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1998-1999-2000-2001
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
TAXATION LAWS AMENDMENT BILL (No. 4) 2001
SUPPLEMENTARY EXPLANATORY MEMORANDUM
Amendments to be moved on behalf of the Government
(Circulated by authority of the
Treasurer, the Hon Peter
Costello, MP)
Taxation Laws Amendment Bill (No. 4) 2001
These amendments will amend Schedule 4 to the bill to make a correction to the refundable tax offset rules in Division 67 of the Income Tax Assessment Act 1997 (ITAA 1997) so that double claiming of a refund of excess imputation credits by both a trustee and a beneficiary will not be possible. In addition, a consequential amendment will be made to Division 6 of the Income Tax Assessment Act 1936 (ITAA 1936).
Because of a defect in the current law, both a trustee and a beneficiary may be entitled to a refund in respect of the same imputation credits. This may occur, for example, where a trustee is assessed in respect of dividend income under subsection 98(1) of the ITAA 1936 because a beneficiary is a minor, and therefore under a legal disability, and the beneficiary is a beneficiary in another trust estate or has income from other sources.
Financial impact: None. There would be a cost to revenue if these amendments were not made.
Amendment 2 amends Schedule 4 to the bill so that the beneficiary, and not the trustee, will be entitled to any refund of excess imputation credits in all cases where a trustee is assessed under section 98 of the ITAA 1936. These amendments are set out in Part 1 of the new Schedule.
The amendments currently set out in Schedule 4, which will deny refunds of excess imputation credits to non-complying superannuation funds and non-complying approved deposit funds are set out in Part 2 of the new Schedule.
Refunds of excess imputation credits are provided for by Division 67 of the ITAA 1997. Subsection 67-25(1) sets out the tax offsets that arise from franked dividends that are refundable. The franking rebate allowed to trustees under section 160AQY of the ITAA 1936 is currently refundable where the trustee is assessed under section 98 of the ITAA 1936.
New item 3 will amend subsection 67-25(1) so that a franking rebate allowable to a trustee under section 160AQY will not be refundable where the trustee is assessed under section 98. Trustees assessed under section 99 will continue to be eligible for refunds of excess imputation credits.
The amendment to the refundable tax offset provisions will apply to refunds of tax offsets (i.e. franking rebates) that relate to dividends paid on or after 1 July 2000. This means that there will be no scope for double refunds of excess imputation credits. [Schedule 4, subitem 4(2)]
Beneficiaries will continue to be eligible for refunds of excess imputation credits. If a beneficiary is a beneficiary in another trust estate or has income from other sources, the income assessed to the trustee under subsections 98(1) or (2) is also included in the assessable income of the beneficiary under subsection 100(1) and the beneficiary is given a credit under subsection 100(2) for any tax paid by the trustee. A franking rebate is allowable under section 160AQX.
Consequential amendments will be made to Division 6 of the ITAA 1936 to overcome a complication that arises where a trustee is assessed under subsections 98(1) or (2) but the income is not also included in the assessable income of the beneficiary under subsection 100(1). This could arise where the beneficiary has no other income and is not a beneficiary in another trust estate. A beneficiary is entitled to a franking rebate in respect of a distribution attributable to a franked dividend, and therefore to a refund of excess imputation credits, only where the distribution is included in the assessable income of the beneficiary.
New item 1 inserts new subsection 100(1A) to include the distribution in the beneficiary’s assessable income in this case. The amount will be refunded only where there is a potential refund of excess imputation credits. New item 2 amends subsection 100(2) so that the beneficiary will be given a tax credit for any tax paid by the trustee.
The amendments to Division 6 will apply to assessments for years of income starting on or after 1 July 2000. [Schedule 4, subitem 4(1)]
Amendment 1 amends the commencement provisions of the bill so that the amendments to the refundable tax offset rules and the consequential amendments will be taken to have commenced on 1 July 2000. This means that the law will be corrected from the commencement of refunds of excess imputation credits.