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Taxation Laws (Clearing and Settlement Facility Support) Bill 2004

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2002-2003

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

TAXATION LAWS (CLEARING AND SETTLEMENT FACILITY SUPPORT) BILL 2003

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Treasurer, the Hon Peter Costello, MP)

 



T able of contents

General outline and financial impact............................................................ 1

Chapter 1           Clearing and settlement facility support........................... 3

 



Clearing and settlement facility support

This bill ensures that no taxation consequences arise under Commonwealth income tax and goods and services tax laws as a result of a payment out of the National Guarantee Fund under section 891A of the Corporations Act 2001 .

Date of effect :  This bill applies to payments made after the introduction into Parliament of this bill.

Proposal announced n ot previously announced.

Financial impact :  Nil.

Compliance cost impact :  Nil.

 



C hapter 1  

Clearing and settlement facility support

Outline of chapter

1.1         This bill ensures that no taxation consequences arise under Commonwealth income tax and goods and services tax (GST) laws as a result of a payment out of the National Guarantee Fund (NGF) under section 891A of the Corporations Act 2001 (Corporations Act).

Context of amendments

1.2         Securities Exchanges Guarantee Corporation Limited (SEGC) administers the NGF as trustee in accordance with Part 7.5 of the Corporations Act.

1.3         The NGF presently fulfils two functions under the Corporations Act:

·          it provides investor protection by providing compensation to investors in circumstances set out in Division 4 of Part 7.5 of the Corporations Act and Regulations; and

·          it provides clearing and settlement support by providing the financial backing for ASX related clearing houses.

1.4         Section 891A of the Corporations Act provides for a mechanism for ‘splitting’ the NGF.

1.5         Section 891A provides that if the Minister (in this case, the Parliamentary Secretary to the Treasurer) is satisfied that:

·          a body corporate specified in the regulations has made adequate arrangements covering all or part of the clearing and settlement system support that Division 4 of Part 7.5 of the Corporations Act provides for; and

·          the NGF will still have an adequate amount of assets to meet claims after the payment is made;

the Minister may direct SEGC to pay a specified amount to that body corporate out of the NGF.

1.6         The payment will be used by the body corporate to fund the clearing and settlement support for which it will become responsible. Investor protection will continue to be provided by the NGF.

1.7         Splitting the two functions currently being undertaken by the NGF will bring it into line with international practice and expectations, will more easily accommodate changing products and services, and would be consistent with the Reserve Bank’s financial stability standards for clearing houses under Part 7.3 of the Corporations Act.

1.8         This bill ensures that no tax consequences arise as a result of a payment under section 891A.

1.9         The exemption from liability for tax under this bill relates only to a payment by the NGF under section 891A. For example, a compensation payment by the NGF to an investor and any taxation consequences that may arise as a result of that payment are unaffected by this bill.

Detailed explanation of new law

1.10       Clause 3 of this bill is structured in the following way:

·          the main rule is set out in Subclause 3(1);

·          the date of effect is set out in Subclause 3(2); and

·          the meaning of terms is set out in Subclause 3(3).

1.11       There will be no taxation consequences under Commonwealth income tax and GST laws as a result of a payment out of the NGF under section 891A of the Corporations Act. [Subclause 3(1)]

1.12       This bill covers liability for tax under any law of the Commonwealth in relation to income tax or GST.

1.13       Broadly, ‘income tax law’ is as defined in the Income Tax Assessment Act 1997 as a law under which is worked out the extent of liability for income tax and various other taxes within the meaning of the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997 . [Subclause 3(3)]

1.14       Broadly, ‘GST’ is as defined in the A New Tax System (Goods and Services Tax) Act 1999 as tax that is imposed as goods and services tax by the A New Tax System (Goods and Services Tax Imposition - General) Act 1999 , the A New Tax System (Goods and Services Tax Imposition - Customs) Act 1999 or the A New Tax System (Goods and Services Tax Imposition - Excise) Act 1999 . [Subclause 3(3)]

1.15       The exemption from liability for tax applies only to the payment itself. Consequently the exemption is relevant only to the NGF and the body corporate that receives the transferred funds. Further, any subsequent dealing with the transferred funds, including any income earned from the transferred funds, will be subject to taxation in the normal course of events.

Example 1.1

Following a payment, the recipient invests the transferred funds and earns income on that investment. The income will be subject to tax as assessable income of the recipient.

Example 1.2

A third party charges a fee for advising on the investment of the transferred funds. Tax is payable on that fee as assessable income.

Application and transitional provisions

1.16       This bill applies to any payment made after the date of introduction into Parliament of this bill. [Subclause 3(2)]