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Treasury Laws Amendment (2020 Measures No. 3) Bill 2020

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2019-2020

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

Treasury Laws Amendment (2020 Measures No. 3) Bill 2020

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Minister for Housing and Assistant Treasurer, the Hon. Michael Sukkar MP)

 

 



Table of contents

Glossary............................................................................................................. 1

General outline and financial impact........................................................... 3

Chapter 1 ........... International monetary agreements................................ 7

Chapter 2 ........... Deductible gift recipients—new specific recipients... 13

Chapter 3 ........... International financial assistance................................. 17

Chapter 4 ........... Extending the Instant Asset Write-Off.......................... 21

Chapter 5 ........... Reduction in 2020-21 PAYG instalments.................... 33

Chapter 6 ........... Cash flow boost................................................................ 37

Chapter 7 ........... Statement of Compatibility with Human Rights.......... 43

 

 



The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

ATO

Australian Taxation Office

Bill

Treasury Laws Amendment (2020 Measures No. 3) Bill 2020

Commissioner

Commissioner of Taxation

Coronavirus

Coronavirus known as COVID-19

GDP

gross domestic product

GST

goods and services tax

IMA Act

International Monetary Agreements Act 1947

IMF

International Monetary Fund

ITAA 1997

Income Tax Assessment Act 1997

ITTPA 1997

Income Tax (Transitional Provisions) Act 1997

JSCOT

Joint Standing Committee on Treaties

PAYG

pay as you go

TAA 1953

Taxation Administration Act 1953

 

 



International monetary agreements

Schedule 1 to the Bill amends the IMA Act to authorise the Minister, on behalf of Australia, to enter into loan agreements with the IMF. The amendments will also allow Australia to meet its funding obligations under any such agreements, as well as under the existing ‘New Arrangements to Borrow’ with the IMF.

Date of effect : The amendments generally commence on the day after they receive the Royal Assent.

However, certain amendments in relation to the New Arrangements to Borrow commence no earlier than 1 January 2021.

Proposal announced : The amendments in this Schedule have not been previously announced.

Financial impact : There are no financial impacts associated with this Schedule. Financial impacts will result from any loan agreements the Minister, on behalf of Australia, enters into.

Human rights implications : This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact : Not applicable.

Deductible gift recipients

Schedule 2 to the Bill amends the ITAA 1997 to allow the following entities to be deductible gift recipients under the income tax law:

•        The Samuel Griffith Society Inc. (ABN 50 670 165 165);

•        Friends of Myall Creek Memorial Incorporated (ABN 87 040 729 116); and

•        Toy Libraries Australia Inc. (ABN 40 557 982 129).

Date of effect The amendments apply to gifts made on and after

1 July 2019 to:

•        The Samuel Griffith Society Inc. (ABN 50 670 165 165);

•        Friends of Myall Creek Memorial Incorporated (ABN 87 040 729 116); and

•        Toy Libraries Australia Inc. (ABN 40 557 982 129).

Proposal announced This Schedule partially implements the measure ‘Philanthropy — updates to the list of specifically listed deductible gift recipients’ from the 2019-20 MYEFO.

Financial impact The component of the MYEFO measure being implemented by this Schedule was estimated to have a cost to revenue of $0.3 million over the forward estimates period at the time of the

2019-20 MYEFO.

Human rights implications :  This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact Nil.

International financial assistance

Schedule 3 to the Bill updates existing provisions of the IMA Act to ensure that the Treasurer can, on behalf of Australia, continue to enter into agreements with other countries to provide them with financial assistance in support of a program of the IMF.

Date of effect The amendments in this Schedule commence from the day after they receive the Royal Assent.

Proposal announced The amendments in this Schedule have not been previously announced.

Financial impact There are no financial impacts associated with this Bill. Financial impacts will result from any agreements the Treasurer, on behalf of Australia, enters into.

Human rights implications :  This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact Not applicable.

Extending the instant asset write-off

Schedule 4 to the Bill amends the income tax law to allow a business with an aggregated turnover for the income year of less than $500 million to immediately deduct the cost of a depreciating asset (instant asset write-off). The asset must cost less than a threshold of $150,000 and be first used or installed ready for use for a taxable purpose by 31 December 2020. Without the amendments the $150,000 instant asset write-off would end on 30 June 2020.

Date of effect :  1 July 2020 .

Proposal announced :  The Government announced this measure in June 2020 .

Financial impact This measure is estimated to have the following revenue impact over the forward estimates period ($m):

2019-20

2020-21

2021-22

2022-23

2023-24

-

-$100.0

-$600.0

-

$400.0

Human rights implications :  This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights—Chapter 7.

Compliance cost impact :  This measure is expected to have minimal regulatory impact.

Reduction in 2020-21 PAYG instalments

Schedule 5 to the Bill will amend the TAA 1953 to reduce the GDP adjustment factor for the 2020-21 income year to nil. The GDP adjustment factor is applied by the Commissioner to work out the amount of PAYG instalments payable by a taxpayer in certain circumstances.

Date of effect : This measure will apply for the purposes of working out the amount of PAYG instalments for instalment quarters that commence:

•        if the Bill receives Royal Assent before 21 August 2020 - on or after 1 July 2020; or

•        otherwise - on or after 1 October 2020.

Proposal announced : The amendments in this Schedule have not been previously announced..

Financial impact : This measure is estimated to have the following financial impact over the forward estimates period ($m).

2019-20

2020-21

2021-22

2022-23

2023-24

-

-$1,000.0

$1,000.0

-

-

Human rights implications : This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact : Nil.

 

Cash flow boost

Schedule 6 to the Bill makes minor amendments to the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 to clarify that the payments for which an entity can receive a cash flow boost payment include those for which an amount must be paid to the Commissioner under the special obligations applying to certain personal service income payments under Division 13 in Schedule 1 to the TAA 1953.

Date of effect These amendments have effect from the commencement of the cash flow boost.

Proposal announced The amendments in this Schedule have not been previously announced..

Financial impact These amendments do not materially change the estimated financial impact of the cash flow boost that was included in the Explanatory Memorandum to the Coronavirus Economic Response Package Omnibus Bill 2020 and the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Bill 2020.

Human rights implications :  This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact These amendments are estimated to have a minor compliance cost impact.



Chapter 1          

International monetary agreements

Outline of chapter

1.1                   Schedule 1 to the Bill amends the IMA Act to authorise the Minister, on behalf of Australia, to enter into loan agreements with the IMF. The amendments will also allow Australia to meet its funding obligations under any such agreements, as well as under the existing ‘New Arrangements to Borrow’ with the IMF.

1.2                   These amendments ensure Australia can meet its commitments to the IMF, including avoiding legislative delays that are inconsistent with Australia’s commitments to the IMF.

1.3                   All legislative references in this Chapter are to the IMA Act unless otherwise stated.

Context of amendments

1.4                   The IMF plays a vital role at the centre of the global financial safety net and is responding to the Coronavirus crisis with unprecedented speed and magnitude of financial assistance to protect livelihoods, especially of the most vulnerable. In particular, the IMF is providing emergency financing and debt relief, as well as enhancing liquidity and adjusting existing programs and access limits to ensure countries have the capacity to effectively respond to the health and economic crisis caused by Coronavirus. It is in Australia’s best interest that the IMF remains strong, adequately resourced, and at the centre of the global financial safety net.

1.5                   The IMF derives its resources for lending to countries from its permanent resource base (provided through quota contributions from member countries).

1.6                   The IMF supplements its quota resources with additional temporary agreements. These currently include the New Arrangements to Borrow and Bilateral Borrowing Agreements.

1.7                   The New Arrangements to Borrow is a multilateral borrowing agreement between the IMF and a number of its members that allows the IMF to borrow from those members, when supplementary resources are required to address an impairment of the international monetary system. Australia is a founding member of the New Arrangements to Borrow and has participated since it formally commenced in 1998.

1.8                   For the IMF to fulfil more effectively its role in the international monetary system, the IMF has proposed to supplement its permanent quota resources with increased commitments through its New Arrangements to Borrow multilateral credit arrangement; and a decreased reliance on Bilateral Borrowing Agreements with individual IMF members. This is set out in the IMF’s policy paper titled ‘Proposed decisions to modify the New Arrangements to Borrow and to extend the deadline for a review if the borrowing guidelines’ (February 2020) that advises that a Staff Report was completed on 3 December 2019 for the Executive Board’s consideration on 16 January 2020. 

1.9                   Currently, primary legislation is required to give force of law to amendments to the New Arrangements to Borrow, including amendments that increase or decrease the quantum of Australia’s commitment under the agreement and trigger the related appropriation under section 8B of the IMA Act.

 Summary of new law

1.10               Schedule 1 to the Bill amends the IMA Act to authorise the Minister to enter into an agreement with the IMF for Australia to provide loans to the IMF.

1.11               These amendments would establish a clear legislative framework for entering into new loan agreements with the IMF without the need for further legislative amendments. The amendments would also introduce a standing appropriation to fund Australia’s obligations to pay amounts to the IMF under such an agreement.

1.12               Schedule 1 to the Bill also amends the IMA Act to provide that the Treasurer may, by legislative instrument, give notice of an amendment or renewal of the New Arrangements to Borrow by a decision of the Executive Board of the Fund.

1.13               The amendments also make provision for a specific update to the current definition of the New Arrangements to Borrow in the IMA Act to include the IMF Executive Board’s decision (Decision No. 16645-(20/5), dated 16 January 16, 2020). While the update could be made using the proposed legislative instrument mechanism, specifying that change through these amendments ensures that it is able to apply from

1 January 2021. However, the update will only apply if the decision is agreed to by, and takes effect for, Australia.

Comparison of key features of new law and current law

New law

Current law

Authorising loan agreements with the IMF

The Minister may, on behalf of Australia, enter into one or more agreements with the Fund that provide for Australia to provide loans to the Fund.

No equivalent.

The Consolidated Revenue Fund is appropriated for payments made for drawings by the IMF under such agreements.

No equivalent.

The Minister is also authorised to borrow amounts that Australia is required to pay because of its obligations under an agreement authorised by these amendments. 

No equivalent.

New Arrangements to Borrow

The Treasurer may amend or renew the New Arrangements to Borrow through a notification by a legislative instrument.

No equivalent.

The New Arrangements to Borrow will expire on 31 December 2025, if the agreement comes in effect on 1 January 2021.

The New Arrangements to Borrow will expire on 16 November 2022.

Detailed explanation of new law

Authorising loan agreements with the IMF

1.14               The amendments also update the IMA Act to provide a clear legislative framework for Australia to enter into other loan agreements with IMF.

1.15               As a result of these amendments, the Minister may, on behalf of Australia, enter into one or more agreements with the Fund that:

•        provide for Australia to provide loans to the Fund; and

•        contain terms and conditions determined by the Minister.

[Schedule 1, item 4, paragraphs 8CAB(1)(a) and (b)]

1.16               These changes ensure that Australia can enter into other loan agreements with the IMF without legislation being required to implement the decision after it has been entered in to. It is expected that the new legislative framework will be used to authorise the next round of bilateral borrowing agreements with the IMF (“the 2020 Borrowing Agreements” referred to above).

1.17               This approach is consistent with other provisions in the IMA Act relating to agreements that the Minister is authorised to enter in to. Examples of such provisions include sections 8C and 8CA, which also authorise the Minister to enter into certain agreements that provides for Australia to lend money to a country, or enter into a currency swap with the country, at the request of the IMF or under a program of the World Bank or the Asian Development Bank.

1.18               Pursuant to section 19 of the Acts Interpretation Act 1901 , the reference to the ‘Minister’ includes the Treasurer and any other Minister in the Treasury portfolio who administers the IMA Act.

1.19               The Consolidated Revenue Fund is appropriated for the purposes of payments by Australia under an agreement authorised by these amendments. [Schedule 1, item 4, subsection 8CAB(2)]

1.20               This approach is consistent with all other appropriations covered by the IMA Act 1947 (including but not limited to the appropriations in relation to sections 8C and 8CA). Appropriations of this kind ensure that Australia is able to comply with any international obligations that it has to make payments under an agreement.

1.21               The Minister is also authorised to borrow amounts that Australia is required to pay because of its obligations under an agreement authorised by these amendments. [Schedule 1, item 2, paragraph 6(1)(d)]

1.22               This means that the existing provisions about borrowing are extended to any new agreement entered into under these amendments, consistent with the treatment of the New Arrangements to Borrow and the IMF loan agreement 2016.

1.23               Importantly the provisions relating to appropriations and borrowing is only applicable after the Minister actually enters into an agreement to loan an amount to the IMF. To the extent that such an agreement also constitute a treaty action, the decisions to enter into those agreements are subject to Australia’s domestic treaty making procedures. This means that before the Minster is able to enter into an agreement, the agreement would need to be tabled in Parliament with a National Interest Analysis for consideration by JSCOT. Following JSCOT’s consideration of the agreement, the Governor-General must also approve Australia’s signing of the agreement.

1.24               The processes ensure there is appropriate Parliamentary scrutiny of any decision of the Government to enter into agreements to loan amounts to the IMF.

1.25               In addition to the standard JSCOT processes, the Minister is required to provide details about any payments to the IMF through the annual reporting requirements in section 10 of the IMA Act.

1.26               These amendments commence on the day after this Bill receives Royal Assent. [Item 1 of the table in clause 2]

New Arrangements to Borrow

1.27               The amendments authorise the Treasurer giving notice, by legislative instrument, of an amendment or renewal of the New Arrangements to Borrow by a decision of the Executive Board of the Fund. [Schedule 1, item 1, section 3 paragraph (f) of the definition of New Arrangements to Borrow]

1.28               This allows the terms of the New Arrangements to Borrow to be updated to reflect future changes without the need for legislative amendments to be passed by the Parliament. This approach is consistent with other provisions in the IMA Act, as well as amendments proposed in relation to the International Finance Corporate Act 1955 .

1.29               A legislative instrument under subsection 8B(3) commences at the later of the following days or times:

•        the earliest day or time applicable under subsection 12(1) of the Legislation Act 2003 ;

•        the start of the day immediately after the last day on which a resolution referred to in subsection 42(1) of the Legislation Act 2003 disallowing the instrument could be passed.

[Schedule 1, item 3, paragraphs 8B(4)(a) to (b)]

1.30               This deferred commencement ensures that the Parliament can consider and deal with any amendment to the New Arrangements to Borrow before they take effect in the IMA Act.

1.31               The amendments in relation to notifications by the Treasurer about amendments to the New Arrangements to Borrow commence on the day after the Bill receives Royal Assent. [Item 1 of the table in clause 2]

1.32               The Bill also amends the IMA Act to update the definition of ‘New Arrangements to Borrow’ in section 3 of the IMA Act to list the latest IMF Executive Board Decision (Decision No. 16645-(20/5), dated 16 January 16, 2020). If this decision is adopted, it will renew the New Arrangements to Borrow for a five-year period to 31 December 2025. [Schedule 1, item 5, section 3 paragraph (e) of the definition of ‘New Arrangements to Borrow’]

1.33               While the update could be made using the proposed legislative instrument mechanism, the deferred commencement rule for such updates may prevent the update from taking effect from 1 January 2021, as has been proposed by the IMF. Incorporating this decision through these amendments avoids any such timing or sequencing issues.

1.34               However, the update will only apply if the decision is agreed to by, and takes effect for, Australia. The amendment will not be adopted if Australia does not agree to the decision, or if the requisite number of votes of other members are not obtained.

1.35               For this reason, the amendments apply at the later of

1 January 2021 and the time the decision to amend and renew the New Arrangements to Borrow comes into force for Australia. [Item 2 of the table in clause 2]

1.36               In the event that the New Arrangements to Borrow decision does not come into effect, the amendment will not commence and the current New Arrangements to Borrow will continue to apply until 16 November 2022.

1.37               To the extent that any amendments to the New Arrangements to Borrow also constitute a treaty action, the decision for Australia to agree to such amendments will be subject to Australia’s domestic treaty making procedures. This means that before the Treasurer is able to enter into an agreement, the agreement would need to be tabled in Parliament with a National Interest Analysis for consideration by JSCOT. Following JSCOT’s consideration of the agreement, the Governor-General must also approve Australia’s signing of the agreement.

1.38               In addition to the standard JSCOT processes, the Minister is required to provide details about any payments to the IMF through the annual reporting requirements in section 10 of the IMA Act.

Consequential amendments

1.39               The amendments repeal provisions relating to the IMF loan agreement 2016. [Schedule 1, items 6 to 8, section 3 (definition of ‘IMF loan agreement 2016’), paragraph 6(1)(c) and section 8CAA]

1.40               These provisions in relation to the IMF loan agreement 2016 will not be required after it expires on 31 December 2020. The provisions include an automatic-repeal rule for any legislative instruments made about amendments to the agreement. Such instruments are repealed on the day after the agreement expires.

To ensure that any such instruments are repealed in accordance with that rule, the amendments repealing the provisions relating to the IMF loan agreement 2016 commence two days after the agreement expires (being 2 January 2021). [Item 3 of the table in clause 2]



 

Outline of chapter

2.1                   Schedule 2 to the Bill amends the ITAA 1997 to allow the following entities to be deductible gift recipients under the income tax law:

•        The Samuel Griffith Society Inc. (ABN 50 670 165 165);

•        Friends of Myall Creek Memorial Incorporated (ABN 87 040 729 116); and

•        Toy Libraries Australia Inc. (ABN 40 557 982 129).

Context of amendments

2.2                   The income tax law allows income tax deductions for taxpayers who make gifts of $2 or more to a deductible gift recipient. Deductible gift recipients are entities that fall within one of the general categories set out in Division 30 of the ITAA 1997 or are specifically listed by name in that Division. Legislative references in this Chapter are to the ITAA 1997 unless otherwise specified.

2.3                   Deductible gift recipient status helps eligible organisations attract public financial support for their activities.

2.4                   The Samuel Griffith Society Inc. (ABN 50 670 165 165) is a charity that promotes the understanding of the Australian Constitution.

2.5                   Friends of Myall Creek Memorial Incorporated (ABN 87 040 729 116) is a charity that maintains and develops the memorial efforts of the Myall Creek Station massacre.

2.6                   Toy Libraries Australia Inc. (ABN 40 557 982 129) is a charity that supports not-for-profit toy libraries by encouraging families to play and learn together in a sustainable way.

Summary of new law

2.7                   Schedule 2 to the Bill amends the ITAA 1997 to allow the following entities to be deductible gift recipients under the income tax law:

•        The Samuel Griffith Society Inc. (ABN 50 670 165 165);

•        Friends of Myall Creek Memorial Incorporated (ABN 87 040 729 116); and

•        Toy Libraries Australia Inc. (ABN 40 557 982 129).

Detailed explanation of new law

2.8                   Taxpayers may claim an income tax deduction for gifts made to the Samuel Griffith Society Inc. (ABN 50 670 165 165) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that the Samuel Griffith Society Inc. receives appropriate support through the Commonwealth tax system for supporting research. [Schedule 2, item 1, table item 3.2.16 in the table in subsection 30-40(2)]

2.9                   Taxpayers may claim an income tax deduction for gifts made to the Friends of Myall Creek Memorial Incorporated (ABN 87 040 729 116) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that the Friends of Myall Creek Memorial Incorporated receives appropriate support through the Commonwealth tax system. [Schedule 2, item 2, table item 13.2.25 in the table in section 30-105]

2.10               Taxpayers may claim an income tax deduction for gifts made to the Toy Libraries Australia Inc. (ABN 40 557 982 129) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that the Toy Libraries Australia Inc. receives appropriate support through the Commonwealth tax system. [Schedule 2, item 2, table item 13.2.26 in the table in section 30-105]

Consequential amendments

2.11               Schedule 2 to the Bill so amends the index for Division 30 of the ITAA 1997 to reflect the new listings. [Schedule 2, items 3, 4 and 5, table items 50D, 106 and 116AA in the table in section 30-315]

Application and transitional provisions

2.12               The amendments commence on the first day of the quarter following Royal Assent. [Clause 2]

2.13                The following listings apply to gifts made on and after 1 July 2019:

•        The Samuel Griffith Society Inc. (ABN 50 670 165 165);

•        Friends of Myall Creek Memorial Incorporated (ABN 87 040 729 116); and

•        Toy Libraries Australia Inc. (ABN 40 557 982 129).

[Schedule 2, items 1 and 2, column 3 of table item 3.2.16 in the table in subsection 30-40(2), and column 3 of table items 13.2.25 and 13.2.26 in the table in section 30-105]

2.14               The amendments apply retrospectively. This ensures that gifts made to the entities from the above application dates qualify for income tax deductions provided the gifts comply with all requirements of the income tax law. The changes are wholly beneficial both to taxpayers making gifts of $2 or more to these entities and to the entities that receive these gifts.



Chapter 3          

International financial assistance

Outline of chapter

3.1                   Schedule 3 to the Bill updates existing provisions of the IMA Act to ensure that the Treasurer can, on behalf of Australia, continue to enter into agreements with other countries to provide them with financial assistance in support of a program of the IMF.

3.2                   All legislative references in this Chapter are to the IMA Act unless otherwise stated.

Context of amendments

3.3                   The IMF plays a vital role at the centre of the global financial safety net and is responding to the Coronavirus crisis with unprecedented speed and magnitude of financial assistance to protect livelihoods, especially of the most vulnerable. In particular, the IMF is providing emergency financing and debt relief, as well as enhancing liquidity and adjusting existing programs and access limits to ensure countries have the capacity to effectively respond to the health and economic crisis caused by the Coronavirus.

3.4                   Section 8C of the IMA Act relates to agreements that Australia can enter into to provide financial assistance to another country in support of a program of the IMF. The provision also authorises appropriations from the Consolidated Revenue Fund for payments made under such agreements (see subsection 8C(3)).

3.5                   In its current form, subsection 8C(1) authorises the Treasurer to enter into certain agreements with another country if:

•        the IMF has requested that Australia provide assistance to that other country in support of a ‘Fund program’; and

•        the Treasurer is satisfied that at least one other government or organisation has or will provide financial assistance to the other country in response to a similar request from the IMF.

3.6                   The types of agreements that can be entered into are agreements for Australia to lend money or enter into a currency swap with the other country. Subsection 8C(2) provides that agreements that are authorised by this provision must provide for Australia to be able to require early repayment in the event that the Fund program is suspended or terminated early.

3.7                   Section 8C was introduced in 1998 and has been used to facilitate loan payments to other countries at the request of the IMF - for example in 2000 when loans were made to Indonesia and Papua New Guinea.

3.8                   However, changes in the policy and operational rules of the IMF mean that it no longer requests individual governments to support particular country programs. As a result, the existing conditions for the Treasurer entering into a loan agreement or currency swap with another country under section 8C cannot be satisfied (that is, the IMF will not make a request to Australia, and the Treasurer cannot be satisfied that the IMF will have made a similar request to another country).

Summary of new law

3.9                   Schedule 3 to the Bill updates existing provisions of the

IMA Act to ensure that the Treasurer can, on behalf of Australia, continue to enter into agreements with other countries to provide them with financial assistance in support of a program of the IMF.

3.10               They achieve this by removing the requirement that the IMF request that Australia provides financial assistance to another country. The other requirements in the existing provision continue to apply.

Comparison of key features of new law and current law

New law

Current law

The Treasurer is authorised to enter into an agreements to provide financial assistance to another country if the Treasurer is satisfied that:

•        a ‘Fund program’ operates, or is to operate, for the benefit of the other country; and

•        at least one other government or organisation has or will provide financial assistance to the other country in support of the Fund program.

The Treasurer is authorised to enter into an agreements to provide financial assistance to another country:

•        the IMF has requested that Australia provide assistance to that other country in support of a ‘Fund program’; and

•        the Treasurer is satisfied that at least one other government or organisation has or will provide financial assistance to the other country in response to a similar request from the IMF.

Detailed explanation of new law

3.11               The Treasurer is authorised to enter into an agreement to provide financial assistance to another country if the Treasurer is satisfied that:

•        a ‘Fund program’ operates, or is to operate, for the benefit of the other country; and

•        at least one other government or organisation has or will provide financial assistance to the other country in support of the Fund program.

[Schedule 3, items 1 and 2, paragraphs 8C(1)(a) and (b)]

3.12               These changes remove the existing requirements that the IMF make a request to Australia and to at least one other government or organisation. The amendments ensure that Australia can continue to provide financial assistance to other countries in light of the IMF’s change in policy, while retaining the underlying policy parameters that any financial assistance by Australia is provided with the assurance of IMF oversight of the recipient’s policies and actions, and in support of broader economic reforms.

3.13               The amendments do not affect the types of agreements that the Treasurer is authorised to enter into. These continue to be limited to agreements that provide for Australia to lend money to the other country, or for Australia to enter into a currency swap with Australia (see subsection 8C(1)).

3.14               The existing provision authorising appropriations from the Consolidated Revenue Fund for the purposes of payments by Australia under in connection with such an agreement continues to apply (see subsection 8C(3)).

3.15               While the phrase ‘Fund program’ is not defined in the IMA Act, the term ‘Fund’ is effectively defined as the IMF. As such, the provision is limited to programs of the IMF that operate for the benefit of the other country.

3.16               The amended provision also makes it clear that the Treasurer can enter into an agreement where they are satisfied that a Fund program ‘will’ operate for the benefit of another country. This ensures that Treasurer is not required to wait until a prospective program has commenced before the Treasurer can enter into an agreement to provide financial assistance. This facilitates any financial assistance provided under an agreement commencing at the same time as a program of the IMF, where appropriate.

3.17               It is expected that the IMF would be consulted before the Treasurer reaches a view about whether a particular operates, or will operate, for the benefit of another country.

3.18               The amendments also ensure that any agreements that are entered into on the basis that the Treasurer is satisfied that a Fund program will operate for the benefit of another country must provide for Australia to be able to require early repayment in the event the program does not begin to operate. [Schedule 3, item 3, subsection 8C(2)]

3.19               This extends the existing requirements that an agreement contain provisions about early repayment in the event of the suspension or premature termination of a Fund program.

3.20               The existing requirements about national interest statements continue to apply to agreements entered into under the amended provision. These require that the Treasurer publicly release, and table in each House of the Parliament, a national interest statement relating to any agreement entered into by Australia to provide financial assistance to another country in support of a program of the IMF (see section 8D). Such statements must continue to include a description of the nature and terms of the agreement, and the reasons why it is in Australia’s national interest (see section 8E). National interest statements of this kind that are tabled in Parliament are automatically referred to JSCOT for inquiry and report within two months (see subsection 8F).

3.21               These provisions ensure that any agreements for Australia to provide financial assistance in support of a program of the IMF are subject to Parliamentary scrutiny. This is particularly relevant where a particular agreement does not constitute a treaty that would otherwise be subject to Australia’s domestic treaty making processes.

Application and transitional provisions

3.22               The amendments commence on the day after they receive the Royal Assent.



Chapter 4          

Extending the Instant Asset Write-Off

Outline of chapter

4.1                   Schedule 4 to the Bill amends the income tax law to allow a business with an aggregated turnover for the income year of less than $500 million to immediately deduct the cost of a depreciating asset (instant asset write-off). The asset must cost less than a threshold of $150,000 and be first used or installed ready for use for a taxable purpose by 31 December 2020. Without the amendments the $150,000 instant asset write-off would end on 30 June 2020.

4.2                   Schedule 4 also amends the income tax law to allow a larger business (with an aggregated turnover for the income year of $10 million or more and less than $500 million) that has adopted a substituted accounting period to access the $150,000 instant asset write-off for an asset first used or installed ready for use for a taxable purpose from 12 March 2020 until 31 December 2020. Equivalent amendments are also made to allow an eligible business that has adopted a substituted accounting period to access the $30,000 instant asset write-off prior to 12 March 2020 regardless of when their income year ends.

4.3                   By extending the previous end date of 30 June 2020 to 31 December 2020, the amendments give businesses additional time to access the $150,000 instant asset write-off for their investments, including those investments that have been delayed by supply chain disruptions. Further, the amendments extend cash flow support to businesses through the early stages of the recovery from the economic conditions caused by the Coronavirus.

Context of amendments

Enhancement of the instant asset write-off in response to the Coronavirus

4.4                   In response to the economic conditions caused by the Coronavirus, Schedule 1 to the Coronavirus Economic Response Package Omnibus Act 2020 amended the tax law to increase the cost threshold below which small business entities can access an immediate deduction for depreciating assets and certain related expenditure from $30,000 to $150,000. This applies from 12 March 2020 to 30 June 2020.

4.5                   Those amendments also provide access to an instant asset write-off for depreciating assets and certain related expenditure costing less than $150,000 for entities with an aggregated turnover for the income year of $10 million or more, but less than $500 million (up from a cap of $50 million prior to those amendments). Those amendments apply from 12 March 2020 to 30 June 2020.

4.6                   The amendments to the instant asset write-off made by the Coronavirus Economic Response Package Omnibus Act 2020 were designed to support business investment. In particular, the expansion of the instant asset write-off was aimed at assisting economic growth in the short-term, and encouraging a stronger economic recovery following the Coronavirus outbreak.

4.7                   The economic conditions caused by the Coronavirus have disrupted supply chains and imposed cash-flow pressures on many businesses. Many businesses have been required to focus on their immediate operations in the face of the Coronavirus challenges, and are yet to consider their future investment in assets. These conditions have meant that not all businesses that would like to take advantage of the instant asset write-off have been able to do so.

Small business entities

4.8                   Division 328 of the ITAA 1997 provides a range of tax concessions for small business entities, including access to simplified depreciation rules (see Subdivision 328-D). Under section 328-110 of the ITAA 1997, an entity is generally a small business entity for an income year if the entity carries on a business in that year, and either:

•        the entity carried on a business in the prior income year and its aggregated turnover for that income year was less than a threshold amount; or

•        the aggregated turnover of the entity in the current income year is likely to be less than that threshold.

4.9                   In the 2015-16 income year, the aggregated turnover threshold was $2 million, while for 2016-17 and later income years it is $10 million.

4.10               In determining if an entity is a small business entity, the entity is deemed to be carrying on a business if it is winding up a business in an income year, provided that the entity was a small business entity for the income year in which that entity stopped carrying on the business. Further, a partner in a partnership in their capacity as a partner is not a small business entity.

4.11               An entity cannot be a small business entity for an income year because of its expected turnover if it has carried on business in the two previous income years and its aggregated turnover for each of those years was $10 million or more.

Summary of new law

4.12               The amendments extend the $150,000 instant asset write-off for a further six months until 31 December 2020. This gives businesses additional time to access the instant asset write-off for their investments.

4.13               The amendments also adjust the criteria for access to the instant asset write-off so that a business that has adopted a substituted accounting period can access the $30,000 write-off and the $150,000 write-off regardless of when their income year ends, provided the other conditions for access to the write-off are satisfied.

Comparison of key features of new law and current law

New law

Current law

Extension of the instant asset write-off

Businesses with aggregated turnover of less than $500 million for the income year can claim an immediate deduction for depreciating assets that cost less than $150,000. However, the asset must be first acquired at or after 7.30 pm (by legal time in the Australian Capital Territory) on:

•        12 May 2015 for small business entities; and

•        2 April 2019 for larger businesses;

and first used or installed ready for use for a taxable purpose on or after 12 March 2020, but before 1 January 2021 .

From 1 January 2021 , the instant asset write-off threshold for small business entities (aggregated turnover less than $10 million for the income year) will revert to $1,000 and the instant asset write-off for larger business entities (aggregated turnover of $10 million or more and less than $500 million for the income year) will cease to be available.

Businesses with aggregated turnover of less than $500 million for the income year can claim an immediate deduction for depreciating assets that cost less than $150,000. However, the asset must be first acquired at or after 7.30 pm (by legal time in the Australian Capital Territory) on:

•        12 May 2015, for small business entities; and

•         2 April 2019 for larger businesses;

and first used or installed ready for use for a taxable purpose on or after 12 March 2020, but before 1 July 2020 .

From 1 July 2020 , the instant asset write-off threshold for small business entities (aggregated turnover less than $10 million for the income year) will revert to $1,000 and the instant asset write-off for larger business entities (aggregated turnover of $10 million or more and less than $500 million for the income year) will cease to be available.

Extension of the instant asset write-off—amounts included in the second element of the cost of depreciating assets

Businesses with aggregated turnover for the income year of less than $500 million can claim a deduction for an amount included in the second element of the cost of depreciating assets. However, the assets must have been first used or installed ready for use in a previous income year and be immediately deductible in that year.

The amount of the cost must be less than $150,000 and have been included on or after 12 March 2020, but before 1 January 2021 .

Businesses with aggregated turnover for the income year of less than $500 million can claim a deduction for an amount included in the second element of the cost of depreciating assets. However, the assets must have been first used or installed ready for use in a previous income year and be immediately deductible in that year.

The amount of the cost must be less than $150,000 and have been included on or after 12 March 2020, but before 1 July 2020 .

Detailed explanation of new law

Extending the availability of the instant asset write-off

4.14               As part of the response to the economic impacts of the Coronavirus, the Government increased the instant asset write-off threshold from $30,000 to $150,000 and expanded access to include businesses with aggregated turnover for the income year of less than $500 million from 12 March 2020 until 30 June 2020 under the Coronavirus Economic Response Package Omnibus Act 2020 . The expansion of the instant asset write-off assists Australian businesses and economic growth in the short-term, encourages a stronger economic recovery following the Coronavirus outbreak and allows businesses to bring forward investment. Support for businesses upgrading and investing in income producing assets also provides longer term economic benefits.

4.15               The amendments provide further support to business cash flow and give businesses additional time for assets to be delivered and installed, by extending the operation of the instant asset write-off concession to 31 December 2020. These eligible depreciating assets must cost less than $150,000, and be first acquired at or after:

•        7.30 pm (legal time in the Australian Capital Territory) on 12 May 2015 for small business entities using the simplified depreciation rules; and

•        7.30 pm (legal time in the Australian Capital Territory) on 2 April 2019 for larger businesses.

4.16               Other references in this Chapter to 12 May 2015 and

2 April 2019 refers to 7.30 pm legal time in the Australian Capital Territory on those days.

4.17               The eligible depreciating assets must also be first used or installed ready for use for a taxable purpose on or after 12 March 2020, but before 1 January 2021. [Schedule 4, items 2, 3, 8, 23 and 24, paragraphs 40-82(1)(b), 40-82(1)(d), 40-82(1)(e), subsections 40-82(2A) and 40-82(2B) and paragraph 40-82(4A)(a) of the ITAA 1997 and subsection 328 - 180(4A) and subparagraph 328-180(5)(d)(ii) of the ITTPA 1997]

4.18               The amendments extend the $150,000 instant asset write-off introduced by the Coronavirus Economic Response Package Omnibus

Act 2020
by allowing :

•        small business entities (aggregated turnover for the income year is less than $10 million) that are using the simplified rules to continue to access the $150,000 instant asset write-off (under section 328-180 of the ITTPA 1997) until 31 December 2020; and

•        larger business entities (aggregated turnover of $10 million or more but less than $500 million for the income year) to continue to access the instant asset write-off (under section 40-82 of the ITAA 1997) until 31 December 2020.

[Schedule 4, items 2, 3, 8, 21, 22 and 23, paragraphs 40-82(1)(b), 40-82(1)(d), 40-82(1)(e), subsections 40-82(2A) and 40-82(2B) and paragraph 40-82(4A)(a) of the ITAA 1997, and subsections 328 - 180(4) and 328 - 180(4A) of the ITTPA 1997]

Current year rules - immediate deduction for assets first used or installed ready for use in the income year

4.19               Under the amendments, the instant asset write-off threshold of $150,000 continues to apply to the decline in value of the eligible depreciating asset as at:

•        the end of the income year, if the asset is first used or installed ready for use for a taxable purpose in an income year that ends on or before 31 December 2020; or

•        31 December 2020, if the asset is first used or installed ready for use for a taxable purpose on or before 31 December 2020, but the income year ends after 31 December 2020.

4.20               The decline in value is either:

•        the cost of the asset at the end of the income year of the entity where the year ends before 31 December 2020 or otherwise the cost on 31 December 2020, if the asset’s start time coincides with the income year in which it is first used or installed ready for use for a taxable purpose; or

•        the sum of the opening adjustable value for the current year and any amount included in the second element of the asset’s cost for the income year other than an amount included after 31 December 2020, if the asset’s start time occurred in an earlier income year than the income year it is first used or installed ready for use for a taxable purpose.

•        [Schedule 4, items 3, 6, 23 and 25, subsections 40-82(2A) and 40-82(3A) of the ITAA 1997 and subsections 328 - 180(4A) and 328-180(5A) of the ITTPA 1997]

4.21               An asset’s start time is when the asset is first used or installed ready for use for any purpose, whether that is a taxable purpose or not (see section 40-60 of the ITAA 1997).

Later year rules

Larger business entities

4.22               Where a larger business (aggregated turnover of $10 million or more but less than $500 million for the income year) has claimed an immediate deduction for an asset in an income year, and if in a later year it includes a second element cost for the asset, it can also claim an immediate deduction for the first amount of the second element cost. However, the deduction is only available if this amount is less than $150,000. This later year must be an income year that ends on or after 2 April 2019 and this amount must be included on or before 31 December 2020. [Schedule 4, items  6, 7, 9 and 10, subsections 40-82(3A), 40-82(4A), and 40-82(4B) of the ITAA 1997]

4.23               The second element cost is worked out after the taxpayer starts to hold the asset and is generally the amount paid to bring the depreciating asset to its present condition and location (see section 40-190 of the ITAA 1997). The second element cost generally includes improvements and upgrades to an existing asset.

Example 4.1: The extended instant asset write-off in a later year - amounts included on or before 31 December 2020

PLT & Co has an aggregated turnover of $35 million for the income year ended 30 June 2020.

On 3 October 2020, PLT & Co made improvements to capital equipment it uses. This improvement cost $20,000. The initial cost of that capital equipment was immediately deducted in the income year ended 30 June 2020 under the instant asset write-off rules.

PLT & Co includes $20,000 as the first amount added to the second element of cost for that equipment on 3 October 2020. As this occurred before 1 January 2021, PLT & Co is eligible to claim the instant asset write-off for this second element of cost for the equipment.

For the income year ended 30 June 2021, PLT & Co claims the instant asset write-off for the $20,000 of improvements to the capital equipment.

4.24               Once these amendments cease to apply o n 1 January 2021, the instant asset write-off for larger business entities (aggregated turnover of $10 million or more and under $500 million for the income year) will no longer be available. Taxpayers must then use the general uniform capital allowance rules in Division 40 of the ITAA 1997 to calculate the decline in value of depreciating assets. [Schedule 4, item 11, subsections 40-82(5) and 40-82(6) of the ITAA 1997]

Small business entities

4.25               Where a small business entity has claimed an immediate deduction for an asset in an income year and it has included an amount of a second element of cost for the asset in a later year, it can claim the amount of the second element of cost of the eligible depreciating asset in that later year. However, a deduction is only available if:

•        the asset was first acquired on or after 12 May 2015;

•        the amount has been included in the second element of cost on or before 31 December 2020; and

•        this amount is less than $150,000.

[Schedule 4, item 24, subparagraph 328 - 180(5(d)(ii) of the ITTPA 1997]

4.26               For small business entities using the simplified depreciation rules, once the increased instant asset write-off rules cease to apply on and after 1 January 2021, the instant asset write-off threshold reverts to $1,000. As the increased instant asset write-off ends part way through most income years, there is a transitional rule to deal with second element of cost amounts included after 31 December 2020 but in the same income year as when the eligible asset was first used or installed ready for use. The transitional rule provides that a small business entity can deduct the second element of cost for an asset totalling less than $1,000 if:

•        the entity first uses or installs the asset on or after

12 March 2020 and prior to 1 January 2021 and is entitled to deduct the full amount for the asset under the instant asset rules; and

•        the second element of cost for the asset would be deductible in the same income year as the instant asset amount can be deducted. 

[Schedule 4, item 25, subsection 328-180(5A) of the ITTPA 1997]

4.27               This transitional rule ensures that a post 31 December 2020 second element of cost amount of less than $1,000 is not prevented from being immediately deducted where it would have qualified for a deduction if it had been included in a later income year. No similar rule is required for Division 40 as no threshold applies under that Division for such expenditure included in the cost of an asset after 31 December 2020.

4.28               Once these amendments cease to apply on 1 January 2021, the instant asset write-off threshold for small business entities (aggregated turnover less than $10 million for the income year) using the simplified rules will revert to $1,000.

Modifying access to the instant asset write-off for businesses with a substituted accounting period

4.29               Generally, income years end on 30 June. However, the Commissioner may grant leave for an entity to adopt a substituted accounting period ending on a date other than 30 June (see section 18 of the Income Tax Assessment Act 1936 ).

4.30               To be eligible to apply the instant asset write-off under section 40-82 of the ITAA 1997, the decline in value of an asset held by a taxpayer for an income year (the current year) must be in the income year the taxpayer starts to use the asset or has it installed ready for use for a taxable purpose.

4.31               Prior to these amendments, an eligible income year (the current year) had to end on or after 2 April 2019 and on or before 30 June 2020.

4.32               For taxpayers without a substituted accounting period (i.e. their income year ends on 30 June), the requirement that the current year must end on or before 30 June 2020 applies appropriately because the income year in which the instant asset write-off can be claimed aligns with the end of the income year for that taxpayer (see paragraph 40-82(1)(b) of the ITAA 1997).

4.33               However, where a taxpayer adopts a substituted accounting period with an income year that ends on a day other than 30 June, the taxpayer may have a shorter period of time to access the instant asset write-off under section 40-82 of the ITAA 1997. For example, prior to these amendments, a taxpayer with a substituted accounting period ending on 31 August would only be able to access the instant asset write-off under section 40-82 of the ITAA 1997 for eligible expenditure between 2 April 2019 and 31 August 2019.

4.34               The amendments adjust the criteria for access to the instant asset write-off to ensure that taxpayers on a substituted accounting period can still effectively access the instant asset write-off. Accordingly, along with the amendment to extend the instant asset write-off to 31 December 2020, a larger business that has adopted a substituted accounting period can access the $150,000 instant asset write-off for assets first acquired in the period beginning on 2 April 2019 and ending on 31 December 2020. The decline in value can be claimed in the income year in which the business starts to use the asset or has it installed ready for use for a taxable purpose. This is the case regardless of whether the business’ income year ends on 30 June, or another time under a substituted accounting period . [Schedule 4, items 4 and 6, subsections 40-82(2A), 40-82(2B) and 40-82(3A) of the ITAA 1997]

4.35               Similarly, the amendments adjust the criteria for access to the $30,000 instant asset write-off in the relevant period to ensure that eligible taxpayers on a substituted accounting period can access the instant asset write-off regardless of when their income year ends. Generally, to access the $30,000 instant asset write-off:

•        the taxpayer must have an aggregated turnover of $10 million or more but less than $50 million in the relevant income year; and

•        the asset must be first acquired in the period beginning on 2 April 2019 and ending before 12 March 2020 and the taxpayer must start to use the asset, or have it installed ready for use, for a taxable purpose on or after 2 April 2019 but before 12 March 2020.

4.36               The decline in value can be claimed in the income year in which the business starts to use the asset or has it installed ready for use for a taxable purpose. This is the case regardless of whether the business’ income year ends on 30 June, or another time under a substituted accounting period. [Schedule 4, items 2 and 5, subsections 40-82(1) and 40-82(3) of the ITAA 1997]

Consequential amendments

Small business entities

4.37               A small business entity can choose to deduct amounts for most of its depreciating assets under a special depreciation regime - the simplified depreciation rules (see Subdivision 328-D of the ITAA 1997). A small business entity that chooses to use the simplified depreciation rules works out the decline in value under those rules instead of Division 40 of the ITAA 1997 (regarding capital allowances). Under the simplified depreciation rules, a small business entity has access to an immediate write-off for depreciating assets that are under a threshold amount and a simple pooling facility for other depreciating assets.

4.38               Schedule 4 to the Bill makes amendments to the ITTPA 1997 so that the increased threshold of $150,000 for the instant asset write-off continues to apply until 31 December 2020 . [Schedule 4, items 23, 24, 25 and 26, subsections 328-180(4A) and 328-180(5A) and subparagraphs 328-180(5)(d)(ii) and 328-180(6)(d)(ii) of the ITTPA 1997]

4.39               Generally, if a small business entity chooses to use the simplified depreciation rules to deduct amounts for depreciating assets for an income year but does not choose to use the rules for a later income year for which it is eligible to make this choice, the entity is subject to the ‘lock-out rule’. This rule prevents the entity from choosing to use the simplified depreciation rules until at least five years after the first later income year for which it satisfied the conditions to make the choice to use the simplified depreciation rules but did not do so (see subsection  328-175(10) of the ITAA 1997).

4.40               Prior to these amendments, the lock - out rule was temporarily suspended for an income year that ends either on or after 12 May 2015 and on or before 30 June 2020. Accordingly, during one of those income years (described as an ‘increased access year’ in section 328-180 of the ITTPA 1997), a small business entity that had previously elected to not use the simplified depreciation rules can choose to use it again for an income year without having to wait for at least five years (see subsection 328-180(2) of the ITTPA 1997 and subsection 328-175(10) of the ITAA 1997).

4.41               Schedule 4 amends the ITTPA 1997 so that the temporary suspension of the lock - out rule is extended to the end of an income year that includes 31 December 2020. For small businesses that have not adopted a substituted accounting period, the effect of the amendments is that the temporary suspension of the lock-out rule is extended to 30 June 2021. This ensures that small businesses that are otherwise eligible to claim the extended instant asset write-off are not locked out of using the simplified depreciation rules. [Schedule 4, item 19, definition of increased access year in subsection 328-180(1) of the ITTPA 1997]

Other consequential amendments

4.42               Schedule 4 makes a number of minor consequential amendments to refer to 31 December 2020 as the extended date for the instant asset write-off rather than 30 June 2020. These amendments are made to headings, cross-references and notes in relevant provisions in the ITAA 1997 and the ITTPA 1997. [Schedule 4, items 1, 12, 13, 14, 15, 16, 17, 18 and 20, sections 40-82, 328-180, 328-210, 328-250 and 328-253 of the ITAA 1997 and section 328-180 of the ITTPA 1997]

Application and transitional provisions

4.43               The amendments commence on the day after Royal Assent of the Bill. [Clause 2]

4.44               The effect of the amendments is to extend the instant asset

write-off from 1 July 2020 for a further 6 months. The removal of the requirement that the current year ends on or before 30 June 2020 applies so that, from 2 April 2019, qualifying larger entities with substituted accounting periods can also obtain the benefit of the instant asset write - off until 31 December 2020 regardless of what substituted accounting period they have adopted.

4.45               To the extent that the amendments apply retrospectively for taxpayers with substituted accounting periods, the retrospectivity ensures that these taxpayers are able to obtain the benefit of the instant asset write - off for the full periods intended. The changes are wholly beneficial to taxpayers affected by this change as they are able to fully deduct amounts in an income year rather than writing them off over a longer period.



Chapter 5          

Reduction in 2020-21 PAYG instalments

Outline of chapter

5.1                   Schedule 5 to the Bill will amend the TAA 1953 to reduce the GDP adjustment factor for the 2020-21 income year to nil. The GDP adjustment factor is applied by the Commissioner to work out the amount of PAYG instalments payable by a taxpayer in certain circumstances.

Context of amendments

5.2                   Most small businesses and some individuals are required to pay instalments toward their expected annual income tax under the PAYG instalment system. The difference between instalment payments and the taxpayer’s final tax liability is reconciled in a wash-up payment or refund at the time an income tax assessment is made.

5.3                   There are a number of methods to determine tax instalments based on previous tax outcomes. These include:

•        the Instalment Rate method - under this method the amount of the instalment is worked out based on income as a proxy for profit within instalment periods; and

•        the Quarterly Instalment Amount method - under this method the amount of the instalment is worked out based on previous tax outcomes that are uplifted based on the nominal increase in GDP over the previous two calendar years.

5.4                   Taxpayers can vary their instalments if they consider their income is expected to be lower or higher than the amount determined by the Commissioner.

5.5                   The Commissioner has advised that, under the current law, the GDP adjustment factor that will apply to work out instalments for the 2020-21 income year under the Quarterly Instalment Amount method will be 5 per cent.

5.6                   Small business entities that are liable to pay GST may also elect to pay by instalments. The amount of the GST instalments payable by a small business entity is worked out by the Commissioner taking into account the GDP adjustment factor.

5.7                   The GDP adjustment factor can be unrepresentative of expected profit growth in income years where economic and business conditions change quickly and the expected income of taxpayers changes accordingly. This can cause taxpayers to be required to pay PAYG instalments which are too high compared with their actual income, with the overpaid tax being credited to them after the end of the income year when their final tax liability is assessed.

5.8                   Therefore, having regard to the economic and business conditions caused by the Coronavirus, the GDP adjustment factor that applies to work out the amount of PAYG instalments payable will be reduced to nil for the 2020-21 income year.

Summary of new law

5.9                   Schedule 5 to the Bill will amend section 45-405 in Schedule 1 to the TAA 1953 to reduce the GDP adjustment factor for the 2020-21 income year to nil.

5.10               The GDP adjustment factor is applied by the Commissioner to work out the amount of PAYG instalments payable by a taxpayer in certain circumstances.

5.11               The Commissioner will also apply the reduced GDP adjustment factor to work out the amount of GST instalments payable by small business entities in the 2020-21 income year.

Comparison of key features of new law and current law

New law

Current law

The GDP adjustment factor used by the Commissioner to work out PAYG instalments under the Quarterly Instalment Amount method for the 2020-21 income year will be 0 per cent.

The Commissioner will apply the reduced GDP adjustment factor to work out the amount of GST instalments payable by small business entities in the 2020-21 income year .

The GDP adjustment factor used by the Commissioner to work out PAYG instalments under the Quarterly Instalment Amount method for the 2020-21 income year will be 5 per cent.

The Commissioner will apply the GDP adjustment factor to work out the amount of GST instalments payable by small business entities in the 2020-21 income year .

Detailed explanation of new law

5.12               Schedule 5 to the Bill will amend section 45-405 in Schedule 1 to the TAA 1953 to reduce the GDP adjustment factor for the 2020-21 income year to nil.

5.13               Taxpayers who pay PAYG instalments on the basis of the Quarterly Instalment Amount method are required to pay a percentage of their GDP adjusted notional tax each quarter as worked out under either section 45-400 or section 45-402 in Schedule 1 to the TAA 1953.

5.14               GDP-adjusted notional tax is calculated by the Commissioner under section 45-405 in Schedule 1 to the TAA 1953. Broadly, a taxpayer’s GDP-adjusted notional tax is calculated by increasing the taxpayer’s adjusted taxable income from their most recent income tax return by the GDP adjustment factor to give the adjusted taxable income for the purposes of calculating their notional tax for the current income year.

5.15               The GDP adjustment factor is generally calculated using the formula in subsection 45-405(3) in Schedule 1 to the TAA 1953. However, for the 2020-21 income year, the GDP adjustment factor will be 0 per cent. [Schedule 5, item 1, subsection 45-405(8) in Schedule 1 to the TAA 1953]

5.16               The Commissioner will apply the reduced GDP adjustment factor to work out the amount of GST instalments payable by small business entities in the 2020-21 income year.

5.17               Taxpayers may still vary their quarterly instalments if they consider their income is expected to be lower or higher than the amount determined by the Commissioner using the 0 per cent GDP adjustment factor.

Application and transitional provisions

5.18               The amendments to reduce the GDP adjustment factor to nil for the 2020-21 income year will commence on the first day of the first quarter that occurs after the day on which the amending Act receives the Royal Assent. [Section 2]

5.19               These amendments will apply for the purposes of working out the amount of PAYG instalments for instalment quarters starting:

•        if this Bill receives Royal Assent before 21 August 2020 - on or after 1 July 2020; or

•        otherwise - on or after 1 October 2020.

[Schedule 5, item 2]

5.20               This will ensure that the measure will apply for the purposes of working out the amount of a taxpayer’s PAYG instalments in relation to the 2020-21 income year (including the PAYG instalments payable by a taxpayer that has a substituted accounting period).

5.1                   In order to avoid inoperative provisions remaining in the tax laws, the provisions that give effect to this measure will be automatically repealed on 1 July 2025. [Schedule 5, item 3]



Chapter 6          

Cash flow boost

Outline of chapter

6.1                   Schedule 6 to the Bill makes minor amendments to the Boosting Cash Flow for Employers (Coronavirus Economic Response Package)

Act 2020
to clarify that the payments for which an entity can receive a cash flow boost payment include payments for which an amount must be paid to the Commissioner under the special obligations applying to certain personal service income payments under Division 13 in Schedule 1 to the TAA 1953.

Context of amendments

6.2                   The cash flow boost payments under the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 are made to employers to provide support by boosting their cash flow during periods from March 2020 to September 2020.

6.3                   There are two rounds of cash flow boost payments, paid in relation to different periods.

6.4                   Employers are eligible to receive the first cash flow boost for periods from March 2020 to June 2020 if, among other things, they made a payment during the period that was subject to withholding under Subdivisions 12-B, 12-C or 12-D in Schedule 1 to the TAA 1953 (broadly, a payment of wages or salary or equivalent remuneration). The amount of the first cash flow boost is then determined based in part on the amount withheld from these payments.

6.5                   The second kind of cash flow boost payment is then payable for periods from June 2020 to September 2020 to entities that received the first cash flow boost, of an amount equal to the amount of the first cash flow boost the entity received. It is payable in either two or four instalments depending on the entity’s reporting cycle.

6.6                   These payments that entitle an entity to the first cash flow boost largely correspond with the payments for which the ATO requires that any amount withheld from the payment must be reported on a specified field on the activity statement for the relevant period.

6.7                   However, eligibility and the amount of the cash flow boost is not linked to amounts of tax that must be paid to the Commissioner on receipt of alienated personal services payments under Division 13 in Schedule 1 to the TAA 1953 (broadly, payments received by a personal services entity that are ultimately treated as forming part of the income of an individual and have not been promptly paid to the individual as wages or salary). Payments under Division 13 are unusual because the liability to pay amounts to the Commissioner is not linked to the entity making a payment from which an amount is withheld, but instead arises from the receipt of personal services income that will ultimately be included in the income of the relevant individual.

6.8                   The amount of tax required to be paid to the Commissioner for payments made under Division 13 in Schedule 1 to the TAA 1953 must be reported to the ATO in the same field on the activity statement as amounts withheld under Subdivisions 12-B, 12-C or 12-D in Schedule 1 to the TAA 1953.

Summary of new law

6.9                   Schedule 6 amends the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 to provide that amounts that an entity must pay the Commissioner under Division 13 in Schedule 1 to the TAA 1953 are to be treated in the same way as amounts subject to withholding under Subdivisions 12-B, 12-C or 12-D in Schedule 1 to the TAA 1953 for the purpose of determining entitlement to and the amount of the cash flow boost.

Comparison of key features of new law and current law

New law

Current law

Conditions for entitlement to first cash flow boost

To be entitled to a payment of the first cash flow boost for a period an entity must, among other things either:

•        make a payment that is subject to withholding obligations under Subdivisions 12-B, 12-C or 12-D in Schedule 1 to the TAA 1953 (broadly, a payment of wages or salary or similar remuneration), whether or not any amount is actually withheld, in the period; or

•        be required to pay an amount to the Commissioner under Division 13 in Schedule 1 to the TAA 1953 because the entity receives an alienated personal services payment in the period.

To be entitled to a payment of the first cash flow boost for a period an entity must, among other things, make a payment that is subject to withholding obligations under Subdivisions 12-B, 12-C or 12-D in Schedule 1 to the TAA 1953 (broadly, a payment of wages or salary or similar remuneration), whether or not any amount is actually withheld, in the period.

Amount of first cash flow boost

Subject to the minimum amount and the maximum cap, the amount of the first cash flow boost payable to an entity for a period is equal to the sum of:

•        the total amount the entity has withheld for the period under Subdivisions 12-B, 12-C and 12-D; and

•        the total amount required to be paid to the Commissioner under Division 13 in Schedule 1 to the TAA 1953.

Subject to the minimum amount and the maximum cap, the amount of the first cash flow boost payable to an entity for a period is equal to the total amount that the entity has withheld for the period under Subdivisions 12-B, 12-C and 12-D in Schedule 1 to the TAA 1953.

Detailed explanation of new law

6.10               Schedule 6 amends the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 to change how payments required to be made under Division 13 in Schedule 1 to the TAA 1953 as a result of the receipt of alienated personal services income payments in a period affect:

•        the entitlement of an entity to the first cash flow boost for that period; and

•        the amount of any payment of the first cash flow boost for the period.

6.11               The effect of these amendments is to treat amounts required to be paid to the Commissioner under the special rules for alienated personal services income payments in the same way as amounts withheld under Subdivisions 12-B, 12-C or 12-D in Schedule 1 to the TAA 1953. This is consistent with the overall purpose of Division 13, which results in arrangements applying to personal services income that has not been promptly paid as salary and wages in a way that is equivalent to the treatment of salary and wages under Division 12.

Entitlement

6.12               Under the prior law, paragraphs 5(1)(a) and (b) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act  2020 provide that an entity must make a payment from which the entity must withhold an amount from a payment under Subdivisions 12-B, 12-C or 12-D in Schedule 1 to the TAA 1953 during a period in order to be entitled to the first cash flow boost for that period.

6.13               Schedule 6 amends these requirements so that the requirements are also satisfied if an entity must pay an amount to the Commissioner under Division 13 in Schedule 1 to the TAA 1953 in relation to an alienated personal services payment that is received during the period. [Schedule 6, item 3, paragraph 5(1)(a) and (b) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020]

6.14               For this purpose, Schedule 6 defines alienated personal services payment as having the same meaning as in section 13-10 in Schedule 1 to the TAA 1953. [Schedule 6, item 1, the definition of ‘alienated personal services payment’ in subsection 4(1) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020]

Amount

6.15               Similarly, Schedule 6 also amends the definition of withholding period total .

6.16               Under the prior law an entity’s withholding period total for a period was the total of the amounts they withheld from payments under Subdivisions 12-B, 12-C and 12-D in Schedule 1 to the TAA 1953 in the period. As a result of the amendments an entity’s withholding period total also includes amounts required to be paid to the Commissioner under Division 13 in Schedule 1 to the TAA 1953 in relation to payments of alienated personal services received during the period. [Schedule 6, item 2, subsection 4(4) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020]

Application and transitional provisions

6.17               These amendments commence on the day after the Bill containing the amendments receives Royal Assent. [Clause 2]

6.18               These amendments apply to all payments of the cash flow boost, including those for periods before the commencement of the amendments. [Schedule 6, item 4]

6.19               This ensures that entities that are required to pay amounts under Division 13 in Schedule 1 to the TA 1953 in relation to alienated personal services payments received in these periods are entitled to the cash flow boost. It also ensures that entities that may have received a cash flow boost payment from the ATO on the basis of reporting that does not distinguish between amounts withheld under Subdivisions 12-B, 12-C and 12-D in Schedule 1 to the TAA 1953 and amounts payable under Division 13 in Schedule 1 to the TAA 1953 are not required to repay these amounts.

6.20               While the amendments apply retrospectively, they are wholly beneficial to affected entities, making them entitled to the cash flow boost or increasing the amount of the cash flow boost they are to be paid.

 



Chapter 7          

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Schedule 1 - International monetary agreements

7.1                   Schedule 1 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

7.2                   Schedule 1 to the Bill amends the IMA Act to authorise the Minister to enter into an agreement with the IMF for Australia to provide loans to the IMF.

7.3                   These amendments would establish a clear legislative framework for entering into new loan agreements with the IMF without the need for further legislative amendments. The amendments would also introduce a standing appropriation to fund Australia’s obligations to pay amounts to the IMF under such an agreement.

7.4                   Schedule 1 to the Bill also amends the IMA Act to provide that the Treasurer may, by legislative instrument, give notice of an amendment or renewal of the New Arrangements to Borrow by a decision of the Executive Board of the Fund.

7.5                   The amendments also make provision for a specific update to the current definition of the New Arrangements to Borrow in the IMA Act to include the IMF Executive Board’s decision (Decision No. 16645-(20/5), dated 16 January 16, 2020).

Human rights implications

7.6                   This Schedule does not engage any of the applicable rights or freedoms.

Conclusion

7.7                   This Schedule is compatible with human rights as it does not raise any human rights issues.

Schedule 2 - Deductible gift recipients—new specific recipients

7.8                   Schedule 2 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

7.9                   Schedule 2 to the Bill amends the ITAA 1997 to allow the following entities to be deductible gift recipients under the income tax law:

•        The Samuel Griffith Society Inc. (ABN 50 670 165 165);

•        Friends of Myall Creek Memorial Incorporated (ABN 87 040 729 116); and

•        Toy Libraries Australia Inc. (ABN 40 557 982 129).

Human rights implications

7.10               This Schedule does not engage any of the applicable rights or freedoms.

Conclusion

7.11               This Schedule is compatible with human rights as it does not raise any human rights issues.

Schedule 3 - International financial assistance

7.12               Schedule 3 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

7.13               Schedule 3 to the Bill updates existing provisions of the IMA Act to ensure that the Treasurer can, on behalf of Australia, continue to enter into agreements with other countries to provide them with financial assistance in support of a program of the IMF.

7.14               These changes remove the existing requirements that the IMF make a request to Australia and to at least one other government or organisation. The amendments ensure that Australia can continue to provide financial assistance to other countries in light of the IMF’s change in policy (to no longer make such requests), while retaining the underlying policy parameters that any financial assistance by Australia is provided with the assurance of IMF oversight of the recipient’s policies and actions, and in support of broader economic reforms.

Human rights implications

7.15               This Schedule does not engage any of the applicable rights or freedoms.

Conclusion

7.16               This Schedule is compatible with human rights as it does not raise any human rights issues.

Schedule 4 - Extending the instant asset write-off

7.17               Schedule 4 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

7.18               Schedule 4 to the Bill amends the income tax law to allow a business with an aggregated turnover for the income year of less than $500 million to immediately deduct the cost of each depreciating asset costing less than $150,000 (instant asset write-off) for an asset first used or installed ready for use up to 31 December 2020.

7.19               Schedule 4 also amends the income tax law to allow a larger business (with an aggregated turnover for the income year of $10 million or more and less than $500 million) that has adopted a substituted accounting period to access the $150,000 instant asset write-off for an asset first used or installed ready for use for a taxable purpose from 12 March 2020 until 31 December 2020. Equivalent amendments are also made to allow an eligible business that has adopted a substituted accounting period to access the $30,000 instant asset write-off prior to 12 March 2020 regardless of when their income year ends.

Human rights implications

7.20               This Schedule does not engage any of the applicable rights or freedoms.

Conclusion

7.21               This Schedule is compatible with human rights as it does not raise any human rights issues.

Schedule 5 - Reduction in 2020-21 PAYG instalments

7.22               Schedule 5 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

7.23               Schedule 5 to the Bill will amend the TAA 1953 to reduce the GDP adjustment factor for the 2020-21 income year to nil. The GDP adjustment factor is applied by the Commissioner to work out the amount of PAYG instalments payable by a taxpayer in certain circumstances.

Human rights implications

7.24               This Schedule does not engage any of the applicable rights or freedoms.

Conclusion

7.25               This Schedule is compatible with human rights as it does not raise any human rights issues.

Schedule 6 - Cash Flow Boost

7.26               Schedule 6 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

7.27               Schedule 6 to the Bill makes minor amendments to change the scope of the payments for which an entity can receive the cash flow boost under the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 . The amendments clarify that these payments include amounts that are subject to withholding under the special withholding obligations applying to certain personal service income payments under Division 13 in Schedule 1 to the TAA 1953.

Human rights implications

7.28               This Schedule does not engage any of the applicable rights or freedoms.

7.29               While the amendments apply retrospectively, they are wholly beneficial to affected entities, making them entitled to the cash flow boost or increasing the amount of the cash flow boost they are to be paid.

Conclusion

7.30               This Schedule is compatible with human rights as it does not raise any human rights issues.