Thursday, 25 September 2008
Tax Laws Amendment (2008 Measures No. 5) Bill 2008
That this bill be now read a second time.
This bill amends various taxation laws to implement a range of improvements to Australia’s tax laws.
The amendments to schedule 1 of this bill maintain the integrity of the GST tax base. The amendments overcome deficiencies with the provisions dealing with real property, which prevent GST applying to the value added to land once it enters the GST system.
The deficiencies arise from the interaction between the margin scheme, which applies to sales of real property, and provisions that allow the GST-free sale of a ‘going concern’ (that is, an ongoing business); the GST-free sales of farmland; and provisions dealing with non-taxable supplies between associated entities.
These amendments provide that, where the margin scheme is used after certain GST-free or non-taxable supplies, the value added by the registered entity which made that supply is included in determining the GST subsequently payable under the margin scheme.
The amendments also confirm that the GST general anti-avoidance provisions apply to contrived arrangements entered into with the sole or dominant purpose of creating a circumstance or state of affairs that enable a choice, election, application or agreement to be made that gives rise to a GST benefit.
Schedule 2 modifies the thin capitalisation regime contained in division 820 of the Income Tax Assessment Act 1997 in relation to the use of accounting standards for identifying and valuing an entity’s assets, liabilities and equity capital.
The amendments aim to adjust for certain impacts of the 2005 adoption of the Australian equivalents to the International Financial Reporting Standards on entities’ thin capitalisation positions. The amendments achieve this by providing for the accounting standard treatment of specified assets and liabilities to be disregarded in certain circumstances.
These amendments require certain entities to exclude deferred tax assets and liabilities, as well as assets and liabilities arising from defined benefit schemes, in undertaking their thin capitalisation calculations. They also enable certain entities, in specified circumstances, to choose to recognise and/or revalue intangible assets—contrary to the relevant accounting standards—for thin capitalisation purposes.
The thin capitalisation regime is a key tax integrity measure, which needs to be able to perform the role it is set. However, given the impact this regime may have on a firm’s financing and investment decisions, it is important that the regime operates from a sound base.
These amendments seek to ensure that an appropriate economic value can be recognised for certain assets, and to remove undesirable volatility from year-to-year thin capitalisation calculations, which may introduce uncertainty into future investment planning activity.
Schedule 3 extends the eligibility for exemption from interest withholding tax to bonds issued in Australia by state and territory central borrowing authorities. These amendments form part of a suite of initiatives announced by the Treasurer on 20 May 2008 to bolster Australia’s financial markets.
This measure is intended to improve depth and liquidity in the state government bond markets, and allow them to make a greater contribution to financial market stability.
Schedule 4 removes an anomaly with the term ‘otherwise deductible’ in the fringe benefits tax law as it applies to benefits provided in relation to investment properties held jointly by an employee and their associates.
This anomaly has given rise to salary sacrificing opportunities in relation to jointly held investment properties.
This measure, which is one of the budget measures to improve the fairness and integrity in the FBT system, ensures that the associate’s share of the fringe benefit provided in relation to the investment property will be subject to fringe benefits tax.
This measure will provide consistency with arrangements where a benefit is provided solely to an associate and will re-establish the principle that income and deductions arising from jointly held assets should be allocated between joint owners according to their interests.
Employees who have already entered into salary sacrifice arrangements with their employer will be able to utilise existing arrangements until 31 March 2009 (that is, the end of the current FBT year). This will provide time for employers and employees to renegotiate salary packages to avoid incurring a FBT liability.
Schedule 5 amends the eligible investment business rules for managed investment trusts, which are contained in division 6C of the Income Tax Assessment Act 1936.
These amendments were foreshadowed by the government prior to the 2007 election and were announced in the 2008-09 budget. They form part of the government’s strategy to make Australia a funds management hub in the Asia-Pacific region.
The amendments clarify the scope and meaning of investing in land for the purpose of deriving rent; introduce a 25 per cent safe harbour allowance for non-rental, non-trading income from investments in land; expand the range of financial instruments that a managed fund may invest in or trade in; and provide a two per cent safe harbour allowance at the whole-of-trust level for non-trading income.
These safe harbours will make it easier for managed funds to know if they are complying with the law and reduce the scope for a trust to inadvertently breach division 6C. They will lower compliance costs for industry, the Australian Taxation Office and taxpayers.
The scope of these changes is limited to be consistent with the current policy framework, so as not to pre-empt the outcome of the Board of Taxation review of the tax arrangements applying to managed investment trusts.
Significant consultation has occurred on this schedule and I thank the stakeholders involved.
Full details of the measures in this bill are contained in the explanatory memorandum.
Debate (on motion by Mr Wood) adjourned.