY(1), (2)
104-190	160ZZPXA(1), (2), (3), Press Release 76 of 1998
118-15	160Z(6A)
118-37	160ZB(1), 160ZB(2), 160ZB(3), 160L(6A)
Subdivision 118-F	Division 17B
118-400	160ZZPZA
118-405(1)	160ZZPZC, 160ZZPZD(1)(aa)
118-405(1)(a)	160ZZPZD(1)(a)
118-405(1)(b)	160ZZPZD(1)(aa)
118-405(1)(c)	160ZZPZD(1)(b), 160ZZPZI(2)
118-405(1)(d)	160ZZPZD(1)(aa)
118-405(1)(e)	160ZZPZD(1)(a)
118-405(1)(f)	160ZZPZD(2)(e), 160ZZPZH(4)(e), 160ZZPZI(4)(f)
118-405(1)(g)	160ZZPZF
118-405(2)	160ZZPZO(2)
118-405(3)	160ZZPZG, 160ZZPZH(2), 160ZZPZH(5), 160ZZPZI(2)
118-405(4)	160ZZPZG
118-410(1)	160ZZPZP(2), (6), (7)
118-410(2)	160ZZPZP(3), (5), (6)
118-410(3)	160ZZPZP(4), 160ZZPZQ(1)
118-410(4)	160ZZPZQ(2)
118-415(1)	160ZZPZE(1), 160ZZPZE(2), 160ZZPZE(3), 160ZZPZJ(2), 160ZZPZJ(3)
118-415(2)	160ZZPZE(4), (5)
118-415(3)	160ZZPZO(1)
118-415(4)	160ZZPZE(4)
118-415(5)	160ZZPZJ(4)
118-420(1)	160ZZPZL(1)
118-420(2)	160ZZPZL(1), (2), (3)
118-420(3)	160ZZPZL(4)
118-420(4)	160ZZPZL(1)
118-420(5)	160ZZPZL(5)
118-425(1)	160ZZPZD(2)(a), (c), 160ZZPZH(4)(a), (c)
118-425(2)	160ZZPZD(2)(d), 160ZZPZH(4)(b), (d)
118-425(3)	160ZZPZD(2)(b)
118-425(4)	160ZZPZH(4)(a)
118-425(5)	160ZZPZI(4)(d)
118-430(1)	160ZZPZK(1)
118-430(2)	160ZZPZK(2)
118-430(3), (4)	160ZZPZK(3)
118-435	160ZZPZN, 160ZZPZB(3)
118-440(a)	160ZZPP(4)
118-440(b)	160ZZPP(3)
118-445	160ZZPQ(1)(c)
118-450(1), (2)	160ZZPZH(5)
118-450(3)	160ZZPZO(2)
118-450(4)	160ZZPZO(1)
118-450(5)	160ZZPZH(5), (6), (8)
118-450(6)	160ZZPZI(5)
118-450(7)	160ZZPZH(6)
118-450(8)	160ZZPZH(7)
121-35	160ZZU(9)
Division 123	Division 17A
123-1	160ZZPO
123-5	160ZZPO
123-10(a)	160ZZPQ(1)(a), 160ZZPL(7)(aa), 160ZZPL(7)(a), 160ZZPL(8)(b), 160ZZPL(9)(b)
123-10(b)	160ZZPQ(1)(a)
123-10(c)	160ZZPQ(1)(b)
123-10(d)	No equivalent
123-10(e)	160ZZPL(7)(b), 160ZZPL(8)(d), 160ZZPL(9)(d), 160ZZPP(1)
123-10(f)	160ZZPT(1), 160ZZPT(1A), 160ZZPQ(1)(f)
123-10(g)	160ZZPT
123-10(h)	160ZZPQA
123-15	160ZZPQ(2), 160ZZPQ(3), 160ZZPQ(4), 160ZZPT(4)
123-20(1)	160ZZPQ(3A), (3B), (3C)
123-20(2)	160ZZPQ(3D)
123-25	160ZZPR, 160ZZRS
123-30	160ZZPT(3), 10ZZPU(1), (2)(a), (3)(c)
123-35	160ZZPV(1), (2)(a), (2)(d)
123-40(1)	160ZZPW(2), (3)(a), (4)(a), (4)(c)
123-40(2)	160ZZPT(3), 160ZZPW(5)(a)(i), 160ZZPW(5)(d), 160ZZPW(5B),
123-45	160ZZPV(3), 160ZZPW(5)(A)(ii), 160ZZPW(6)
123-50(1)	160ZZPP(3), (4), Press Release 76 of 1998
123-50(2)	160ZZPP(5)
123-50(3)	160ZZPL(1), 160ZZPL(2), 160ZZPP(5)
123-55(1)	160ZZPM(1)
123-55(2)	160ZZPM(2)
123-60(1)	160ZZPN(1)
123-60(2)	160ZZPN(2), (2A)
123-60(3)	160ZZPN(3)
123-60(4)	160ZZPN(4)
123-60(5)	160ZZPN(5)
123-60(6)	16OZZPN(5A)
123-60(7)	160ZZPN(6)
123-60(8)	160ZZPN(7)
123-65(1)	160ZZPQ(1)(c)
123-65(2)	160ZZPL(8)(a), 160ZZPL(8)(c)
123-65(3)	160ZZPL(9)(a), 160ZZPL(9)(c)
123-65(4)	160ZZPQ(1)(e)
123-70(1)	160ZZPNA(2), 160ZZPNA(4), 160ZZPNA(5)
123-70(2)	160ZZPNA(6)
123-70(3)	160ZZPNA(3), 160ZZPNA(4)
123-70(4)	160ZZPNA(6)
123-75(1)	160ZZPL(6) 160ZZPT(1)
123-75(2)	160ZZPL(6) 160ZZPT(1), (1AA)
123-75(3)	160ZZPT(1AB)
123-75(4)	160ZZPT(1AC)
123-75(5)	160ZZPT(3)
123-80(1)	160ZZPL(3)
123-80(2)	Press Release 76 of 1998
123-80(3)	160ZZPL(3A)
123-80(4)	160ZZPL(2), 160ZZPL(4), 160ZZPL(5), 160ZZPL(5A)
123-85(1)	160ZZPZ(1)
123-85(2)	160ZZPZ(2)
134-1	160ZZC(1), 160ZZC(7), 160ZZC(8), 160ZZC(9A)
Division 138	Division 19A
138-1	160ZZRAAA(1)
138-3	No equivalent
138-5	160ZZRAAA(2)
138-15(1)	160ZZRD(1)(a), (b)
138-15(2)	160ZZRB, 160ZZRC
138-15(3)	160ZZRA
138-15(4)	160ZZRD(1)(a)
138-15(5)	160M(4)
138-15(6)	160ZZRDJ, 160ZZRE
138-20(1)	160ZZRD(1)(c), (3), 160A
138-20(2)	No equivalent
138-30	160ZZRA
138-80	No equivalent
138-85	160ZZRDB, 160ZZRA
138-90	160ZZRDJ(1)
138-95	160ZZRDL
138-100(1)	160ZZRDJ(2), (3), (4), (5)
138-100(2), (3)	160ZZRDK
138-105(1)	160ZZRDM
138-105(2), (3)	160ZZRDN
138-110	160ZZRDF(3)
138-155	No equivalent
138-160(1)	160ZZRF(1)
138-160(2)	160ZZRF(2)
138-160(3)	160ZZRF(3)
138-160(4)	160ZZRDG(2), 160ZZRF(6)
138-160(5)	160ZZRBB
138-165	160ZZRDB(2)
138-170	160ZZRF(2), (3)
138-175(1)	160ZZRF(4)
138-175(2)	160ZZRF(5)
138-175(3)	160ZZRF(6)
138-180	160ZZRDG(3)
138-182	No equivalent
138-185	160ZZRFA
138-190	160ZZRDB(2)
138-240	No equivalent
138-245(1)	160ZZRE(1A), (1B) 160ZZRBA
138-245(2)	160ZZRDC, 160ZZRE(1)
138-245(3)	160ZZRDH(2)
138-250	160ZZRE(3), (6)(a)
138-255(a)	160ZZRE(4)(a), (6)(a)
138-255(b)	160ZZRE(2)
138-255(c)	160ZZRE(4)(b)
138-260	160ZZRE(3)(b), (c)
138-265	160ZZRE(3)(b)
138-270	160ZZRE(3)(c)
138-275(1)	160ZZRE(6)(b)(i), (b)(ii)(A), (c)
138-275(2)	160ZZRE(6)(d), (f)
138-280	160ZZRE(4)(d), (e)
138-285	160ZZRE(4)(b), (d), (e)
138-295(1)	160ZZRE(6)(b), (c)
138-295(2)	160ZZRE(6)(e), (f)
138-300	160ZZRDH(3)
138-350	160ZZRDE(1)
138-355	160ZZRDE(3)
138-360	160ZZRDE(2)
138-365(1)	No equivalent
138-365(2)	160ZZRDF(1)(b)-(d), 160ZZRDG(1)(b)-(d), 160ZZRDH(1)(c)-(e)
138-365(3)	160ZZRDF(1)(a)
138-365(4)	160ZZRDG(1)(a)
138-365(5)	160ZZRDH(1)(a), (b)
138-370	160ZZRDF(2)
138-375	160ZZRDI
138-420	No equivalent
138-425	160ZZRG,
138-430	160ZZRDD
138-433	No equivalent
138-435(1)	160ZZRH(1)(a), (b) 160ZZRC
138-435(2)	160ZZRH(1)(c), (d), (e)
138-440	160ZZRDD

Old law	New law
160L(6A)	118-37
160Z(6A)	118-15
160ZB(1)	118-37
160ZB(2)	118-37
160ZB(3)	118-37
160ZZC(9A)	134-1
Division 17A	Division 123
160ZZPJA	Repealed
160ZZPK	Omitted
160ZZPL(1)	123-50(3)
160ZZPL(2)	23-50(3), 123-80(4)
160ZZPL(3)	123-80(1)
160ZZPL(3A)	123-80(3)
160ZZPL(4)	123-80(4)
160ZZPL(5)	123-80(4)
160ZZPL(5A)	123-80(4)
160ZZPL(6)	123-75(1) 123-75(2)
160ZZPL(7)(aa)	123-10(a)
160ZZPL(7)(a)	123-10(a)
160ZZPL(7)(b)	123-10(e)
160ZZPL(8)(a),	123-65(2)
160ZZPL(8)(b),	123-10(a)
160ZZPL(8)(c)	123-65(2)
160ZZPL(8)(d)	123-10(e)
160ZZPL(9)(a),	123-65(3)
160ZZPL(9)(b)	123-10(a)
160ZZPL(9)(c)	123-65(3)
160ZZPL(9)(d)	123-10(e)
160ZZPM(1)	123-55(1)
160ZZPM(2)	123-55(2)
160ZZPN(1)	123-60(1)
160ZZPN(2)	123-60(2)
160ZZPN(2A)	123-60(2)
160ZZPN(3)	123-60(3)
160ZZPN(4)	123-60(4)
160ZZPN(5)	123-60(5)
160ZZPN(5A)	123-60(6)
160ZZPN(6)	123-60(7)
160ZZPN(7)	123-60(8)
160ZZPNA(1)	Omitted
160ZZPNA(2)	123-70(1)
160ZZPNA(3)	123-70(3)
160ZZPNA(4)	123-70(1), (3)
160ZZPNA(5)	123-70(1)
160ZZPNA(6)	123-70(2), (4)
160ZZPO	123-1, 123-5
160ZZPP(1)	123-10(e)
160ZZPP(3)	118-440(b), 123-50(1)
160ZZPP(4)	118-440(a), 123-50(1)
160ZZPP(5)	123-50(2), (3)
160ZZPQ(1)(a)	123-10(a), (b)
160ZZPQ(1)(b)	123-10(c)
160ZZPQ(1)(c)	118-445, 123-65(1)
160ZZPQ(1)(e)	123-65(4)
160ZZPQ(1)(f)	123-10(f)
160ZZPQ(2)	123-15
160ZZPQ(3)	123-15
160ZZPQ(3A)	123-20(1)
160ZZPQ(3B)	123-20(1)
160ZZPQ(3C)	123-20(1)
160ZZPQ(3D)	123-20(2)
160ZZPQ(4)	123-15
160ZZPQA	123-10(h)
160ZZPR	123-25
160ZZPS	123-25
160ZZPT	123-10(g)
160ZZPT(1)	123-10(f), 123-75(1), 123-75(2)
160ZZPT(1AA)	123-75(2)
160ZZPT(1AB)	123-75(3)
160ZZPT(1AC)	123-75(4)
160ZZPT(1A)	123-10(f)
160ZZPT(2)	Omitted
160ZZPT(3)	123-30, 123-40(2), 123-75(5)
160ZZPT(4)	123-15
160ZZPT(5)	123-10(f)
160ZZPU(1)	123-30
160ZZPU(2)(a)	123-30
160ZZPU(2)(b)	Omitted
160ZZPU(3)(a)	Omitted
160ZZPU(3)(b)	Omitted
160ZZPU(3)(c)	123-30
160ZZPV(1)	123-35
160ZZPV(2)(a)	123-35
160ZZPV(2)(b)	Omitted
160ZZPV(2)(c)	Omitted
160ZZPV(2)(d)	123-35
160ZZPV(2A)	Omitted
160ZZPV(2B)	Omitted
160ZZPV(3)	123-45
160ZZPW(1)	Omitted
160ZZPW(2)	123-40(1)
160ZZPW(3)(a)	123-40(1)
160ZZPW(3)(b)	Omitted
160ZZPW(4)(a)	123-40(1)
160ZZPW(4)(b)	Omitted
160ZZPW(4)(c)	123-40(1)
160ZZPW(5)(a)(i)	123-40(2)
160ZZPW(5)(a)(ii)	123-45
160ZZPW(5)(b)	Omitted
160ZZPW(5)(c)	Omitted
160ZZPW(5)(d)	123-40(2)
160ZZPW(5A)	Omitted
160ZZPW(5B)	123-40(2)
160ZZPW(6)	123-45
160ZZPX(1)	104-185
160ZZPX(2)	104-185
160ZZPXA(1)	104-190
160ZZPXA(2)	104-190
160ZZPXA(3)	104-190
160ZZPY(1)	104-185
160ZZPY(2)	104-185
160ZZPZ(1)	123-85(1)
160ZZPZ(2)	123-85(2)
Division 17B	Subdivision 118-F
160ZZAA	Repealed
160ZZPZA	118-400
160ZZPZB(1)	Omitted
160ZZPZB(2)	Omitted
160ZZPZB(3)	118-435
160ZZPZB(4)	Omitted
160ZZPZB(5)	Omitted
160ZZPZC	118-405(1)
160ZZPZD(1)(a)	118-405(1)(a), (e)
160ZZPZD(1)(aa)	118-405(1), 118-405(1)(b), 118-405(1)(d)
160ZZPZD(1)(b)	118-405(1)(c)
160ZZPZD(2)(a)	118-425(1)
160ZZPZD(2)(b)	118-425(3)
160ZZPZD(2)(c)	118-425(1)
160ZZPZD(2)(d)	118-425(2)
160ZZPZD(2)(e)	118-405(1)(f)
160ZZPZE(1)	118-415(1)
160ZZPZE(2)	118-415(1)
160ZZPZE(3)	118-415(1)
160ZZPZE(4)	118-415(2), (4)
160ZZPZE(5)	118-415(2)
160ZZPZF	118-405(1)(g)
160ZZPZG	118-405(3), (4)
160ZZPZH(1)	Omitted
160ZZPZH(2),	118-405(3)
160ZZPZH(4)(a)	118-425(1), (4)
160ZZPZH(4)(b)	118-425(2)
160ZZPZH(4)(c)	118-425(1)
160ZZPZH(4)(d)	118-425(2)
160ZZPZH(4)(e)	118-405(1)(f)
160ZZPZH(5)	118-405(3), 118-450(1), 118-450(2), 118-450(5)
160ZZPZH(6)	118-450(5), (7)
160ZZPZH(7)	118-450(8)
160ZZPZH(8)	118-450(5)
160ZZPZI(1)	Omitted
160ZZPZI(2)	118-405, 118-450
160ZZPZI(3)	Omitted
160ZZPZI(4)	103-25, 118-405(1)(f), 118-425(5)
160ZZPZI(5)	118-450(6)
160ZZPZJ(1)	Omitted
160ZZPZJ(2)	118-415(1)
160ZZPZJ(3)	118-415(1)
160ZZPZJ(4)	118-415(5)
160ZZPZK(1)	118-430(1)
160ZZPZK(2)	118-430(2)
160ZZPZK(3)	118-430(3), (4)
160ZZPZL(1)	118-420(1), (2), (4)
160ZZPZL(2)	118-420(2)
160ZZPZL(3)	118-420(2)
160ZZPZL(4)	118-420(3)
160ZZPZL(5)	118-420(5)
160ZZPZL(6)	Omitted
160ZZPZM	Omitted
160ZZPZN	118-435
160ZZPZO(1)	118-415(3), 118-450(4)
160ZZPZO(2)	118-405(2), 118-450(3)
160ZZPZP(1)	Omitted
160ZZPZP(2)	118-410(1)
160ZZPZP(3)	118-410(2)
160ZZPZP(4)	118-410(3)
160ZZPZP(5)	118-410(2)
160ZZPZP(6)	118-410(1), (2)
160ZZPZP(7)	118-410(1)
160ZZPZQ(1)	118-410(3)
160ZZPZQ(2)	118-410(4)
Division 19A	Division 138
160ZZRAAA(1)	138-1
160ZZRA	138-15(3), 138-30, 138-85
160ZZRB	138-15(2)
160ZZRBA	138-245(1) Item 2
160ZZRBB(1)	138-160(5)
160ZZRBB(2)	960-275(5)
160ZZRBB(3)	960-280
160ZZRBB(4)	960-280
160ZZRC	138-15(2), 138-425, 138-435
160ZZRD(1)	138-15(1), 138-20(1)
160ZZRD(3)	138-20(1)
160ZZRDA	No equivalent
160ZZRDB(1)	138-85(1), (2)
160ZZRDB(2)	138-165
160ZZRDC	138-245(2)
160ZZRDD	138-430, 138-440
160ZZRDE(1)	138-350
160ZZRDE(2)	138-360
160ZZRDE(3)	138-355(2)
160ZZRDE(4)	103-25
160ZZRDF(1)	138-365(2), (3)
160ZZRDF(2)	138-370
160ZZRDF(3)	138-110
160ZZRDG(1)	138-365(2), (4)
160ZZRDG(2)	138-160(4)
160ZZRDG(3)	138-180
160ZZRDH(1)	138-365(2), (5)
160ZZRDH(2)	138-245(3)
160ZZRDH(3)	138-300
160ZZRDI	138-375
160ZZRDJ(1)	138-90
160ZZRDJ(2)	138-100(1)
160ZZRDJ(3)	138-15(6), 138-100(1)
160ZZRDJ(4)	138-15(6), 138-100(1)
160ZZRDJ(5)	138-100(1)
160ZZRDJ(6)	114-10
160ZZRDK	138-100(2), (3)
160ZZRDL	138-95
160ZZRDM(1)-(7)	138-105(1)
160ZZRDM(8)	114-10
160ZZRDN	138-105(2), (3)
160ZZRE(1)	138-245(2)
160ZZRE(1A)	138-245(1)
160ZZRE(1B)	138-245(1)
160ZZRE(2)	138-255
160ZZRE(3)	138-250
160ZZRE(3)(a)	No equivalent
160ZZRE(3)(b)	138-15(6), 138-260, 138-265
160ZZRE(3)(c)	138-15(6), 138-260, 138-270
160ZZRE(4)(a)	138-255
160ZZRE(4)(b)	138-255, 138-285
160ZZRE(4)(c)	No equivalent
160ZZRE(4)(d)	138-15(6), 138-280, 138-285
160ZZRE(4)(e)	138-15(6), 138-280, 138-285
160ZZRE(5)	114-10
160ZZRE(6)(a)	138-250, 138-255
160ZZRE(6)(b)	138-275, 138-295
160ZZRE(6)(c)	138-275, 138-295
160ZZRE(6)(d)	138-275(2)
160ZZRE(6)(e)	138-295(2)
160ZZRE(6)(f)	138-275(2), 138-295(2)
160ZZRF(1)	138-160(1)
160ZZRF(2)	138-160(2), 138-170
160ZZRF(3)	138-160(3), 138-170
160ZZRF(4)	138-175(1)
160ZZRF(5)	138-175(2)
160ZZRF(6)	138-175(3)
160ZZRFA	138-185
160ZZRG	138-425
160ZZRH(1)	138-435
160ZZRH(2)	No equivalent
160ZZU(9)	121-35

6.29 Corrections to the finding table in the Explanatory Memorandum to Act No. 46 of 1998.

Insert the following references in the finding table.

New law	Old law
102-23	No equivalent
102-30	160Z(7), 160ZC(4E), 160ZC(5), 160ZC(6), 160ZC(7), 160ZQ(6A)
104-10(5)	160L(1)(b),160ZU
104-10(7)	160S(1), 160W
104-35(5)	160MA, 160M(5)(a), 160M(5)(aa)
104-55(5)	160M(3)(a)
104-55(6)	160L(1)(b)
104-60(4)	160M(4A), 160M(4B)
104-60(5)	160M(3)(a)
104-60(6)	160L(1)(b)
104-125	160ZT(1A), 160ZT(1B), 160ZU
104-130	160L(1)(b), 160ZT(2)(b), 160ZU
104-155	160M(5)(a), 160M(5)(aa), 160M(7), 160MA, 160Z(1), 160ZH(11)
104-230(9)	160ZZT(1A)
112-15	No equivalent
112-87	No equivalent
112-97	No equivalent
114-10(8)	160ZZOA(1)(d), 160ZZOA(1)(e)
116-30(3)	160ZD(2B)
116-30(3A)	160ZD(2A)
116-75	160ZV(1)
118-13	124ZP
118-20	160ZA(4), 160ZA(4AA), 160ZA(4B), 160ZA(5), 160ZA(6), 160ZA(7)
140-65(1A)	160ZZRQ(5)(a), 160ZZRQ(6)(a)
373-10(3)	No equivalent
373-60(4)	No equivalent
387-175	124ZZK
387-177(1), (2	124ZZL

Old law	New law
124ZP	118-13
124ZZK	387-175
124ZZL	387-177(1), (2)
160M(3)(a)	104-55(5), 104-60(5), 109-5(1)
160M(4A)	104-55(4), 104-60(4), 112-20
160M(4B)	104-55(4), 104-60(4), 112-20
160M(5)(a)	104-35(5)(c), 104-35(5)(d), 104-155(5)(c), 104-55(5)(d), 109-10
160M(5)(aa)	104-35(5)(c), 104-35(5)(d), 104-155(5)(c), 104-55(5)(d), 109-10
160S(1)	104-10(7), 109-15
160W	104-10, 106-30, 106-35
160ZA(4AA)	118-20
160ZA(4B)	118-20
160ZC(6)	102-30, 195-25
160ZC(7)	102-30, 195-35
160ZD(2A)	116-30(3A)
160ZD(2B)	116-30(3)
160ZH(3A)	245-175, 245-180, 245-185, 245-90 of Sch 2C of the ITAA 1936
160ZT(1A)	104-125
160ZT(1B)	104-125
160ZT(2)(b)	104-130
160ZV(1)	116-75
160ZZOA(1)(d)	104-175(4), 104-175(5), 104-175(8), 104-175(9), 114-10(8)
160ZZOA(1)(e)	104-175(4), 104-175(5), 104-175(8), 104-175(9), 114-10(8)
160ZZRQ(1)	140-55(1)
160ZZRQ(5)(a)	140-65(1A), 140-70(2)
160ZZRQ(6)(a)	140-65(1A), 140-70(2)
160ZZT(1A)	104-230(9)

Delete the following references in the finding table:

New law	Old law
104-230(2)	160ZZT(1)(c), (d)
104-230(3)	160ZZT(1A)(a), (c)
116-75(1)	160ZD(2B)
116-75(2)	160ZD(2A)
116-75(3)	160ZV(1)
118-50	160M(5)(a), (aa)
149-35(3)	No equivalent

Overview
Providing taxation information to State law enforcement agencies

Overview

7. 1 Schedule 7 to the Bill amends section 2 of the Taxation Administration Act 1953 (TAA 1953) to include the New South Wales Police Integrity Commission (PIC) and the Queensland Crime Commission (QCC) in the definition of ‘law enforcement agency’. The Bill also amends section 2 of the TAA 1953 to include the Commissioner for the PIC and the Crime Commissioner for the QCC in the definition of ‘head’ of a law enforcement agency.

7.2 The amendments will allow the Commissioner of Taxation to provide the PIC and the QCC with taxation information under section 3E of the TAA 1953.

Summary of amendments

Purpose of the amendments

7.3 The amendments will enable the Commissioner of Taxation to disclose information acquired under a taxation law to the PIC and the QCC.

Date of effect

Background to the legislation

7.5 Section 3E of the TAA 1953 provides the Commissioner of Taxation with the discretion to disclose information acquired under a taxation law to an authorised law enforcement agency officer. The law enforcement agencies to which information may be disclosed are specified in the definition of ‘law enforcement agency’ in section 2 of the TAA 1953. The PIC and the QCC are not listed in the definition.

Explanation of the amendments

7.7 The proposed amendments will amend section 2 of the TAA 1953 to include the PIC and the QCC in the definition of ‘law enforcement agency’ [Item 2, new paragraphs 2(dae) and 2(daf)] and to also include the Commissioner for the PIC and the Crime Commissioner for the QCC in the definition of ‘head’ in relation to a law enforcement agency [Item 1, new paragraphs 2(dae) and 2(daf)].
7.8 These amendments will enable the Commissioner of Taxation to disclose information to the PIC and the QCC from the date of Royal Assent. [Clause 2]

Commonwealth of Australia Explanatory Memoranda

TAXATION LAWS AMENDMENT BILL (NO. 4) 1999

General outline and financial impact 1Chapter

Income tax deductions for gifts and related matters

Katherine District Business Re-establishment Fund

Majority underlying interests in pre-CGT assets held by public entities

Summary of Regulation Impact Statement

Beneficiary rebate for CDEP wages

Summary of Regulation Impact Statement

Small business provisions and value shifting between companies

CGT - small business retirement exemption & roll-over

Summary of Regulation Impact Statement

CGT - value shifting

Summary of Regulation Impact Statement

Corrections and minor amendments

CGT - assets register entries & M4/M5 Cashback Scheme

Summary of Regulation Impact Statement

CGT - corrections

Summary of Regulation Impact Statement

CGT - minor amendments

Summary of Regulation Impact Statement

Providing taxation information to State law enforcement agencies

Overview

Explanation of the amendments

Deductions for gifts

Marriage Guidance

Technical amendments

Overview

Overview

Summary of amendments

Purpose of amendments

Date of effect

Background to the legislation

Division 20 of Part IIIA of the Income Tax Assessment Act 1936Division 149 of the Income Tax Assessment Act 1997

Explanation of the amendments

Removal of the Commissioner’s power to disregard the ‘notional holder’ rule

Evidence must be given to the Commissioner

Consequence of evidence requirements not met

Tracing rules

Interposed entities

Example

When should public entities make their determinations?

REGULATION IMPACT STATEMENT

1. Specification of policy objective

2. Identification of implementation options

Background

Implementation option

Assessment of impacts (costs and benefits) of the implementation option

Impact group identification

Analysis of the costs and benefits associated with the implementation option

Taxation revenue

Consultation

Conclusion

Overview

Summary of amendment

Purpose of the amendment

Date of effect

Background to the legislation

The CDEP Scheme

Current tax treatment

Explanation of amendment

Example:

Regulation Impact Statement

Policy Objective

Background

Identification of implementation options

Blanket instalment variations

Group certificates

Assessment of impacts (costs and benefits) of the implementation option

Impact group identification

Assessment of costs

Compliance costs

CDEP participants

CDEP employers and third party employers

Assessment of benefits

CDEP participants

Administrative costs

Initial costs – internal

Recurrent costs – internal

Government revenue

General outline and financial impact 1
Chapter

Division 20 of Part IIIA of the Income Tax Assessment Act 1936
Division 149 of the Income Tax Assessment Act 1997