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Treasury Laws Amendment (2021 Measures No. 4) Bill 2021

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2019-2020-2021

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

Treasury Laws Amendment (2021 Measures No. 4) Bill 2021

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Assistant Treasurer, Minister for Housing and Minister for Homelessness, Social and Community Housing, the Hon Michael Sukkar MP)

 

 



Table of contents

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

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

Chapter 1 ........... Fringe benefits tax exemption to support retraining and reskilling           7

Chapter 2 ........... Junior minerals exploration incentive extension........ 13

Chapter 3 ........... Exempting granny flat arrangements from CGT......... 19

Chapter 4 ........... Amendments to product intervention regime.............. 25

Chapter 5 ........... New Zealand sports teams members and support staff 29

Chapter 6 ........... Low and middle income tax offset................................. 35

Chapter 7 ........... Statement of Compatibility with Human Rights.......... 37

 

 



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

Abbreviation

Definition

ASIC

Australian Securities and Investments Commission

Bill

Treasury Laws Amendment (2021 Measures No. 4) Bill 2021

CGT

capital gains tax

Commissioner

Commissioner of Taxation

FBT

fringe benefits tax

ITAA 1997

Income Tax Assessment Act 1997

NZ

New Zealand

NZ Convention

Convention between Australia and New Zealand for the Avoidance of Double Taxation with Respect to Taxes on Income and Fringe Benefits and the Prevention of Fiscal Evasion [2010] ATS 10

PAYG

pay as you go

TAA 1953

Taxation Administration Act 1953

 

 



Schedule 1 - Fringe benefits tax exemption to support retraining and reskilling

Schedule 1 to the Bill amends the Fringe Benefits Tax Assessment Act 1986 to provide employers with an exemption from FBT if they provide training or education to a redundant, or soon to be redundant, employee for the purpose of assisting that employee to gain new employment.

Date of effect Schedule 1 to the Bill applies to benefits provided on or after 2 October 2020.

Proposal announced Schedule 1 to the Bill fully implements the measure ‘ Fringe Benefits Tax — exemption to support retraining and reskilling ’ from the 2020-21 Budget as announced on 2 October 2020.

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

2020-21

2021-22

2022-23

2023-24

-1.0

-2.0

-2.0

-2.0

Human rights implications :  Schedule 1 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact Schedule 1 to the Bill is estimated to result in a regulatory saving of $1.1 million over the next 10 years.

Schedule 2 - Junior minerals exploration incentive extension

Schedule 2 to the Bill extends the operation of the junior minerals exploration incentive in Division 418 of the ITAA 1997 for a further four years to continue to encourage mineral exploration companies to undertake greenfields minerals exploration in Australia. Schedule 2 also includes a reporting requirement for mineral exploration companies where no exploration investment has occurred to enable unused exploration credits to be identified earlier and reallocated.

Date of effect :  The amendments in Schedule 2 apply to the 2021-22 income year through to the 2024-25 income year.

Proposal announced Schedule 2 to the Bill fully implements the ‘Junior Minerals Exploration Incentive - extension’ measure from the 2021-22 Budget as announced on 5 May 2021.

Financial impact This measure is estimated to have the following impact on the underlying cash balance over the forward estimates period ($m):

2021-22

2022-23

2023-24

2024-25

-

-

-19.4

-19.4

This measure is estimated to reduce the fiscal balance by $100 million over four years from 2021-22.

Human rights implications :  Schedule 2 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact Schedule 2 to the Bill is expected to result in a minimal increase in compliance costs for mineral exploration companies that choose to participate.

Schedule 3 - Exempting granny flat arrangements from CGT

Schedule 3 to the Bill amends the CGT provisions in the ITAA 1997 to provide a targeted CGT exemption for CGT events that occur on entering into, varying or terminating formal written arrangements under which an older person or person with a disability acquires, varies or disposes of a granny flat interest.

The amendments ensure that CGT consequences are not an impediment to formalising granny flat arrangements and seek to reduce the risk of financial abuse and exploitation of older Australians and other vulnerable people.

Date of effect Schedule 3 to the Bill commences on the first 1 July after the Bill receives Royal Assent.

The amendments apply in relation to events that happen on or after the amendments commence that would, apart from the provisions contained in the amendments, be CGT events.

Proposal announced Schedule 3 to the Bill fully implements the measure “Supporting Older Australians exempting granny flat arrangements from capital gains tax” from the 2020-21 Budget.

Financial impact This measure was estimated to have an unquantifiable impact on receipts over the forward estimates period.

2020-21

2021-22

2022-23

2023-24

-

-

*

*

* unquantifiable

Human rights implications :  Schedule 3 to the Bill is compatible with Human Rights. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact Schedule 3 to the Bill will result in a low increase in compliance costs.

Schedule 4 - Amendments to product intervention regime

Schedule 4 to the Bill amends the Corporations Act 2001 and the National Consumer Credit Protection Act 2009 to provide that ASIC is not prohibited from making a product intervention order that has conditions relating to fees, charges or other consideration paid or payable as remuneration by a retail client or consumer to a person, including the provider (or their associates) of a financial product or a credit product.

These amendments are to address unintended outcomes and to ensure that the product intervention regime operates as intended.

Date of effect :  Schedule 4 to the Bill commences the day after the Bill receives Royal Assent.

Proposal announced :  Not applicable.

Financial impact Nil.

Human rights implications :  Schedule 4 to the Bill does not raise any human rights issue. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact The amendments in Schedule 4 to the Bill are technical in nature and as such will have no impact on compliance costs.

Schedule 5 - New Zealand sports teams members and support staff

Schedule 5 to the Bill amends the International Tax Agreements Act 1953 to disregard days spent in Australia due to COVID-19 by NZ sportspersons on teams participating in cross-border competitions and their support staff in determining whether income derived from such competitions is taxable in Australia.

These amendments preserve the uniquely targeted outcome ordinarily achieved by Article 17(3) of the NZ Convention for NZ sporting professionals and their support staff, in circumstances affected by COVID-19.

Date of effect :  The amendments in Schedule 5 to the Bill take effect f rom the start of the 2020-21 income year.

Proposal announced Schedule 5 to the Bill fully implements the measure New Zealand Sporting Professionals Tax Treatment from the 2021-2022 Budget.

Financial impact This measure is estimated to result in an unquantifiable decrease in receipts over the forward estimates period.

Human rights implications :  Schedule 5 to the Bill does not raise any human rights issue. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact Schedule 5 to the Bill is estimated to have a minor impact on compliance costs because it aims to preserve the original policy intent of the NZ Convention in easing the compliance burden and regulatory impacts for sporting teams competing in cross-border league competitions. It also ensures that additional compliance costs are not incurred to meet unintended Australian tax obligations. 

Schedule 6 - Low and Middle Income tax offset

Schedule 6 to the Bill amends the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020 to make the low and middle income tax offset available in the 2021-22 income year, with the offset now ceasing to be available in the 2022-23 income year and later income years.

Date of effect The changes to the low and middle income tax offset apply to the 2021-22 income year.

Proposal announced Schedule 6 to the Bill fully implements the retaining the low and middle income tax offset for the 2021-22 income year measure from the 2021-22 Budget.

Financial impact This measure is estimated to decrease receipts by $7.8 billion over the forward estimates period ($m):

2021-22

2022-23

2023-24

2024-25

-

-7,400

-400

..

.. not zero but rounded to zero

Human rights implications :  Schedule 6 to the Bill does not raise any human rights issue. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact :  Schedule 6 to the Bill is expected to only have a minor regulatory impact.

 



Outline of chapter

1.1                   Schedule 1 to the Bill amends the Fringe Benefits Tax Assessment Act 1986 to provide employers with an exemption from FBT if they provide training or education to a redundant, or soon to be redundant, employee for the purpose of assisting that employee to gain new employment.

1.2                   All legislative references in this Chapter are to the Fringe Benefits Tax Assessment Act 1986 unless otherwise indicated.  

Context of amendments

1.3                   The increased rate of globalisation and technological change, and the changing nature of work and the labour market, are among the forces driving the need for continued upgrading of skills throughout life. Retraining and reskilling plays an important role in allowing Australia’s labour force to benefit from the ongoing transformation of jobs and workplaces.

1.4                   Against this background, the Government is supporting employers to retrain and reskill individuals for future employment opportunities.

1.5                   To incentivise employers to retrain and reskill redundant (or soon to be redundant) employees so that they are better prepared to transition to their next career, Schedule 1 to the Bill provides employers an exemption from FBT for benefits provided to these employees for the purpose of enabling them to gain new employment.

Summary of new law

1.6                   Schedule 1 to the Bill amends the Act to provide employers with an exemption from FBT if they provide training or education to a redundant, or soon to be redundant, employee for the purpose of assisting that employee to gain new employment.

Comparison of key features of new law and current law

New law

Current law

Employers are exempt from FBT if they provide training or education to a redundant, or soon to be redundant, employee for the purpose of assisting that employee to gain new employment.

No equivalent.

Detailed explanation of new law

New FBT exemption for retraining and reskilling redundant employees

1.7                   Under the new law, a benefit is exempt from FBT if all of the following conditions are satisfied:

•        the benefit is provided in, or in respect of, the tax year for education or training undertaken by an employee of an employer;

•        the employee is redundant;

•        the employer has complied with any obligations under the Fair Work Act 2009 that applies in relation to the redundancy (such as any requirements to consult about the redundancy); and

•        the education or training is for the primary purpose of enabling the employee to gain or produce salary or wages in respect of any employment to which the education or training relates.    

[Schedule 1, item 1, subsection 58ZE(1)]

1.8                   A benefit may receive concessional treatment under the new FBT exemption if it is provided in, or in respect of, a tax year (within the existing meaning under section 138A of the Act).

1.9                   The benefit must be provided in respect of education or training undertaken by an employee of the employer. This covers the provision of the education or training (such as reimbursing or paying the course fees or giving training) and also benefits associated with the education or training (such as related course materials, textbooks, travel and accommodation).

1.10               ‘Employee’ is defined under existing section 136 of the Act and includes current employees, former employees and future employees.

1.11               For the purposes of the FBT exemption, an employee is redundant if the employee’s employer no longer requires, or reasonably expects to no longer require, the employee’s job to be performed by anyone because of changes in the operational requirements of the employer’s business or undertaking. [Schedule 1, item 1, subsection 58ZE(2)]

1.12               The concept of redundancy for the purposes of the new FBT exemption is broad. It covers circumstances where an employee is made redundant in one part of the employer’s business but is able to be redeployed to another part of its business (or within an associate’s business). It also covers circumstances where the employer reasonably expects the employee to be redundant but has not yet been made redundant. If circumstances change, and the employee is not made redundant (for example, because the employer restructures its business in such a way so as to retain the employee), the employer will not be denied the FBT exemption for any benefits provided during the period throughout which the redundancy test has been satisfied.

1.13               In addition, as noted above, the employer must also be satisfied that the education or training is being undertaken for the primary purpose of enabling the employee to gain or produce salary or wages in respect of any employment to which the education or training relates. Education or training that is undertaken primarily for personal reasons or interest will not satisfy this test. There must be a direct nexus between the education or training and the expected employment the employee is planning to pursue.

1.14                     Some benefits are excluded from the new FBT exemption. In particular, the following benefits will continue to be subject to FBT under the existing law:

•        benefits provided under a salary packaging arrangement;

•        benefits that are a payment or other amount covered by subsection 26-20(1) of the ITAA 1997 (such as student contributions towards a Commonwealth supported place at a higher education institution);

•        benefits that involve a primary course or secondary course — broadly primary and secondary school education courses (as defined under the A New Tax System (Goods and Services Tax) Act 1999 ); and

•        benefits provided to relatives of certain employers (or certain individuals that are connected to the employer).

[Schedule 1, item 1, subsection 58ZE(3)]    

Example 1.1: Employee’s redundancy and departure from an employer 

Michael is a production supervisor employed by Paper Mill Pty Ltd (Paper Mill), a pulp and paper manufacturing company based in Australia.

Paper Mill is planning to shut down its Australian operations over the next five years. In May 2021, it advises all affected employees, including Michael, that it expects their positions will be made redundant by May 2026. 

In relation to these expected redundancies, Paper Mill is complying with all relevant obligations under industrial relations law and is offering affected employees the opportunity to reskill for future employment.

Michael is not a director or shareholder, or relative of a director or shareholder, of Paper Mill.

Michael wishes to undertake a gardening course to gain future employment as a horticulturalist. Michael also plans to use the skills and knowledge acquired to cultivate a vegetable patch at his home. However, this is not the main reason why he wishes to undertake this training.

Paper Mill is satisfied that this training is for the primary purpose of gaining future employment and agrees to support Michael’s studies.

Michael accepts a full fee paying place at the Australian Nature University to undertake a Science of Gardening degree.

Paper Mill covers the costs associated with the degree by reimbursing Michael for the tuition fees. This benefit is covered by the new FBT exemption for retraining and reskilling.

If Michael had instead accepted a Commonwealth supported place for this degree it would not have been covered by the new FBT exemption for retraining and reskilling - meaning Paper Mill would be liable for FBT on any benefit provided to Michael in respect of this education or training.

As expected, in May 2026, Michael is made redundant from his position at Paper Mill. After his departure, he is not able to find employment as a horticulturalist as planned. Instead, he takes up a new job that is not related to his studies at another manufacturing plant. This does not change Paper Mill’s eligibility for the new FBT exemption for retraining and reskilling.   

Example 1.2: Employee’s redundancy and redeployment to another job within the same employer 

Gary is a retail store manager employed by Paperclip Pty Ltd (Paperclip), a company based in Australia, with retail stores selling office supplies and stationery across Australia.

On 20 March 2021, due to a decline in foot traffic and sales from its retail shopfronts, Paperclip announced a series of store closures over the next year as it transitions its business model to online sales. Employees at affected locations, including Gary, were advised their positions would be made redundant within this period.

In relation to these redundancies, Paperclip is complying with all relevant obligations under industrial relations law and is offering affected employees the opportunity to reskill for future employment.

Gary is not a director or shareholder, or relative of a director or shareholder, of Paperclip.

Gary wishes to undertake a diploma in information technology at the Institute of Technology for the purpose of gaining future employment as a web developer. Gary does not currently have the skills required to pursue this career.

Upon hearing about Gary’s study plans, Paperclip offers to redeploy Gary to its web development team after he has completed his studies to work on the development and maintenance of its online sales platform. Gary accepts. 

Paperclip covers the costs associated with the diploma by paying the tuition fees directly to the Institute of Technology. Paperclip also reimburses Gary for the costs of the textbooks he requires for the course. These benefits are covered by the new FBT exemption for retraining and reskilling.

On completion of his studies in December 2021, Gary is redeployed to his new position within Paperclip in its web development team.

Example 1.3: Expected redundancy from an employer

Scranton Media Pty Ltd (Scranton Media) publishes the local newspapers in regional areas across Australia. Scott is employed as an editor at Scranton Media, based in Warrnambool, Victoria.

On 8 October 2021, Scranton Media announces that it will restructure and consolidate its media and print operations by the end of the year - reducing its number of print publications overall. As part of this restructure, a number of employees in Victoria, including Scott, are expected be made redundant. 

In relation to these expected redundancies, Scranton Media is complying with all relevant obligations under industrial relations law and is offering affected employees the opportunity to reskill for future employment.

Scott is not a director or shareholder, or relative of a director or shareholder, of Scranton Media.

Scott wishes to undertake a short course in illustration to gain future employment as an illustrator for children’s books. The course involves an intensive workshop over one weekend in Melbourne, Victoria in late October.

Scranton Media is satisfied that the course is for the primary purpose of gaining future employment as an illustrator.

Scranton Media covers the costs associated with the short course by reimbursing Scott for the tuition fees, as well as reasonable travel and accommodation expenses for the intensive workshop in Melbourne. These benefits are covered by the new FBT exemption for retraining and reskilling.

In November, after Scott has completed the short course, Scranton Media’s circumstances change following renewed interest in its print publications. It decides that it no longer needs to consolidate its media and print operations in Victoria. This means Scott’s redundancy is no longer required. Scott agrees to remain employed as an editor with Scranton Media.

This change in circumstance does not affect the FBT exemption previously claimed.    

Application and transitional provisions

1.15               The new law applies to benefits provided on or after 2 October 2020 - being the date of announcement of the measure. [Schedule 1, item 2]

1.16               The measure applies retrospectively, however, its application is wholly beneficial for affected employers and their employees as it provides that affected benefits are not subject to FBT and are instead exempt benefits.

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



Outline of chapter

2.1                   Schedule 2 to the Bill extends the operation of the junior minerals exploration incentive in Division 418 of the ITAA 1997 for a further four years to continue to encourage mineral exploration companies to undertake greenfields minerals exploration in Australia. Schedule 2 also includes a reporting requirement for mineral exploration companies where no exploration investment has occurred to enable unused exploration credits to be identified earlier and reallocated.

Context of amendments

2.2                   The extraction and sale of mineral resources makes a significant contribution to the Australian economy. Ongoing exploration and the discovery of new mineral resources are vital to the longer term future of the resources sector.

2.3                   Exploration for minerals often involves significant expenditure and risks. While larger, established mining companies are generally in a position to fund such activities from their own profits, smaller companies focused solely on exploration are dependent on attracting investment to fund their activities. Such smaller companies are also more likely to engage in more speculative minerals exploration in greenfields areas rather than focusing on the development of their existing resources.

2.4                   The junior minerals exploration incentive was introduced in 2018 and applied from the 2017-18 income year to the 2020-21 income year inclusive.

2.5                   It allows Australian resident investors in these companies to receive a tax incentive where the companies choose to give up a portion of their income tax losses relating to their exploration expenditure in an income year.

2.6                   All legislative references in this Chapter are to the ITAA 1997 unless otherwise stated.

Summary of new law

2.7                   Schedule 2 extends the operation of the junior minerals exploration incentive in Division 418 for a further four years to continue to encourage mineral exploration companies to undertake greenfields minerals exploration in Australia.

2.8                   Schedule 2 also includes a reporting requirement for mineral exploration companies where no exploration investment has occurred to enable unused exploration credits to be identified earlier and reallocated.

Comparison of key features of new law and current law

New law

Current law

Extension of junior minerals exploration incentive

The junior minerals exploration incentive continues to apply for the 2021-22 to 2024-25 income years inclusive.

The junior minerals exploration incentive ceases to apply after the 2020-21 income year.

No exploration credit allocation if entity has no exploration investment

An entity’s exploration credits allocation for an income year is the amount of exploration credits allocated to the entity under a determination made by the Commissioner.

However, an entity’s exploration credits allocation for the income year is taken to be nil if no exploration investment is made in the entity in the income year.

An entity’s exploration credits allocation for an income year is the amount of exploration credits allocated to the entity under a determination made by the Commissioner.

Notifying Commissioner if no exploration investment to issue credits

Exploration entities are required to report to the Commissioner if they have an exploration credits allocation for an income year but have not had exploration investment for that income year.

Not applicable.

Detailed explanation of new law

Junior minerals exploration incentive Extension

2.9                   Schedule 2 extends the junior minerals exploration incentive so that it applies for each income year from 2021-22 to 2024-25 inclusive based on the following annual exploration cap amounts:

•        for the 2021-22 income year - $25 million;

•        for the 2022-23 income year - $25 million, plus the exploration credits remainder for the immediately preceding income year;

•        for the 2023-24 income year - $25 million; plus the exploration credits remainder for the immediately preceding income year and any other amount prescribed; and

•        for the 2024-25 income year - $25 million, plus the exploration credits remainder for the immediately preceding income year and any other amount prescribed.

[Schedule 2, item 11, section 418-103(1)]

2.10               Schedule 2 extends the limit on the period in which entities can create exploration credits so that it also applies to the 2021-22 income year to the 2024-25 income year inclusive. The junior minerals exploration incentive is not available for shares issued or expenditure incurred in income years after the 2024-25 income year. [Schedule 2, item 7, section 418-70(3)]

2.11               Although credits can generally be carried forward for one income year (see section 418-85(2)), unused credits in relation to the 2020-21 income year cannot be carried forward as the cap is reset for the 2021-22 income year. Schedule 2 also adds notes in relevant provisions to highlight the inability to carry forward unused credits from the 2020-21 income year. [Schedule 2, items 6, 9 and 10, note to section 418-70(1), section 418-82(3A) and note to section 418-85(2)]

2.12               Schedule 2 amends the reduced cost base provision that determines the CGT consequences for shares in exploration companies which have exploration credits to ensure that they also apply in relation to shares in exploration companies for the income years 2021-22 to 2024-25 inclusive. [Schedule 2, item 1, section 130-110(1)(a)]

Entities to report exploration credits unable to be issued if no capital raised

2.13               An entity that has been allocated exploration credits by the Commissioner for an income year is required to notify the Commissioner in the approved form if no exploration investment has been made in the entity in the income year. [Schedule 2, item 12, section 418-135(1)]

2.14               Notification is required within 30 days after the end of the income year in which the amount of exploration credits is no longer able to be issued because no exploration investment has been made. As the notice is to be given in an approved form, section 388-55 in Schedule 1 to the Taxation Administration Act 1953 applies to allow the Commissioner to give additional time for the approved form to be provided if necessary.   [Schedule 2, item 12, section 418-135(2)]

No exploration credit allocation if no exploration investment in year

2.15               An entity’s exploration credit allocation for an income year is nil if no exploration investment is made in the entity in that income year. This is the case despite the Commissioner making a determination allocating the entity exploration credits for the income year. This clarifies that immediately after the end of the income year as the required condition has not been met for the entity to issue shareholders with exploration credits, the exploration credit allocation is treated as zero. This allows the Commissioner to arrange for lapsed exploration credits to be reallocated for the income year following the income year of notification. Prior to the amendments, unused exploration credits could not be reallocated until after the end of the second income year following their allocation to a mineral exploration company. [Schedule 2, item 8, section 418-81(2A)]

Consequential amendments

2.16               The guide to Division 418 is updated to reflect the changes made by Schedule 2 to the Division. [Schedule 2, items 2 to 5, section 418-1]

2.17               A consequential amendment is made to the Treasury Laws Amendment (Junior Minerals Exploration Incentive) Act 2018 to ensure that the application provision in that Act does not prevent the extension of the junior minerals exploration incentive until the 2024-25 income year. [Schedule 2, item 15, paragraph 65(a) of Schedule 1 to the Treasury Laws Amendment (Junior Minerals Exploration Incentive) Act 2018]

2.18               Schedule 2 repeals the savings provision in Treasury Laws Amendment (Junior Minerals Exploration Incentive) Act 2018 that applied to ensure that the repeal of the former Division 418 did not affect transactions that occurred prior to the repeal. The savings provision which applied in relation to the 2016-17 income year and prior years has been repealed as it is no longer required. [Schedule 2, items 13 and 16, table item 5 of subsection 2(1) and Division 2 of Part 4 of Schedule 1 to the Treasury Laws Amendment (Junior Minerals Exploration Incentive) Act 2018]

2.19               Schedule 2 also repeals Part 3 of Schedule 1 to the Treasury Laws Amendment (Junior Minerals Exploration Incentive) Act 2018 which was scheduled to commence on 1 July 2023. The provisions that deal with the former exploration development incentive will instead be repealed in a later Bill. [Schedule 2, items 13 and 14, table item 3 of subsection 2(1) and Part 3 of Schedule 1 of the Treasury Laws Amendment (Junior Minerals Exploration Incentive) Act 2018]

Application and transitional provisions

Commencement

2.20               Schedule 2 commences on the later of 1 July 2021 and the day after Royal Assent. [Clause 2]

Application date

2.21               The amendments to the ITAA 1997 made by Schedule 2 generally apply in respect of the allocation of exploration credits for the 2021-22 income year or a later income year. [Schedule 2, item 17(1)]

2.22               However, the amendment made by Schedule 2 that an entity cannot have an unused allocation of exploration credits from the 2020-21 income year applies to exploration credits allocated for the 2020-21 income year. [Schedule 2, item 9 and item 17(2), section 418-82(3)]

Transitional provisions

2.23                  Schedule 2 includes a transitional provision that applies where an entity makes an application to the Commissioner for determining the allocation of exploration credits for the 2021-22 income year. Under the transitional provision the application must be made within one month starting from the eleventh business day after the commencement of Schedule 2 of the Bill. This provision is required in the event that the Bill does not receive Royal Assent before 30 June 2021. [Schedule 2, item 18]

2.24               Without the transitional provision, section 418-100 would otherwise provide that an application to the Commissioner for a determination allocating exploration credits must be made within one month before the start of the income year for which the allocation has been sought. This would not allow time for applications to be made for allocations in respect of the 2021-22 income year.

 

 

 



Chapter 3          

Exempting granny flat arrangements from CGT

Outline of chapter

3.1                   Schedule 3 to the Bill amends the CGT provisions in the ITAA 1997 to provide a targeted CGT exemption in relation to granny flat arrangements.

3.2                   The exemption will operate by providing that no CGT event arises on entering into, varying or terminating a granny flat arrangement if the arrangement satisfies the requirements of the provisions.

Context of amendments

3.3                   The Australian Law Reform Commission released a report in 2017 which examined elder abuse in Australia ( Elder Abuse - A National Legal Response , ALRC Report 131, 2017). In particular, the Australian Law Reform Commission examined the prevalence of elder abuse in relation to granny flat arrangements.

3.4                   A granny flat arrangement has a particular legal meaning, derived from the term ‘granny flat interest’ in social security law. It describes an arrangement rather than a type of accommodation and can arise whenever money or other consideration is given in exchange for a right to accommodation for life.

3.5                   In a typical case, granny flat arrangements occur when an older person transfers some sort of consideration (often title to property or proceeds from the sale of property) to their adult child in exchange for the promise of ongoing care, support and housing. They can be formal, but more often than not they are informal.

3.6                   These arrangements can be beneficial to all parties involved. When operating effectively, they can provide benefits to the adult child in the way of property or funds, and benefits to the older person in the way of care, support and housing.

3.7                   However, the older person tends to be in a more vulnerable position and can suffer serious consequences if circumstances change. Problems can arise as a result of the adult child pre-deceasing the older person, relationship breakdowns between the adult child and their partner, or the adult child becoming bankrupt. Contingencies are often not considered if these types of events happen and this, combined with the common informality of granny flat arrangements, can make it difficult for the older person to establish, assert or enforce their rights under the arrangement.

3.8                   Perceived tax consequences are one barrier to parties having a formal granny flat arrangement in place. CGT events could arise on entering into, varying or terminating a granny flat arrangement, depending on the circumstances. Informal agreements can make it easier for a taxpayer to argue there are no formal rights in existence, and therefore no assets that could be subject to CGT.

3.9                   The Board of Taxation examined these issues and the tax issues that arise from granny flat arrangements and delivered a report to Government in November 2019.

3.10               The Government responded to the Board of Taxation’s report by bringing forward a measure in the 2020-21 Budget to provide a targeted CGT exemption for granny flat arrangements that provide accommodation for older Australians or people with disabilities where there is a formal written agreement in place.

Summary of new law

3.11               A CGT event does not happen on entering into, varying or terminating a granny flat arrangement if certain requirements are met. These requirements include that the individual having the granny flat interest has reached pension age or has a disability, and that the arrangement is in writing and is not of a commercial nature.

3.12               The CGT event does not happen only to the extent that it relates to the creation, variation or termination (as the case may be) of a granny flat interest.

3.13               A granny flat interest in a dwelling under this measure is a right to occupy that dwelling for life.

Detailed explanation of new law

3.14               All references to legislation are to the ITAA 1997 unless otherwise specified.

3.15               The intent of this measure is to encourage the formalisation of granny flat arrangements to support the stable and long term housing arrangements of older people and people with disabilities, and to reduce the risk of financial abuse or exploitation.

3.16               Schedule 3 to the Bill inserts a new Division into Part 3-3 of Chapter 3 to provide a targeted CGT exemption to granny flat arrangements to encourage the formalisation of such arrangements.

3.17               The amendments define what a granny flat interest is for the purposes of the measure and outline a set of requirements that must be satisfied in order to access the exemption.

3.18               The effect of the amendments is that a CGT event does not happen on entering into, varying or terminating a granny flat arrangement if the requirements are satisfied, but only to the extent that it relates to the granny flat interest under the arrangement. It is also intended that the existence of a granny flat interest should not affect the application of the main residence exemption in Subdivision 118-B.

Key terms

3.19               An individual has a granny flat interest under an arrangement if the arrangement confers on that individual the right to occupy a dwelling for life. [Schedule 3, item 1, section 137-10(1)]

3.20               The concept of granny flat interest has been drawn from the recognition in the social security law of family arrangements that provide support for older people. It is essentially a right to live in a specific home for life.

3.21               A granny flat interest does not have to relate to properties often referred to as ‘granny flats’ as it is not a description of the type of property. An individual can have a granny flat interest in a wide range of properties, such as a family home or a family’s rental property or holiday home.

3.22               Dwelling is an existing concept in tax law. It generally captures a unit of accommodation, such as a residential home, and includes the land beneath the home. In this measure, the term refers to the dwelling that the individual has the right to occupy because of the granny flat interest.

3.23               While the term dwelling refers to the unit of accommodation, adjacent land and structures are also included as part of the term as a granny flat interest could exist in relation to these components as well. [Schedule 3, item 1, section 137-10(3)]

3.24               Eligibility to hold a granny flat interest for the purposes of the CGT exemption is restricted to individuals who have reached pension age or who have a disability that means they require assistance for most day-to-day activities for at least 12 months. [Schedule 3, item 1, section 137-10(2)]

The targeted exemption

The core provisions

3.25               A CGT event does not happen if an arrangement is entered into that creates a granny flat interest, if the requirements of the provisions are satisfied. Similarly, a CGT event does not happen if an arrangement is varied to create or vary a granny flat interest, if similar requirements are satisfied. [Schedule 3, item 1, sections 137-15 and 137-20]

3.26               A CGT event does not happen on the termination of an arrangement if a CGT event did not happen on the entering into or varying of the arrangement because section 137-15 or 137-20 applied. [Schedule 3, item 1, section 137-25]

3.27               In all cases, the CGT event does not happen only to the extent that it relates to the creation, variation or termination (as the case may be) of a granny flat interest. The exemption does not extend to other CGT events that happen to transactions that may also occur as part of the broader process of putting in place a granny flat arrangement, but do not relate to a granny flat interest’s creation, variation or termination.

Example 3.1 

Carl is eligible for a granny flat interest and enters into a formal granny flat arrangement with his daughter Sandra. Under the arrangement, Sandra agrees to build an attached flat on her property for Carl to live in. Carl agrees to pay $500,000 to Sandra to finance the build, which he obtains from selling shares in his investment portfolio.

Under the exemption, the CGT event D1 (creating contractual or other rights) that would otherwise have arisen from the creation of Carl’s right to occupy the flat on Sandra’s property, will not happen and Sandra will have no CGT liability resulting from the creation of the right.

However, the exemption will not apply to any CGT consequences from the sale of Carl’s shares as, although proceeds from the sale are to be used to finance the building of the attached flat, the sale is not considered sufficiently related to the creation of the granny flat interest.

The requirements

3.28               There are requirements that need to be satisfied for the CGT event not to happen.

3.29               The first requirement is the eligibility for a granny flat interest. As noted above, an individual is eligible for a granny flat interest if the individual has reached pension age or has a disability that means they require assistance for most day-to-day activities for at least 12 months. [Schedule 3, item 1, sections 137-15(a) and 137-20(a)]

3.30               Pension age is the same age threshold that is used in determining eligibility for the Age Pension. Sections 23(5A), (5B), (5C) and (5D) of the Social Security Act 1991 provide the thresholds for pension age. Those who are above pension age are the ones most likely to require the care and support this measure is aimed at encouraging.

3.31               Disability takes its ordinary meaning. The individual needs to have an ongoing disability that causes them to require assistance in carrying out most day-to-day activities. While an individual does not need to be eligible for the disability support pension to meet this threshold, generally an individual who is eligible would meet this threshold. It is not intended that an individual be able to access the exemption because of short-term injuries that have a quick recovery time.

3.32               The provision applies to test eligibility at the time of entering into or varying the arrangement. This means that the ability to recover from a disability is not an impediment to accessing the CGT exemption. The ability to undertake employment while having the disability is also not an impediment.

3.33               The second requirement is that an individual owns the dwelling where the granny flat interest is held, or is to be held, at the time of entering into or varying the arrangement, or agrees to acquire such a dwelling under the arrangement. [Schedule 3, item 1, sections 137-15(b) and 137-20(b)]

3.34               Parties to a granny flat arrangement need not own the dwelling where the granny flat interest is to be held at the time of entering into the arrangement. Parties are able to enter into an arrangement and agree that one party will acquire a dwelling where the other party is to hold their granny flat interest at a future time.

3.35               The third requirement is that both the individual who is to hold the granny flat interest, and the individual who owns, or agrees to acquire, the dwelling where the granny flat interest is to be held, are parties to the arrangement. [Schedule 3, item 1, sections 137-15(c) and 137-20(c)]

3.36               An individual who is to hold a granny flat interest can enter into a granny flat arrangement with any party. For example, the individual can enter into such arrangements with their family, family friends or members of their cultural community. The individual who does own, or is to own, the dwelling, needs to be a party to the arrangement.

3.37               The fourth requirement is that the arrangement must be in writing and indicate an intention for the parties to be legally bound by it. [Schedule 3, item 1,  sections 137-15(d) and 137-20(d)]

3.38               There is no requirement that a granny flat arrangement must take a particular form or include specific terms. This allows parties flexibility to ensure an arrangement can be entered into with terms that best suit their circumstances and avoids unnecessary requirements that might be a barrier to entering into such arrangements. However, it is expected that a formal arrangement would deal with basic matters such as who the parties to the arrangement are, the circumstances in which the arrangement could be varied or terminated, and what happens on variation or termination.  

3.39               The fifth requirement is that the arrangement is not of a commercial nature. [Schedule 3, item 1, sections 137-15(e) and 137-20(e)]

3.40               The commerciality of an arrangement would need to be determined on a case by case basis, considering the terms of the arrangement and circumstances of each case.

3.41               An arrangement requiring the holder of the granny flat interest to pay rent at a market rate to occupy the accommodation could be an indicator that the arrangement is of a commercial nature.

3.42               On the other hand if the individual who holds the granny flat interest merely contributes to the costs of running the household that they are living in, this could be more in the nature of a reimbursement of household expenses and suggest that the arrangement is not of a commercial nature.

3.43               The amount of any consideration for the granny flat interest and how it is worked out could also be a factor in determining whether the granny flat arrangement is of a commercial nature.

Example 3.2 

Alice has a granny flat interest in part of a home owned by her brother, Jeremy. In addition to the right to accommodation, the agreement also provides for Alice to pay a monthly amount to Jeremy. The payments are a contribution to the costs associated with running the household, being rates, electricity, cleaning and food. The amount Alice agrees to pay is a share of household costs and not rent. The amount is lower than the amount Jeremy would be able to obtain under an arm’s length rental agreement made on the open market.

The arrangement would unlikely be considered commercial in nature. The payments are intended to reimburse Jeremy for the reasonable costs he incurs in providing Alice with accommodation and food.

Other amendments

3.44               The amendments insert a provision that provides a summary of what Subdivision 137-A is about. [Schedule 3, item 1, section 137-1]

3.45               Definitions of eligible for a granny flat interest and granny flat interest have been inserted into the dictionary in section 995-1(1). [Schedule 3, item 2, section 995-1(1)]

Application provisions

3.46               The amendments in Schedule 3 to the Bill apply in relation to events that happen on or after the amendments commence that would, apart from the provisions contained in the amendments, be CGT events. This is the case even if the arrangements the events relate to were entered into before, on or after that commencement. [Schedule 3, item 3, section 137-10 of the Income Tax (Transitional Provisions) Act 1997]



Chapter 4          

Amendments to product intervention regime

Outline of Chapter and summary of new law

4.1                   Schedule 4 to the Bill amends paragraph 1023D(4)(c) of the Corporations Act 2001 and paragraph 301D(4)(c) of the National Consumer Credit Protection Act 2009 to provide that ASIC is not prohibited from making a product intervention order that has conditions relating to fees, charges or other consideration payable by a retail client or consumer in relation to a financial product or a credit product.

Context of amendments

4.2                   A product intervention order is an order that is made by ASIC under its product intervention powers to impose conditions, or if necessary, ban potentially harmful financial and credit products where there is a risk of significant detriment to retail clients or consumers.

4.3                   Paragraph 1023D(4)(c) of the Corporations Act 2001 and paragraph 301D(4)(c) of the National Consumer Credit Protection Act 2009 contain a prohibition that prevents ASIC from making a product intervention order with a condition relating to a person’s remuneration.

4.4                   The prohibition was only intended to limit ASIC’s ability to make a product intervention order relating to remuneration of individuals who are employees or agents of a financial product provider or a credit product provider (such as wages). However, the prohibition may inadvertently capture remuneration received by a financial product provider or a credit product provider or their associates from a retail client or consumer, given the potential for a broad interpretation of ‘a person’s remuneration’ in the provision. If this were the interpretation, ASIC would be unable to make a product intervention order to regulate fees, charges or other consideration paid by a retail client or consumer to these entities for the provision of a financial product or a credit product.

4.5                   Removing the ambiguity and ensuring that ASIC has the ability to intervene in relation to the costs of a financial and credit product (such as administrative fees, interest charges, surcharges, or default fees) paid by a retail client or consumer, through the use of a product intervention order, is critical for retail client and consumer protection against significant detriment.

4.6                   Therefore, amendments are required to exclude fees, charges or other consideration paid or payable as remuneration by retail clients or consumers from the prohibition.

Comparison of key features of new law and current law

New law

Current law

A further exception to the prohibition is provided to allow ASIC to make a product intervention order with conditions relating to fees, charges or other consideration paid or payable as remuneration by a retail client or consumer to a person in relation to a financial product or credit product.

ASIC is prohibited from making a product intervention order that has conditions relating to a person’s remuneration, other than a condition related to so much of the person’s remuneration as is conditional on the achievement of objectives directly related to the financial product or credit product.

Detailed explanation of new law

4.7                   Currently, paragraph 1023D(4)(c) of the Corporations Act 2001 provides that a product intervention order must not specify a condition related to a person’s remuneration, other than a condition related to so much of the person’s remuneration as is conditional on the achievement of objectives directly related to the financial product.

4.8                   This is amended to provide another exception to the prohibition so that ASIC is not prevented from making a product intervention order that has a condition relating to fees and charges or other consideration paid, or payable, as remuneration to a person (such as the financial product provider or its associate) by a retail client in relation to a financial product. [Schedule 4, item 1, paragraph 1023D(4)(c) of the Corporations Act 2001 ]

4.9                   A similar amendment has been made to paragraph 301D(4)(c) of the National Consumer Credit Protection Act 2009 to exclude a product intervention order with conditions relating to fees and charges or other consideration paid to a person (such as the credit product provider or its associate) by a consumer from the prohibition. [Schedule 4, item 2, paragraph 301D(4)(c) of the National Consumer Credit Protection Act 2009 ]

4.10               For example, the amended provision would confirm that ASIC could make a product intervention order with a condition that prohibits certain default fees from being charged in relation to a particular class of consumer leases, in circumstances where ASIC considered these fees and charges resulted in, or were likely to result in, significant detriment to consumers.

4.11               These amendments are made to limit the scope of the prohibition to ensure that the product intervention regime can operate as intended.

Application and transitional provisions

4.12               Schedule 4 to the Bill commence the day after Royal Assent.

 



Outline of chapter

5.1                   Schedule 5 to the Bill amends the International Tax Agreements Act 1953 to disregard days NZ sportspersons on teams participating in cross-border competitions and their support staff spend in Australia due to COVID-19 in determining whether income derived from such competitions or supporting activities is taxable in Australia.

5.2                   These amendments preserve the uniquely targeted outcome that Article 17(3) ordinarily achieves for cross-border sports in circumstances affected by COVID-19. The amendments also extend to the support staff of such sportspersons to ensure the intended policy is achieved.

5.3                   All legislative references in this Chapter are to the International Tax Agreements Act 1953 unless otherwise stated.

Context of amendments

Application of the NZ Convention to NZ Sportspersons in Australia

5.4                   Article 14 provides that NZ has an exclusive taxing right where a NZ resident individual derives income from employment exercised in Australia and is present in Australia for 183 days or less in a 12 month period and other conditions are met (for example, that the employer is not a resident of Australia).

5.5                   Article 17(1) of the NZ Convention provides that some income, including income derived as a sportsperson, may be taxed by the country in which it is sourced regardless of Article 14. However, Article 17(3) excludes members of a recognised team regularly playing in a league competition organised and conducted in both countries from the operation of Article 17(1). Instead, the employment income of members of a recognised team is solely dealt with under Article 14.

5.6                   Article 15 of the NZ Convention provides that fringe benefits are taxable only in the country that has the sole or primary taxing rights in relation to the salary or wages to which the benefits relate.

5.7                   The overall effect is that the income tax and any associated FBT liabilities arising from providing fringe benefits to NZ resident sportspersons in relation to employment income derived while in Australia playing for teams in a league competition organised and conducted in both Australia and NZ arise only if they are present in Australia for more than 183 days in a 12 month period (even though they arise from the first day for other sportspersons and entertainers). This special treatment reflects the unique nature of organised cross-border sports which is recognised in the NZ Convention.

5.8                   The employers’ PAYG withholding obligations under section 12-35 of Schedule 1 to the TAA 1953 depend on whether the income paid to the sportspersons will be assessable to them, that is whether they are liable to tax in relation to it. Under section 12-1 of Schedule 1 to the TAA 1953, the obligation does not arise if the sportsperson’s income is exempt income under section 6-20 of the ITAA 1997. The practical effect of the operation of Article 17(3) is that such income paid to sportspersons that are members of a recognised team will generally be exempt from income tax in Australia by the provisions of the NZ Convention incorporated into domestic law by the International Tax Agreements Act 1953 .

COVID-19 Impact

5.9                   The cross-border nature of Australia-NZ sports competitions necessarily requires regular travel between countries to play games.  Even where ‘travel bubbles’ are in place, the uncertainty created by COVID-19 for travel (including as a result of evolving quarantine arrangements and flight restrictions), make cross-border movement to undertake sports competition matches impractical. The practical limitations COVID-19 restrictions present for training and playing matches means that some NZ cross-border-league sportspersons and support staff could spend more than 183 days in Australia in a 12 month period in circumstances where they would have usually spent the majority of their time in NZ (with only short trips to Australia to play games).

5.10               Such extended stays could undermine the intended outcome of Article 17(3) of the NZ Convention (which is to allow cross-border-league sportspersons to effectively be taxed in their countries of residence in connection with income from playing in cross-border-league events) by re-enlivening a taxing right over income derived from cross-border sports competitions that Australia and NZ have sought not to have arise.

Summary of new law

5.11               The amendments in Schedule 5 to the Bill reduce the impact of COVID-19 on the existing special treatment of income derived by NZ sportspersons from playing on teams in cross-border-league competitions under Article 17(3) of the NZ Convention. They also ensure that staff who are in Australia to support the sportspersons receive the same treatment.

5.12               The amendments in Schedule 5 to the Bill disregard the days NZ sportspersons playing in cross-border-leagues and their support staff spend in Australia due to the impact of COVID-19 from the calculation of the days they spend in Australia in a 12 month period for the purposes of Article 14(2) of the NZ Convention.

5.13               This has the effect of ensuring that NZ, as their country of residency for the purposes of the NZ Convention, retains exclusive taxing rights over income derived by NZ sportspersons playing in cross-border-leagues, even if they spend more than 183 days in Australia in a 12 month period, due to COVID-19.

5.14               As a consequence, such income received by such sportspersons and support staff is exempt income in Australia and corresponding PAYG and FBT obligations do not arise.

5.15               However, if a relevant sportsperson has income that is not derived from activities within the scope of Article 17(3), for example income from other employment, that income would not be covered by these amendments.

Detailed explanation of new law

5.16               Schedule 5 to the Bill modifies the operation of the NZ Convention, as incorporated into Australian law, to disregard days spent in Australia due to COVID-19 when determining the effect of Article 14(2) of the NZ Convention. This may make income received by NZ sportspersons and support staff from their activities as a team member in a cross-border competition, or in providing support services to the team, not taxable in some circumstances.

Relevant Income

5.17               The changes are limited to two types of income. The first is income referred to in Article 17(3) of the NZ Convention. This is income derived in respect of personal activities exercised by a sportsperson as a member of a recognised team regularly playing in a league competition organised and conducted in both Australia and NZ (except where the person is performing as a member of a national representative team). [Schedule 5, item 2, section 6B(1)(a), section 6B(5)]

5.18               The second type is employment income derived by NZ resident support staff from supporting sportspersons in deriving their income or from employment supporting the recognised teams of such sportspersons (within the meaning of Article 17(3) of the NZ Convention) to play in a cross-border league competition. [Schedule 5, item 2, section 6B(1)(b)]

Support Staff

5.19               Support staff are individuals who provide particular services to a sportsperson or to such a sportsperson’s team. The services are those provided as a manager, coach, trainer, runner, physician, or physiotherapist; advertising or promotional services; and similar services. [Schedule 5, item 2, section 6B(4)(a)]

5.20               Support staff need to be employed by the sportsperson’s employer (or a related body corporate of the employer) for the amendments to apply to them. [Schedule 5, item 2, section 6B(4)(b)]

Disregarded Days

5.21               Days are disregarded in counting the days the individual has spent in Australia for the purposes of Article 14(2)(a) of the NZ Convention if it would have been impractical for the individual to leave Australia continue to participate in the cross-border-league (as a sportsperson or support staff) because of COVID 19.  Days are disregarded under Article 14(2)(a) only for income covered by Article 17(3) for sportspersons, or for income derived by support staff who support a sportsperson covered by Article 17(3) or their team.  [Schedule 5, item 2, sections 6B(2) and 6B(3)]

Effect of Amendments

5.22               The amendments ensure that NZ retains its exclusive taxing right over income of sportspersons and their support staff derived from participation in a cross-border-league competition despite disruptions to and restrictions on travel due to COVID-19. This preserves the outcome that would ordinarily be achieved by Articles 17(3) and 14(2) of the NZ Convention.

5.23               This is achieved because income derived by NZ sportspersons from playing in cross-border-leagues (and by support staff) will not be taxable in Australia if their presence in Australia for more than 183 days in a 12 month period is due to the impracticalities of returning to NZ after each game (as they ordinarily would have) and continuing to participate in the cross-border-league competition due to COVID-19.

5.24               PAYG withholding obligations do not arise for employers of such sportspersons under section 12-35 of the TAA 1953 because subsection 12-1(1) applies. Provided the employer has no other employees for whom it has PAYG withholding obligations, the requirement to register for PAYG withholding will be removed.

5.25               FBT liability will not arise for the sportspersons’ employers as the sportspersons are not employees for FBT purposes because the employer does not have a PAYG withholding obligation in respect of them. Furthermore, the operation of Article 15 of the NZ Convention limits taxation of fringe benefits to only the country which has the sole or primary taxing rights in respect of the income to which the benefit relates (which will be NZ).

Consequential amendments

5.26               The table in subsection 5(1), which lists agreements and related provisions in the International Tax Agreements Act 1953 , is updated to reflect the addition of section 6B. [Schedule 5, item 1]

Application and transitional provisions

5.27               The amendments apply to income in the 2020-21 and 2021-22 income years. [Schedule 5, item 2, section 6B(2)]

5.28               However, days outside those income years may be relevant for the 183 day calculations because the 12 month period under Article 14 of the NZ Convention only needs to start or end in the income year.

5.29               The amendments affect FBT obligations in FBT years in which benefits related to employment in the 2020-21 and 2021-22 income years are provided.

 



Chapter 6          

Low and Middle Income tax offset

Outline of chapter

6.1                   Schedule 6 to the Bill extends the operation of the low and middle income tax offset to cover the 2021-22 income years.

6.2                   The low and middle income tax offset was previously legislated to cease being available after the 2020-21 income year. However, Schedule 6 to the Bill retains the low and middle income tax offset for an additional year (the 2021-22 income year). The low and middle income tax offset will cease to be available from the 2022-23 income year onwards.

Context of amendments

Tax offsets

6.3               The income tax law provides for a number of tax offsets - being reductions in the income tax otherwise payable by taxpayers that satisfy specified requirements. Many tax offsets are contained in Division 61 of the ITAA 1997.

6.4                   Currently sections 61-105 and 61-107 of the ITAA 1997 provides an income tax offset for low and middle income earners - commonly referred to as the low and middle income tax offset - which is available in the 2018-19, 2019-20 and 2020-21 income years. The offset was previously legislated to be available in the 2021-22 income year but was removed as part of broader changes to personal income tax rates in the Treasury Laws Amendment (A Tax Plan for COVID-19) Act 2020 that resulted from the bringing forward of Stage 2 of the Government’s Personal Income Tax Plan.

6.5                   The amount of the low and middle income tax offset is:

•        for taxpayers with taxable income not exceeding $37,000 - $255;

•        for taxpayers with taxable income exceeding $37,000 but not exceeding $48,000 - $255 plus 7.5 per cent of the amount of income that exceeds $37,000;

•        for taxpayers with taxable income exceeding $48,000 but not exceeding $90,000 - $1,080; and

•        for taxpayers with taxable income exceeding $90,000 but not exceeding $126,000 - $1,080 less 3 per cent of the amount of income that exceeds $90,000.

6.6                   Entitlement to the low and middle income tax offset is in addition to the low income tax offset which is provided for in sections 61-110 and 61-115 of the ITAA 1997 and is available in the 2020-21 income year and later income years.

Summary of new law

6.7                   Schedule 6 to Bill amends the income tax law to make the low and middle income tax offset available during the 2021-22 income year. The amendments provide that the offset will cease to be available in the 2022-23 income year and later income years.

Comparison of key features of new law and current law

New law

Current law

The low and middle income tax offset (set out in existing sections 61-105 and 61-107 of the ITAA 1997) is available in the 2021-22 income year and is not available in the 2022-23 income year or later income years.

The low and middle income tax offset (set out in existing sections 61-105 and 61-107 of the ITAA 1997) is not available in the 2021-22 income year or later income years.

Detailed explanation of new law

6.8                   Schedule 6 to the Bill amends the income tax law to retain the low and middle income tax offset for the 2021-22 income year. This is achieved by delaying the commencement of the repeal of the offset until 1 July 2022. The offset will not be available in the 2022-23 income year or later income years. [Schedule 6, items 1 and 2, subsection 2(1) and item 27 of Schedule 1 to the Treasury Laws Amendment (A Tax Plan for COVID-19) Act 2020 ]

Application and transitional provisions

6.9                   The amendments to extend the low and middle income tax offset apply to the 2021-22 income year.  The low and middle income tax offset is repealed on 1 July 2022 and the repeal applies to the 2022-23 income year and later income years.



Chapter 7          

Statement of Compatibility with Human Rights

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

Schedule 1 - Fringe benefits tax exemption to support retraining and reskilling

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 Fringe Benefits Tax Assessment Act 1986 to provide employers with an exemption from FBT if they provide training or education to a redundant, or soon to be redundant, employee for the purpose of assisting that employee to gain new employment.

Human rights implications

7.3                   Schedule 1 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

7.4                   Schedule 1 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 2 - Junior minerals exploration incentive extension

7.5                   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

7.6                   Schedule 2 to the Bill extends the operation of the junior minerals exploration incentive in Division 418 of the ITAA 1997 for a further four years to continue to encourage mineral exploration companies to undertake greenfields minerals exploration in Australia. Schedule 2 also includes a reporting requirement for mineral exploration companies where no exploration investment has occurred to enable unused exploration credits to be identified earlier and reallocated.

Human rights implications

7.7                   Schedule 2 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

7.8                   Schedule 2 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 3 - Exempting granny flat arrangements from CGT

7.9                   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

7.10               Schedule 3 to the Bill amends the CGT provisions in the ITAA 1997 to provide a targeted CGT exemption for CGT events that occur on entering into, varying or terminating formal written agreements under which an older person or a person with a disability acquires, varies or disposes of a granny flat interest.

7.11               The amendments ensure that CGT consequences are not an impediment to formalising granny flat arrangements, and seek to reduce the risk of financial abuse and exploitation of older Australians and other vulnerable people.

 Human rights implications

7.12               Schedule 3 to the Bill engages the following human rights:

•        Article 11 of the International Covenant on Economic, Social and Cultural Rights , the right to an adequate standard of living;

•        Article 26 of the International Covenant on Civil and Political Rights , the right to equal protection and non-discrimination under law;

•        Article 16 of the Convention on the Rights of Persons with Disabilities , the right to protection for people with disabilities from exploitation, violence and abuse; and

•        Articles 5 and 19 of the Convention on the Rights of Persons with Disabilities , the rights for people with disabilities to the equal protection and benefit of the law, and to live independently and with full inclusion in the community.

7.13               Tax consequences can be an impediment to parties formalising granny flat arrangements in writing. Without having a record of their arrangement, the person relying on it for their accommodation and living support may be left in a vulnerable position in the event they need to establish, assert or enforce their rights under the arrangement.

7.14               The intention behind the targeted exemption provided in Schedule 3 to the Bill is to remove the tax impediments from having a formal arrangement in place and encourage people to formalise their granny flat arrangements. This is intended to provide greater security and certainty to the vulnerable parties to the arrangements, allowing them to better establish, assert and enforce their rights under the arrangement.

7.15               Article 11.1 of the International Covenant on Economic, Social and Cultural Rights recognises the right of all people to an adequate standard of living, including adequate housing and living conditions.

7.16               Older people and people with disabilities are often in a vulnerable position in relation to their living conditions as their need for higher levels of care and facilities is often greater, but their ability to independently achieve those needs is constrained by their circumstances.

7.17               Schedule 3 to the Bill promotes this right by removing tax impediments to people having formalised arrangements that provide secure accommodation and living support to older people or people with disabilities.

7.18               By encouraging people to formalise such arrangements, it is intended that there will be an improvement in the certainty of the rights of older people and people with a disability having secure and appropriate accommodation and living support.

7.19               Under Article 26 of the International Covenant on Civil and Political Rights , laws cannot apply differential treatment among persons or groups that result in a person being treated less favourably than others based on a prohibited ground, including age or disability.

7.20               Schedule 3 to the Bill may limit the rights to equality and non-discrimination because the exemption it provides is only available to people who meet the requirements of age or disability and those who enter into granny flat arrangements with them.

7.21               The UN Human Rights Committee has recognised that not all differential treatment will constitute impermissible discrimination if the criteria for such differentiation are reasonable and objective and the differential treatment is done for a legitimate purpose.

7.22                  The purpose of Schedule 3 to the Bill is to protect the rights of older people and those with disabilities by encouraging the use of formal granny flat arrangements. This is achieved through the provision of a tax benefit when formal granny flat arrangements are created, varied or terminated. The limitation on the people who can access the exemption operates to appropriately focus the benefits to the intended group of particularly vulnerable people, allowing them to better establish, assert and enforce their rights under a granny flat arrangement.

7.23               The differential treatment under the measure is objective as it applies to all people within the specified ranges of age or duration of disability and is for the legitimate purpose of protecting the rights of particularly vulnerable people. The limitation on the right to equality and non-discrimination is, therefore, reasonable and objective and done for a legitimate purpose that the legislation aims to achieve.

7.24               The right of all people with disabilities to protection from violence, exploitation and abuse is recognised by Article 16 of the Convention on the Rights of Persons with Disabilities . Measures that help ensure appropriate assistance and support for people with disabilities and their caregivers, are a means by which States can provide this protection.

7.25               Schedule 3 to the Bill helps promote this right by removing perceived impediments to entering into arrangements that provide secure and appropriate living conditions for people with disabilities and similarly improve the ability to establish, assert or enforce their rights.    

7.26               In relation to Articles 5 and 19 of the Convention on the Rights of Persons with Disabilities , a person with a disability that impairs their ability to live completely independently, may benefit greatly from the opportunity to live in a residence under an arrangement whereby they obtain ongoing care, support and housing from a relative or other trusted person.

7.27               Schedule 3 to the Bill promotes the right for people with disabilities to live independently and protects their rights to accommodation by encouraging the formalisation of arrangements. This is achieved by removing tax liabilities as an impediment to formalising arrangements, thereby helping to improve the opportunities for persons with disabilities to obtain secure rights to accommodation that is safe and appropriate to their needs.

7.28               A person’s disability has to last for at least 12 months and be such that the person requires assistance in carrying out most day to day activities (see new section 137-10(2)(b) inserted by item 1 of Schedule 3). This means that not all people with disabilities who enter into granny flat arrangements will be eligible for the CGT exemption.

7.29               The purpose of the measure is to protect the rights of particularly vulnerable people by encouraging the use of formal granny flat arrangements. This is achieved through the provision of a tax benefit when formal granny flat arrangements are created, varied or terminated.

7.30               Limiting access to the scheme to people with a disability that is to last for at least 12 months and is such that they require assistance in carrying out most day to day activities, operates to appropriately focus the benefits to the intended group of particularly vulnerable people, allowing them to better establish, assert and enforce their rights under a granny flat arrangement. This limitation is, therefore, reasonable and proportionate to achieving the objectives of the measure.

Conclusion

7.31               Schedule 3 to the Bill is compatible with human rights. While it engages with certain human rights, the Schedule is consistent with and promotes these rights.

Schedule 4 - Amendments to product intervention regime

7.32               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

7.33               Schedule 4 to the Bill makes amendments to the Corporations Act 2001 and the National Consumer Credit Protection Act 2009 to provide that ASIC is not prohibited from making a product intervention order that has conditions relating to fees, charges or other consideration paid or payable by a retail client or consumer to the financial or credit product provider (or its associate) in relation to a financial product or a credit product.

Human rights implications

7.34               Schedule 4 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

7.35               Schedule 4 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 5 - New Zealand sports teams members and support staff

7.36               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

7.37               Schedule 5 to the Bill amends the International Tax Agreements Act 1953 to disregard days NZ sportspersons on teams participating in cross-border competitions and their support staff spend in Australia due to COVID-19 in determining whether income derived from such competitions or supporting activities is taxable in Australia.

Human rights implications

7.38               Schedule 5 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

7.39               Schedule 5 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 6 - Low and Middle Income tax offset

7.40               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

7.41               Schedule 6 to the Bill amends the income tax law to retain the low and middle income tax offset for the 2021-22 income year.

Human rights implications

7.42               Schedule 6 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

7.43               Schedule 6 to the Bill is compatible with human rights as it does not raise any human rights issues.