BILLS DIGEST NO. 92, 2017–18              22 March 2018

Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018

Jaan Murphy
Law and Bills Digest Section

Date introduced: 15 February 2018

House:  House of Representatives

Portfolio: Treasury

Commencement: Various dates as noted in the ‘Key issues and provisions’ section of this Digest.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at March 2018.

The Bills Digest at a glance

Purpose of the Bill

The purpose of the Bill is to improve the integrity and operation of the corporate income tax consolidation regime.

Background

The corporate income tax consolidation regime has been the subject of a number of reviews since its introduction in 2002. The Bill gives effect to most of the recommendations made by the Board of Taxation in those reviews.

Key elements

•       A deductible liabilities measure: removing certain double tax benefits that can arise when an entity with a deductible liability joins a consolidated group.

•       A deferred tax liabilities measure: preventing commercial (accounting) /tax mismatches arising that would inappropriately:

–      reduce the future tax liability when certain assets are sold or

–      increase the taxable gain made by a head company on the disposal of subsidiary membership interests.

•       A securitised assets measure: preventing commercial (accounting) /tax mismatches arising that would result in:

–      the tax costs of certain assets being overstated and

–      a head company realising an artificial capital loss.

•       An assets churning measure: preventing a consolidated group from shifting assets in such a way as to avoid capital gains tax (CGT) or to artificially uplift the cost base of an entity’s assets.

•       A taxation of financial arrangements (TOFA) measure: this will ensure that when an asset or liability emerging from a consolidated group:

–      a lender is not assessed on a return of the principal of a loan and

–      a borrower cannot claim deduction for the repayment of that principal.

•       A value shifting measure: preventing a consolidated group from gaining a double benefit from making a reduced taxable gain on sale of the encumbered asset and at the same time recognising a market value cost base in the rights it retains.

Key issues

•       Many of the provisions in the Bill will operate retrospectively, commencing as far back 1 July 2010.

Purpose of the Bill

The purpose of the Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018 (the Bill) is to amend the Income Tax Assessment Act 1997 (the ITAA 1997) to improve the integrity and operation of the corporate income tax (CIT) consolidation regime by:

•       removing certain double tax benefits that can arise when an entity with a deductible liability joins a consolidated group

•       simplifying the operation of the entry and exit tax cost setting rules to ensure that deferred tax liabilities are disregarded

•       preventing a double benefit from arising when an entity joins or leaves a consolidated group where the entity has securitised assets

•       preventing non-resident entities from ‘churning’ assets between different consolidated groups to access doubled deductions

•       clarifying the interaction between the consolidation regime and the taxation of financial arrangements (TOFA) regime by ensuring the tax treatment of certain intra-group liabilities and assets between a continuing member of a consolidated group and exiting member of the consolidated group reflects the economic substance of the relevant transaction and

•       removing anomalies that allow consolidated groups to access double deductions by shifting value across entities within the consolidated group.[1]

Structure of the Bill

The Bill has one schedule, which is divided into eight Parts:

•       Part 1 deals with the deductible liabilities measure

•       Part 2 deals with how deferred tax liabilities are treated in the consolidation regime

•       Parts 3 and 4 deal with how securitised assets are treated when an entity joins or leaves a consolidated group

•       Part 5 deals with the churning of assets between different consolidated groups

•       Part 6 deals with the TOFA

•       Part 7 deals with value shifting across entities within a consolidated group and

•       Part 8 deals with the commencement of the various measures contained in the Bill.

Background

The 1999 Review of Business Taxation recommended the introduction of a system of tax rules for wholly owned corporate groups to overcome efficiency and integrity concerns that arose regarding the taxation of such groups under the previous CIT system.[2]

The consolidation regime was introduced in 2002 in response to that recommendation. Prior to the 2002 reforms, members of Australian corporate groups were treated as separate entities for CIT purposes. The current consolidation regime allows a wholly owned group of Australian resident entities to choose to form a consolidated group for CIT purposes. A ‘consolidated group’ generally consists of:

•       an Australian resident ‘head company’ and

•       all its wholly owned Australian resident subsidiaries.[3]

However, the ITAA 1997 contains specific rules that also allow certain resident wholly-owned subsidiaries of a foreign holding company to consolidate—this is termed a multiple entry consolidated group (MEC group).[4]

Consolidation allows a wholly owned corporate group to be treated as a single entity for CIT purposes. This in turn simplifies the tax system as it applies to the consolidated group, reduces taxpayer compliance and ATO administration costs, improves the efficiency of business restructuring and strengthens the integrity of the tax system. More specifically the benefits to business arising from tax consolidation include:

•       allowing intragroup transactions to be ignored

•       allowing losses, franking credits and foreign tax credits to be pooled and

•       removing certain impediments to group restructuring (for example, shifting assets between members of the consolidated group).[5]

The Board of Taxation conducted a post-implementation review of the CIT consolidation regime. As a result of that review, the Board of Taxation issued two reports regarding the operation of the CIT consolidation regime and made a number of recommendations.[6] Those reports and recommendations form the basis for the majority of the amendments contained in the Bill.[7]

The Board of Taxation’s recommendations are briefly examined in relation to the measures proposed by the Bill under the heading ‘Key issues and provisions’ below.

Key rules underpinning the corporate income tax consolidation regime

The CIT consolidation regime is underpinned by three core rules:

•       the ‘single entity rule’

•       the ‘inherited history rule’ and

•       the ‘tax cost setting rule’.[8]

This Digest does not provide a detailed explanation of the operation of these rules. However to give context to the amendments proposed by the Bill, a brief summary of each of the rules is provided below.

The single entity rule

Under the single entity rule the members of a consolidated group are treated as part of the head company of the group for income tax purposes. This means that:

•       a single income tax return is lodged by the group and the group meets a single tax liability as well as paying a single set of pay-as-you-go (PAYG) instalments

•       losses, franking credits and foreign income tax offsets are pooled in the head company

•       the assets and liabilities (other than intra-group assets and liabilities) of the subsidiary members are treated as if they were assets and liabilities of the head company

•       the actions of the subsidiary members (for example, acquisition or disposal of assets) are treated as if they had been undertaken by the head company and

•       intra-group transactions (for example, the transfers of assets between group members) are treated as arrangements between divisions of a single company.[9]

The operation of the ‘single entity rule’ also means that where an entity joins a consolidated group, the entity will cease to be recognised (for tax purposes) as a separate entity, and its assets, liabilities and other tax attributes will be treated as though they are those of the head company of the group. Where an entity leaves a consolidated group, it will be recognised (for tax purposes) as a separate entity distinct from the consolidated group, and it will take its assets and liabilities out of the group.[10]

The Board of Taxation identified issues arising from the operation of the single entity rule including:

•       the acquisition and disposal of intra-group assets and liabilities

•       value shifting caused by the acquisition and disposal of encumbered assets subject to intragroup rights and

•       dealings by third parties with a consolidated group.[11]

For example, the Board of Taxation concluded that integrity issues arise when an encumbered asset’s market value has been reduced (due to the intra-group creation of rights over the encumbered asset). In simple terms it is possible for the head company to benefit from making a reduced taxable gain on the sale of the encumbered asset at the same time it is entitled to recognise a market value cost base in the rights it retains over the encumbered asset. This means that the consolidated group effectively receives a double benefit when it sells the encumbered asset and retains certain rights in it.[12]

The Board of Taxation therefore recommended that integrity rules should be designed and introduced to address and eliminate any such double benefits arising from the sale of encumbered assets by consolidated groups, whether that sale occurs directly or indirectly.[13]

The inherited history rule

The ‘inherited history rule’ supports and complements the single entity rule. The inherited history rule determines the tax history that the head company of a consolidated group inherits from an entity that joins the group. This is called the ‘entry history rule’. The inherited history rule also determines the tax history that an entity inherits when it leaves a consolidated group. This is called the ‘exit history rule’.[14]

The history that is inherited has an impact on the tax implications that apply to the consolidated group after an entity joins or leaves it. For example, under the entry history rule a consolidated group may become entitled to certain deductions for expenditure incurred by an entity before it joined the consolidated group.[15]

The entry history rule is affected by the tax costs setting rule and rules for transferring and utilising losses.

The tax cost setting rules

The ‘single entity rule’ is also supported by ‘tax cost setting rules’ which apply to:

•       the assets of an entity which joins a consolidated group that then become assets of a group and

•       the assets of an entity which leaves a consolidated group that become the assets of the departing entity.

In either case, a question arises as to what tax cost should be given to these assets. The current rules may not reflect the cost which the group paid to acquire the joining entity, or the value of the asset to the departing entity, which could result in the duplication of gains and losses.[16]

To eliminate the duplication of gains and losses, the Bill seeks to make amendments to the ‘tax cost setting rules’ consistent with the Board of Taxation’s recommendations.[17]

Committee consideration

At the time of writing the Bill had not been referred to any Committee for inquiry and report. The Senate Standing Committee for the Scrutiny of Bills had no comment on the Bill.[18]

Policy position of non-government parties/independents

The Opposition has indicated it supports the measures contained in the Bill.[19] The position of other non-government parties and independents on the measures contained in the Bill was unclear at the time of writing.

Position of major interest groups

Consultation regarding the measures proposed by the Bill was conducted by the Board of Taxation and Treasury over a period of many years, with consultation regarding some of the measures commencing in December 2009.[20] However, at the time of writing, not all submissions made as part of those consultation processes (and in particular, the consultations undertaken in 2015 and 2017 by Treasury) were publically available.

As such, because of the length of time the overall consultation process has taken, the unavailability of submissions to the most recent consultation processes and the risk that views of major interest groups may have changed over the course of time, this Digest will not examine the position of major interest groups.

However, broadly speaking it appears that the overall response from stakeholders to the reforms is positive, or at least largely non-critical of the Bill.[21] However, the some tax professionals have expressed concern about the Bill’s complexity and retrospectivity.[22]

Financial implications

According to the Explanatory Memorandum, the Bill is expected to result in the following revenue implications:

2017–18

2018–19

2019–20

2020–21

$475m

$200m

$235m

$260m

Source: Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, p. 4.

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[23]

Parliamentary Joint Committee on Human Rights

At the time of writing the Parliamentary Joint Committee on Human Rights had not considered the Bill.

Key issues and provisions

Schedule 1, Part 1—deductible liabilities

Schedule 1, Part 1 of the Bill contains the deductible liabilities measure. This measure impacts on the tax cost allocation rule, as it relates to the entry ‘allocable cost amount’ (ACA). The measure will remove a double benefit that can arise in respect of certain deductible liabilities held by an entity that joins a consolidated group by excluding the value of deductible liabilities from the entry ACA calculated under the tax cost allocation rules with effect from 1 July 2016.

Current law—determining a joining entity’s allocable cost amount

When an entity joins an existing consolidated group, the tax cost of each asset brought into the group is set at the asset’s 'tax cost setting amount'.[24] The relevant tax cost setting amounts are worked out by allocating the consolidated group’s ACA for the joining entity to the joining entity’s assets.[25] The ACA is supposed to broadly represent the cost of equity in the joining entity and its liabilities. Depending on the type of asset, its original tax cost can either be retained, or changed by resetting to a higher or lower amount.[26]

Currently when an entity that holds deductible liability becomes a member of a consolidated group for CIT tax purposes, a double benefit arises because:

•       the liability increases the ACA amount of the joining entity and

•       the head company can claim a deduction in respect of the liability when the relevant expenditure is incurred.

In simple terms the current law results in a double tax benefit being realised by a consolidated group.[27]

Determining an entity’s ACA involves a number of steps. Step two of the entry ACA calculation increases the ACA for a joining entity by, broadly speaking, the amount of the joining entity’s ‘accounting liabilities’. An ‘accounting liability’ is worked out according to the accounting principles that the joining entity would use if it prepared its financial statements just before the time it joined the consolidated group.[28] Examples of accounting liabilities include loans borrowed by a company to acquire assets, provision for employee benefits (such as long service leave), provision for self-insured risks, a derivative liability that is out of money (and not covered by TOFA), foreign currency liabilities that are a net forex loss position and others (some of which may have little, if any, relationship with the asset costs of the entity joining or leaving the consolidated group).[29]

Importantly, some accounting liabilities are deductible liabilities, that is they can be claimed as a tax deduction and therefore operate to reduce the taxable income of the consolidated group.

Currently, when an entity joins a consolidated group holding deductible liabilities, the value of the joining entity’s liabilities is added to step 2 of the ACA process using a complex calculation that results in at least part of the value of the deductible liability being included in the cost allocation for the joining entity’s assets.

This will usually result in a tax benefit to the head company in the form of additional depreciation, a higher capital gains tax (CGT) cost base (therefore reducing future capital gains and therefore CGT liabilities). In addition, an additional benefit may arise because the head company can claim a tax deduction for the liability when the relevant expense is incurred.

Proposed changes—preventing double tax benefits

The Bill will prevent most deductible liabilities from increasing the entry ACA for a joining entity. It does this by providing that:

•       if the head company would be entitled to a deduction as a result of the discharge of an accounting liability (or a part of the accounting liability) just after the joining time, the amount that would be deductible is not added for that liability at step 2 of the entry ACA and

•       if the head company would be entitled to a deduction for part of an accounting liability, the net amount of the accounting liability that would be deductible is not added for that liability under step 2 of the entry allocable cost amount. [30]

However, certain deductible liabilities listed in proposed subsection 705-70(1AC) will continue to be included in the calculation of a joining entity’s ACA:

•       accounting liabilities held by life insurance companies and that relate to life insurance policyholders[31]

•       accounting liabilities held by general insurance companies and private health insurers that relate to general insurance policyholders[32]

•       accounting liabilities that are financial arrangements covered by the TOFA rules[33] and

•       accounting liabilities that relate to certain retirement village contracts.[34]

The result of this change is that tax benefits to the head company from such liabilities increasing the ACA of a joining entity (such as additional deprecation or a higher CGT cost base) will no longer be available in addition to the tax deduction for the liability when the relevant expense is incurred.

Current law—undistributed, taxed profits and a joining entity’s allocable cost amount

The purpose of step 3 of the entry cost tax setting amount process is to prevent the double taxation of undistributed (but taxed) profits. Currently step 3 increases the ACA of a joining entity to take account of any undistributed, taxed profits of a joining entity that accrue to the consolidated group before the joining time.[35]

Proposed changes—preventing double taxation of undistributed, taxed profits

The Bill will prevent undistributed, taxed profits from being double taxed by ensuring various amounts that impact on the entry ACA of a joining entity are not double counted in determining the joining entity’s ACA.[36]

Current law—operation of current cost setting rules

When an entity leaves/exits a consolidated group, it is necessary to determine the tax exit costs of the leaving entity.

Currently step 4 of the exit cost setting rule involves subtracting the leaving entity’s liabilities (including those owed to members of the group) and certain interests that are treated as liabilities, from the exit ACA. In essence, this reduces the consolidated group’s ACA for the leaving entity by the amount of the relevant liabilities that the leaving entity takes with it.

If the ACA remaining after step 4 is positive, it is the leaving entity’s ACA. If it is negative, the ACA is nil and the head company will make a capital gain equal to that amount at the time the entity leaves the group.

Proposed changes—operation of exist cost setting rules

The changes to the exit cost setting rules reflect the changes to step 2 of the entry cost setting rules and are required to ensure that the step 4 exit amount reflects the treatment of the liability on entry (that is, in step 2 of the entry ACA process, as amended by the Bill).[37]

As such, the Bill will ensure that existing section 711-45 of the ITAA 1997 will operate to produce the appropriate outcome for each category of deductible liabilities of the leaving entity, as set out in table 1.1 on page 23 of the Explanatory Memorandum.

Application

These changes will apply to deductible liabilities of entities that join or leave a consolidated group or MEC group from 1 July 2016.[38] The changes therefore have retrospective operation.

Schedule 1, Part 2—deferred tax liabilities

Schedule 1, Part 2 of the Bill contains the deferred tax liabilities (DTLs) measure.

What are deferred tax liabilities?

DTLs are an accounting concept that measure a future tax liability. They represent the amount of (for example) income tax payable by an entity in future periods on taxable, but temporary, differences between how taxable income is recognised under accounting standards and tax law. DTLs are a specific accounting liability recognised under Accounting Standard AASB 112 Income Taxes.[39]

Current law—commercial / tax mismatch arising from deferred tax liabilities

Currently, there is a commercial (accounting) /tax mismatch under the consolidation entry and exit tax cost-setting rules for DTLs, which gives rise to both integrity concerns and uncertainty.[40] As noted by the Board of Taxation in its 2013 Report:

… the Board observed that there is commercial/tax mismatch under the entry and exit tax cost setting processes.

On entry, the mismatch arises because the deferred tax liability relating to a reset cost base asset is included in step 2 of the entry tax cost setting rules. As a result a higher tax cost is allocated to the reset cost base asset. This has the effect of reducing the future tax liability when the asset is sold.

A similar but converse mismatch arises on exit. That is, under the exit tax cost setting rules, the terminating value of assets is included in step 1. This value does not reflect the value of a deferred tax liability relating to the asset. However, the deferred tax liability is included in step 4 of the exit tax cost setting rules. This has the effect of reducing the tax costs of the membership interests in the leaving entity, thereby increasing the taxable gain made by the head company on the disposal of those membership interests, by the amount of the deferred tax liability.[41] (emphasis added).

Proposed changes—commercial / tax alignment with regard to deferred tax liabilities

The DTLs measures in Schedule 1, Part 2 of the Bill are consistent with the Board of Taxation’s recommendations. The amendments will:

•       exclude DTLs from an entity’s entry ACA calculations (step 2) and

•       exclude DTLs from an entity’s exit ACA calculations (step 4).[42]

These modifications will simplify the entry and exit tax cost setting rules. The effect of the amendments will be to prevent such mismatches from either reducing tax liabilities when an asset is sold, or increasing the taxable gain on the disposal of membership interests on their disposal by the head company.

However, the Bill provides that certain DTLs (ones that are an accounting liability that relates to certain types of assets[43]) will continue to be recognised for tax cost setting purposes.[44] This means that DTLs will continue to be recognised for tax cost setting purposes if, for the reasons noted in the Explanatory Memorandum:

•       the DTL is an accounting liability

•       it relates to an asset that is a retained cost base asset of a life insurance company and

•       the life insurance company leaves a consolidated group.[45]

The policy for this aspect of the amendments is that the broad effect of the ITAA 1997 once amended by the Bill will ensure that the tax outcomes for these policyholder assets are not affected when a life insurance company joins or leaves a consolidated group.[46]

Application

These changes will apply to DTLs of entities that join or leave a consolidated group from the date the Bill was introduced into the House of Representative (that is, 15 February 2018).[47] In that regard, they can be viewed as having retrospective operation in that they will apply to transactions that were entered into before the Bill became an Act.

However, whilst the Board of Taxation recommended that ‘the changes should apply prospectively’[48] it also noted that an alternative was:

…. applying the changes to joining events under transactions that commence after the date amending legislation is introduced (rather than the date of announcement).[49]

In that regard, the DTLs measure is consistent with the Board of Taxation’s recommendation.

Schedule 1, Parts 3 and 4—Securitised assets

Schedule 1, Parts 3 and 4 of the Bill contain the securitised assets (SAs) measures.

What are securitised assets?

Securitisation is a financing arrangement that usually (but not always) involves the interest held by an Authorised Deposit-taking Institution (ADI) or financial entity in certain financial assets (such as residential mortgages) being equitably assigned to a special purpose vehicle (SPV). The SPV then holds the mortgage assets and, due to particular accounting standard requirements, accounting assets and liabilities are created.

The ADI or financial entity holds the residual income rights in the SPV and gets a return equal to, broadly, the difference between the payments due on the notes and the amounts receivable on the assets, net of fees, associated with the securitisation arrangement. This has the advantage of allowing the ADI or financial entity to diversify its funding.

While securitisation arrangements are common in the financial industry, such arrangements can also be entered into as a means of financing by entities that are not ADIs or financial entities in some circumstances.[50]

Current law—commercial / tax mismatch arising from securitised assets

Currently, there is a commercial (accounting) /tax mismatch under the consolidation entry and exit tax cost-setting rules for SAs, which gives rise to ‘distortions’ in the tax cost setting rules.[51]

This is because while the accounting liability created by the securitisation of the asset is recognised in step 2 of the entry ACA process, the accounting asset itself is not. This causes a mismatch in ACA entry and exit calculations. As a result of this mismatch, when an entity that has securitised assets joins a consolidated group, the value of the accounting liability associated with the SAs is allocated to other assets held by the joining entity. This outcome arises because the underlying securitised assets have no or little value. As a result:

•       the tax costs of those other assets are overstated and

•       to the extent that there are insufficient assets to absorb the increased tax value, the head company may realise an artificial capital loss.[52]

Further, when an entity that has securitised assets leaves a consolidated group, the accounting liability reduces the tax value that is allocated to the membership interests held by the group in the leaving entity. This means the group will make a higher capital gain on the disposal of the membership interests in the leaving entity because:

•       the tax costs of membership interests are undervalued and

•       to the extent that the accounting liabilities exceed the value of the leaving entity's assets, the tax costs of the membership interests will be nil and the head company will make a capital gain equal to the amount of the excess.[53]

As noted by the Board of Taxation in its 2013 Report:

The Board considers that, in accordance with its preliminary view, modifications should be made to the entry and exit tax cost setting rules where there is asymmetry in the recognition of assets and related liabilities. This asymmetry can arise and result in anomalous outcomes in the case of, for example, finance leases, securitisation arrangements and trading stock consignment arrangements.[54]

Proposed changes—commercial / tax mismatch arising from securitised assets

The SAs measures in Schedule 1, Parts 3 and 4 of the Bill are consistent with the Board of Taxation’s recommendations. The amendments will:

•       exclude SAs from an entity’s entry ACA calculations (step 2) and

•       exclude SAs from an entity’s exit ACA calculations (step 4).[55]

These modifications will simplify the entry and exit tax cost setting rules. The effect of the amendments will be to prevent mismatches from either reducing tax liabilities when an asset is sold, or increasing the taxable gain on the disposal of membership interests on their disposal by the head company.

Application

The application of these changes varies according to the type of entity:

•       if the entity is an ADI or financial entity, the changes will apply from 13 May 2014 or

•       for any other type of entity, the changes will apply from 3 May 2016.[56]

They can be viewed as having retrospective operation in that they will apply to transactions that were entered into before the Bill became an Act. In this regard, the Bill differs from the recommendation of Board of Taxation which noted:

As a general proposition, the Board considers that any changes to the consolidation regime arising from this report should apply prospectively… The Board has been advised that the difficulties identified in this chapter [dealing with assets and liabilities recognised on different bases] have arisen in practice and that, while these issues are not common, they are not rare one-off situations. More importantly, when the issues do arise, the impact is material and can, in some cases, be significant. The Board has also been advised that taxpayers may have taken different positions under the current law. Therefore, the impact of retrospective changes (applying to joining and leaving events that have occurred since the primary legislative provisions were introduced) to the law on… [a] range of potential classes of taxpayers needs to be considered… Although there is a case for applying Recommendation 5.1 retrospectively, the Board is of the view that it is a question for Government to determine whether or not a change to the law should apply retrospectively. However, the Board considers that, except in highly unusual circumstances, retrospective changes to the law should not disadvantage taxpayers.[57](emphasis added).

However, whilst operating retrospectively, the Bill contains a number of transitional measures that are designed to ensure that affected consolidated groups are ‘are not disadvantaged by the amendments’ but also ‘to prevent taxpayers from obtaining unexpected windfall gains’.[58] These are discussed on pages 35 to 42 of the Explanatory Memorandum.

Schedule 1, Part 5—churning of assets between different consolidated groups

Schedule 1, Part 5 of the Bill contains the asset churning measure.

What is asset churning?

Broadly speaking, asset churning is moving assets between members of a consolidated group or MEC group in such a way as to avoid CGT or to artificially uplift the cost base of an entity’s assets.

Current law—commercial / tax mismatch arising from securitised assets

The Board of Taxation gave two broad examples of where asset churning poses a risk to the integrity of the Australian tax system.

The first integrity issue was that, as a result of the interaction between the consolidation regime and the non-resident CGT rules, a MEC group can move Australian assets within its group and then dispose of them without any capital gain being realised (and therefore no CGT being collected).[59]

In simple terms this means a MEC group can use its structure and the consolidation rules to move assets within the MEC group and then dispose of them without recognising a capital gain or loss. This has an impact on horizontal equity as it allows MEC groups to receive benefits at a cost to the taxation revenue which may create investment distortions. In addition, foreign owned entities that form a MEC group have an advantage over other Australian and foreign owned entities.[60]

The second integrity issue is the ability of consolidated groups that are wholly-owned by a
non-resident entity or a MEC group to uplift the cost base of Australian assets where there is no change in the underlying beneficial ownership of the assets, and therefore without recognising a capital gain (and therefore no CGT being collected).[61]

In simple terms the current laws provide that where an entity joins another consolidated group or MEC group, the cost base of the joining entity’s assets can be uplifted even though the vendor is not taxable on the capital gain made on the disposal of the membership interests.[62] The Board of Taxation therefore recommended in its 2012 Report:

… where the membership interests in an entity that are transferred to a consolidated group are not regarded as taxable Australian property under the non-resident CGT rules, the consolidation tax cost setting rules should only apply to the transferred membership interests if:

• there has been change in the underlying majority beneficial ownership of the membership interests in the entity; or

• there has not been a change in the underlying majority beneficial ownership of the membership interests in the entity, but the membership interests in the entity were recently acquired by the foreign entity (or the foreign group);

– membership interests in an entity will be recently acquired if they have been majority owned by the foreign entity (or the foreign group) for less than 12 months.[63]

The Bill is consistent with this recommendation.

Proposed changes—assets churning measure

The asset churning measure ‘switches off’ the entry tax cost setting rules for a joining entity where:

•       a capital gain or capital loss made by a foreign resident owner when it ceases to hold membership interests in the joining entity is disregarded and

•       there has been no change in the majority economic ownership of the joining entity for a period of at least 12 months before the joining time.[64]

This will reduce the risk of the distortions and integrity issues discussed above from arising in the future. A detailed explanation of the various sub-measures that underpin the above is provided on pages 42 to 46 of the Explanatory Memorandum.

Application

The churning measure generally applies in relation to an entity that joins a consolidated group or MEC group under an arrangement that commences on or after 7.30 pm by legal time in the Australian Capital Territory, on 14 May 2013 (the 2013 Budget time, the date of announcement of the measure by the former Government).[65]

However, transitional rules modify its application. The extension of the control test to cover participation interests of associates applies only to an arrangement that commences on or after the start of the day on which this Bill was introduced into the House of Representatives (that is, 15 February 2018).[66] In addition, depending on the nature of the arrangement, other application dates may apply.[67]

The churning measure can be viewed as having retrospective operation in that it will (generally) apply to transactions that were entered into before the Bill became an Act. Whilst the Board of Taxation did not make recommendations as to the commencement of the provision, as noted elsewhere in this Digest it consistently expressed a preference for prospective application of changes to tax laws (that is, the measure should only apply to transactions and arrangements entered into after the law commences, not when it was announced).

The Board of Taxation’s general preference for prospective operation of tax laws mirrors that of the Senate Scrutiny of Bills Committee, which in relation to another recent tax Bill noted that retrospective application of measures in a tax Bill amount to ‘“legislation by press release” [and] challenges a basic value of the rule of law that, in general, laws should only operate prospectively’[68] and further noted that:

… in the context of tax law, reliance on ministerial announcements, and the implicit requirement that persons arrange their affairs in accordance with such announcements rather than in accordance with the law, tends to undermine the principle that the law is made by Parliament, not by the executive. … in fact, where taxation amendments are not brought before the Parliament within 6 months of being announced, the bill risks having the commencement date amended by resolution of the Senate (see Senate Resolution No. 44).[69]

Schedule 1, Part 6—taxation of financial arrangements

Schedule 1, Part 6 of the Bill contains the TOFA measure.

What is the TOFA?

Broadly speaking, the TOFA rules provide for the tax treatment of gains and losses on financial arrangements.[70]

Current law—TOFA rules

The TOFA rules are found in Division 230 of the ITAA 1997, which provides the methods for calculating gains and losses from financial arrangements, and the time at which these gains and losses will be brought to account.

Under the current law, the tax values of an intra-group asset or liability that is part of a financial arrangement which is subject to the TOFA rules is unclear when a subsidiary member leaves a consolidated or MEC group. As a result, the application of the TOFA provisions to those financial arrangements to an entity after it leaves a consolidated group or MEC group is also unclear.[71]

For example, there is uncertainty as to how TOFA applies to an intra-group loan between two members of the group, when one of the members leaves the group. In the case where the loan originated within the group, it has been argued that because the loan has no ‘cost’ (the initial drawdown being ignored for tax purposes because of the single entity rule), the lender could be assessed on the return of the principal of the loan, and the borrower could claim a deduction for the repayment of that principal after one of the entities exits the group.[72]

Proposed changes—TOFA rules

The TOFA measure clarifies the operation of the TOFA provisions. It does this by setting a tax value for an intra-group asset or liability that is, or is part of, a financial arrangement covered by the current TOFA rules when:

•       the asset or liability emerges from a consolidated group

•       because a subsidiary member leaves the group.[73]

This will ensure that, consistent with the application of the single-entity rule prior to the asset or liability emerging from the consolidated group:

•       a lender is not assessed on a return of the principal of a loan and

•       a borrower cannot claim deduction for the repayment of that principal.[74]

As noted in the Explanatory Memorandum, the broad objective of the TOFA measure is to make the tax treatment of intra-group TOFA financial arrangements consistent with the economic substance of the transactions, in a manner consistent with similar rules that currently exist for TOFA financial arrangements that are not intra-group financial arrangements.[75]

A detailed explanation of the various sub-measures that underpin the above is provided on pages 51 to 58 of the Explanatory Memorandum.

Application

The TOFA measure applies retrospectively. This is because subitem 25(1) provides that it applies in the same way as Part 2 of Schedule 1 to the Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 (generally from 1 July 2010).

However, the transitional rules in subitems 25(2) and (3) provide that the Commissioner cannot amend an assessment of an entity for an income year in a particular way if:

•       the entity lodged its income tax return for the income year before the 2013 Budget time (that is, before 7.30 pm, by legal time in the Australian Capital Territory, on 14 May 2013, the date of announcement of the measure)

•       the Commissioner could not amend the assessment in that way if these amendments were disregarded and

•       the entity has not requested the Commissioner to amend the assessment in that way.

As noted in the Explanatory Memorandum:

This transitional rule ensures that taxpayers who took a position under the current law will not be disadvantaged by the amendments. However, it also prevents taxpayers from obtaining a windfall gain by amending prior year assessments in a way that takes advantage of a deficiency in the law.[76]

As noted earlier in this Digest, the Board of Taxation’s general preference is for prospective operation of tax laws, and that preference mirrors that of the Senate Scrutiny of Bills Committee.[77] Given that the TOFA measure may apply to arrangements entered into from 1 July 2010 onwards, it would appear to have—despite the transitional rules—a potentially significant likelihood of applying retrospectively to a large number of financial arrangements entered into before the Bill became an Act, or was even introduced into the House of Representatives.

Schedule 1, Part 7 – value shifting measure

Schedule 1, Part 7 of the Bill contains the value shifting measure.

What is value shifting?

Broadly speaking, value shifting is where a consolidated group uses intra-group transactions to inappropriately shift or alter the value of assets or liabilities by transferring them between members by taking advantage of tax rules. For example, a consolidated group can benefit from making a reduced taxable gain on the sale of the encumbered asset and at the same time be entitled to recognise a market value cost base in the rights it retains. The consolidated group effectively receives a double benefit.[78]

Current law—value shifts and intra-group transactions

The Board of Taxation concluded that integrity issues arise when an encumbered asset whose market value has been reduced, due to the intra-group creation of rights over the encumbered asset, is sold by a consolidated group. This could arise if the encumbered asset is sold directly or indirectly.[79] By way of example, under the current law when an entity leaves a consolidated group or MEC group holding an asset which is a liability owed by a member of the old group, the amount taken into account under the exit tax cost setting rules for the asset is:

•       the market value of the asset or

•       in limited circumstances, an amount that reflects the tax cost of the asset.[80]

The ‘value shifting’ issue arises if the market value of the asset ‘inflates’ the exit tax cost setting amount (thereby reducing the gain made by the old group).[81]

In addition, when a third party encumbered asset which is subject to rights held by a consolidated group is subsequently acquired by the consolidated group, the rights held by the consolidated group become intra-group rights, and the consolidated group effectively acquires full ownership over the unencumbered asset. Under the current law, a consolidated group which buys an encumbered asset will never be able to recognise the tax cost it previously paid to acquire the rights which become intra-group.[82] The Bill does not make any amendments dealing with this aspect of value shifting identified by the Board of Taxation.

Proposed changes—value shifting

The Bill deals only with value shifting related to the disposal of encumbered assets by consolidated groups and MEC groups. It does not deal with the acquisition of assets from third parties over which the consolidated group has rights.

The amendments will ensure that the amount taken into account under the exit tax cost setting rules for the asset is aligned with the tax cost setting amount for the corresponding asset of the leaving entity, thus removing the ability for the types of inappropriate value shifting identified by the Board of Taxation to be conducted by consolidated groups. This is achieved by providing that step 3 of the exit tax cost setting rules is modified so that:

•       the amount included for an intra-group liability owed to the leaving entity by the old group is equal to the tax cost setting amount for the corresponding asset[83] and

•       the tax cost setting amount for the corresponding asset is set at:

–      in the case of an asset that corresponds to a debt owed to the leaving entity by the old group: the market value of the asset

–      otherwise: an amount that reflects the cost of the asset.[84]

The proposed amendment to subsection 711-45(4) at item 29 of the Bill also operates with respect to the above two measures to ensure that there is a clear alignment between:

•       the amount that is included at step 4 of the exit tax cost setting rules for intra-group liabilities owed by the leaving entity to the old group and

•       the tax cost of the corresponding asset of the old group.[85]

A detailed explanation of the measures above is provided on pages 58 to 62 of the Explanatory Memorandum.

Application

The value shifting measure applies retrospectively. This is justified in the Explanatory Memorandum on the following basis:

In some cases these measures apply from a date prior to the introduction of the amendments. This is necessary to:

              •              prevent taxpayers from structuring their affairs to obtain unintended tax benefits or to obtain windfall gains; and

              •              protect a significant amount of revenue that otherwise would be at risk.[86]

The value shifting measure generally applies in relation to an entity that exits a consolidated group under an arrangement that commences on or after 7.30 pm by legal time in the Australian Capital Territory, on 14 May 2013 (the 2013 Budget time, the date of announcement of the measure by the former Government).[87] However, subitem 30(2) provides that if an asset covered by the value shifting measure is a financial arrangement, then consistently with the TOFA measure, the amendments will apply from the commencement of the Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 (generally from 1 July 2010).

The transitional rules in subitems 30(3) and (4) provide that the Commissioner cannot amend an assessment of an entity for an income year in a particular way if:

•       the entity lodged its income tax return for the income year before the 2013 Budget time (that is, before 7.30 pm, by legal time in the Australian Capital Territory, on 14 May 2013, the date of announcement of the measure)

•       the Commissioner could not amend the assessment in that way if these amendments were disregarded and

•       the entity has not requested the Commissioner to amend the assessment in that way.

As noted earlier in this Digest, the Board of Taxation’s general preference is for prospective operation of tax laws, and that preference mirrors that of the Senate Scrutiny of Bills Committee.[88] Given that the value shifting measure may apply to arrangements entered into from 1 July 2010 (and certainly from 14 May 2013) onwards, it would appear to have—despite the transitional rules—a potentially significant likelihood of applying retrospectively to a large number of arrangements entered into before the Bill became an Act, or was even introduced into the House of Representatives.

Schedule 1, Part 8 – commencement of arrangements

Schedule 1, Part 8 of the Bill deals with when arrangements are deemed to have commenced. As the various measures discussed above are triggered by entities or assets leaving or joining a consolidated group or MEC group, it is necessary to have rules that determine when such events occurred.

Item 31 of the Bill provides rules for determining when particular events or transactions occurred. These are summarised in the table below.

Table 1:              commencement of arrangements

Type of arrangement

Relevance

Time that the arrangement commences

Off-market takeover bid

An off-market bid can be used:

·    by a consolidated group to acquire an entity or

·    by an entity to acquire a subsidiary of a consolidated group.

As such, it is potentially relevant to both the entry and exit cost setting rules.

The day on which the bidder lodged with the Australian Securities and Investments Commission a notice stating that the bidder's statement and offer document have been sent to the target — that is, step 4 of the table in subsection 633(1) of the Corporations Act 2001 is completed.

On-market takeover bid

An on-market bid can be used:

·    by a consolidated group to acquire an entity or

·    by an entity to acquire a listed subsidiary of a consolidated group.

As such, it is potentially relevant to both the entry and exit cost setting rules.

The day on which the bidder announces a bid to the relevant financial market — that is, step 2 of the table in subsection 635(1) of the Corporations Act 2001 is completed.

Scheme of arrangement

Relevant to both the acquisition and disposal of entities by consolidated groups and hence to the exit and entry cost setting rules.

The day on which a company applies for a court order (under subsection 411(1) of the Corporations Act 2001 ) for a meeting of the company's members, or one or more classes of the company's members, about the arrangement.

Other arrangement

Relevant to both the acquisition and disposal of entities and assets by consolidated groups and hence to the exit and entry cost setting rules, amongst others.

The day on which the decision to enter into the arrangement (including an initial public offering) was made.

Source: Item 31; Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, p. 67.

Concluding comments

Whilst the Bill has been developed by successive Governments over a long period of time, and with significant consultation, the retrospective application of many of the measures (despite various transitional rules) may raise concerns in some quarters.

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[1].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, p. 3.

[2].              Board of Taxation (BoT), Post implementation review into certain aspects of the consolidation regime: a report to the Assistant Treasurer, BoT, Canberra, June 2012 (the ‘2012 Report’), pp. 11–12.

[3].              Ibid., p. 12.

[4].              Ibid., p. 12.

[5].              Ibid., pp. 12–13.

[6].              The two reports were the 2012 Report and the Board of Taxation (BoT), Post implementation review of certain aspects of the consolidation tax cost setting process: a report to the Assistant Treasurer, BoT, Canberra, April 2013 (the ‘2013 Report’).

[7].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, pp. 6–7.

[8].              2012 Report, op. cit., p. 12.

[9].              Ibid., p. 13.

[10].              Ibid.

[11].              Ibid., pp. 39–40.

[12].              Ibid., pp. 48–49.

[13].              Ibid., pp. 48–49.

[14].              Ibid., pp. 13–14.

[15].              Ibid., p. 14.

[16].              Ibid., p. 14.

[17].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, pp. 6–7.

[18].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 3, 2018, The Senate, Canberra, 21 March 2018, p. 58.

[19].              Dr A Leigh ‘Second reading speech: Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018’, House of Representatives, Debates, (proof), 28 February 2018, p. 35: ‘Labor supports the Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, which implements a number of sensible amendments to improve the integrity and operation of the consolidation regime.’; M Thistlethwaite, ‘Second reading speech: Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018’, House of Representatives, Debates, (proof), 28 February 2018, p. 38: ‘… this Bill has been on the table for many, many years. It's something that Labor has supported for many years. It was in our policy that we took to the last election.’

[20].              2012 Report, pp. 9–10; 2013 Report, p. 13; The Treasury, ‘Consolidation amendments in Schedule 1, ’ The Treasury website, n.d., consultation took place between 18 April 2012 and 2 May 2012; The Treasury, ‘TOFA consolidation interaction and TOFA transitional balancing adjustments amendments in Schedule 2’, consultation took place between 18 April 2012 and 2 May 2012; The Treasury, ‘Restoring integrity to the consolidation regime’, The Treasury website, n.d., consultation took place between 29 April 2015 and 19 May 2015 (submissions are not publically available at this time); The Treasury, ‘Consolidation integrity measures’, The Treasury website, n.d., consultation took place between 11 September 2017 and 6 October 2017 (submissions are not publically available at this time).

[21].              PricewaterhouseCoopers (PWC), ‘TaxTalk – insights corporate tax: consolidation integrity measures introduced into Parliament’, PWC website, 16 February 2018: ‘tax consolidated groups now have certainty in relation to the manner in which these integrity measures affect the tax cost setting rules in respect of entities that either join or leave their group. The measures broadly apply in the same manner as they were previously reflected in the exposure draft law that was released for comment in September 2017, but there has been some welcome changes.’; N McBride, R Leslie, ‘Consolidation integrity Bill introduced’, Greenwoods + Hebert Smith Freehills website, 16 February 2018.

[22].              P Hill, ‘Australia pushes Bill to close tax-free gains loophole’, Tax Institute website, 16 February 2018.

[23].              The Statement of Compatibility with Human Rights can be found at page 69 of the Explanatory Memorandum to the Bill.

[24].              Income Tax Assessment Act 1997, section 701-10.

[25].              Ibid., sections 705-20 to 705-55.

[26].              M Chow, ‘[¶8-210] Where single entity joins existing group’, Australian Premium Master Tax Guide, 31 December 2017, CCH database.

[27].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, p. 8.

[28].              Income Tax Assessment Act 1997, subsection 705-70(3). The term “accounting principles” is defined in s 995-1: if it is in accordance with: (a) accounting standards (the accounting standards made by the Australian Accounting Standards Board (AASB) under section 334 of the Corporations Act 2001), or (b) if there is no applicable accounting standard, the liability is determined in accordance with ‘authoritative pronouncements’ of the AASB applying to the preparation of financial statements.

[29].              A Ting, ‘Australia’s consolidation regime: a Road of no return?’, British Tax Review, 2010(2), pp. 162–193, p. 172; Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, p. 13.

[30].              Proposed subsections 705-70(1AA), (1AB), (1AD) of the ITAA 1997, at item 1 of the Bill.

[31].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, pp. 15–16; proposed paragraphs 705-70(1AA)(a), 705-70(1AC)(b), subparagraph 705-70(1AC)(a)(i), subsections 705-75(1A) and 705-80(1A).

[32].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, pp. 15–16; proposed paragraph 705-70(1AA)(a), 705-70(1AC)(c), 705-75(1A)(a) and 705-80(1A)(a) and subsection 705-70(1AD).

[33].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, pp. 15–16; proposed paragraph 705-70(1AA)(a), subparagraph 705-70(1AC)(a)(ii) and subsections 705-75(1A) and 705-80(1A).

[34].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, pp. 15–16; proposed paragraphs 705-70(1AA)(a), 705-70(1AC)(d) and subsections 705-75(1A) and 705-80(1A).

[35].              Income Tax Assessment Act 1997, section 705-90.

[36].              Proposed subsections 705-70(1B), 705-90(2B).

[37].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018,
pp. 22–23.

[38].              Item 6.

[39].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, p. 24.

[40].              BoT, 2013 Report, op. cit., p. 35.

[41].              Ibid., p. 37.

[42].              Proposed subsections 705-70(1B) and 711-45(1B) of the ITAA 1997, at items 7 and 8 of the Bill.

[43].              Those referred to in paragraphs 713-515(1)(a) or (b) and 713-575(2)(a) or (b) of the Income Tax Assessment Act 1997.

[44].              Proposed subsections 705-70(1C) and 711-45(1C).

[45].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, pp. 25–26.

[46].              Ibid., pp. 26–27.

[47].              Item 9.

[48].              BoT, 2013 Report, op. cit., pp. 39.

[49].              Ibid.

[50].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, pp. 29–30.

[51].              BoT, 2013 Report, op. cit., p. 49.

[52].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, p. 30.

[53].              Ibid.

[54].              BoT, 2013 Report, op. cit., p. 51.

[55].              Proposed subsections 705-70(4) (at item 10) and 711-45(11) (at item 12), proposed sections 705-76 and 711-46 (at items 11 and 13).

[56].              Items 14, 15 and 19.

[57].              BoT, 2013 Report, op. cit., pp. 52–54.

[58].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, p. 34.

[59].              BoT, 2012 Report, op. cit., p. 60.

[60].              Ibid., p. 61.

[61].              BoT, 2012 Report, op. cit., pp. 60, 62–63,

[62].              Ibid., p. 63.

[63].              BoT, 2012 Report, op. cit., p. 66.

[64].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, p. 42. Proposed section 716-440 at item 20.

[65].              Subitem 21(1).

[66].              Subitems 21(2), (3).

[67].              Item 31.

[68].              Senate Standing Committee for Scrutiny of Bills, Scrutiny digest, 2, 2018, The Senate, Canberra, 14 February 2018, p. 61. The Committee raised the same concern in Scrutiny digest, 11, 2017, The Senate, Canberra, 13 September 2017, pp. 21–22.

[69].              Senate Standing Committee for Scrutiny of Bills, Scrutiny digest, 2, op. cit., p. 61.

[70].              Defined in sections 230-45 to 230-55 of the Income Tax Assessment Act 1997 (see section 995-1 of that same Act).

[71].              Deloitte, ‘Tax insights: long-awaited tax consolidation measures released’, Deloitte website, 15 September 2017, p. 7; PWC, ‘Consolidation integrity measures: a second look at proposed law’, PWC website, 14 September 2017, p. 4.

[72].              PWC, ‘Consolidation integrity measures: a second look at proposed law’, op. cit., p. 4.

[73].              Proposed sections 715-379 and 715-379A at item 24.

[74].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, p. 51.

[75].              Ibid.

[76].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, p. 58.

[77].              Senate Standing Committee for Scrutiny of Bills, Scrutiny digest, 2, op. cit., p. 61.

[78].              BoT, 2012 Report, op. cit., p. 49.

[79].              Ibid., p. 48.

[80].              Income Tax Assessment Act 1997, sections 711-40 (step 3 of the exit tax cost setting rules) 701-20, and 701-60 (table item 3).

[81].              BoT 2012 Report, op. cit., pp. 48–49.

[82].              Ibid., pp. 49–50.

[83].              Proposed section 711-40 at item 28.

[84].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, p. 59. Proposed section 701-60A and table items 3 and 3A of section 701-60, at items 26 and 27.

[85].              Explanatory Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, p. 62.

[86].              Ibid., p. 64.

[87].              Subitem 30(1).

[88].              Senate Standing Committee for Scrutiny of Bills, Scrutiny digest, 2, op. cit., p. 61.