Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
Tax Laws Amendment (Political Contributions and Gifts) Bill 2008
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary 1
General outline and financial impact 3
Chapter 1 Political contributions and gifts 5
Index 11
Glossary
The following abbreviations are used throughout this explanatory
memorandum.
|Abbreviation |Definition |
|CGT |capital gains tax |
|GST |goods and services tax |
|GST Act |A New Tax System (Goods and |
| |Services Tax) Act 1999 |
|ITAA 1936 |Income Tax Assessment Act |
| |1936 |
|ITAA 1997 |Income Tax Assessment Act |
| |1997 |
General outline and financial impact
Political contributions and gifts
This Bill amends the Income Tax Assessment Act 1997 and the
Income Tax Assessment Act 1936 to remove tax deductibility for
contributions and gifts to political parties, independent members
and independent candidates. This Bill also amends the A New Tax
System (Goods and Services Tax) Act 1999 to ensure that the goods
and services tax treatment of these entities is not affected by the
income tax amendments.
Date of effect: This measure applies to contributions and gifts
made on or after 1 July 2008 as announced in the 2008-09 Budget.
Proposal announced: The Government made an election commitment to
remove tax deductibility for political donations in Labor's $3
Billion Savings Plan announced on 2 March 2007.
Financial impact: This measure will have these revenue
implications:
|2008-09 |2009-10 |2010-11 |2011-12 |
|- |$10.1m |$10.3m |$11.0m |
Compliance cost impact: Low.
Chapter 1
Political contributions and gifts
Outline of chapter
1. This Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) and
the Income Tax Assessment Act 1936 (ITAA 1936) to remove tax
deductibility for contributions or gifts to political parties,
independent members and independent candidates.
2. This Bill also ensures that political parties, independent members
and independent candidates will not lose access to certain goods
and services tax (GST) concessions to which they may be entitled as
a consequence of the removal of income tax deductibility for gifts
or contributions.
Context of amendments
3. Subject to certain conditions, contributions or gifts of money or
property to political parties, independent members and independent
candidates are tax deductible up to a maximum of $1,500.
Summary of new law
4. These amendments remove the ability for taxpayers to claim specific
deductions for contributions and gifts to political parties and
independent members and candidates.
5. These amendments also remove general deductions for business
taxpayers for contributions and gifts to political parties, members
and candidates. They also preclude such contributions or gifts
from forming part of the cost base or reduced cost base of any
capital gains tax (CGT) asset. These changes do not affect the
principle found in the general tax deduction provision that
individuals should be able to claim a deduction where the
contribution is related to their employment.
6. This measure also amends the A New Tax System (Goods and Services
Tax) Act 1999 (GST Act) to ensure that the existing GST treatment
of political parties, independent members and independent
candidates is not altered by the income tax changes.
7. This measure applies in relation to contributions and gifts made on
or after 1 July 2008.
Comparison of key features of new law and current law
|New law |Current law |
|Division 30 of the ITAA |Division 30 of the ITAA |
|1997 does not allow |1997 allows deductions |
|deductions for |for contributions and |
|contributions and gifts |gifts to political |
|to political parties and |parties and to |
|to independent candidates|independent candidates |
|and independent members. |and independent members. |
|Only employees or office |Taxpayers may claim |
|holders may claim |political gifts and |
|deductions for political |contributions incurred in|
|gifts and contributions |earning assessable income|
|incurred in earning |or carrying on a business|
|assessable income as a |as a general deduction. |
|general deduction. Also,| |
|taxpayers who are not | |
|employees or office | |
|holders cannot include | |
|political contributions | |
|or gifts in the cost base| |
|or reduced cost base of | |
|any CGT asset. | |
Detailed explanation of new law
Income tax changes
8. Various references to political gifts and contributions are removed
from Division 30, including repealing the main provisions in
Subdivision 30-DA. As a result, gifts and contributions made by
taxpayers (including those for membership fees) to political
parties, independent members and independent candidates are no
longer deductible under these provisions. [Schedule 1, items 4 to
10, Subdivision 30-DA, subsections 30-5(1) and 30-15(2), and item
87 in the table in subsection 30-315(2)]
1.
Mary wishes to support a registered political party, and
consequently makes a $1,000 gift to the party. The gift is
not deductible.
2.
Bob earns his income by being employed as an engineer and is
a member of a political party for which he pays $50 a year
in membership fees. The membership payment is not incurred
in earning his assessable income, and is therefore not
deductible.
9. Division 26 of the ITAA 1997 sets out amounts that cannot be
deducted, or deducted in full, from assessable income. To ensure
that a deduction is not available:
. a section is added to Division 26 to deny taxpayers who
are not employees or office holders from deducting
contributions and gifts to political parties, members and
candidates under other parts of the Act, including the
general deduction provision in section 8-1 of the ITAA
1997. The general deduction provision allows deductions
for losses or outgoings to the extent that they are
incurred in gaining or producing assessable income, or
necessarily incurred in carrying on a business for the
purposes of gaining or producing assessable income. This
amendment applies to gifts and contributions to parties,
members and candidates at the federal, state and local
government level; and
. the CGT provisions are amended so that such expenses also
do not form part of the cost base or reduced cost base of
any CGT asset. This ensures that no capital loss or
reduced capital gain can arise from such contributions or
gifts.
[Schedule 1, items 3, 11 and 12, section 26-22, subsections 110-
38(6) and 110-55(9F)]
1.
XYZ Ltd is a proof reading company specialising in political
publications. XYZ Ltd is looking to maintain its corporate
profile, and to this end makes contributions to political
parties. This amendment ensures that XYZ Ltd is unable to
claim these contributions under section 8-1 as a loss or
outgoing necessarily incurred in carrying on its business or
for the purpose of gaining or producing its assessable
income.
10. The existing general tax deduction provision continues to apply to
employees and office holders. Contributions to political parties
remain deductible provided that they meet the general deduction
requirements of section 8-1. In other words, a deduction will be
available where the amount contributed is incurred in gaining or
producing assessable income (similar to an accountant being
eligible for a deduction for annual subscriptions paid to a society
of accountants). The new section does not seek to extend the
ordinary deduction requirements of section 8-1. [Schedule 1,
item 3, section 26-22]
1.
A member of Parliament pays a compulsory levy to retain
their party membership. This would generally be deductible
under section 8-1.
1.
A member of Parliament pays for a ticket to attend a
fundraising event hosted by their party where a substantial
sit-down dinner is provided. The ticket price generally
would not be deductible under section 8-1.
GST changes
11. Items 9 and 15 in Schedule 1 to this Bill remove deductions for
donations to political parties and independent members and
independent candidates. As a result political parties, independent
members and independent candidates no longer meet the definition of
a 'gift-deductible entity' in section 195-1 of the GST Act. As a
consequence political parties, independent members and independent
candidates would lose access to certain concessions that may be
available to gift-deductible entities in the GST Act. Items 1 and
3 in Schedule 1 to this Bill restore the ability of political
parties, independent members and independent candidates to access
these GST concessions to the same extent as existed before this
Bill.
12. Examples of the GST concessions in question include enabling a gift-
deductible entity to:
. hold GST-free raffles or bingo games;
. treat certain other fund-raising events as input-taxed;
. prevent donors from requiring adjustments to their input
tax credits for making supplies to the entity;
. receive input tax credits for certain reimbursements made
to volunteer workers of the gift-deductible entity;
. make GST-free supplies for nominal consideration in
certain circumstances;
. account for GST on a cash basis, regardless of turnover;
and
. treat branches of the gift-deductible entity, where the
gift-deductible entity is a non-profit body, as separate
non-profit sub-entities. This enables the branches to be
treated as separate entities for GST purposes. As a
result one or more sub-entities may fall below the GST
registration threshold for non-profit organisations when
the complete entity would exceed the registration
threshold.
13. Items 1 and 4 replace the term 'gift-deductible entity' with the
term 'concessional entity' in the GST Act and item 3 defines a
concessional entity as an entity to which a taxpayer may make a
gift or contribution that is deductible to the taxpayer under
Division 30 of the ITAA 1997 or a political party, independent
member or independent candidate. Concessional entities become
entitled to the same GST concessions under the GST Act as were
available to gift-deductible entities. [Schedule 1, items 1, 3 and
4]
14. This measure also inserts definitions of 'independent member' and
'independent candidate' into section 195-1 of the GST Act. These
definitions are intended to have a similar scope to the definitions
of 'independent member' and 'independent candidate' in Subdivision
30-DA of the ITAA 1997 that are repealed. [Schedule 1, items 2, 5
and 6]
Application and transitional provisions
15. These amendments apply to contributions and gifts made on or after
1 July 2008. [Schedule 1, item 15]
Consequential amendments
16. The reference to 'contributions to political parties' in the non-
operative index of provisions about deductions is amended to refer
to the new section in Division 26. [Schedule 1, item 2, section 12-
5]
17. The references to 'independent candidate' and 'independent member'
are repealed from the ITAA 1997 Dictionary. [Schedule 1, items 13
and 14, definition of 'independent candidate' and 'independent
member' in subsection 995-1(1) of the ITAA 1997]
1. The provisions for tax deductions for political donations were
expanded by the Electoral and Referendum Amendment (Electoral
Integrity and Other Measures) Act 2006. Among other things, these
amendments provided for additional deductions for contributions and
gifts to independent candidates and independent members.
Consequently, minor amendments were made to section 78A of the ITAA
1936 (which denies deductions for certain gifts) to cover
individuals who were able to receive tax deductible donations.
These minor amendments are reversed. [Schedule 1, item 1,
subsections 78A(2) to (4) of the ITAA 1936]
Index
Schedule 1: Political contributions and gifts
|Bill reference |Paragraph |
| |number |
|Item 1, subsections 78A(2) to (4) of the |1.18 |
|ITAA 1936 | |
|Items 1, 3 and 4 |1.13 |
|Item 2, section 12-5 |1.16 |
|Items 2, 5 and 6 |1.14 |
|Item 3, section 26-22 |1.10 |
|Items 3, 11 and 12, section 26-22, |1.9 |
|subsections 110-38(6) and 110-55(9F) | |
|Items 4 to 10, Subdivision 30-DA, |1.8 |
|subsections 30-5(1) and 30-15(2), and item | |
|87 in the table in subsection 30-315(2) | |
|Items 13 and 14, definition of 'independent |1.17 |
|candidate' and 'independent member' in | |
|subsection 995-1(1) of the ITAA 1997 | |
|Item 15 |1.15 |