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Tax and Superannuation Laws Amendment (2015 Measures No . 3) Bill 2015
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2013-2014-2015

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

Tax » and superannuation « laws » « amendment » (2015 « measures » n o . 3) « bill » 2015

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by the authority of the

Treasurer, the Hon J. B. Hockey MP)

 



Table of contents

Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 3

Chapter 1               Abolishing the seafarer « tax » offset...................................... 5

Chapter 2               Research and development « tax » incentive: reducing the « tax » offset rates  9

Index................................................................................................................. 15

Do not remove section break.



 

The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

ITAA 1997

Income « Tax » Assessment Act 1997

TAA 1953

Taxation Administration Act 1953



Abolishing the seafarer « tax » offset

Schedule 1 to this « Bill » amends the Income « Tax » Assessment Act 1997 (ITAA 1997) to abolish the seafarer « tax » offset.

Date of effect : This measure applies to assessment for 2015-16 and later income years.

Proposal announced : This measure was announced in the 2014-15 Budget.

Financial impact : This measure will have the following fiscal impact over the forward estimates:

2013-14

2014-15

2015-16

2016-17

2017-18

-

-

$4m

$4m

$4m

Human rights implications : This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 1, paragraphs 1.14 to 1.19.

Compliance cost impact : This measure was assessed as resulting in a compliance cost reduction of around $4,000 each year.

Research and development « tax » incentive: reducing the « tax » offset rates

Schedule 2 to this « Bill » amends the Income « Tax » Assessment Act 1997 (ITAA 1997) to reduce the rates of the « tax » offset available under the research and development « tax » incentive for the first $100 million of eligible expenditure by 1.5 percentage points. The higher (refundable) rate of the « tax » offset will be reduced from 45 per cent to 43.5 per cent and the lower (non-refundable) rates of the « tax » offset will be reduced from 40 per cent to 38.5 per cent.

Date of effect : This measure applies to income years starting on or after 1 July 2014.

Proposal announced : This measure was announced in the 2014-15 Budget on 13 May 2014.

Financial impact : This measure has the following fiscal impact over the forward estimates period:

2013-14

2014-15

2015-16

2016-17

2017-18

-

$70m

$160m

$200m

$190m

Human rights implications : This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 2, paragraphs 2.20 to 2.27.

Compliance cost impact : This measure does not affect compliance costs.

 



       

Abolishing the seafarer « tax » offset

Outline of chapter

1.0                   Schedule 1 to this « Bill » amends the Income « Tax » Assessment Act 1997 (ITAA 1997) to abolish the seafarer « tax » offset.

Context of amendments

1.1                   The seafarer « tax » offset was introduced in « 2012 » to provide an incentive for companies to employ Australian seafarers.

1.2                   A company is entitled to the seafarer « tax » offset in an income year in respect of an Australian resident individual if:

•        the company engaged the individual for at least 91 days in the income year under a contract of employment or an arrangement that results in a payment that is subject to pay as you go withholding under subsection 12-60(1) in Schedule 1 to the Taxation Administration Act 1953 ;

•        the individual was engaged as a seafarer (a master, deck officer, integrated rating, steward or engineer) on a voyage to or from a place outside Australia; and

•        an entity holds a certificate for the vessel(s) on which the individual is engaged under Part 2 of the Shipping Reform ( « Tax » Incentives) Act « 2012 » (broadly, for a company to obtain a certificate, the vessel must meet certain tonnage, registration and usage requirements).

(see section 61-705 of the ITAA 1997)

1.3                   The amount of the « tax » offset is equal to 30 per cent of the amounts either paid to the individual (or individuals) in respect of their employment (including leave entitlements), or paid for the training of the individual (or individuals) that is relevant to their employment (section 61-710 of the ITAA 1997).

1.4                   The offset is refundable, allowing the company to receive a refund of up to the full amount of the offset from the Commissioner of Taxation if they have « no » income « tax » liability to firstly offset (see section 67-23 of the ITAA 1997).

1.5                   The rationale for the introduction of the seafarer « tax » offset was to stimulate opportunities for Australian seafarers to be employed on overseas voyages and to gain maritime skills. Since its introduction in  « 2012 » , the seafarer « tax » offset has been claimed by fewer than five taxpayers.

1.6                   The low level of claims for the seafarer « tax » offset indicates that it has not achieved its policy intent. It has not been an effective stimulant for the employment of Australian seafarers on overseas voyages.

1.7                   The savings from this measure will be redirected by the Government to help repair the Budget and fund other policy priorities.

Summary of new law

1.8                   Schedule 1 amends the ITAA 1997 by repealing Subdivision 61-N of the ITAA 1997 to abolish the seafarer « tax » offset for the 2015-16 income year and later income years.

Comparison of key features of new law and current law

New law

Current law

The seafarer « tax » offset will « no » longer be available.

Companies that satisfy the eligibility requirements may claim the seafarer « tax » offset.

Detailed explanation of new law

1.9                   Schedule 1 amends the ITAA 1997 to repeal Subdivision 61-N of the ITAA 1997. [Schedule 1, item 2, Subdivision 61-N of the ITAA 1997]

1.10               Subdivision 61-N provided for the seafarer « tax » offset, setting out which entities were eligible and the amount of the offset. As a result of the repeal, the offset will cease to be available.

Consequential amendments

1.11               Schedule 1 also makes a number of minor consequential amendments to the ITAA 1997 and the Shipping Reform ( « Tax » Incentives) Act « 2012 » to remove references to the seafarer « tax » offset elsewhere in these Acts. [Schedule 1, items 1, 3, and 4, tables in sections 13-1 and 67-23 of the ITAA 1997 and the note to section 4 of the Shipping Reform ( « Tax » Incentives) Act « 2012 » ]

Application and transitional provisions

1.12               The repeal of the seafarer « tax » offset (and the related consequential amendments) will apply to assessments for 2015-16 and later income years. [Schedule 1, item 5]

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Abolishing the seafarer « tax » offset

1.13               This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

1.14               The seafarer « tax » offset is available to companies that employ Australian residents as a seafarer on a voyage on an eligible vessel to or from a location outside Australia. To be an eligible vessel, an entity must hold a certificate under Part 2 of the Shipping Reform ( « Tax » Incentives) Act  « 2012 » in respect of the vessel. Broadly, such a certificate can be obtained where the vessel meets certain size requirements, is intended for travel on international waters and is registered on an Australian shipping register.

1.15               Companies eligible for the concession receive a « tax » offset for 30 per cent of the costs of the engagement of the Australian resident. This offset is refundable.

Human rights implications

1.16               This Schedule does not engage any of the applicable rights or freedoms.

1.17               The offset is only available to companies and the benefit it provides is, at most, minor.

Conclusion

1.18               This Schedule is compatible with human rights as it does not raise any human rights issues.



       

Research and development « tax » incentive: reducing the « tax » offset rates

Outline of chapter

2.0                   Schedule 2 to this « Bill » amends the Income « Tax » Assessment Act 1997 (ITAA 1997) to reduce the rate of the « tax » offsets available under the research and development « tax » incentive for the first $100 million of eligible expenditure by 1.5 percentage points. The higher (refundable) rate of the « tax » offset for this expenditure will be reduced from 45 per cent to 43.5 per cent and the lower (non-refundable) rates of the « tax » offset will be reduced from 40 per cent to 38.5 per cent.

Context of amendments

Research and development « tax » incentive

2.1                   The research and development « tax » incentive is the primary mechanism by which the Commonwealth seeks to encourage companies to undertake research and development activities in Australia.

2.2                   Broadly, the incentive provides:

•        a 45 per cent refundable « tax » offset for the first $100 million of eligible expenditure of eligible entities with a turnover of less than $20 million, and which are not controlled by income « tax » -exempt entities, for their expenditure on eligible research and development activities in Australia;

•        a 40 per cent non-refundable « tax » offset for the first $100 million of all other eligible entities for their expenditure on eligible research and development activities in Australia; and

•        a further « tax » offset at the company « tax » rate for the balance of all eligible entities’ expenditure.

(see section 355-100 of the ITAA 1997.)

2.3                   In determining what rate applies, an entity will be considered to be controlled by an exempt entity or entities if, broadly, the exempt entity or exempt entities hold an interest in the entity of at least 50 per cent at any time in the income year (see section 355-100 of the ITAA 1997).

2.4                   The « tax » offset rates of 40 per cent, 45 per cent or 30 per cent of the eligible research and development expenditure replace any income « tax » deduction or other offset that would otherwise be available in respect of the expenditure. As a result, the first $100 million of research and development expenditure generally results in a greater net benefit than an income « tax » deduction for research and development expenditure at the company « tax » rate.

2.5                   Eligible research and development activities include both core activities, being experimental activities undertaken for the purpose of acquiring new knowledge, and supporting activities, which are activities either directly related to core activities or are undertaken for the dominant purpose of supporting core activities (sections 355-20 to 355-30 of the ITAA 1997).

2.6                   Eligible entities are Australian resident corporations, Australian permanent establishments of foreign corporations and certain public trading trusts (section 355-35 of the ITAA 1997) who have registered under Part III of the Industry Research and Development Act 1986 .

2.7                   Provisions exist to claw back the additional « tax » benefit provided by the research and development « tax » incentive for eligible expenditure where an entity obtains a recoupment from government for the expenditure or where the expenditure relates to feedstock that has been or is sold (see Subdivisions 355-G and 355-H of the ITAA 1997).

2.8                   The savings that will result from the measure will assist in the repair of the budget. Following this change, the research and development « tax » incentive will continue to provide a significant incentive for research and development in Australia.

Consultation

2.9                   Targeted confidential consultation was undertaken on exposure draft legislation with affected stakeholder bodies. « No » concerns were raised during consultation.

Summary of new law

2.10               Schedule 2 to this « Bill » amends the ITAA 1997 to reduce the refundable and non-refundable rates of the « tax » offset available under the research and development « tax » incentive for the first $100 million of eligible expenditure from 45 per cent to 43.5 per cent and from 40 per cent to 38.5 per cent (respectively).

2.11               The changes do not affect the eligibility of entities to claim the research and development « tax » incentive or the administration of the research and development « tax » incentive more generally.

Comparison of key features of new law and current law

New law

Current law

Eligible entities:

•        with annual turnover of less than $20 million; and

•        which are not controlled by an exempt entity or entities

may obtain a refundable « tax » offset equal to 43.5 per cent of their first $100 million of eligible research and development expenditure in an income year and a further refundable « tax » offset equal to the amount by which their research and development expenditure exceeds $100 million multiplied by the company « tax » rate.

Eligible entities:

•        with annual turnover of less than $20 million; and

•        which are not controlled by an exempt entity or entities

may obtain a refundable « tax » offset equal to 45 per cent of their first $100 million of eligible research and development expenditure in an income year and a further refundable « tax » offset equal to the amount by which their research and development expenditure exceeds $100 million multiplied by the company « tax » rate.

All other eligible entities may obtain a non-refundable « tax » offset equal to 38.5 per cent of their eligible research and development expenditure and a further non-refundable « tax » offset equal to the amount by which their research and development expenditure exceeds $100 million multiplied by the company « tax » rate.

All other eligible entities may obtain a non-refundable « tax » offset equal to 40 per cent of their eligible research and development expenditure and a further non-refundable « tax » offset equal to the amount by which their research and development expenditure exceeds $100 million multiplied by the company « tax » rate.

Detailed explanation of new law

2.12               Schedule 2 to this « Bill » amends the three rates of the « tax » offset available as part of the research and development « tax » incentive detailed in the table in section 355-100 of the ITAA 1997.

2.13               The first rate in the table in section 355-100 applies to entities with a turnover of less than $20 million (and to which the second rate does not specifically apply). These entities previously received a « tax » offset equal to 45 per cent of their first $100 million of eligible research and development expenditure. They will now receive an offset equal to 43.5 per cent of their first $100 million of eligible expenditure. [Schedule 2, item 1, item 1 in the table in subsection 355-100(1) of the ITAA 1997]

2.14               The second rate in the table applies to entities which, at any time during the income year, are controlled by an entity that is exempt from income « tax » (an ‘exempt entity’), including entities which would otherwise meet the criteria for the first rate to apply. These entities previously received a « tax » offset equal to 40 per cent of their first $100 million of eligible research and development expenditure. They will now receive an offset equal to 38.5 per cent of their first $100 million of eligible expenditure. [Schedule 2, item 2, item 2 in the table in subsection 355-100(1) of the ITAA 1997]

2.15               The third rate in the table applies to all other eligible entities. These entities previously received a « tax » offset equal to 40 per cent of their eligible research and development expenditure. They will now receive an offset equal to 38.5 per cent of their eligible expenditure. [Schedule 2, item 3, item 3 in the table in subsection 355-100(1) of the ITAA 1997]

2.16               There is also a note to the table which previously referred to the 45 per cent rate. The note now refers to the 43.5 per cent rate. [Schedule 2, item 4, note to subsection 355-100(1) of the ITAA 1997]

2.17               For simplicity, « no » change has been made to the provisions providing for the adjustment of « tax » benefits in respect of eligible research and development expenditure where the entity obtains a recoupment for the expenditure or sells feedstock to which the expenditure relates.

Application and transitional provisions

2.18               These amendments apply in respect of assessment for income years commencing on or after 1 July 2014. [Schedule 2, item 5]

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Research and development « tax » incentive: reducing the « tax » offset rates

2.19               This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

2.20               The research and development « tax » incentive is the primary « tax » mechanism by which the Commonwealth seeks to encourage companies to undertake research and development activities in Australia.

2.21               Broadly, under the research and development « tax » incentive, eligible entities (Australian resident corporations, Australian permanent establishments of foreign corporations and certain public trading trusts (section 355-35 of the ITAA 1997) who have registered under Part III of the Industry Research and Development Act 1986 ) are entitled to receive a « tax » offset for a certain percentage of their eligible expenditure on research and development.

2.22               As a result of the amendments, the refundable « tax » offset rate will be reduced from 45 per cent to 43.5 per cent for the first $100 million of eligible expenditure by taxpayers with annual turnover under $20 million that were not controlled by entities that are exempt from income « tax » at any point during the income year, and the non-refundable « tax » offset rate will be reduced from 40 per cent to 38.5 per cent for the first $100 million of eligible expenditure for all other taxpayers.

2.23               The gain to revenue and savings from this measure will be redirected to repairing the budget.

Human rights implications

2.24               This Schedule does not engage any of the applicable rights or freedoms.

2.25               The change only affects the amount of « tax » offset that can be claimed by corporate taxpayers which engage in eligible research and development activities.

Conclusion

          This Schedule is compatible with human rights as it does not raise any human rights issues.



Schedule 1: Abolishing the seafarer « tax » offset

« Bill » reference

Paragraph number

Items 1, 3, and 4, tables in sections 13-1 and 67-23 of the ITAA 1997 and the note to section 4 of the Shipping Reform ( « Tax » Incentives) Act « 2012 »

1.12

Item 2, Subdivision 61-N of the ITAA 1997

1.10

Item 5

1.13

Schedule 2: Rates of R&D « tax » offset

« Bill » reference

Paragraph number

Item 1, item 1 in the table in subsection 355-100(1) of the ITAA 1997

2.14

Item 2, item 2 in the table in subsection 355-100(1) of the ITAA 1997

2.15

Item 3, item 3 in the table in subsection 355-100(1) of the ITAA 1997

2.16

Item 4, note to subsection 355-100(1) of the ITAA 1997

2.17

Item 5

2.19