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This is a Bill, not an Act. For current law, see the Acts databases.
2002-2003
The Parliament of
the
Commonwealth of
Australia
HOUSE OF
REPRESENTATIVES
Presented and read a first
time
Taxation
Laws Amendment Bill (No. 8) 2003
No.
, 2003
(Treasury)
A
Bill for an Act to amend the law relating to taxation, and for related
purposes
Contents
Part 1—Amendment of the Income Tax Assessment Act
1997 4
Part 2—Amendment of the Income Tax Assessment Act
1936 5
Part 3—Application 6
Part 1—Tax cost setting for certain depreciating
assets 7
Income Tax Assessment Act
1997 7
Part 2—Cost base and reduced cost base of pre-CGT
assets 8
Income Tax Assessment Act
1997 8
Income Tax (Transitional Provisions) Act
1997 9
Part 3—CGT event in respect of reduction in tax cost setting
amounts for reset cost base
assets 10
Income Tax Assessment Act
1997 10
Part 4—Replacement of continuity of ownership test for retention
of accelerated
depreciation 12
Income Tax Assessment Act
1997 12
Part 5—Transitional adjustment to over-depreciation provisions
where no unfranked or partly franked
dividends 13
Income Tax (Transitional Provisions) Act
1997 13
Part 6—Adjustments for errors
etc. 14
Taxation Administration Act
1953 14
Part 7—Extension of certain consolidation provisions to cover
MEC groups 17
Income Tax Assessment Act
1997 17
Income Tax (Transitional Provisions) Act
1997 17
Part 8—Excess franking deficit tax
offsets 19
Income Tax Assessment Act
1997 19
Part 9—Application 22
Income Tax Assessment Act
1997 23
Fringe Benefits Tax Assessment Act
1986 24
Income Tax Assessment Act
1997 25
Income Tax Assessment Act
1936 26
Part 1—Amendment of the Income Tax Assessment Act
1997 30
Part 2—Amendment of the Income Tax (Transitional Provisions) Act
1997 37
Part 3—Consequential
amendments 43
Income Tax Assessment Act
1936 43
Income Tax Assessment Act
1997 43
Taxation Administration Act
1953 44
A Bill for an Act to amend the law relating to taxation,
and for related purposes
The Parliament of Australia enacts:
This Act may be cited as the Taxation Laws Amendment Act (No. 8)
2003.
(1) Each provision of this Act specified in column 1 of the table
commences, or is taken to have commenced, in accordance with column 2 of the
table. Any other statement in column 2 has effect according to its
terms.
|
Commencement information |
||
|---|---|---|
|
Column 1 |
Column 2 |
Column 3 |
|
Provision(s) |
Commencement |
Date/Details |
|
1. Sections 1 to 4 and anything in this Act not elsewhere covered by
this table |
The day on which this Act receives the Royal Assent. |
|
|
2. Schedules 1 to 5 |
The day on which this Act receives the Royal Assent. |
|
|
3. Schedule 6 |
1 July 2003. |
|
|
4. Schedule 7, items 1 to 5 |
The day on which this Act receives the Royal Assent. |
|
|
5. Schedule 7, items 6 to 8 |
Immediately after the commencement of Schedule 7 to the Taxation
Laws Amendment Act (No. 7) 2003. |
|
|
6. Schedule 7, items 9 to 14 |
The day on which this Act receives the Royal Assent. |
|
|
7. Schedule 7, item 15 |
Immediately after the commencement of item 11 of Schedule 8 to
the Taxation Laws Amendment Act (No. 5) 2003. |
|
|
8. Schedule 7, items 16 to 22 |
The day on which this Act receives the Royal Assent. |
|
Note: This table relates only to the provisions of this Act
as originally passed by the Parliament and assented to. It will not be expanded
to deal with provisions inserted in this Act after assent.
(2) Column 3 of the table contains additional information that is not part
of this Act. Information in this column may be added to or edited in any
published version of this Act.
Each Act that is specified in a Schedule to this Act is amended or
repealed as set out in the applicable items in the Schedule concerned, and any
other item in a Schedule to this Act has effect according to its
terms.
Section 170 of the Income Tax Assessment Act 1936 does not
prevent the amendment of an assessment made before the commencement of this
section for the purposes of giving effect to this Act.
Part 1—Amendment
of the Income Tax Assessment Act 1997
1 Subsection 215-25(1)
Omit all the words after paragraph (d), substitute:
; and (e) it is reasonable to expect that, having regard to the available
profits mentioned in paragraph (d), the amount of the entity’s
*adjusted available frankable profits
immediately after each of the committed distributions is paid will be greater
than nil.
The available frankable profits immediately before the entity
pays the non-share dividend is then the smallest of the amounts of the adjusted
available frankable profits mentioned in paragraph (e).
2 Subsection 215-25(2)
Repeal the subsection, substitute:
(2) The entity’s adjusted available frankable profits
immediately after a committed distribution is paid is the amount that would be
its *available frankable profits at that time
if all committed distributions to be paid after that time, and the
*non-share dividend, were ignored.
3 Subparagraph 215-25(3)(b)(i)
Omit “when”, substitute “immediately
after”.
4 Subsection 995-1(1)
Insert:
adjusted available frankable profits has the meaning given by
subsection 215-25(2).
Part 2—Amendment
of the Income Tax Assessment Act 1936
5 Subsection 160APAAAB(6)
Omit all the words after paragraph (d), substitute:
; and (e) it is reasonable to expect that, having regard to the profits
mentioned in paragraph (d), the amount of the company’s adjusted
available frankable profits (see subsection (12A)) immediately after each
of the committed share dividends is paid will be greater than nil.
The available frankable profits immediately before the company pays the
non-share dividend is then the smallest of the amounts of the adjusted available
frankable profits mentioned in paragraph (e).
6 Subsection 160APAAAB(7)
Repeal the subsection.
7 Subparagraph
160APAAAB(8)(b)(i)
Omit “when”, substitute “immediately
after”.
8 After subsection
160APAAAB(12)
Insert:
(12A) A company’s adjusted available frankable profits
immediately after a committed share dividend is paid is the amount that would be
its available frankable profits at that time if all committed share dividends to
be paid after that time, and the non-share dividend, were ignored.
9 Application
(1) The amendments made by Part 1 of this Schedule apply to non-share
dividends paid after 30 June 2002.
(2) The amendments made by Part 2 of this Schedule apply to non-share
dividends paid after 30 June 2001 and before 1 July
2002.
Part 1—Tax
cost setting for certain depreciating assets
Income Tax Assessment Act
1997
1 Paragraph 701-55(2)(d)
Omit “section 40-95 (other than subsections (2) and
(5))”, substitute “subsections 40-95(1) and
(3)”.
Part 2—Cost
base and reduced cost base of pre-CGT assets
Income Tax Assessment Act
1997
2 Subsection 126-60(3) (note)
Omit “Note”, substitute “Note 1”.
3 At the end of subsection
126-60(3)
Add:
Note 2: Under section 716-855, where there have been
certain roll-overs, the cost base and reduced cost base of pre-CGT assets for
the purposes of Part 3-90 (Consolidated groups) are worked out by applying
subsection (2), rather than subsection (3), of this
section.
4 At the end of subsection
705-65(1)
Add:
Note: Under section 716-855, if membership interests
are pre-CGT assets that have been subject to certain roll-overs, the cost base
and reduced cost base are worked out in the same way as if they were post-CGT
assets.
5 After section 716-850
Insert:
If:
(a) it is necessary for the purposes of this Part to work out the
*cost base or
*reduced cost base of a
*pre-CGT asset owned at a particular time;
and
(b) before that time:
(i) the owner was the recipient company involved in a roll-over under
Subdivision 126-B in relation to a *CGT
event that happened in relation to the CGT asset; or
(ii) the owner was the transferee in relation to a disposal of the CGT
asset to which section 160ZZO of the Income Tax Assessment Act 1936
applied;
the cost base or reduced cost base is worked out as if, in applying
Subdivision 126-B or section 160ZZO in relation to the CGT event or
the disposal, the provisions of that Subdivision or section applying to CGT
assets *acquired on or after 20 September
1985 replaced those that applied to CGT assets acquired on or before that
date.
Note: The effect is that the owner’s cost base or
reduced cost base will be the same as that of the originating company or
transferor, as is the case with post-CGT assets.
Income Tax (Transitional
Provisions) Act 1997
6 After section 701-5
Insert:
Section 716-855 applies for the purposes of this Division in the
same way as that section applies for the purposes of Part 3-90 of the
Income Tax Assessment Act 1997.
Part 3—CGT
event in respect of reduction in tax cost setting amounts for reset cost base
assets
Income Tax Assessment Act
1997
7 Section 104-5 (at the end of the
table)
Add:
|
L8 Reduction in tax cost setting amount for reset cost base assets on
joining cannot be allocated [See section 104-535] |
Just after entity becomes subsidiary member |
no capital gain |
amount of reduction that cannot be allocated |
8 At the end of
Subdivision 104-L
Add:
(1) CGT event L8 happens if:
(a) an entity becomes a *subsidiary
member of a *consolidated group or a
*MEC group; and
(b) the *tax cost setting amount for a
reset cost base asset of the entity is reduced under subsection 705-40(1)
(including in its application in accordance with Subdivisions 705-B to
705-D); and
(c) some or all (the unallocated amount) of the reduction
cannot be allocated as mentioned in subsection 705-40(2).
(2) The time of the event is just after the entity becomes a
*subsidiary member of the group.
(3) For the head company core purposes mentioned in subsection 701-1(2),
the *head company makes a capital
loss equal to the unallocated amount.
9 Section 110-10 (at the end of the
table)
Add:
|
L8 |
Reduction in tax cost setting amount for reset cost base assets on joining
cannot be allocated |
104-535 |
10 Subsection 705-40(2) (at the end of the
note)
Add “: see CGT event L8”.
Part 4—Replacement
of continuity of ownership test for retention of accelerated
depreciation
Income Tax Assessment Act
1997
11 Subsection 701-80(3)
Repeal the subsection, substitute:
Section applies to certain depreciating assets
(3) This section applies if:
(a) a *depreciating asset to which
Division 40 applies becomes that of the
*head company because subsection 701-1(1) (the
single entity rule) applies when the entity becomes a
*subsidiary member of the group; and
(b) just before the entity became a subsidiary member, subsection 40-10(3)
or 40-12(3) of the Income Tax (Transitional Provisions) Act 1997 applied
for the purpose of the entity working out the asset’s decline in value
under Division 40; and
Note: The effect of those subsections was to preserve an
entitlement to accelerated depreciation.
(c) the *tax cost setting amount that
applies in relation to the asset for the purposes of section 701-10 when it
becomes an asset of the head company is not more than the entity’s
*terminating value for the asset.
12 Paragraph 705-45(a)
Repeal the paragraph, substitute:
(a) an asset of the joining entity is a
*depreciating asset to which Division 40
applies; and
(aa) just before the entity became a subsidiary member, subsection
40-10(3) or 40-12(3) of the Income Tax (Transitional Provisions) Act 1997
applied for the purposes of the joining entity working out the asset’s
decline in value under Division 40; and
Note: The effect of those subsections was to preserve an
entitlement to accelerated depreciation.
Part 5—Transitional
adjustment to over-depreciation provisions where no unfranked or partly franked
dividends
Income Tax (Transitional
Provisions) Act 1997
13 Subsection 701-30(3)
Repeal the subsection, substitute:
Creation of, or increase in, tax deferral amount
(3) For the purposes of applying section 705-50 (reduction in tax
cost setting amount for over-depreciated assets) of the Income Tax Assessment
Act 1997 in relation to an asset of the transitional entity that becomes
that of the head company under subsection 701-1(1) of that Act when the
transitional group comes into existence:
(a) if, before the transitional group came into existence, the
transitional entity paid any dividends to which paragraph 705-50(2)(b) of that
Act applies—the tax deferral amount in relation to the dividends under
subsection 705-50(3) of that Act is increased by the amount worked out under
subsection (4) of this section; and
(b) if paragraph (a) does not apply—the transitional entity is
taken to have paid dividends to which paragraph 705-50(2)(b) of that Act applies
and there is taken to be a tax deferral amount in relation to the dividends
under subsection 705-50(3) of that Act whose amount is worked out under
subsection (4) of this section.
14 Subsection 701-30(4)
Omit “The increase”, substitute “The amount for the
purposes of paragraphs (3)(a) and (b)”.
Note: The heading to subsection 701-30(4) is replaced by the
heading “Amount for purposes of paragraphs (3)(a) and
(b)”.
Part 6—Adjustments
for errors etc.
Taxation Administration Act
1953
15 Subsection 8W(1C)
Omit “, so far as they were made in a statement made as mentioned in
subsection 705-230(2) of that Act”, substitute “that were made in a
statement that was made before the Commissioner became aware of the
errors”.
16 Subsection 8W(1C) (formula)
Repeal the formula, substitute:
17 Subsection 8W(1C) (definition of capital
gain)
Repeal the definition.
18 Subsection 8W(1C)
Insert:
tax on capital gain means the product of:
(a) the *capital gain that the
*head company makes as a result of
*CGT event L6 happening as mentioned in
section 104-525 of the Income Tax Assessment Act 1997; and
(b) the *corporate tax rate in respect of
taxable income for the income year in which that CGT event happens.
19 Paragraph 284-80(2)(b) in
Schedule 1
Omit “the income tax return mentioned in subsection 705-230(2) of
that Act”, substitute “it and it was made before the Commissioner
became aware of the errors”.
20 Subsection 284-80(2) in Schedule 1
(formula)
Repeal the formula, substitute:
21 Subsection 284-80(2) in Schedule 1
(definition of capital gain)
Repeal the definition.
22 Subsection 284-80(2) in
Schedule 1
Insert:
tax on capital gain means the product of:
(a) the *capital gain that the
*head company makes as a result of
*CGT event L6 happening as mentioned in
section 104-525 of the Income Tax Assessment Act 1997; and
(b) the *corporate tax rate in respect of
taxable income for the income year in which that CGT event happens.
23 Subsection 284-150(3) in
Schedule 1
Omit “in an income tax return as mentioned in subsection 705-230(2)
of the Income Tax Assessment Act 1997”, substitute “mentioned
in section 705-315 of the Income Tax Assessment Act 1997 that were
made in a statement that was made before the Commissioner became aware of the
errors”.
24 Subsection 284-150(3) in Schedule 1
(formula)
Repeal the formula, substitute:
25 Subsection 284-150(3) in Schedule 1
(definition of capital gain)
Repeal the definition.
26 Subsection 284-150(3) in
Schedule 1
Insert:
tax on capital gain means the product of:
(a) the *capital gain that the
*head company makes as a result of
*CGT event L6 happening as mentioned in
section 104-525 of the Income Tax Assessment Act 1997; and
(b) the *corporate tax rate in respect of
taxable income for the income year in which that CGT event
happens.
Part 7—Extension
of certain consolidation provisions to cover MEC groups
Income Tax Assessment Act
1997
27 Section 102-30 (table
item 7A)
After “consolidated group” (twice occurring), insert “or
a MEC group”.
28 Section 104-5 (table row relating to event
number L1)
After “consolidated group”, insert “or MEC
group”.
29 Subdivision 104-L
(heading)
Repeal the heading, substitute:
30 Subsection 104-500(1)
After “*consolidated group”,
insert “or a *MEC group”.
31 Paragraphs 104-505(1)(a), 104-510(1)(a),
104-515(1)(a), 104-520(1)(a) and 104-525(1)(a)
After “*consolidated group”,
insert “or a *MEC group”.
32 Subsection 104-525(6) (definition of current
asset setting amount)
After “*consolidated group”,
insert “or the *MEC
group”.
33 Subsection 104-530(1)
After “*consolidated group”,
insert “or a *MEC group”.
34 Section 110-10 (table rows relating to event
numbers L1 and L6)
After “consolidated group”, insert “or MEC
group”.
Income Tax (Transitional
Provisions) Act 1997
35 Paragraph 701B-1(1)(b)
After “consolidated group”, insert “or the MEC
group”.
36 Subsection 719-2(1)
After “than”, insert
“Division 701B,”.
37 Subsection 719-160(2)
After “Divisions 701”, insert “,
701A”.
Part 8—Excess
franking deficit tax offsets
Income Tax Assessment Act
1997
38 At the end of
section 701-30
Add:
Excess franking deficit tax offset for the income year
(10) For the purposes of applying section 205-70 in relation to an
income year after the income year (the current income year) to
which this section applies, the entity has an excess mentioned in paragraph
205-70(1)(c) (about excess franking deficit tax offsets) for the current income
year only if it has such an excess for the non-membership period (if any) ending
at the end of the current income year. The amount of the excess for the current
income year is the amount of the excess for the non-membership period.
39 At the end of
Division 709
Add:
This Subdivision provides that any excess in the tax offset arising from a
franking deficit tax liability of an entity that becomes a subsidiary member of
a consolidated group is transferred to the head company of the group.
Table of sections
709-185 Joining entity’s excess franking deficit tax
offsets transferred to head company
709-190 Exit history rule not to treat leaving entity as
having a franking deficit tax offset excess
(1) This section operates if:
(a) an entity (the joining entity) becomes a
*subsidiary member of a
*consolidated group at a time (the
joining time); and
(b) the joining entity is entitled to a
*tax offset under section 205-70 for the
income year that ends or, if subsection 701-30(3) applies, that is taken by
subsection (3) of that section to end, at the joining time; and
(c) the offset exceeds (the excess being the joining entity’s
excess) the amount that would have been the joining entity’s
income tax liability for that income year if it did not have that offset (but
had all its other tax offsets).
Transfer of excess to head company
(2) For the purpose of applying subsection 205-70(1) to the
*head company of the
*consolidated group for the income year in
which the joining time occurs:
(a) if the head company does not, after taking into account any
application of this section to any other entity that became a
*subsidiary member of the group before the
joining time, have an excess mentioned in paragraph 205-70(1)(c) for the
previous income year—the head company is taken to have an excess mentioned
in that paragraph for the previous income year equal to the joining
entity’s excess; and
(b) if the head company does have such an excess—that excess is
taken to be increased by the amount of the joining entity’s
excess.
Joining entity prevented from utilising excess in later income
years
(3) For the purpose of applying subsection 205-70(1) to the joining entity
for any income year after that in which the joining time occurs, the joining
entity’s excess is disregarded.
To avoid doubt, if:
(a) the *head company of a
*consolidated group is entitled to a
*tax offset under section 205-70 for an
income year; and
(b) the offset exceeds the amount that would have been the head
company’s income tax liability for that income year if it did not have
that offset (but had all its other tax offsets); and
(c) an entity ceases to be a *subsidiary
member of the group in the income year;
the entity is not taken because of section 701-40 (the exit
history rule):
(d) to have the excess mentioned in paragraph (b); or
(e) to have another excess of that kind because of the circumstances that
caused the head company to have the excess.
40 Application
The amendments made by this Schedule apply on and after 1 July
2002.
Income Tax Assessment Act
1997
1 Paragraph 31-5(2)(e)
Repeal the paragraph, substitute:
(e) the covenant must have been entered into with:
(i) a fund, authority or institution that meets the requirements of
section 31-10; or
(ii) the Commonwealth, a State, a Territory or a
*local governing body; or
(iii) an authority of the Commonwealth, a State or a Territory.
2 Application
The amendment made by this Schedule applies to conservation covenants
entered into on or after 1 July 2002.
Fringe Benefits Tax
Assessment Act 1986
1 Subsection 11(1) (definition of
B)
Repeal the definition, substitute:
B is the amount worked out for the person and the car using
the formula in subsection (1AA).
2 After subsection 11(1)
Insert:
(1AA) The formula for working out the amount of B for the
person and the car for subsection (1) is:
where:
effective life of the car is the number of years in the
period specified as the effective life of the car in a determination made by the
Commissioner under section 40-100 of the Income Tax Assessment Act
1997 and in effect at the most recent time (before the end of the year of
tax) the person became the owner of the car.
3 Application
The amendments of the Fringe Benefits Tax Assessment Act 1986 made
by this Schedule apply in relation to a person and a car if the person becomes
the owner of the car after 30 June 2002 (whether or not anyone else owned
the car before the person becomes the owner of it).
Income Tax Assessment Act
1997
1 Paragraph 30-125(1)(c)
Repeal the paragraph, substitute:
(c) meets the requirements of:
(i) if the entity is established by an Act and the Act (or another Act)
does not provide for the winding up or termination of the
entity—subsections (4) and (5); and
(ii) in any other case—subsections (4), (5) and (6).
2 Paragraph 30-125(2)(d)
Repeal the paragraph, substitute:
(d) the entity meets the requirements of:
(i) if the entity is established by an Act and the Act (or another Act)
does not provide for the winding up or termination of the
entity—subsections (4) and (5); and
(ii) in any other case—subsections (4), (5) and (6).
3 Application of amendments
The amendments made by items 1 and 2 apply in relation to gifts made
on or after 1 July 2003.
Income Tax Assessment Act
1936
1 Section 393-25 of
Schedule 2G
Insert:
entity has the same meaning as in the Income Tax
Assessment Act 1997.
2 Section 393-25 of Schedule 2G
(definition of financial institution)
Repeal the definition, substitute:
financial institution means an entity that:
(a) is an ADI (authorised deposit-taking institution) for the purposes of
the Banking Act 1959; or
(b) carries on in Australia the business of banking, so long as a State or
a Territory guarantees the repayment of any deposit taken in the course of that
business; or
(c) carries on in Australia a business that consists of or includes taking
money on deposit, so long as a State or a Territory guarantees the repayment of
any deposit taken in the course of that business.
Note: An entity can also be a financial
institution for the purposes of this Subdivision in the limited
circumstances described in section 393-52.
3 Application
The amendment of the Income Tax Assessment Act 1936 made by
item 2 of this Schedule applies to deposits and transfers made on or after
1 July 2003.
4 At the end of Subdivision 393-B of
Schedule 2G
Add:
Scope
(1) This section applies if the condition in subsection (2) or (3) is
satisfied.
(2) The condition in this subsection is satisfied if:
(a) a deposit (the eligible deposit) of money was made
before 1 July 2003 with an entity (the non-complying entity)
that was not a financial institution; and
(b) if the deposit was made after 17 June 2003:
(i) the deposit was made in accordance with an agreement of a particular
kind; and
(ii) on 17 June 2003, the non-complying entity was offering to enter
into agreements of that kind; and
(iii) the agreements mentioned in subparagraph (ii) described such a
deposit as a farm management deposit; and
(c) the deposit was made in good faith.
(3) The condition in this subsection is satisfied if:
(a) the depositor of a farm management deposit made a written request
before 1 July 2003 to the financial institution with which the deposit was
made to transfer the deposit to an entity (the non-complying
entity); and
(b) the financial institution transferred the deposit to the non-complying
entity within a reasonable period after the request; and
(c) the non-complying entity was not a financial institution when the
deposit was transferred; and
(d) the condition in subsection (2) is not satisfied in relation to
the deposit (the eligible deposit) arising from the transfer to
the non-complying entity; and
(e) if the request was made after 17 June 2003:
(i) the eligible deposit was made in accordance with an agreement of a
particular kind; and
(ii) on 17 June 2003, the non-complying entity was offering to enter
into agreements of that kind; and
(iii) the agreements mentioned in subparagraph (ii) described such a
deposit as a farm management deposit; and
(f) the request was made in good faith.
Non-complying entity taken to be financial institution
(4) This Subdivision (other than this section) applies in relation to the
eligible deposit as if the non-complying entity were a financial
institution throughout the period:
(a) beginning:
(i) if the condition in subsection (2) is satisfied—when the
eligible deposit was made; or
(ii) if the condition in subsection (3) is satisfied—when the
eligible deposit was transferred as mentioned in paragraph (3)(b);
and
(b) ending:
(i) if the depositor makes, before the deadline mentioned in
subsection (6), a written request to the non-complying entity to
transfer the eligible deposit to a financial institution, and that transfer is
made within a reasonable period after the request—at the time the transfer
is made; or
(ii) if subparagraph (i) does not apply and the eligible deposit was
repaid in full before that deadline—at the time the eligible deposit was
repaid; or
(iii) in any other case—immediately before that deadline.
Deposit taken to be repaid in certain circumstances
(5) If:
(a) the depositor fails, before the deadline mentioned in
subsection (6), to make a written request to the non-complying entity
to transfer the eligible deposit to a financial institution; or
(b) if such a request is made—the non-complying entity fails to
transfer the eligible deposit to that financial institution within a reasonable
period after the request;
the eligible deposit is taken for the purposes of section 393-15 to
have been repaid immediately before that deadline (to the extent that it was not
actually repaid before that deadline).
Note: This will mean that it is assessable under
section 393-15 (as that section applies because of subsection (4)) in
the year of income when the eligible deposit is taken to be repaid, rather than
in any later year in which it might be actually repaid.
Deadline
(6) The deadline is:
(a) if the term of the eligible deposit:
(i) is longer than 12 months; and
(ii) ends after 1 July 2004;
the earlier of:
(iii) the day on which the term of the eligible deposit ends; or
(iv) 1 July 2007; or
(b) in any other case—1 July 2004.
Deposit with non-complying entity and other deposit with a financial
institution
(7) Ignore subsection (4) in deciding, for the purposes of subsection
393-45(1), whether the requirement in subsection 393-35(7) has been
contravened.
Part 1—Amendment
of the Income Tax Assessment Act 1997
1 Division 205 (heading)
Repeal the heading, substitute:
2 Section 205-1
Omit:
• creates a liability to pay franking deficit tax if the account is
in deficit at certain times.
substitute:
• creates a liability to pay franking deficit tax if the account is
in deficit at certain times; and
• creates a tax offset for that liability.
3 Section 205-5 (heading)
Repeal the heading, substitute:
4 At the end of section 205-5 (before the
note)
Add:
(6) A tax offset is available to an entity that has incurred a liability
to pay franking deficit tax.
5 At the end of
Division 205
Add:
When does the tax offset arise?
(1) A *corporate tax entity is entitled
to a *tax offset for an income year for which
it satisfies the *residency requirement (the
relevant year) if at least one of the following applies:
(a) the entity has incurred a liability to pay
*franking deficit tax in the relevant
year;
(b) the entity incurred such a liability in a previous income year for
which it did not satisfy the residency requirement, and that liability has not
been taken into account in working out a tax offset under this
section;
(c) when the entity was last entitled to a tax offset under this section
for a previous income year, that offset exceeded the amount that would have been
its income tax liability for that year if it did not have that offset (but had
all its other tax offsets).
The amount of the tax offset
(2) Work out the amount of the *tax
offset for the relevant year as follows:
Method statement
Step 1. Work out the total amount of
*franking deficit tax that is covered by
paragraph (1)(a).
Then reduce it by 30% if it exceeds 10% of the total amount of
*franking credits that arose in the
entity’s *franking account in the
relevant year.
Step 2. Work out the total amount of
*franking deficit tax that is covered by
paragraph (1)(b) for a previous income year.
Then reduce it by 30% if it exceeds 10% of the total amount of
*franking credits that arose in the
entity’s *franking account in that
previous income year.
Step 3. Add up the results of step 2 for all the previous income
years covered by paragraph (1)(b).
Step 4. Work out the excess that is covered by
paragraph (1)(c).
Step 5. Add up the results of steps 1, 3 and 4. The result is the
*tax offset to which the entity is entitled
under this section for the relevant year.
Note: This method statement is modified for certain late
balancing entities: see section 205-70 of the Income Tax (Transitional
Provisions) Act 1997.
Priority of the tax offset
(3) Apply the *tax offset by subtracting
the tax offset from the amount that would have been the entity’s income
tax liability for the relevant year if it did not have the tax offset (but had
all its other tax offsets).
Note: If the tax offset exceeds that amount, the excess will
be included in a tax offset for the next income year for which the entity
satisfies the residency requirement: see paragraph (1)(c) and step 4 of the
method statement.
Example: The following apply to a corporate tax entity that
satisfies the residency requirement for an income year:
• the entity’s income tax liability for that
year would be $100,000 if its tax offsets were disregarded;
• for that year, the entity has a tax offset of
$60,000 under this section (the franking deficit offset) and a tax
offset of $80,000 in respect of overseas tax paid by the entity (the
foreign tax credit).
Under subsection (3), the foreign tax credit must be
applied before the franking deficit offset is applied. As a result, that credit
and $20,000 of the franking deficit offset combine to reduce the entity’s
income tax liability to nil. The remaining $40,000 of the franking deficit
offset will be included in a franking deficit offset for the next income year
for which the entity satisfies the residency requirement.
Residency requirement
(4) To determine whether the entity satisfies the
*residency requirement for the relevant year,
section 205-25 has effect as if each of the following were an event
specified in a relevant table for the purposes of that section:
(a) the entity incurring a liability to pay
*franking deficit tax in the relevant
year;
(b) the assessment of the entity’s income tax liability for the
relevant year that is made on the *assessment
day for that year.
6 At the end of subsection
219-50(1)
Add:
Note: The operation of this section is affected by
section 219-75 if a tax offset under section 205-70 is applied to work
out the company’s income tax liability.
7 At the end of subsection
219-55(1)
Add:
Note: The operation of this section is affected by
section 219-75 if a tax offset under section 205-70 is, or has been,
applied to work out the company’s income tax liability.
8 At the end of
Division 219
Add:
(1) In applying section 205-70 to a
*life insurance company, that section has
effect as if:
(a) the reference in paragraph 205-70(1)(c) to the amount that would have
been an entity’s income tax liability for a previous income year were a
reference to the part of such an amount in respect of the company that is
attributable to its shareholders; and
(b) the reference in subsection 205-70(3) to the amount that would have
been an entity’s income tax liability for the relevant year were a
reference to the part of such an amount in respect of the company that is
attributable to its shareholders.
(2) In working out the part of an amount that is attributable to the
company’s shareholders for the purposes of this section, regard is to be
had to the accounting records of the company.
Example: The following apply to a life insurance company
that satisfies the residency requirement for an income year:
• the company has a tax offset of $60,000 under
section 205-70 (the franking deficit offset) for that
year;
• the company’s income tax liability for that
year would be $100,000 if the franking deficit offset were
disregarded;
• 20% of the $100,000 is attributable to the
company’s shareholders (the shareholders’
part).
As a result of applying $20,000 of the franking deficit
offset to reduce the shareholders’ part to nil, the company’s income
tax liability becomes $80,000. The remaining $40,000 of the offset will be
included in a franking deficit tax offset for the next income year for which the
company satisfies the residency requirement.
Revised shareholders’ ratio—modification of
section 219-50
(1) Subsection (2) applies to a
*life insurance company if a
*tax offset under section 205-70 is
applied to work out the company’s income tax liability for an income
year.
Note: This means subsection (2) applies if the tax
offset is applied to reduce the part of the amount mentioned in paragraph
219-70(1)(b) in relation to the income year.
(2) For the purposes of working out the amount of a
*franking credit or
*franking debit for the company in relation to
the income year (other than a franking credit covered by item 1 of the
table in section 219-15), section 219-50 has effect as if:
(a) steps 1 and 2 of the method statement in section 219-50 were
omitted; and
(b) the reference in step 3 of that method statement to the
*shareholders’ ratio were a reference to
the revised shareholders’ ratio worked out as
follows:
Method statement
Step 1. Work out the remainder (if any) of the part of the amount
mentioned in paragraph 219-70(1)(b) after the
*tax offset is applied to reduce that
part.
Note: The part mentioned in paragraph 219-70(1)(b) is the
part of an amount of the company’s income tax liability for the income
year that is attributable to its shareholders.
Step 2. Divide the step 1 result by the company’s total income
tax liability for the income year (after applying the
*tax offset).
The result (which can be nil) is the company’s revised
shareholders’ ratio for the income year.
Example: For the 2002-2003 income year X Co (which is a life
insurance company) has a tax offset of $68,000 under section 205-70. Its
income tax liability for that year would have been $400,000 on the assessment
day (1 February 2004) if the tax offset were disregarded. Of that
liability, $80,000 is attributable to the shareholders. The step 1 result is
therefore $12,000 ($80,000 minus $68,000).
X Co’s income tax liability after applying the tax
offset is $332,000 ($400,000 minus $68,000). The revised shareholders’
ratio is therefore 3/83 ($12,000 divided by $332,000).
For that income year, the company paid $249,000 of PAYG
instalments before the assessment day and $83,000 of income tax one month after
that day.
On the assessment day, a franking credit of $9,000 arises
under item 2 of the table in section 219-15 ($249,000 multiplied by
3/83). On the day the additional amount of tax is paid, another franking credit
of $3,000 arises under item 4 of that table ($83,000 multiplied by
3/83).
Adjustment resulting from amended assessment—modification of
section 219-55
(3) Subsection (4) applies to a
*life insurance company if:
(a) the assessment of the company’s income tax liability for an
income year (the previous assessment) is amended; and
(b) at least one of the following applies:
(i) a *tax offset under
section 205-70 is applied in making that amended assessment;
(ii) a tax offset under section 205-70 was applied in making the
previous assessment.
(4) Section 219-55 has effect in relation to the company as
if:
(a) if subparagraph (3)(b)(i) of this section applies—a
reference in that section to the new ratio were a reference to the revised
shareholders’ ratio that is based on the amended assessment; and
(b) if subparagraph (3)(b)(ii) of this section applies—the
reference in paragraph (1)(b) of that section to the
*shareholders’ ratio used previously were
a reference to the revised shareholders’ ratio that is based on the
previous assessment.
Example: Continuing the example in subsection (2), the
assessment of X Co for the 2002-2003 income year is amended on 31 March
2004. Under the amended assessment, X Co’s income tax liability would be
$300,000 if the tax offset were disregarded.
Of that liability, $60,000 is attributable to the
shareholders. That amount is reduced by the tax offset of $68,000 to
nil.
X Co’s liability to pay income tax is therefore
reduced to $240,000 ($300,000 minus $60,000) and it will receive a refund of
$92,000 ($332,000 minus $240,000). As the revised shareholders’ ratio has
become nil, no franking debit arises from the refund.
The franking credits that previously arose from the payments
of PAYG instalments and income tax would not have arisen if the new revised
shareholders’ ratio had been used. Section 219-55 (as applied by
subsection (4) of this section) therefore operates to create an adjustment
to cancel those franking credits. The adjustment is a franking debit of $12,000
that arises on the day of the amendment of the assessment.
9 Application
Subject to the rules on the application of Part 3-6 of the Income
Tax Assessment Act 1997 set out in the Income Tax (Transitional
Provisions) Act 1997, the amendments made by items 1 to 8 apply to
events that occur on or after 1 July 2002.
Part 2—Amendment
of the Income Tax (Transitional Provisions) Act 1997
10 At the end of
Division 205
Add:
[The next section is section 205-70.]
General application rule
(1) Section 205-70 of the Income Tax Assessment Act 1997 has
effect in relation to a corporate tax entity’s assessments for the
2002-2003 income year and later income years, except as provided in the
following subsections.
Late balancing entities—2001-2002 income year
(2) If a corporate tax entity’s 2001-2002 income year ends after
30 June 2002, section 205-70 of the Income Tax Assessment Act 1997
has effect in relation to the entity’s assessment for that income year
as if the following method statement had replaced the method statement in that
section.
Method statement
Step 1. Work out the total amount of
*franking deficit tax that is covered by
paragraph (1)(a).
Step 2. Add to the step 1 result the excess that is covered by
paragraph (1)(c).
The result is the *tax offset to which
the entity is entitled under this section for the relevant year.
Late balancing entities—2002-2003 income year
(3) If:
(a) a corporate tax entity’s 2002-2003 income year ends after
30 June 2003; and
(b) the entity makes a valid election under section 205-20 in that
income year;
section 205-70 of the Income Tax Assessment Act 1997 has effect
in relation to the entity’s assessment for that income year as if the
following method statement had replaced the method statement in that
section.
Method statement
Step 1. Work out the total amount of
*franking deficit tax that is covered by
paragraph (1)(a) and was incurred before 30 June 2002.
Step 2. Work out the total amount of
*franking deficit tax that is covered by
paragraph (1)(a) and was incurred on 30 June 2002.
Then reduce it by 30% if it exceeds 10% of the total amount of
*franking credits that arose in the
entity’s *franking account during the
period of 12 months immediately preceding that date.
Step 3. Work out the total amount of
*franking deficit tax that is covered by
paragraph (1)(a) and was incurred after 30 June 2002.
Then reduce it by 30% if it exceeds 10% of the total amount of
*franking credits that arose in the
entity’s *franking account after that
date and before the end of the last day on which the entity incurred a franking
deficit tax liability in the relevant year.
Step 4. Work out the total amount of
*franking deficit tax that is covered by
paragraph (1)(b) and was incurred in the 2001-2002 income year.
Step 5. Work out the excess that is covered by
paragraph (1)(c).
Step 6. Add up the results of steps 1, 2, 3, 4 and 5. The result is
the *tax offset to which the entity is entitled
under this section for the relevant year.
Late balancing entities—later income years
(4) If:
(a) an income year of a corporate tax entity ends after 30 June 2004;
and
(b) the entity makes a valid election under section 205-20 in that
income year;
section 205-70 of the Income Tax Assessment Act 1997 has effect
in relation to the entity’s assessment for that income year as if the
following method statement had replaced the method statement in that
section.
Method statement
Step 1. Work out the total amount of
*franking deficit tax that is covered by
paragraph (1)(a) and was incurred on or before the 30 June in the
relevant year.
Then reduce it by 30% if it exceeds 10% of the total amount of
*franking credits that arose in the
entity’s *franking account during the
period of 12 months immediately preceding that 30 June.
Step 2. Work out the total amount of
*franking deficit tax that is covered by
paragraph (1)(a) and was incurred after the 30 June in the relevant
year.
Then reduce it by 30% if it exceeds 10% of the total amount of
*franking credits that arose in the
entity’s *franking account after that
date and before the end of the last day on which the entity incurred a franking
deficit tax liability in the relevant year.
Step 3. Work out the total amount of
*franking deficit tax that is covered by
paragraph (1)(b) in relation to a previous income year and was incurred on
or before the 30 June in that income year.
Then reduce it by 30% if it exceeds 10% of the total amount of
*franking credits that arose in the
entity’s *franking account during the
period of 12 months immediately preceding that 30 June.
Step 4. Work out the total amount of
*franking deficit tax that is covered by
paragraph (1)(b) in relation to a previous income year and was incurred
after the 30 June in that income year.
Then reduce it by 30% if it exceeds 10% of the total amount of
*franking credits that arose in the
entity’s *franking account after that
date and before the end of the last day on which the entity incurred a franking
deficit tax liability in that income year.
Step 5. Add up the results of steps 3 and 4 for all the previous
income years covered by paragraph (1)(b).
Step 6. Work out the excess that is covered by
paragraph (1)(c).
Step 7. Add up the results of steps 1, 2, 5 and 6. The result is the
*tax offset to which the entity is entitled
under this section for the relevant year.
Application of the 30% reduction rule
(5) If a franking credit has been taken into account previously in
reducing an amount worked out under a step in the method statement in:
(a) subsection (3) or (4); or
(b) section 205-70 of the Income Tax Assessment Act
1997;
that credit is not to be taken into account again in reducing another
amount worked out under a step in such a method statement.
First income year and relevant liabilities
(1) This section applies to a corporate tax entity in relation
to:
(a) this income year of the entity (the first income
year):
(i) the 2001-2002 income year if subsection 205-70(2) applies to the
entity; or
(ii) the 2002-2003 income year if subsection 205-70(2) does not apply to
the entity; and
(b) amounts of liabilities incurred by the entity (the relevant
liabilities) that:
(i) are covered by paragraph (1)(a) of section 160AQK or of
160AQKAA (as appropriate) of the Income Tax Assessment Act 1936;
and
(ii) have not been applied under that Act to reduce the entity’s
income tax liabilities for an earlier income year.
Relevant liabilities carried forward to the first income
year
(2) Section 205-70 of the Income Tax Assessment Act 1997 has
effect in relation to the entity as if:
(a) so much of the relevant liabilities as were incurred by the entity
during the first income year were liabilities to pay franking deficit tax under
that Act; and
(b) so much of the relevant liabilities as were incurred by the entity
before the start of the first income year were the excess mentioned in
paragraph (1)(c) of that section.
(3) Subsection (2) has effect only for the purposes of working
out:
(a) whether or not the entity is entitled to a tax offset under
section 205-70 of the Income Tax Assessment Act 1997 for the first
income year or a later income year; and
(b) the amount of that tax offset.
(1) This section applies if Subdivision C of Division 5 of the
Income Tax Assessment Act 1936 would, apart from section 160AOAA of
that Act, apply in relation to an entity’s assessment for a year of income
that ends before 1 July 2002.
(2) Section 160AOAA of that Act does not prevent:
(a) the making of a determination under that Subdivision on or after that
date for an offset to reduce the entity’s income tax liability for that
year of income; and
(b) the operation of any provision in that Subdivision in relation to that
determination.
(3) However, in working out the amount of that offset, any liabilities to
pay franking deficit tax or deficit deferral tax that have been taken into
account in working out a tax offset under section 205-70 of the Income
Tax Assessment Act 1997 must be disregarded.
Part 3—Consequential
amendments
Income Tax Assessment Act
1936
11 Subsection 160AO(2)
Omit all the words from and including “the amount of Australian
tax”, substitute:
the amount of Australian tax that:
(a) before the allowance of that credit or those credits (as the case may
be); and
(b) before the application of any tax offset under section 205-70 of
the Income Tax Assessment Act 1997;
is payable by the person in respect of the person’s taxable income of
that year of income.
12 Application
The amendment made by item 11 applies in relation to an entity’s
assessments for the first income year (within the meaning of section 205-75
of the Income Tax (Transitional Provisions) Act 1997) and later income
years.
Income Tax Assessment Act
1997
13 Section 13-1 (after table item headed
“foreign tax”)
Insert:
|
franking deficit tax |
|
|
liabilities to pay |
205-70 |
14 Section 13-1 (table item headed
“imputation”)
Omit “see dividends”, substitute “see
dividends and franking deficit tax”.
15 After subparagraph
36-55(1)(b)(ii)
Insert:
and (iii) it did not have any tax offset under
section 205-70;
16 Section 67-30
After “got those offsets”, insert “and any tax offset
under section 205-70”.
17 Subsection 995-1(1) (paragraph (b) of the
definition of residency requirement)
Omit “section 220-205”, substitute
“section 205-70 or 220-205”.
18 Application
The amendments made by items 13 to 17 apply in relation to an
entity’s assessments for the first income year (within the meaning of
section 205-75 of the Income Tax (Transitional Provisions) Act 1997)
and later income years.
Taxation Administration Act
1953
19 Section 45-340 in Schedule 1 (after
paragraph (a) of step 1 of the method statement)
Insert:
(aa) section 205-70 of the Income Tax Assessment Act 1997 (for
liabilities to pay *franking deficit tax);
or
20 Application
The amendment made by item 19 applies in relation to the calculation
of an entity’s adjusted tax:
(a) for a base year that is the first income year (within the meaning of
section 205-75 of the Income Tax (Transitional Provisions) Act 1997)
or a later income year; and
(b) only for the purposes of a PAYG instalment period that includes, or
starts after, the day on which this Act receives the Royal Assent.
21 Section 45-375 in Schedule 1 (after
paragraph (a) of step 1 of the method statement)
Insert:
(aa) section 205-70 of the Income Tax Assessment Act 1997 (for
liabilities to pay *franking deficit tax);
or
22 Application
The amendment made by item 21 applies in relation to the calculation
of an entity’s benchmark instalment rate, or benchmark tax, for an income
year that is the first income year (within the meaning of section 205-75 of
the Income Tax (Transitional Provisions) Act 1997) or a later income
year.