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Thursday, 3 December 1998
Page: 1289


Mr HOCKEY (Financial Services and Regulation) (11:14 AM) —I move:

That the bill be now read a second time.

The bill amends the income tax law to give effect to measures announced in previous budgets and in other government statements.

This bill also honours a commitment made by the Prime Minister on 8 December 1997 when he announced, as part of the `Investing for Growth' statement, a package of measures which are aimed at making Australia a more attractive regional financial centre by building on Australia's existing advantages to ensure its participation in the increasing global trade in financial services.

The amendments relate to the exemption from interest withholding tax available under section 128F, the offshore banking unit concessional tax regime, the foreign investment fund and the thin capitalisation provisions of the Income Tax Assessment Act. These measures were first introduced into parliament on 2 July 1998 and subsequently lapsed when parliament was prorogued. Since that time, consultation with industry bodies has continued and the re-introduced measures reflect that dialogue. These changes were announced by the Treasurer on 13 August this year.

To ensure taxpayers are not disadvantaged by the delay in implementation, the amendments are to continue to apply from 2 July this year—the original date of introduction. The exemption from the foreign investment fund measures will continue to have effect for notional accounting periods of foreign investment funds ending on or after 2 July 1998. The amendments are estimated to cost $22 million in a full year.

This bill contains consequential amendments arising from changes to the capital loss rules in Taxation Laws Amendment Act (No. 2) 1997. The technical amendments will not affect the practical effect of the debt forgiveness provisions. These amendments apply to debts forgiven after the date of introduction of this bill.

The Income Tax Assessment Act 1997 is being amended to set a common base for the depreciation deductions for plant that can be claimed by exempt entities which first become taxable on or after 4 August 1997 in relation to plant they already own and by taxable entities which purchase plant from an exempt entity in connection with the acquisition of a business on or after 4 August 1997.

The remaining measures will prevent franking credit trading and dividend streaming as announced in the 1997-98 budget. These include a holding period rule and related payments rule for shares and interests in shares to ensure that only taxpayers who bear the economic risk of ownership of the shares or interests will be entitled to franking rebates and credits under the dividend imputation system and the intercompany dividend rebate. These benefits will also be denied on trust and partnership distributions which are equivalent to interest on a loan. One measure limits the source of franking credits available for trading.

The amendments to trust and partnership distributions and those implementing the related payments rule and the limiting the source rule apply from 7.30 p.m. Australian eastern standard time 13 May 1997. The holding period rule generally applies to shares and interests in shares acquired on or after 1 July 1997, with special provisions relating to trusts applying from 3.00 p.m. Australian eastern standard time 31 December 1997.

On 10 October 1996 the Treasurer announced the government's intention to amend the Income Tax Assessment Act to allow deductions for gifts of $2 or more to the Menzies Research Centre Public Fund.

The Menzies Research Centre Public Fund will undertake research into economic, social, cultural and political policies to enhance the principles of individual liberty, free speech, competitive enterprise and democracy. The centre will publish and disseminate the results of the research to the public.

Full details of the measures in the bill are contained in the explanatory memorandum circulated to honourable members.

I commend the bill to the House and present the explanatory memorandum.

Debate (on motion by Mr Martin) adjourned.