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Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017

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2016-2017-2018

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

SENATE

 

 

 

Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017

 

 

 

 

SUPPLEMENTARY EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Treasurer, the Hon Scott Morrison MP)

 

 



Table of contents

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

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

Chapter 1 ........... Amendments to Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017...................................................................................... 5

 

 



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

Abbreviation

Definition

ADI

Authorised deposit-taking institution

ITAA 1936

Income Tax Assessment Act 1936

ITAA 1997

Income Tax Assessment Act 1997

Rates Act

Income Tax Rates Act 1986

Bill

Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017

 

 



Amendments to Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017

The amendments to the Bill will ensure that the corporate tax rate for large ADI’s will be retained at 30 per cent.

Date of effect :  Part 5 of Schedule 1 to the Bill applies from the 2023-24 income year.

Proposal announced :  Not previously announced.

Financial impact The amendments will have nil revenue impact over the forward years to 2021-22.

 

 

 



Outline of chapter

1.1                   The amendments to the Bill will ensure that the corporate tax rate for large ADI’s will be retained at 30 per cent.

Detailed explanation of new law

Amendments 1 and 2

1.2                   Amendments 1 and 2 make minor amendments to modify the commencement provisions in section 2 of the Bill. These amendments are necessary as a consequence of other amendments that are being made to the Bill.

Amendment 3

1.3                   Amendment 3 will amend Part 5 of Schedule 1 to the Bill to insert a definition of large ADI into the Rates Act (so that it has the same meaning as in the ITAA 1997). [Schedule 1, item 5A of the Bill, definition of ‘large ADI’ in subsection 3(1) of the Rates Act]

Amendments 4 to 8

1.4                   Amendments 4 to 8 will amend Part 5 of Schedule 1 to the Bill.

1.5                   These amendments will amend the Rates Act to specify that the corporate tax rate for large ADIs will be 30 per cent. [Schedule 1, items 6A, 7, 8, 13 and 13A of the Bill, subsection 23(1A), subsection 23(2), paragraph 23(3)(b), paragraph 23A(a) and section 24 of the Rates Act]

1.6                   As a consequence, large ADIs will not benefit from the phased reduction in the corporate tax rate from 30 per cent (for the 2022-23 income year) to 25 per cent (for the 2026-27 income year and later income years).

1.7                   If a large ADI is a member of a tax consolidated group, the 30 per cent large ADI corporate tax rate will apply to the taxable income of the consolidated group to work out the group’s income tax liability.

Amendment 9

1.8                   Amendment 9 will amend Part 5 of Schedule 1 to the Bill.

1.9                   In certain circumstances the trustee of a trust is liable to pay income tax on the net income of the trust. If the beneficiary of the trust is a corporate tax entity, the trustee must pay tax at the corporate tax rate.

1.10               Therefore, amendment 9 makes a consequential amendment to the Rates Act so that, if a large ADI is a beneficiary of a trust, the trustee will be liable to tax at the 30 per cent large ADI corporate tax rate on the large ADI’s share of the net income of the trust. [Schedule 1, item 15 of the Bill, paragraph 28(a) of the Rates Act]

Amendments 10 to 15

1.11               Amendments 10 to 15 will make consequential amendments to Parts 6 to 8 of Schedule 1 to the Bill to ensure that large ADIs will not benefit from the phased reduction in the corporate tax rate from 30 per cent (for the 2022-23 income year) to 25 per cent (for the 2026-27 income year and later income years). [Schedule 1, items 19, 23, 27, 31, 35 and 39 of the Bill, subsection 23(3)(b) and section 23A of the Rates Act]

Amendment 16

1.12               Amendment 16 will insert new Part 8A into Schedule 1 to the Bill.

1.13               The amendments will amend the ITAA 1997 to insert a definition of large ADI into the ITAA 1997. A company will be a large ADI for an income year if the company is an Australian resident company that, either:

•        disregarding the consolidation single entity rule:

-       the company is an ADI; and

-       the total liabilities of the ADI for any quarter in the income year, as reported under the applicable reporting standard, exceeds the large ADI threshold for the quarter; or

•        the company is the head company of a consolidated group and one or more subsidiary members of the group would satisfy these requirements for the income year.

[Schedule 1, item 40K of the Bill, definition of ‘large ADI’ in subsection 995-1(1) of the ITAA 1997]

1.14               The applicable reporting standard has the same meaning as in the Major Bank Levy Act 2017 . [Schedule 1, item 40G of the Bill, definition of ‘applicable reporting standard’ in subsection 995-1(1) of the ITAA 1997]

1.15               The large ADI threshold for the quarter starting on 1 July 2017 is $500 billion (and, consistent with the major bank levy, is indexed quarterly). [Schedule 1, items 40A, 40B, 40C, 40D, 40E, 40F, 40H, 40J and 40K of the Bill, section 960-265, 960-270, 960-275, 960-280, 960-290 and the definitions of ‘indexation factor’, ‘index number’ and ‘large ADI threshold’ in subsection 995-1(1) of the ITAA 1997]

1.16               Therefore, most (but not all) ADI’s that are liable to pay the major bank levy will be large ADI’s for income tax purposes that will be subject to the 30 per cent large ADI corporate tax rate.

1.17               In addition, if a large ADI is a member of a tax consolidated group, the head company of the consolidated group is taken to be a large ADI.

Amendment 17

1.18               Amendment 17 will make consequential amendments to Part 9 of Schedule 1 to the Bill to clarify that:

•        the amendments to insert new Part 8A apply to the 2023-24 income year and to later income years; and

•        the amendments made by Part 5 and new Part 8A also apply for the purposes of determining the corporate tax rate for imputation purposes for the 2023-24 income year.

[Schedule 1, subitems 41(9) and (10)]

Amendment 18

1.19               Amendment 18 will make consequential amendments to Part 1 of Schedule 2 to the Bill.

1.20               Under the company imputation system, when an Australian corporate tax entity distributes profits to its members, the entity has the option of passing to those members credit for income tax paid by the entity on those profits. This is done by franking the distribution.

1.21               The amount of franking credits that can be attached to a distribution cannot exceed the maximum franking credit for the distribution (section 202-60 of the ITAA 1997). The maximum franking credit for a distribution is worked out by reference to the corporate tax rate.

1.22               Amendment 18 will make consequential amendments to the imputation system so that the maximum franking credit for a distribution made by a large ADI reflects the 30 per cent large ADI corporate tax rate. In this regard, for the purposes of determining the maximum franking credit for a distribution for an income year, the corporate tax rate is based on the ADI’s status as a large ADI for the previous income year. [Schedule 2, items 1 to 2 of the Bill, definitions of ‘corporate tax rate’ and corporate tax rate for imputation purposes’ in subsection 995-1(1) of the ITAA 1997]

Amendments 19, 36 and 37

1.23               Amendment 19 will make consequential amendments to Part 1 of Schedule 3 to the Bill.

1.24               The amendment will modify the definition of statutory percentage in subsection 160AAB(1) so that, if a large ADI is also a life insurance company, the tax offset available to policyholders who hold life insurance policies with the company reflects the 30 per cent large ADI corporate tax rate. [Schedule 3, item 1 of the Bill, definition of ‘statutory percentage’ in subsection 160AAB(1) of the ITAA 1936]

1.25               The amendment will also modify the definition of standard corporate tax rate in subsection 177A(1) of the ITAA 1936 so that, if a large ADI is subject to diverted profits tax, the amount of diverted profits tax that is payable is worked out based on the 30 per cent large ADI corporate tax rate. [Schedule 3, item 1 of the Bill, definition of ‘standard corporate tax rate’ in subsection 177A(1) of the ITAA 1936]

1.26               Amendments 36 and 37 make consequential amendments to Schedule 4 to the Bill relating to the definition of standard corporate tax rate in subsection 177A(1) of the ITAA 1936.

Amendments 20, 21, 24, 25, 28, 29, 32 and 33

1.27               Amendments 20, 21, 24, 25, 28, 29, 32 and 33 make consequential amendments to Schedule 3 to the Bill to modify examples in the income tax law which illustrate the operation of certain provisions so that those examples apply to a corporate tax entity that is not a large ADI. These amendments are necessary to ensure that the calculations in the examples are correct. [Schedule 3, items 2, 3, 9, 10, 16, 17, 23 and 24 of the Bill, sections 36-17 and 36-55 of the ITAA 1997]

Amendments 22, 26, 27, 30, 31, 34 and 35

1.28               Amendments 22, 26, 27, 30, 31, 34 and 35 will also amend Schedule 3 to the Bill.

1.29               Sections 65-30 and 65-35 of the ITAA 1997 relate to the operation of the tax offset carry forward rules. These amendments make consequential amendments to sections 65-30 and 65-35 so that, if a large ADI is entitled to a carry forward tax offset, the rate of the tax offset reflects the 30 per cent large ADI corporate tax rate. [Schedule 3, items 6, 7, 13, 14, 20, 21, 27 and 28 of the Bill, subsections 65-30(2) and 65-35(3A) of the ITAA 1997]

Amendment 23

1.30               Amendment 23 will amend Part 1 of Schedule 3 to the Bill to make a consequential amendment to section 713-545 of the ITAA 1997 so that, if a large ADI that is also a life insurance company joins a consolidated group, the franking surplus in its franking account is appropriately transferred to the head company of the group. [Schedule 3, item 8A of the Bill, subsection 713-545(6) of the ITAA 1997]