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This is a Bill, not an Act. For current law, see the Acts databases.
1998-1999-2000
The Parliament
of the
Commonwealth of
Australia
HOUSE OF
REPRESENTATIVES
Presented and read a first
time
New Business
Tax System (Integrity Measures) Bill
2000
No. ,
2000
(Treasury)
A Bill
for an Act to amend the law about taxation to implement the New Business Tax
System, and for related purposes
ISBN: 0642 435065
Contents
Income Tax Assessment Act
1997 3
Part 1—Expenditure on and after 11 November
1999 12
Income Tax Assessment Act
1936 12
Part 2—2002 and later
expenditure 17
Income Tax Assessment Act
1936 17
Part 3—Application
provisions 18
A Bill for an Act to amend the law about taxation to
implement the New Business Tax System, and for related
purposes
The Parliament of Australia enacts:
This Act may be cited as the New Business Tax System (Integrity
Measures) Act 2000.
This Act commences on the day on which it receives the Royal
Assent.
Subject to section 2, 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this Act is amended or repealed as set out in the applicable items in the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.
Income Tax Assessment Act
1997
1 At the end of subsection
8-1(1)
Add:
Note: Division 35 prevents losses from non-commercial
business activities that may contribute to a tax loss being offset against other
assessable income.
2 Section 12-5 (after the table item headed
“non-cash transactions”)
Insert:
|
non-commercial business activities |
|
|
deferral of non-commercial losses |
Division 35 |
3 Section 34-65 (link
note)
Repeal the link note, substitute:
This Division prevents losses of individuals from non-commercial business
activities being offset against other assessable income in the year the loss is
incurred. The loss is deferred.
It sets out a series of tests to determine whether a business activity is
treated as being non-commercial.
The deferred losses may be offset in later years against profits from the
activity or, if one of the tests is satisfied or the Commissioner exercises a
discretion, against other income.
Table of sections
Operative provisions
35-5 Object
35-10 Deferral of deductions from non-commercial business
activities
35-15 Modification if you have exempt
income
35-20 Modification if you become bankrupt
35-25 Application of Division to certain
partnerships
35-30 Assessable income test
35-35 Profits test
35-40 Real property test
35-45 Other assets test
35-50 Apportionment
35-55 Commissioner’s discretion
[This is the end of the Guide.]
(1) The object of this Division is to improve the integrity of the
taxation system by preventing losses from non-commercial activities that are
carried on as *businesses by individuals (alone
or in partnership) being offset against other assessable income.
(2) This Division is not intended to apply to activities that do not
constitute carrying on a *business, for
example, the receipt of income from passive investments.
(1) The rule in subsection (2) applies for an income year to each
*business activity you carried on in that year
if you are an individual, either alone or in partnership (whether or not some
other entity is a member of the partnership), unless:
(a) one of the tests set out in section 35-30 (assessable income
test), 35-35 (profits test), 35-40 (real property test) or 35-45 (other assets
test) is satisfied for the business activity for that year; or
(b) the Commissioner has exercised the discretion set out in
section 35-55 for the business activity for that year; or
(c) the exception in subsection (4) applies for that year.
Note: This section covers individuals carrying on a business
activity as partners, but not individuals merely in receipt of income jointly.
Compare the definition of partnership in subsection
995-1(1).
Rule
(2) If the amounts attributable to the
*business activity for that income year that
you could otherwise deduct under this Act for that year exceed your assessable
income (if any) from the business activity for that year, or your share of it,
this Act applies to you as if the excess:
(a) were not incurred in that income year; and
(b) were an amount attributable to the activity that you can deduct from
assessable income from the activity for the next income year in which the
activity is carried on.
Note: There are modifications of this rule if you have
exempt income (see section 35-15) or you become bankrupt (see
section 35-20).
Example: Jennifer has a salaried job, and she also carries
on a business activity consisting of selling lingerie.
Jennifer starts that activity on 1 July 2002, and for
the 2002-03 income year, the activity produces assessable income of $8,000 and
deductions of $10,000. The activity does not pass any of the tests and the
discretion is not exercised so the $2,000 excess is carried over to the next
income year in which the activity is carried on.
For the 2003-04 income year, the activity produces
assessable income of $9,000 and deductions of $10,000 (excluding the $2,000
excess from 2002-03). Again, no tests passed and no exercise of
discretion.
$3,000 is carried over to the next income year (comprising
the $1,000 excess for the current year, plus the previous year’s $2,000
excess) when the activity is carried on.
Grouping business activities
(3) In applying this Division, you may group together
*business activities of a similar
kind.
Exception
(4) The rule in subsection (2) does not apply to a
*business activity for an income year
if:
(a) the activity is a *primary production
business; and
(b) your assessable income for that year (except any
*net capital gain) from other sources that are
not primary production businesses is less than $40,000.
(1) The rule in section 35-10 may be modified for an income year
if you *derived
*exempt income in that year.
(2) Any amount to which paragraph 35-10(2)(b) would otherwise apply for an
income year for you is reduced by so much of your
*net exempt income as is not applied for that
income year under section 36-10 or 36-15 (about tax losses). This reduction
is made before you apply the paragraph 35-10(2)(b) amount against assessable
income from the *business activity.
(1) The rule in section 35-10 is modified as set out in
subsection (3) for an income year if in that year (the current
year) you become bankrupt or are released from a debt by the operation
of an Act relating to bankruptcy.
(2) The rule is also modified as set out in subsection (3)
if:
(a) you became bankrupt before the current year; and
(b) the bankruptcy is annulled in the current year under section 74
of the Bankruptcy Act 1966 because your creditors have accepted a
proposal for a composition or scheme of arrangement; and
(c) under the composition or scheme of arrangement, you have been, will be
or may be released from some or all of the debts from which you would have been
released if you had instead been discharged from the bankruptcy.
(3) This Act applies to you as if any amount that:
(a) paragraph 35-10(2)(b) had applied to for an income year before the
current year for you; and
(b) you have not yet deducted;
were not an amount attributable to the
*business activity that you can deduct for the
current year or a later income year.
For the purpose of applying the tests in sections 35-30, 35-40 and
35-45 where you carry on a *business activity
in an income year as a partner, ignore:
(a) any part of the assessable income from the business activity for the
year that is attributable to the interest of a partner that is not an individual
in the partnership net income or partnership loss for the year; and
(b) any part of the assessable income from the business activity for the
year that is derived from the activity by another partner otherwise than as a
member of the partnership; and
(c) any part of the *reduced cost bases
or other values of assets of the partnership used in carrying on the activity in
that year that is attributable to the interest of a partner that is not an
individual in those assets; and
(d) any part of the reduced cost bases or other values of assets owned or
leased by another partner that are not partnership assets and used in carrying
on the activity in that year.
The rule in section 35-10 does not apply to a
*business activity for an income year
if:
(a) the amount of assessable income from the business activity for the
year; or
(b) you started to carry on the business activity, or stopped carrying it
on, during the year—a reasonable estimate of what would have been the
amount of that assessable income if you had carried on that activity throughout
the year;
is at least $20,000.
(1) The rule in section 35-10 does not apply to a
*business activity (except an activity carried
on by one or more individuals as partners, whether or not some other entity is a
member of the partnership) for an income year (the current year)
if, for each of at least 3 of the past 5 income years (including the current
year) the sum of the deductions attributable to that activity for that year
(apart from the operation of subsection 35-10(2)) is less than the assessable
income from the activity for that year.
(2) For a *business activity you carried
on with one or more others as partners, the rule in section 35-10 does not
apply to you for the current year if, for each of at least 3 of the past 5
income years (including the current year) the sum of your deductions (including
your share of the partnership deductions) attributable to that activity for that
year (apart from the operation of subsection 35-10(2)) is less than your
assessable income (including your share of the partnership’s assessable
income) from the activity for that year.
(1) The rule in section 35-10 does not apply to a
*business activity for an income year if the
total *reduced cost bases of real property or
interests in real property used on a continuing basis in carrying on the
activity in that year is at least $500,000.
(2) You may use the market value of the real property or interest if that
value is more than its *reduced cost
base.
(3) The *reduced cost base or market
value is worked out:
(a) as at the end of the income year; or
(b) if you stopped carrying on the
*business activity during the year:
(i) as at the time you stopped; or
(ii) if you disposed of the asset before that time in the course of
stopping carrying on the activity—as at the time you disposed of
it.
(4) However, these assets are not counted for this test:
(a) a *dwelling, and any adjacent land
used in association with the dwelling, that is used mainly for private
purposes;
(b) fixtures owned by you as a tenant.
(1) The rule in section 35-10 does not apply to a
*business activity for an income year if the
total values of assets that are counted for this test (see subsections (2)
and (4)) and that are used on a continuing basis in carrying on the activity in
that year is at least $100,000.
(2) The assets counted for this test, and their values for this test, are
set out in this table:
|
Assets counted for this test and their values |
||
|---|---|---|
|
Item |
Asset |
Value |
|
1 |
An asset for which you can deduct an amount for depreciation |
The *written down value of the
asset |
|
2 |
An item of *trading stock |
Its value under subsection 70-45(1) |
|
3 |
An asset that you lease from another entity |
The sum of the amounts of the future lease payments for the asset to which
you are irrevocably committed, less an appropriate amount to reflect any
interest component for those lease payments |
|
4 |
Trademarks, patents, copyrights and similar rights |
Their *reduced cost base |
(3) The value of such an asset is worked out:
(a) as at the end of the income year; or
(b) if you stopped carrying on the
*business activity during the year:
(i) as at the time you stopped; or
(ii) if you disposed of the asset before that time in the course of
stopping carrying on the activity—as at the time you disposed of
it.
(4) However, these assets are not counted for this test:
(a) assets that are real property or interests in real property that are
taken into account for that year under section 35-40;
(b) *cars, motor cycles and similar
vehicles.
If an asset that is being taken into account under section 35-40 or
35-45 is used during an income year partly in carrying on the relevant
*business activity and partly for other
purposes, only that part of its *reduced cost
base, market value or other value that is attributable to its use in carrying on
the business activity in that year is taken into account for that
section.
(1) The Commissioner may decide that the rule in section 35-10 does
not apply to a *business activity for one or
more income years if the Commissioner is satisfied that it would be unreasonable
to apply that rule because:
(a) the business activity was or will be affected in that or those income
years by special circumstances outside the control of the operators of the
business activity, including drought, flood, bushfire or some other natural
disaster; or
Note: This paragraph is intended to provide for a case where
a business activity would have satisfied one of the tests if it were not for the
special circumstances.
(b) the business activity has started to be carried on and:
(i) because of its nature, it has not yet satisfied one of the tests set
out in section 35-30, 35-35, 35-40 or 35-45; and
(ii) there is an objective expectation, based on evidence from independent
sources (where available) that, within a period that is commercially viable for
the industry concerned, the activity will either meet one of those tests or will
produce assessable income for an income year greater than the deductions
attributable to it for that year (apart from the operation of subsection
35-10(2)).
Note: This paragraph is intended to cover a business
activity that has a lead time between the commencement of the activity and the
production of any assessable income. For example, an activity involving the
planting of hardwood trees for harvest, where many years would pass before the
activity could reasonably be expected to produce income.
(2) The Commissioner must not exercise the discretion under
paragraph (1)(b) for a *business activity
at a time after the earlier of:
(a) the time at which it would be reasonable to expect the activity to
first produce assessable income for an income year greater than the deductions
attributable to it for that year (apart from the operation of subsection
35-10(2)); or
(b) the time at which it would be reasonable to expect the activity to
meet one of the tests set out in section 35-30, 35-35, 35-40 or
35-45.
4 Application of amendments
The amendments made by this Schedule apply to assessments for the 2000-01
income year and later income years.
Part 1—Expenditure
on and after 11 November 1999
Income Tax Assessment Act
1936
1 Subsection 82KZL(1)
Insert:
approved stock exchange has the meaning give by
section 470.
2 Subsection 82KZL(1)
Insert:
associate has the meaning given by
section 318.
3 Subsection 82KZMA(1)
(note)
Omit “Note”, substitute “Note 1”.
4 At the end of subsection
82KZMA(1)
Add:
Note 2: Sections 82KZME and 82KZMF also cover
expenditure with an eligible service period of up to 13 months under some
managed agreements. If those sections apply, sections 82KZMB and 82KZMC do
not: see subsection 82KZMF(3).
5 Subsection 82KZMB(1)
(note)
Omit “Note”, substitute “Note 1”.
6 At the end of subsection
82KZMB(1)
Add:
Note 2: Section 82KZMF may apply instead of this
section for expenditure incurred under some managed agreements.
7 After section 82KZMD
Insert:
(1) Section 82KZMF applies to set the amount and timing of deductions
for expenditure that a taxpayer incurs in a year of income (the
expenditure year) if:
(a) apart from sections 82KZMB, 82KZMC and 82KZMF, the taxpayer could
deduct the expenditure under section 8-1 of the Income Tax Assessment
Act 1997 for the expenditure year; and
(b) the eligible service period for the expenditure ends not more than 13
months after the taxpayer incurs the expenditure; and
(c) the requirements of subsections (2) and (3) are met.
Note 1: Subsection 82KZL(1) explains what the eligible
service period for expenditure is.
Note 2: There are some exceptions: see subsections (5),
(6), (7), (8) and (9).
Note 3: If section 82KZMF applies to the expenditure,
sections 82KZMB and 82KZMC do not: see subsection
82KZMF(3).
General requirements for expenditure
(2) The expenditure must be incurred:
(a) after 1 pm (by legal time in the Australian Capital Territory) on
11 November 1999 under an agreement; and
(b) in return for the doing of a thing under the agreement that is not to
be wholly done within the expenditure year.
Requirements for agreement
(3) There are these requirements for the agreement:
(a) the taxpayer’s allowable deductions for the expenditure year
that are attributable to the agreement must exceed the taxpayer’s
assessable income (if any) for the expenditure year that is attributable to the
agreement; and
(b) the taxpayer does not have day to day control over the operation of
the agreement (whether or not the taxpayer has the right to be consulted or give
directions); and
(c) at least one of these must be satisfied:
(i) there is more than one participant in the agreement in the same
capacity as the taxpayer;
(ii) the person who manages, arranges or promotes the agreement, or an
associate of that person, manages, arranges or promotes similar agreements for
other taxpayers.
Activities that relate to the agreement
(4) Without affecting the operation of any other section in this
Subdivision, an agreement referred to in this section includes all activities
that relate to the agreement, including those that give rise to deductions or
assessable income.
Exception 1: certain negatively geared investments
(5) The expenditure must not be:
(a) a premium for building insurance, contents insurance or rent
protection insurance; or
(b) interest on money borrowed to acquire:
(i) real property or an interest in real property; or
(ii) shares that are listed for quotation in the official list of an
approved stock exchange; or
(iii) units in a trust that has at least 300 beneficiaries and is a widely
held unit trust as defined in section 272-105 in
Schedule 2F;
where:
(c) the taxpayer has obtained, or can reasonably be expected to obtain,
rent, dividends or trust income from the agreement; and
(d) the taxpayer has not obtained and will not obtain any other kind of
assessable income from the agreement (except a capital gain or an insurance
receipt); and
(e) all aspects of the agreement have been conducted at arm’s
length.
Exception 2: infrastructure borrowings
(6) The expenditure must not be interest for an infrastructure borrowing
as defined in subsection 93D(1) of the Development Allowance Authority Act
1992 where the lender is entitled to a taxation concession under
Division 16L of this Part of this Act.
Exception 3: expenditure is excluded expenditure
(7) The expenditure must not be excluded expenditure (see subsection
82KZL(1)).
Exception 4: expenditure meets a pre-existing obligation
(8) The expenditure by the taxpayer must not meet a contractual obligation
that:
(a) exists under an agreement at or before 1 pm (by legal time in the
Australian Capital Territory) on 11 November 1999; and
(b) requires the payment of an amount for the doing of a thing under the
agreement; and
(c) requires the payment to be made before the doing of the thing;
and
(d) cannot be escaped by unilateral action by the taxpayer.
Exception 5: agreement to which a product ruling applies
(9) The expenditure must not be under an agreement to which a product
ruling applies, describing expenditure under the agreement as being allowable as
a deduction.
(10) The product ruling must be made:
(a) on or before 1 pm (by legal time in the Australian Capital Territory)
on 11 November 1999; or
(b) in response to an application for a product ruling where:
(i) the application was received by the Commissioner on or before the time
specified in paragraph (a); and
(ii) the Commissioner acknowledged receiving the application.
(11) In this section:
product ruling means a public ruling made under
Part IVAAA of the Taxation Administration Act 1953 about a
particular investment product.
(1) If this section applies to expenditure incurred by a taxpayer in a
year of income:
(a) the taxpayer cannot deduct all of the expenditure for the expenditure
year; and
(b) instead, the taxpayer can deduct, for each year of income during which
part of the eligible service period for the expenditure occurs, an amount worked
out using this formula:
(2) This section has effect:
(a) despite section 8-1 of the Income Tax Assessment Act 1997;
and
(b) subject to Division 245 of Schedule 2C to this
Act.
(3) If this section applies to expenditure incurred by a taxpayer,
sections 82KZMB and 82KZMC do not apply to it.
Part 2—2002
and later expenditure
Income Tax Assessment Act
1936
8 Paragraph 82KZME(1)(a)
Omit “sections 82KZMB, 82KZMC and 82KZMF”, substitute
“section 82KZMF”.
9 Subsection 82KZME(1) (note
3)
Repeal the note.
10 Subsection 82KZMF(3)
Repeal the subsection.
11 Application of
amendments
(1) The amendments made by Part 1 of this Schedule apply to:
(a) expenditure incurred by a taxpayer after 1 pm (by legal time in the
Australian Capital Territory) on 11 November 1999; and
(b) the taxpayer’s assessments for the year of income including that
day and for later years of income.
(2) The amendments made by Part 2 of this Schedule apply to
expenditure incurred by a taxpayer in a year of income after the
taxpayer’s year of income that includes 21 September 2002.