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Tax Laws Amendment (2006 Measures No. 2) Bill 2006

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2004-2005-2006

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

TAX LAWS AMENDMENT (2006 Measures n o . 2) BILL 2006

 

 

 

CORRECTIONS TO THE EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Treasurer, the Hon Peter Costello MP)

 



C orrection to the General outline and financial impact

Correction:  Tax exemption of F-111 deseal/reseal ex-gratia lump sum payments

Omit the following words from page 3:

‘charitable institutions was announced in the Treasurer’s Press Release No. 031 of 11 May 2004.

Financial impact :  These amendments are expected to result in a small but insignificant gain to GST revenue.

Compliance cost impact :  This measure is not expected to impact significantly on compliance costs.’



C orrections to C hapter 5 — Franking deficit tax

Detailed explanation of new law

Example 5.1

Replace the following sentence in Example 5.1 at page 28:

‘At the end of the income year, the company has a deficit of $80,000 in its franking and is liable to franking deficit tax.’

With:

‘At the end of the income year, the company has a deficit of $80,000 in its franking account and is liable to franking deficit tax.’

In addition, the following change is to be made to further explain the operation of the provisions.

Remove paragraph 5.15 and substitute a new paragraph 5.15.  Also insert new paragraph 5.16 and new Example 5.3:

5.15       This measure was announced by the former Minister for Revenue and Assistant Treasurer in Press Release No. 30 of 10 May 2005.  That press release stated that the Commissioner’s discretion would apply ‘where, broadly, events that caused the over franking were outside of the company’s control or were unanticipated, and did not involve any broader exploitation of the imputation system’.  Subsection 205-70(6) has not been drafted using the same words as the press release.  However, it is considered that the wording of the subsection has the same effect as the wording in the press release. 

5.16       That is, an event that is outside an entity’s control includes (but is not limited to) an event that is unanticipated.  In addition, in exercising the discretion, the Commissioner must consider whether the taxpayer has any broader intention to exploit the imputation system.  That is, if the deficit in the franking account arose in circumstances where the taxpayer intended to exploit the imputation system, the events that gave rise to the deficit would be within the taxpayer’s control and the Commissioner’s discretion would not be exercised.

Example 5.3

A company pays a fully franked dividend part way through an income year (with a resulting debit to its franking account) in the reasonable expectation that its future quarterly PAYG instalment payments in the income year would be sufficient to ensure that it would not have a deficit in its franking account at the end of the income year.  An unexpected downturn in business results in the company’s future quarterly PAYG instalment payments being less than expected.  Consequently, the company has a deficit in its franking account at the end of the income year.

The franking deficit arose in circumstances that were unanticipated and beyond the company’s control.  In addition, the company had no broader intention to exploit the imputation system.  Therefore, the Commissioner would exercise his discretion and make a determination so that the 30 per cent franking deficit tax offset reduction would be disregarded .’