Kelly O'Dwyer (Higgins, Liberal Party, Minister for Revenue and Financial Services) Share this | Hansard source

I present a supplementary explanatory memorandum to the bill and I move government amendment (1):

(1) Schedule 1, item 2, page 3 (line 18) to page 4 (line 13), omit section 23AB, substitute:

23AB Meaning of base rate entity passive income

(1) Base rate entity passive income is assessable income that is any of the following:

(a) a distribution (within the meaning of the Income Tax Assessment Act 1997) by a corporate tax entity (within the meaning of that Act), other than a non-portfolio dividend (within the meaning of section 317 of the Assessment Act);

(b) an amount of a franking credit (within the meaning of the Income Tax Assessment Act 1997) on such a distribution;

(c) a non-share dividend (within the meaning of the Income Tax Assessment Act 1997) by a company;

(d) interest (or a payment in the nature of interest), royalties and rent;

(e) a gain on a qualifying security (within the meaning of Division 16E of Part III of the Assessment Act);

(f)a net capital gain (within the meaning of the Income Tax Assessment Act 1997);

(g) an amount included in the assessable income of a partner in a partnership or of a beneficiary of a trust estate under Division 5 or 6 of Part IIIof the Assessment Act, to the extent that the amount is referable (either directly or indirectly through one or more interposed partnerships or trust estates) to another amount that is base rate entity passive income under a preceding paragraph of this subsection.

(2) However, if an entity has assessable income that is interest (or a payment in the nature of interest):

(a) treat the assessable income as not being interest (or a payment in the nature of interest) of the entity for the purposes of paragraph (1)(d) if:

  (i) the entity is a financial institution (within the meaning of section 202A of the Assessment Act); or

  (ii) the entity is a registered entity (within the meaning of the Financial Sector (Collection of Data) Act 2001) that carries on a general business of providing finance (within the meaning of that Act) on a commercial basis; or

  (iii) the entity holds an Australian credit licence (within the meaning of the National Consumer Credit Protection Act 2009), or is a credit representative (within the meaning of that Act) of another entity that holds such an Australian credit licence; or

  (iv) the entity is a financial services licensee (within the meaning of the Corporations Act 2001) whose licence covers dealings in financial products mentioned in paragraph 764A(1)(a) of that Act (securities), or is an authorised representative (within the meaning of section 761A of that Act) of such a financial services licensee; or

  (v) the entity is an entity of a kind specified in a legislative instrument made under subsection (3); and

  (b) treat the assessable income as not being interest (or a payment in the nature of interest) of the entity for the purposes of paragraph (1)(d) to the extent that it is a return on an equity interest in a company.

(3) The Minister may, by legislative instrument, specify one or more kinds of entities for the purposes of subparagraph (2)(a)(v).

This amendment will provide additional certainty that passive investment companies cannot access the lower company tax rate. It does this by tightening the definition of 'interest income' in the bill. This amendment is of a technical nature and responds to an issue identified by the Australian Taxation Office. The amendment modifies the definition of 'interest' for the purposes of the passive income test so that all interest is treated as passive, except if earned by genuine moneylenders. Specifically, this means that interest will be passive unless earned by authorised deposit-taking institutions or cooperative housing societies, non-ADI lenders that report data to the Australian Prudential Regulation Authority, Australian credit licensees or representatives, certain Australian financial services licensees or their representatives, or other categories of entities prescribed by legislative instrument. The ability to prescribe additional categories of entity by legislative instrument will mean the provision can be expanded, if necessary, to ensure genuine moneylenders can get access to the lower company tax rate.

See this speech in context