2004-2005

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

SUPPLEMENTARY EXPLANATORY MEMORANDUM

Amendments to be moved on behalf of the Government

(Circulated by authority of the

Treasurer, the Hon Peter Costello, MP)

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

Chapter 1            Amendment to Schedule 9 - non-commercial loans.... 3

Amendment to Schedule 9 - non-commercial loans

This amendment brings forward the application date of the amendments made by Part 2 of Schedule 9. From the 2004-05 income year, loans from private companies will not have to be repaid or put on a commercial footing until the earlier of the due date of lodgement and the date of lodgement of the company’s tax return before being treated as a deemed dividend.

Date of effect :  This amendment will apply to loans made in the 2004-05 year of income or a later year of income.

Proposal announced :  This amendment has not been announced.

Financial impact :  Nil.

Compliance cost impact :  Nil. The change in the application date will allow taxpayers earlier access to the concession which extends time to comply with the non-commercial loan rules.

Explanation of amendment

1.1         This amendment brings forward the application date of Part 2 of Schedule 9 to the Tax Laws Amendment (2004 Measures No. 7) Bill 2004 to apply in relation to loans made in the 2004-05 income year and later income years. Part 2 of Schedule 9 amends Division 7A of the Income Tax Assessment Act 1936 to allow a loan from a private company to be repaid or put on a commercial footing before the ‘lodgement day’ in order to avoid the loan being treated as a deemed dividend. The ‘lodgement day’ is the earlier of the due date for lodgement and the date of lodgement of the private company’s income tax return for the income year in which the loan is made.

1.2         The changes to the treatment of loans from private companies were announced in the 2004-05 Budget to apply in relation to loans made in years of income that begin after the Bill receives Royal Assent. This amendment to the application date will assist taxpayers by ensuring that the extra time to repay loans made by private companies applies from the 2004-05 income year and later income years.

1.3         This amendment will allow taxpayers the benefit of more time to repay or put a loan on a commercial footing with effect from the 2004-05 income year. From the 2004-05 income year, taxpayers will have until lodgement day to repay or put their loans on a commercial footing to avoid the loans being treated as a deemed dividend for the purposes of Division 7A.