Scrutiny of Bills Fifteenth Report of 1999
29 September 1999
ISSN 0729-6258
MEMBERS OF THE COMMITTEE
Senator B Cooney (Chairman)
Senator W Crane (Deputy Chairman)
Senator T Crossin
Senator J Ferris
Senator B Mason
Senator A Murray
TERMS OF REFERENCE
Extract from Standing Order 24
(1)
(a) At the commencement of each Parliament, a Standing Committee for
the Scrutiny of Bills shall be appointed to report, in respect of the
clauses of bills introduced into the Senate, and in respect of Acts of
the Parliament, whether such bills or Acts, by express words or otherwise:
(i) trespass unduly on personal rights and liberties;
(ii) make rights, liberties or obligations unduly dependent upon insufficiently
defined administrative powers;
(iii) make rights, liberties or obligations unduly dependent upon non-reviewable
decisions;
(iv) inappropriately delegate legislative powers; or
(v) insufficiently subject the exercise of legislative power to parliamentary
scrutiny.
(b) The Committee, for the purpose of reporting upon the clauses of a
bill when the bill has been introduced into the Senate, may consider any
proposed law or other document or information available to it, notwithstanding
that such proposed law, document or information has not been presented
to the Senate.
SENATE STANDING COMMITTEE FOR THE SCRUTINY OF BILLS
FIFTEENTH REPORT OF 1999
The Committee presents its Fifteenth Report of 1999 to the Senate.
The Committee draws the attention of the Senate to clauses of the following
bill which contains provisions that the Committee considers may fall within
principles 1(a)(i) to 1(a)(v) of Standing Order 24:
Taxation Laws Amendment Bill (No. 8) 1999
Taxation Laws Amendment Bill (No. 8) 1999
Introduction
The Committee dealt with this bill in Alert Digest No. 11 of 1999,
in which it made various comments. The Assistant Treasurer has responded
to those comments in a letter dated 24 August 1999. A copy of the letter
is attached to this report. An extract from the Alert Digest and
relevant parts of the Assistant Treasurer's response are discussed below.
Extract from Alert Digest No. 11 of 1999
This bill was introduced into the House of Representatives on 30 June
1999 by the Parliamentary Secretary to the Minister for Finance and Administration.
[Portfolio responsibility: Treasury]
The bill proposes to amend the following Acts:
Income Tax Assessment Act 1936 to remove anomalies preventing
the intended Australian taxation of capital gains arising on deemed disposals
of tainted assets of a controlled foreign company (CFC) where that CFC
ceases to be a member of a group and has previously benefited from capital
gains tax roll-over relief;
Income Tax Assessment Act 1936 and Income Tax Assessment Act
1997 to:
- exempt from income tax post-judgment interest received in personal
injury compensation cases;
- allow an income tax deduction to certain funds, authorities and institutions
and to political parties for a gift of property worth more than $5,000,
regardless of when or how the property was acquired;
- provide a capital gains tax (CGT) exemption for testamentary gifts
of property to certain funds, authorities and institutions and to political
parties unless the property is reacquired by the estate, a beneficiary
of the estate or an associate;
- provide a CGT exemption for gifts of property made under the Cultural
Gifts Program unless the property is reacquired for less than market
value by the donor or an associate;
- allow concessional taxation treatment for specified private funds
which will not be required to seek donations from the public but will
be subject to the other requirements applying to public funds;
- allow the apportionment of deductions for donations made under the
Cultural Gifts Program over a period of up to five income years; and
- extend to companies two concessional tracing rules which are available
to trusts under trust loss measures;
Income Tax Assessment Act 1936 and the Taxation Laws Amendment
Act (No. 3) 1998 to:
- allow a deduction where franking rebates exceed the ceiling imposed
under the benchmark portfolio ceiling method;
- treat shares and interests in shares held by a bare trust as if they
were held by the beneficiaries of the trust;
- remove the restrictions on exempting credits for dividends paid by
former exempting companies for natural persons where all the shares
are owned by natural persons and there has been no change in ownership
of the company; and
- extend the scope of a transitional concession for the general anti-avoidance
rule and the specific anti-streaming rule;
Income Tax Assessment Act 1997 to:
- disallow a deduction for bribes made to foreign public officials;
and
- make technical amendments;
Taxation (Deficit Reduction) Act (No.2) 1993 to maintain the rate
of tax imposed on the eligible insurance business of friendly societies
and other registered organisations at 33% for the 1999-2000 income year;
Income Tax Assessment Act 1936, the Income Tax Assessment
Act 1997 and the Taxation Administration Act 1953 to:
- provide machinery provisions to collect untainting tax;
- ensure that distributions from share premium accounts are within the
ambit of the capital streaming and dividend substitution rules;
- ensure that bonus shares deemed to be a dividend have a cost base
of the dividend amount where the shares are held on revenue account;
and
- make minor technical changes;
Income Tax Assessment Act 1936 and the Taxation Laws Amendment
(Trust Loss and Other Deductions) Act 1997 to allow an extended period
for making family trust elections and interposed entity elections.
Retrospective application
Schedule 1, Part 1
The amendments proposed by Part 1 of Schedule 1 are to apply from 13
May 1997 – the date of the 1997 Budget. While the Committee generally
accepts the need for Budget announcements to apply from the date of the
Budget, on this occasion it seems to have taken more than 2 years for
these changes to take legislative form. The Committee, therefore, seeks
the Treasurer's advice as to the reasons for such retrospectivity
in these circumstances, and which taxpayers or categories of taxpayers
will be disadvantaged by that retrospectivity.
Pending the Treasurer's advice, the Committee draws Senators' attention
to the provisions, as they may be considered to trespass unduly on personal
rights and liberties, in breach of principle 1(a)(i) of the Committee's
terms of reference.
Relevant extract from the response from the Assistant Treasurer
Schedule 1, Part 1 - Controlled foreign companies and capital gains
tax
It is intended that these measures, which were announced in the 1997-98
Budget, will apply after 7.30 pm by legal time in the Australian Capital
Territory, on 13 May 1997. A press release issued at the time described
the amendments and noted that since it was an anti-avoidance measure,
the amendments would apply from the 1997-98 Budget night.
These measures are directed at closing off specific avoidance arrangements
which take advantage of anomalies in the interaction between the controlled
foreign companies measures and the capital gains tax provisions of the
Australian tax law.
It is necessary for the measures to apply from the date of announcement,
to ensure that the anomalies identified in the 1997-98 Budget are addressed,
and to prevent taxpayers from taking advantage of the anomalies after
the announcement. A further rationale for retaining the start date as
introduced is to prevent taxpayers who may have acted in accordance with
the announced measures from being disadvantaged as compared to taxpayers
who ignored the announcement.
Taxpayers affected by the amendments: The measures are only likely
to impact Australian based multinational companies seeking to take advantage
of the anomalies in the tax law to avoid tax, where the companies undertake
corporate reconstructions involving controlled foreign companies, and
capital gains tax roll-over relief has been utilised in respect of certain
assets.
In addition, the amendments will only apply if an Australian resident
taxpayer has an attribution interest (generally a greater than 10% interest)
in a controlled foreign company that has obtained capital gains tax roll-over
relief for the inter-group transfer of tainted assets. The operation of
the proposed measures is further targeted to disposals of tainted assets
(assets held to derive tainted income such as interest or dividends) where
the controlled foreign company is deemed to have disposed of the tainted
assets when it ceased to be a member of a wholly-owned company group.
The Committee thanks the Assistant Treasurer for this response.
Retrospective application
Schedule 2
The amendments proposed by Schedule 2 to the bill are to apply from the
1992-93 year of income. These amendments exempt from income tax any post-judgment
interest received as part of an award of compensation in a personal injury
case where that interest relates to delays that have occurred while avenues
of appeal are being pursued. The amendments are beneficial to taxpayers
and, as such, would usually attract no further comment from the Committee.
However, given that the amendments are to apply from the 1992-93 income
year the Committee seeks the Treasurer's advice on any action proposed
to be taken to inform taxpayers of this legislation to enable them to
apply for the amendment of assessments going back over 7 years. Without
such action, amendments which set out to be beneficial to all taxpayers
in a particular category may end up, somewhat capriciously, benefiting
only some of those taxpayers.
Other than this, the Committee makes no further comment on these provisions.
Relevant extract from the response from the Assistant Treasurer
Schedule 2 - Post-judgment interest
The Committee has sought advice as to how taxpayers will be informed
that these provisions will exempt post-judgment interest from the 1992-93
income year onwards, giving taxpayers the right to seek amendments of
their assessments to exclude post-judgment interest for 1992-93 and later
years.
Firstly, the Assistant Treasurer issued a press release (copy attached)
in March 1999, announcing the proposed exemption for post-judgment interest,
which noted that the changes would apply to the 1992-93 and later years
of income.
Secondly, the Australian Taxation Office (ATO) has a wide range of programs
to educate taxpayers about changes to the law:
- Tax agents will be advised of the new provisions and how they will
affect their clients;
- Taxpayers will be advised of the new provisions through ATO publications,
such as TaxPack;
- The ATO will have information outlining the new provisions located
on its Internet site; and
- The ATO is anticipating sending information about the new provisions
to insurance companies, since insurance companies are often responsible
for making compensation payments.
The above measures will form part of an ongoing process by the ATO to
inform taxpayers of the legislation and should ensure that all affected
taxpayers will become aware of their entitlements in relation to the new
exemption.
The Committee thanks the Assistant Treasurer for this response.
Barney Cooney
Chairman
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