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Taxation Laws (Technical Amendments) Bill 1997
IRS Publications Office
Ã Copyright Commonwealth of Australia 1999
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Published by the Department of the Parliamentary Library, 1999
Information and Research Services
Economics, Commerce and Industrial Relations Group
12 March 1998
Commencement: The Act cited as the Taxation Laws (Technical Amendments) Act 1997 , commences on the day it receives Royal Assent. The date of commencement of each Schedule is referred to under the main provisions of this Bills Digest.
The purpose of this Bill is to make a number of minor amendments and technical corrections to the Income Tax Assessment Act 1936 (ITAA 1936), the Income Tax Assessment Act 1997 (ITAA 1997), the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986), the Taxation Administration Act 1953 (TAA 1953) and other tax-related legislation.
Due to the disparate measures in the various Schedules in the Bill, the background to each of these measures will be considered under Main Provisions of each of these measures.
The more significant measures proposed by the amendments in some of the Schedules in the Bill will be considered in this section of the Bills Digest. It is recommended that reference be made to the Explanatory Memorandum to the Bill for an explanation of the other measures in the Bill.
In 1986 the self-assessment system was introduced into the ITAA 1936. In 1992 a number of fundamental changes were made to the self-assessment system to giv e certainty and fairness to taxpayers. The amendments to the TAA 1953 and the ITAA 1936 proposed in Schedule 1 of the Bill are intended to correct a number of defects that have become evident in operating the self-assessment system. The amendments also extend the operation of the self-assessment system to interest payable under section 102AAM by instalment taxpayers.
Proposed subsection 102AAM(13A) will provide that interest payable under section 102AAM on distributions received by companies and superannuation funds from non-resident trust estates, that are not taxed at a comparable rate in foreign countries, are to be subject to the self-assessment process. The amendments will apply in respect of assessments for 1997-98 and later years of income.
U nder the provisions of the TAA 1953, taxpayers can apply for a binding private ruling up to 4 years after the last day allowed for lodging the return for the year of income to which that ruling relates. If the Commissioner does not give a private ruling within the period, allowed under section 170 of the ITAA 1936, the Commissioner is not able to amend the assessment to give effect to the private ruling. Proposed subsection 170(6A) will enable the Commissioner to amend the assessment to give effect to the private ruling. This change will apply to any ruling request made after 30 June 1992 when the private binding rulings system commenced. The Bill also amends the TAA 1953 to clarify the definition of ‘year of income’ for private ruling purposes.
T he ITAA 1936 allows a taxpayer to decide what law is to apply to a particular set of facts by way of an election in writing. On the introduction of the self-assessment system a number of the previous requirements for elections and notifications to be in writing were removed. The amendments in Schedule 1 of the Bill remove the remaining requirements for elections to be in writing. In the self-assessment environment the application of a particular provision will be evident in the calculation of taxable income by the taxpayer, which will be supported by a taxpayer’s working papers and taxation records.
The Explanatory Memorandum 1 to the Bill sets out clearly the nature of the amendments now proposed as well as some consequential amendments to the anti-avoidance provisions of Part IVA.
The amendments to the elections provisions will apply to elections made on or after the date of the Royal Assent in respect of any year of income.
The Tax Law Improvement P roject rewrite of the company prior year and current year loss rules is in the ITAA 1997. Under the rewrite, a film loss is treated as a separate component of a tax loss. For the purpose of the current year loss rules, the film component of a company's tax loss is calculated for the whole of an income year, irrespective of any change in ownership. This result was not intended , as it allows a film loss incurred by the new owners of a company to be offset against film income derived by the previous owners.
Proposed subsection 375-805(1) amends the company current year loss provisions in the ITAA 1997, to ensure that the film component of a company's tax loss for an income year is calculated in the same way it is calculated under the ITAA 1936. The amendments take effect from the 1997-98 income year.
The amendment will also apply for the purpose of the proposed trust loss rules contained in Taxation Laws Amendment (Trust Loss and Other Deductions) Bill 1997. The Bill will repeal the existing provision in these rules which calculates the film component of a tax loss for an income year.
Under the FBTAA 1986 various documents are required for the substantiation rules, depending on the type of fringe benefit and the method used for calculating the value of the fringe benefit. These documents are called statutory evidentiary documents and include declarations, car records, log book records and odometer records. Section 123 which deals with the retention of statutory evidentiary records refers to ‘documents given to an employer’ and does not refer to documents made by an employer. The amendment to subsection 123(1) by proposed Item 12 of Schedule 5 will take into account documents made by the employer. These amendments will apply to fringe benefits tax (FBT) assessments for the FBT year beginning on 1 April 1998 and later FBT years.
Further, proposed Item 15 will amend subsection 136(1) to reduce the retention period for statutory evidentiary documents from 6 years to 5 years in line with the retention period for other records which was reduced to 5 years from 1 April 1995. This amendment applies for the FBT year beginning on 1 April 1995 and later FBT years.
Currently, under the ITAA 1936 a post-June 1994 invalidity component of an ETP is 'tax free' if it is taken as a lump sum. However, if the component (or part of the component) is rolled over to purcha se an annuity or superannuation pension, the amount of the component is liable to taxation as it cannot be included in the 'undeducted purchase price' (UPP) of the annuity or superannuation pension.
The amendment by proposed item 1 of Schedule 6 to the definition of UPP in subsection 27A(1) of the ITAA 1936 will allow the post-June 1994 invalidity component of an ETP rolled-over to purchase an annuity or superannuation pension, to be included in the UPP of the annuity or superannuation pension, and therefore remain 'tax free'. This amendment takes effect from the date of the Royal Assent.
Section 14ZL of Part IVC of the TAA 1953 provides for administrative review of decisions made by th e Commissioner of Taxation. However, Part IVC applies if a provision of an Act provides that a person who is dissatisfied with an assessment, determination, notice or decision may object against it in the manner set out in Part IVC. Section 14ZL does not allow for a situation where regulations provide that a person may object and proposed Item 19 of Schedule 6 will cover regulations as well.
When the Joint Committee of Public Accounts (JCPA) considered the Income Tax Assessment Bill 1996 (the 1996 Bill), which became the ITAA 1997, it recommended in Report 345 that technical amendment legislation should become the regular vehicle for making technical corrections to tax law. 2 This Bill meets this recommendation and is the first in a series of technical amendment Bills that may be expected, perhaps, on a yearly basis.
Report 345 also records that witnesses had advised the Committee that areas of tax law, including the provisions covering tax losses for companies, that have been rewritten in the 1996 Bill require policy simplification or clarification. It will be noted that the minor amendments and technical corrections proposed in this Bill includes amendments in Schedule 4 to remove the unintended consequences of the current year loss rules for companies included in the ITAA 1997.
The JCPA also noted in Report 345 that unclear and unworkable sections of the ITAA 1936 are being perpetuated in the 1996 Bill (now the ITAA 1997) because changing them was beyond the Tax Law Improvement Project’s (TLIP) mandate. 3 The JCPA accepted that ‘small p’ policy issues which were beyond TLIP’s mandate included minor content changes that focus on reducing or eliminating unnecessary complexity, making provisions consistent and bringing the law into line with current administrative and commercial practice. 4 Some of the amendments in this Bill would fall into the category of ‘small p’ policy issues.
The JCPA’s preferred mechanisms for dealing with ‘small p’ policy issues beyond TLIP’s mandate were also considered in Chapter 7 of Report 345. The JCPA felt the need for a public forum, such as a separate Committee of Parliament, to gather evidence on ‘small p’ policy issues as a response to the public perception that the Treasury, even if not TLIP and the ATO, is unresponsive to these concerns when they are raised. The JCPA therefore recommended that Government should provide sufficient additional resources to allow for either the JCPA or a Joint Standing Committee on Revenue or a Joint Select Committee to asses the minor tax policy simplification issues. 5 As the need to address ‘small p’ policy and simplification issues will continue, notwithstanding the wider tax reform agenda, the JCPA’s recommendation is very much in context as evidenced by this Bill.
2 An Advisory Report on the Income Tax Assessment Bill 1996, the Income Tax (Transitional Provisions) Bill 1996 and the Income Tax (Consequential Amendments) Bill 1996; Report 345 by the Joint Committee of Public Accounts (August 1996); Recommendation 9, xvii.