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2008
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TAX LAWS AMENDMENT (2008 MEASURES No. 1) BILL 2008
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary 1
General outline and financial impact 3
Chapter 1 Contributions to political parties 7
Chapter 2 Superannuation lump sum paid to a person with a terminal
medical condition 11
Chapter 3 Capital expenditure for the establishment of trees in carbon
sink forests 13
Chapter 4 Extension of the beneficiary tax offset to the Equine Workers
Hardship Wage Supplement Payment 31
Chapter 5 Tax-free grants for certain tobacco growers 35
Chapter 6 Farm management deposits 39
Index 43
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
|Abbreviation |Definition |
|CGT |capital gains tax |
|Commissioner |Commissioner of Taxation |
|FMD |farm management deposit |
|ITAA 1936 |Income Tax Assessment Act |
| |1936 |
|ITAA 1997 |Income Tax Assessment Act |
| |1997 |
|Newstart |Newstart Allowance |
|the Supplement |Equine Workers Hardship Wage |
| |Supplement Payment |
General outline and financial impact
Contributions to political parties
Schedule 1 to this Bill amends the Income Tax Assessment Act 1997
and the Income Tax Assessment Act 1936 to remove tax deductibility
for contributions and gifts to political parties, members and
candidates.
Date of effect: This measure applies to contributions and gifts
made on or after 1 July 2008.
Proposal announced: The Government made an election commitment to
remove tax deductibility for political donations in Labor's $3
Billion Savings Plan announced on 2 March 2007.
Financial impact: This measure will have these revenue
implications:
|2008-09 |2009-10 |2010-11 |2011-12 |
|- |$10.1m |$10.3m |$11.0m |
Compliance cost impact: Nil.
Superannuation lump sum paid to a person with a terminal medical condition
Schedule 2 to this Bill amends the Income Tax Assessment Act 1997
and the Income Tax (Transitional Provisions) Act 1997 so that a
superannuation lump sum paid to a person who has a terminal medical
condition is tax free.
Date of effect: These amendments apply to payments made on or
after 1 July 2007. As the amendments remove tax on the affected
payments, the retrospective application of the changes will not
disadvantage taxpayers.
Proposal announced: This measure was originally announced in the
then Minister for Revenue and Assistant Treasurer's Press Release
No. 111 of 11 September 2007.
Financial impact: This measure will have these revenue
implications:
|2007-08 |2008-09 |2009-10 |2010-11 |
|-$20m |-$25m |-$25m |-$25m |
Compliance cost impact: Negligible.
Capital expenditure for the establishment of trees in carbon sink forests
Schedule 3 to this Bill amends Division 40 of the Income Tax
Assessment Act 1997 to provide a deduction for capital expenditure
for the establishment of trees in carbon sink forests.
Expenditure incurred on establishing trees in a carbon sink forest
will be immediately deductible in the period 2007-08 to 2011-12.
After this initial period, establishment expenditure will be
deductible under a write-off rate of 7 per cent per annum.
During both the initial period and after, the conditions for the
deduction will be analogous with the horticultural plant
provisions.
Date of effect: Amendments provided for the income years 2007-08
to 2011-12 (inclusive) apply to the 2007-08 income year and later
income years.
Amendments provided for the income year 2012-13 and later years
apply to the 2012-13 income year and later income years.
Proposal announced: This measure was announced in the then
Treasurer's Press Release No. 39 of 8 May 2007.
Financial impact: This measure will have these revenue
implications:
|2007-08 |2008-09 |2009-10 |2010-11 |
|- |-$4.65m |-$8.53m |-$11.13m |
Compliance cost impact: Low.
Extension of the beneficiary tax offset to the Equine Workers Hardship Wage
Supplement Payment
Schedule 4 to this Bill amends the Income Tax Assessment Act 1936
and the Income Tax Assessment Act 1997 to extend eligibility for
the beneficiary tax offset to individuals in receipt of the Equine
Workers Hardship Wage Supplement Payment (the Supplement).
Date of effect: The beneficiary tax offset applies to payment of
the Supplement made during the 2007-08 income year and later income
years.
Proposal announced: This measure was part of a broader
Equine Influenza assistance package which was announced in the
then Minister for Agriculture, Fisheries and Forestry's Press
Release No. DAFF07/136PM of 9 September 2007.
Financial impact: Nil.
Compliance cost impact: Negligible.
Tax-free grants for certain tobacco growers
Schedule 5 to this Bill amends the Income Tax Assessment Act 1997
to provide tax-free grants, under the Tobacco Growers Adjustment
Assistance Programme 2006, to tobacco growers who undertake to exit
all agricultural enterprises for at least five years.
Date of effect: This measure will apply to all relevant payments
made in the 2006-07 and later income years.
Proposal announced: This measure was announced in the 2007-
08 Budget.
Financial impact: This measure will have a cost to revenue of
$1.3 million in each of the 2007-08 and 2008-09 income years.
Compliance cost impact: Negligible.
Farm management deposits
Schedule 6 to this Bill amends the farm management deposit scheme
in the Income Tax Assessment Act 1936 to align the tax law with the
guidelines for declaring either all primary producers in a
geographical area, or specified classes of primary producers within
a geographical area, to be in exceptional circumstances.
Date of effect: This measure will commence from 1 July 2002. This
will ensure that those taxpayers that were previously disadvantaged
by this inconsistency get the opportunity to receive the tax
benefit.
Proposal announced: This amendment was previously introduced into
the House of Representatives on 13 September 2007 as part of the
Tax Laws Amendment (2007 Measures No. 6) Bill 2007.
Financial impact: The revenue cost of this measure is expected to
be nil. However, there may be a small cost to revenue if taxpayers
need to amend their prior tax assessments.
Compliance cost impact: Nil.
Chapter 1
Contributions to political parties
Outline of chapter
1. Schedule 1 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) and the Income Tax Assessment Act 1936 (ITAA 1936) to
remove tax deductibility for contributions or gifts to political
parties, members and candidates.
Context of amendments
2. Subject to certain conditions, contributions or gifts of money or
property to political parties, independent members and independent
candidates are tax deductible up to a maximum of $1,500.
Summary of new law
3. These amendments remove the ability for taxpayers to claim specific
deductions for contributions and gifts to political parties and
independent members and candidates.
4. These amendments also remove general deductions for business
taxpayers for contributions and gifts to political parties, members
and candidates. They also preclude such contributions or gifts
from forming part of the cost base or reduced cost base of any
capital gains tax (CGT) asset. These changes do not affect the
principle found in the general tax deduction provision that
individuals should be able to claim a deduction where the
contribution is related to their employment.
5. This measure applies in relation to contributions and gifts made on
or after 1 July 2008.
Comparison of key features of new law and current law
|New law |Current law |
|Division 30 of the ITAA |Division 30 of the ITAA |
|1997 does not allow |1997 allows deductions |
|deductions for |for contributions and |
|contributions and gifts |gifts to political |
|to political parties and |parties and to |
|to independent candidates|independent candidates |
|and independent members. |and independent members. |
|Only employees or office |Taxpayers may claim |
|holders may claim |political gifts and |
|deductions for political |contributions incurred in|
|gifts and contributions |earning assessable income|
|incurred in earning |or carrying on a business|
|assessable income as a |as a general deduction. |
|general deduction. Also,| |
|taxpayers who are not | |
|employees or office | |
|holders cannot include | |
|political contributions | |
|or gifts in the cost base| |
|or reduced cost base of | |
|any CGT asset. | |
Detailed explanation of new law
6. Various references to political gifts and contributions are removed
from Division 30, including repealing the main provisions in
Subdivision 30-DA. As a result, gifts and contributions made by
taxpayers (including those for membership fees) to political
parties, independent members and independent candidates are no
longer deductible under these provisions. [Schedule 1, items 4 to
10, Subdivision 30-DA, subsections 30-5(1), 30-15(2) and item 87 in
the table in subsection 30-315(2)]
1.
Mary wishes to support a registered political party, and
consequently makes a $1,000 gift to the party. The gift is
not deductible.
2.
Bob earns his income by being employed as an engineer and is
a member of a political party for which he pays $50 a year
in membership fees. The membership payment is not incurred
in earning his assessable income, and is therefore not
deductible.
7. Division 26 of the ITAA 1997 sets out amounts that cannot be
deducted, or deducted in full, from assessable income. To ensure
that a deduction is not available:
. a section is added to Division 26 to deny taxpayers who
are not employees or office holders from deducting
contributions and gifts to political parties, members and
candidates under other parts of the Act, including the
general deduction provision in section 8-1 of the ITAA
1997. The general deduction provision allows deductions
for losses or outgoings to the extent that they are
incurred in gaining or producing assessable income, or
necessarily incurred in carrying on a business for the
purposes of gaining or producing assessable income. This
amendment applies to gifts and contributions to parties,
members and candidates at the federal, state and local
government level; and
. the CGT provisions are amended so that such expenses also
do not form part of the cost base or reduced cost base for
capital gains purposes. This ensures that no capital loss
or reduced capital gain can arise from such contributions
or gifts.
[Schedule 1, items 3, 11 and 12, section 26-22, subsections 110-
38(6) and 110-55(9F)]
1.
XYZ Ltd is a proof reading company specialising in political
publications. XYZ Ltd is looking to maintain its corporate
profile, and to this end makes contributions to political
parties. This amendment ensures that XYZ Ltd is unable to
claim these contributions under section 8-1 as a loss or
outgoing necessarily incurred in carrying on its business or
for the purpose of gaining or producing its assessable
income.
8. The existing general tax deduction provision continues to apply to
employees and office holders. Contributions to political parties
remain deductible provided that they meet the general deduction
requirements of section 8-1. In other words, a deduction will be
available where the amount contributed is incurred in gaining or
producing assessable income (similar to an accountant being
eligible for a deduction for annual subscriptions paid to a society
of accountants). The new Division does not seek to extend the
ordinary deduction requirements of section 8-1. [Schedule 1,
item 3, section 26-22]
1.
A Member of Parliament pays a compulsory levy to retain
their party membership. This would generally be deductible
under section 8-1.
2.
A Member of Parliament pays for a ticket to attend a
fundraising event hosted by their party where a substantial
sit-down dinner is provided. The ticket price generally
would not be deductible under section 8-1.
Application and transitional provisions
9. These amendments apply to contributions and gifts made on or after
1 July 2008. [Schedule 1, item 15]
Consequential amendments
10. The reference to contributions to political parties in the non-
operative index of provisions about deductions is amended to refer
to the new section in Division 26. [Schedule 1, item 2, section 12-
5]
11. The references to 'independent candidate' and 'independent member'
are repealed from the ITAA 1997 Dictionary. [Schedule 1, items 13
and 14, definition of 'independent candidate' and 'independent
member' in subsection 995-1(1) of the ITAA 1997]
12. The provisions for tax deductions for political donations were
expanded by the Electoral and Referendum Amendment (Electoral
Integrity and Other Measures) Act 2006. Among other things, the
amendments provided for additional deductions for contributions and
gifts to independent candidates and independent members.
Consequently, minor amendments were made to subsection 78A of the
ITAA 1936 (which denies deductions for certain gifts) to cover
individuals who were able receive tax deductible donations. These
minor amendments are reversed. [Schedule 1, item 1, subsections
78A(2), (3) and (4) of the ITAA 1936]
Chapter 2
Superannuation lump sum paid to a person with a terminal medical condition
Outline of chapter
13. Schedule 2 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) and the Income Tax (Transitional Provisions) Act 1997
so that a superannuation lump sum paid to a person who has a
terminal medical condition is tax free.
Context of amendments
14. The taxation treatment of a superannuation lump sum payment differs
depending on the age of the recipient and whether the payment is
from a taxed or an untaxed source. For example, superannuation
lump sums paid to members of taxed schemes below preservation age
are taxed at a maximum rate of 21.5 per cent (inclusive of the
Medicare levy). For members of untaxed schemes below preservation
age, superannuation lump sums are taxed at a maximum rate of 31.5
per cent up to $1 million, and at the top marginal rate plus the
Medicare levy for amounts above $1 million.
15. These amendments provide that a superannuation lump sum paid from
either a taxed or an untaxed source to a person with a terminal
medical condition is tax free.
Summary of new law
16. Section 303-10 is inserted into Division 303 of the ITAA 1997 with
the effect that a superannuation lump sum paid to a person with a
terminal medical condition is non-assessable and non-exempt income.
Comparison of key features of new law and current law
|New law |Current law |
|A superannuation lump sum|The taxation treatment of|
|paid to a member in |a superannuation lump sum|
|respect of whom a |payment to a fund member |
|terminal medical |differs depending on the |
|condition exists is |age of the member and |
|non-assessable and |whether the payment is |
|non-exempt income. |from a taxed or an |
| |untaxed source. |
Detailed explanation of new law
17. Division 303 of the ITAA 1997 deals with the taxation of
superannuation benefits paid in special circumstances. Section 303-
10 is inserted into Division 303 with the effect that a
superannuation lump sum member benefit received by a person is not
assessable income and is not exempt income if a 'terminal medical
condition' exists in relation to the person at the time they
receive the payment or within 90 days after they receive it. The
circumstances in which a 'terminal medical condition' will be taken
to exist in relation to a person will be prescribed in the Income
Tax Assessment Regulations 1997. [Schedule 2, item 2, section 303-
10 of the ITAA 1997, and item 3, definition of 'terminal medical
condition' in subsection 995-1(1) of the ITAA 1997]
18. A consequential amendment is made to section 11-55 of the ITAA 1997
to include a reference to section 303-10 in the list of non-
assessable non-exempt income provisions. [Schedule 2, item 1,
section 11-55 of the ITAA 1997]
Application and transitional provisions
19. The amendments made by this Schedule apply to payments made on or
after 1 July 2007. As the amendments remove tax on the affected
payments, the retrospective application of the changes will not
disadvantage taxpayers. [Schedule 2, item 5]
20. A transitional provision will apply for the 2007-08 financial year.
Under this transitional provision the 90-day period from when a
payment is received (referred to in section 303-10) can be extended
to 30 June 2008 if this results in a longer period. [Schedule 2,
item 2, note to section 303-10 of the ITAA 1997, and item 4,
section 303-10 of the Income Tax (Transitional Provisions) Act
1997]
Chapter 3
Capital expenditure for the establishment of trees in carbon sink forests
Outline of chapter
21. Schedule 3 to this Bill amends Division 40 of the Income Tax
Assessment Act 1997 (ITAA 1997) to provide a deduction for capital
expenditure for the establishment of trees in carbon sink forests.
Context of amendments
22. Carbon sink forests are forests which are established for the
primary and principal purpose of sequestering carbon from the
atmosphere. The carbon stored in the growing forest can then be
used for greenhouse gas abatement purposes.
23. The costs of establishing trees in a carbon sink forest are capital
in nature and income may be generated from exploiting rights over
the carbon sequestered in the trees. Currently the costs of
establishing trees in carbon sink forests are not deductible.
24. Capital expenditure for the establishment of trees in carbon sink
forests will be inserted as a separate Subdivision in Division 40
of the ITAA 1997. Division 40 provides for a uniform capital
allowances system. That system provides general rules that allow
deductions for the decline in value of depreciating assets based on
their effective lives. As well, Division 40 provides write-offs
for certain other capital expenditures, which do not result in a
taxpayer holding a depreciating asset, if that expenditure
satisfies certain specific conditions.
25. Proposed Subdivision 40-J will be inserted to allow a deduction for
capital expenditure for the establishment of trees in carbon sink
forests.
Summary of new law
26. Establishment expenditure will be immediately deductible for trees
established in carbon sink forests in the 2007-08 to 2011-12 income
years (inclusive). After this initial period, establishment
expenditure will be deductible over 14 years and 105 days at a rate
of 7 per cent per annum.
Comparison of key features of new law and current law
|New law |Current law |
|Establishment expenditure|Establishment expenditure|
|will be immediately |incurred on trees in |
|deductible for trees in |carbon sink forests is |
|carbon sink forests |currently not deductible |
|established in the |on revenue account, but |
|2007-08 to 2011-12 income|may form part of the cost|
|years (inclusive). After|base for the relevant |
|this initial period, |interest in land. |
|establishment expenditure| |
|will be deductible over | |
|14 years and 105 days at | |
|a rate of 7 per cent per | |
|annum. | |
Detailed explanation of new law
27. Proposed Subdivision 40-J will be inserted into Division 40 of the
ITAA 1997 to allow deductions for establishment expenditure on
trees in carbon sink forests.
Income years 2007-08 to 2011-12 (inclusive)
Who is entitled to the deduction?
28. Taxpayers carrying on a business can deduct capital expenditure
incurred on establishing trees in a carbon sink forest. The
requirement that taxpayers must be carrying on a business is
sufficiently broad to allow those businesses who wish to abate
their own greenhouse gas emissions via a carbon sink forest to be
eligible for the deduction. [Schedule 3, item 6, paragraphs 40-
1010(1)(a) to (c)]
29. The primary and principal purpose of establishing the trees must be
for carbon sequestration and can not include the purposes of
felling the trees or for using them in commercial horticulture.
This deduction will only apply to those taxpayers who establish
trees as part of a carbon sink forest. [Schedule 3, item 6,
paragraphs 40-1010(1)(d) and (e)]
1.
A company acquires land and plants trees for the primary and
principal purpose of carbon sequestration. The landholder
also runs a tourism business, taking advantage of the
spectacular location to run a bed and breakfast and
accompanying hiking tours. The hiking routes run through
the carbon sink forest to the edge of the property which
takes in the panoramic views.
The company will be entitled to deductions for expenditure
on establishing the carbon sink forest, as the primary and
principal purpose is one of carbon sequestration and the
secondary purpose of tourism is not an excluded purpose.
1.
A company specialises in the propagation of new species of
trees for the purpose of commercial horticulture. The
company acquires land and conducts 0.2 hectare test planting
of a new species of waterless trees. They plan to tend the
test planting for a number of years before the species will
be ready for commercial sale. The trees in the test
planting sequester carbon and the company decides to trade
in carbon credits to supplement the tending costs.
The company will not be entitled to any deduction under the
carbon sink forest provisions for establishing the trees as
their primary and principal purpose was not one of carbon
sequestration (see paragraph 40-1010(1)(d)). In addition,
the purpose of commercial horticulture is excluded under
subparagraph 40-1010(1)(e)(ii).
30. The deduction is not available for expenditure on establishing
trees in a carbon sink forest incurred by a managed investment
scheme or a forestry managed investment scheme. [Schedule 3, item
6, paragraph 40-1010(1)(f)]
31. This does not exclude a forestry manager entity from operating a
separate business of trading in carbon offsets generated from an
adjacent carbon sink forest.
32. A taxpayer can deduct the capital expenditure incurred on
establishing trees for the primary and principal purpose of carbon
sequestration if one of the following is satisfied:
. the taxpayer owns the trees and any holder of a lease,
lesser interest or licence relating to the land occupied
by the trees does not use the land for carbon
sequestration purposes [Schedule 3, item 6, subsection 40-
1005(5), item 1 in the table];
. the trees are attached to land that the taxpayer leases
(from anyone), or holds under a quasi-ownership right
granted by an exempt Australian or exempt foreign
government agency, and the lease or quasi-ownership right
entitles the taxpayer to use the land for carbon
sequestration. Further, if there is another entity that
holds a lesser interest or licence relating to the land,
that entity must not use the land for carbon sequestration
[Schedule 3, item 6, subsection 40-1005(5), item 2 in the
table]; or
. the taxpayer is the licensee relating to the land occupied
by the trees and uses the land for carbon sequestration
purposes as a result of that licence [Schedule 3, item 6,
subsection 40-1005(5), item 3 in the table].
33. Together, these rules ensure that the taxpayer who can claim the
deduction is the taxpayer with the least interest in the land who
is using the land for the primary and principal purpose of carbon
sequestration. This will ensure that only one taxpayer is entitled
to a deduction under section 40-1005 in respect of capital
expenditure in establishing trees in a carbon sink forest on a
given area of land.
1.
A company enters into a lease agreement with a landowner so
that the company can establish trees for the purpose of
carbon sequestration. The company then incurs expenditure
to establish trees which satisfy subsection 40-1010(2).
There is no other taxpayer that has a lesser interest in
that land who is using the land for the primary and
principal purpose of carbon sequestration. The company is
therefore eligible to claim a deduction for the trees
established on that land.
2.
Company A enters into a lease arrangement over 25 hectares
of land with a landholder. The lease enables company A to
use the land for the primary and principal purpose of carbon
sequestration. Company A also incurs capital expenditure on
the establishment of trees on 15 hectares of the land for
the primary and principal purpose of carbon sequestration.
Company A subsequently enters into an agreement with company
B to establish trees in a carbon sink forest on the other 10
hectares of land. Under the agreement company B is granted
a licence over those 10 hectares allowing it to use the land
and the trees for the primary and principal purpose of
carbon sequestration.
As company B is using the land and the trees for the primary
and principal purpose of carbon sequestration and it has the
least interest in the 10 hectares of land, company B
satisfies the conditions in the table in subsection 40-
1005(5).
Company B pays company A to establish the trees on the 10
hectares for which company B has the licence. The
expenditure incurred by company B is capital in nature. The
expenditure in relation to the trees is also covered under
section 40-1010. As company B has the least interest in
that land and is using the land for the primary and
principal purpose of carbon sequestration, it satisfies the
condition in the table in subsection 40-1005(5) for the
trees, and company B is able to claim the deduction for the
expenditure it incurred. Even if the expenditure incurred
by company A on establishing trees in the carbon sink forest
on the 10 hectares of land is capital in nature, company A
is not eligible for the deduction under section 40-1005 for
the establishment expenditure as company B has a lesser
interest in the 10 hectares of land and uses that land for
the principal and primary purpose of carbon sequestration by
the trees.
The expenditure incurred by company A in relation to the
trees on the 15 hectares is covered under section 40-1010.
As company A has a lease over the land on which it has
established the trees that enables it to use the land for
the primary and principal purpose of carbon sequestration
and there is no holder of a lesser interest in the land
company A satisfies a condition in the table in subsection
40-1005(5). Company A is therefore able to claim the
deduction for the expenditure it has incurred.
34. The amount of the deduction for an income year is the amount of the
expenditure incurred on establishing the trees. [Schedule 3, item
6, subsection 40-1005(2)]
Condition for deduction
35. The deduction is only available for expenditure incurred on
establishing trees in a forest that can achieve the characteristics
of a carbon forest sink forest. [Schedule 3, item 6, paragraph 40-
1010(1)(g)]
36. The trees, when established, must satisfy the following conditions:
. at the end of the income year, the trees occupy a
continuous land area in Australia of 0.2 hectares or more;
. at the time the trees are established, it is more likely
than not that they will:
- attain a crown cover of 20 per cent or more; and
- reach a height of at least two metres; and
. on 1 January 1990, the area occupied by the trees was
clear of other trees that:
- attained, or were more likely than not to attain, a
crown cover of 20 per cent or more; and
- reached, or were more likely than not to reach, a height
of two metres or more.
[Schedule 3, item 6, subsection 40-1010(2)]
1.
A company acquires 0.5 hectares of land suitable for growing
trees for the purpose of establishing carbon sink forests in
the 2008-09 income year. The company establishes a plot of
trees covering a geographically connected 0.3 hectare land
area and another geographically separated plot of trees
covering a 0.1 hectare land area in the 2008-09 income year.
The plot of trees covering the 0.1 hectare land area does
not satisfy the condition in paragraph 40-1010(2)(a). The
plot of trees covering the 0.3 hectare land area does
satisfy the condition in paragraph 40-1010(2)(a).
As a result, the company will be able to claim a deduction
for the capital expenditure incurred on establishing the 0.3
hectares of trees (as long as the trees will satisfy the
remaining conditions in subsection 40-1010(2)), but will not
be able to claim a deduction for the second plot (the 0.1
hectares).
2.
Continuing Example 1.5, the company established the
remaining 0.1 hectare of land in the 2009-10 income year.
This planting will be geographically connected to the
planting that occurred in the 2008-09 income year (the other
0.1 hectare of land referred to in Example 1.5). As a
result, the 0.2 hectare of trees satisfy the condition in
paragraph 40-1010(2)(a) and will be considered a carbon sink
forest, assuming all other conditions in subsection 40-
1010(2) are met, for the carbon sink forest.
The company will be entitled to a deduction under
subsection 40-1005(1) for capital expenditure the company
incurred on establishing the second plot (regardless of what
year the costs were incurred).
The deduction for capital expenditure on establishing a
carbon sink forest will not be available until subsection 40-
1010(2) is satisfied.
37. Australia is a party to the Kyoto Protocol to the United Nations
Framework Convention on Climate Change. Australia has a target
under the Kyoto Protocol to limit emissions to 108 per cent of 1990
levels over the period 2008 to 2012, and follows internationally
agreed rules in accounting for progress towards this target. The
conditions in paragraphs 40-1010(2)(a) to (c) align with the
criteria for carbon sink forest activities that can contribute to
Australia's greenhouse gas target. This ensures that the tax
deduction encourages the establishment of forests that can
contribute to Australia's target.
38. The establishment of the trees must meet the requirements of
the Environmental and Natural Resource Management Guidelines
issued by legislative instrument, by the 'Climate Change Minister'
(see paragraph 3.43). [Schedule 3, item 6, paragraph 40-1010(2)(d)
and subsection 40-1010(3)]
When the deduction is available
39. For trees established wholly within an income year, the deduction
is available in the income year the trees are established and if
subsection 40-1010(2) is met. [Schedule 3, item 6, paragraphs 40-
1010(1)(a) to (g)]
40. Where some or all of the trees are established after the end of the
income year, but within the first four months of the following
income year, expenditure incurred in the previous income year is
immediately deductible. [Schedule 3, item 6, subsection 40-
1005(3)]
41. Expenditure incurred in the four months from the end of the income
year will be deductible in the year it is incurred. [Schedule 3,
item 6, subsection 40-1005(1)]
42. Deductions for any prepayment of expenditure that would be incurred
in the four months from the end of the income year are still
subject to Subdivision H of Division 3 of the Income Tax Assessment
Act 1936.
1.
A company acquires 0.5 hectares of land suitable for growing
trees for the purpose of establishing carbon sink forests in
the 2008-09 income year. The company establishes a plot of
trees covering a geographically connected 0.3 hectare land
area and another geographically separated plot of trees
covering a 0.1 hectare land area in the 2008-09 income year.
The plot of trees covering the 0.1 hectare land area does
not satisfy the condition in paragraph 40-1010(2)(a), at the
end of the income year. The plot of trees covering the 0.3
hectare land area does satisfy the condition in paragraph 40-
1010(2)(a).
However, in the four months after the 2008-09 income year,
the company completes the 0.1 hectares that connects both
the first 0.1 hectare and the 0.3 hectare plantings,
resulting in a total of the 0.5 hectares as one planting.
As such, all costs incurred until the end of the 2008-09
income year are deductible in the 2008-09 income year. The
costs incurred in the four months after the end of the
income year are deductible at the end of the 2009-10 year.
2.
A company acquires 0.5 hectares of land suitable for growing
trees for the purpose of establishing carbon sink forests in
the 2008-09 income year. The company establishes a plot of
trees covering a geographically connected 0.3 hectare land
area and another geographically separated plot of trees
covering a 0.1 hectare land area in the 2008-09 income year.
The plot of trees covering the 0.1 hectare land area does
not satisfy the condition in paragraph 40-1010(2)(a). The
plot of trees covering the 0.3 hectare land area does
satisfy the condition in paragraph 40-1010(2)(a).
The remaining 0.1 hectare is established after the four-
month period at the end of the 2008-09 income year (ie, late
in the 2009-10 income year) and therefore does not satisfy
the four-month rule. This leads to the 0.1 hectare
established up until the 2008-09 income year and the new 0.1
hectare just planted, satisfying subsection 40-1010(2) at
the end of the 2009-10 income year.
The costs incurred in the 2008-09 income year on the 0.1
hectares as well as the additional 0.1 hectares established
in the 2009-10 income year, will be deductible at the end of
the 2009-10 income year.
43. Where a deduction has been claimed because trees are established in
the first four months of a new income year and further trees are
established before the end of that same income year, the initial
planting must be ignored for the purposes of calculating whether
the trees occupy the size requirement in paragraph 40-1010(2)(a).
[Schedule 3, item 6, subsection 40-1005(4)]
1.
A company acquires three hectares of land suitable for
growing trees for the purpose of establishing carbon sink
forests in the 2008-09 income year. The company establishes
a plot of trees covering a geographically connected 0.1
hectare land area in the 2008-09 income year.
However, in the four months after the 2008-09 income year,
the taxpayer completes a further 0.1 hectares that connects
the 0.2 hectares as one planting. As such, all costs
incurred until the end of the 2008-09 income year are
deductible in the 2008-09 income year. The costs incurred
in the four months after the end of the income year are
deductible at the end of the 2009-10 income year.
Over the remaining months in the income year, the company
establishes the remaining 2.8 hectares. The costs of the
final 2.8 hectares are deductible in the 2009-10 income
year. This final 2.8 hectares is considered to be a
separate planting for the purposes of the 0.2 hectare
requirement in paragraph 40-1010(2)(a).
Notice of establishment
44. The owner of the trees must give a notice to the Commissioner of
Taxation (Commissioner) providing all information necessary to
determine whether all conditions in subsection 40-1010(2) are met.
[Schedule 3, item 6, paragraph 40-1010(1)(h)]
45. The notice must be given to the Commissioner no later than the
earlier of:
. the lodgment of the taxpayer's income tax return; or
. five months after the end of the income year.
[Schedule 3, item 6, subsection 40-1010(4)]
46. The notice may include, but is not limited to:
. the Australian Business Number of the entity that gives
the form to the Commissioner;
. the latitude and longitude of a central point within the
area occupied by the trees, as determined by reference to
the Geocentric Datum of Australia;
. the species of trees established;
. the estimated number of trees established per hectare of
the area occupied by the trees;
. the rationale for the probability of meeting subsection 40-
1010(2); and
. the amount of expenditure incurred in establishing the
trees on the woodlot.
47. This notice will allow the Commissioner to seek confirmation from
the Secretary to the Department of Climate Change (Climate Change
Secretary - see paragraph 3.43) that the trees established will be
able to achieve the characteristics of a carbon sink forest.
[Schedule 3, item 6, subsection 40-1010(8)]
48. However, the Climate Change Secretary must give the Commissioner a
notice if the Climate Change Secretary is satisfied that one or
more characteristics of a carbon sink forest has not been met or
may not be met [Schedule 3, item 6, subsection 40-1010(5)]. The
characteristics of a 'carbon sink forest' are defined in paragraphs
3.15 to 3.18.
49. No deduction can be claimed if the Climate Change Secretary is not
satisfied that subsection 40-1010(2) has been, or will be, met and
has given the Commissioner a notice stating this. [Schedule 3,
item 6, subsections 40-1010(5) and (6)]
50. A taxpayer may apply to the Administrative Appeals Tribunal for a
review of a decision taken by the Climate Change Secretary in
relation to the notice provided to the Commissioner. [Schedule 3,
item 6, subsection 40-1010(7)]
51. The Climate Change Secretary is required to provide the taxpayer a
copy of the notice under section 27A of the Administrative Appeals
Tribunal Act 1975.
52. This notice will ensure that a deduction is only available in
respect of trees that can achieve the characteristics of a carbon
sink forest.
Establishment expenditure
53. Establishment expenditure is expenditure incurred on establishing
trees for the purpose of carbon sequestration. [Schedule 3,
item 6, paragraph 40-1010(1)(d)]
54. Establishment occurs when the trees are planted, grown from seed or
deliberately regenerated from natural seed sources in their long-
term growing medium, in the ground, in a permanent way.
55. Carbon sequestration by a tree or forest means the process by which
the tree or forest absorbs carbon dioxide from the atmosphere
[Schedule 3, item 6, section 40-1015]. An amendment to subsection
995-1(1) is also made to include this definition [Schedule 3, item
8, definition of 'carbon sequestration' in subsection 995-1(1) of
the ITAA 1997].
56. The costs of establishing trees for the purpose of carbon
sequestration may include the following:
. the costs of acquiring the trees or seeds;
. the costs of planting the trees or seeds;
. the costs of pots and potting mixtures where the potted
plants are being nurtured prior to being established in
their long term growing medium, in the ground, in a
permanent way;
. the costs incurred in grafting trees and germinating
seedlings;
. the costs of allowing seeds to germinate (whether by
broadcasting, deliberate regeneration or planting seeds
directly);
. any costs incurred on preparing to plant which may, in
some cases, include that part of the costs of ploughing,
scarifying, contouring, top dressing, fertilising, weed
spraying, stone removal, and top soil enhancement that is
for the purpose of establishing trees for carbon
sequestration; and
. the costs of surveying the planted area.
57. Establishment expenditure incurred on establishing trees for the
purpose of carbon sequestration does not include expenditure on
other plants (eg, trees for felling, horticultural plants).
However where trees are used for associated purposes, for example,
companion planting for the purpose of carbon sequestration, then
expenditure incurred in establishing those trees will fall within
the operation of proposed Subdivision 40-J.
58. Establishment expenditure does not include expenditure incurred in
draining swamps or low-lying land or on clearing land. [Schedule
3, item 6, section 40-1020]
59. Expenditure on assets separate from the trees is not considered to
be establishment expenditure. Examples of this include:
. fencing;
. water facilities for the trees in the carbon sink forest;
. roads within the forest; and
. fire breaks.
60. Expenditure incurred on rights that allow access to land or for
carbon credits to be traded in the future is not considered to be
establishment expenditure. Even though this expenditure may be
incurred at the time of establishment, it is not considered to have
a sufficient nexus for a direct expense to be incurred on
establishing the trees. Examples of these costs include the costs
of acquiring a right to enter land and establish the forest
(commonly known as forestry rights) and the costs of acquiring the
right to create a carbon credit (commonly known as carbon
sequestration rights).
61. Nothing in this measure denies a taxpayer access to other
provisions in the tax law that may provide deductions for
expenditure on failed projects.
Non-arm's length transactions
62. The amount of capital expenditure on which a deduction is based
cannot exceed the market value of what the expenditure was for, if
any of the parties to an arrangement under which the expenditure is
incurred are not dealing at arm's length. [Schedule 3, item 6,
section 40-1025]
Climate Change Minister and Climate Change Secretary
63. An amendment is made to subsection 995-1(1) to include a definition
for the 'Climate Change Minister' and the 'Climate Change
Secretary'. The Climate Change Minister is the Minister
administering the National Greenhouse and Energy Reporting Act
2007. The Climate Change Secretary is the Secretary of the
Department that administers the National Greenhouse and Energy
Reporting Act 2007. [Schedule 1, items 9 and 10, definition of
'Climate Change Minister' and 'Climate Change Secretary' in
subsection 995-1(1) of the ITAA 1997]
Income year 2012-13 and later income years
Who is entitled to the deduction?
64. Taxpayers carrying on a business and who satisfy the conditions
outlined in paragraph 3.12 can deduct capital expenditure incurred
by them or another establishing entity on the establishment of
trees for the purpose of carbon sequestration. [Schedule 3, item
12, subsection 40-1005(1)]
65. The primary and principal purpose of establishing the trees must be
for carbon sequestration and can not include felling the trees or
using the trees in commercial horticulture. This deduction will
only apply to trees planted as part of a carbon sink forest.
[Schedule 3, item 12, paragraphs 40-1010(1)(d) and (e)]
66. The deduction is not available for expenditure incurred on trees in
a carbon sink forest by a managed investment scheme or a forestry
managed investment scheme. [Schedule 3, item 12, paragraph 40-
1010(1)(f)]
67. A forestry manager entity may operate a separate business of carbon
trading by establishing a qualifying carbon sink forest.
68. The trees must meet the conditions for deduction as outlined in
paragraphs 3.15, 3.16 and 3.18.
How is the deduction calculated?
69. The deduction is worked out using the following formula:
[pic]
[Schedule 3, item 12, subsection 40-1005(2)]
70. The types of expenditure included in establishment expenditure are
as set out in paragraphs 3.33 to 3.41.
71. The write-off days in income year is the number of days in the
income year starting on the first day of the income year in which
the trees are established and ending 14 years and 105 days later.
The first day of the income year is 1 July unless the taxpayer has,
or is transiting into or out of, a substituted accounting period.
[Schedule 3, item 12, subsection 40-1005(2)]
72. The number of write-off days does not include days in the income
year on which the taxpayer did not use the land for the purpose of
carbon sequestration by the trees, or did not meet the conditions
for the deduction as set out in paragraph 3.12. Therefore, if the
taxpayer sells their trees during the income year, the number of
write-off days in the income year does not include the days after
the sale of the trees. [Schedule 3, item 12, paragraph 40-
1005(2)(a)]
73. The write-off rate is constant at 7 per cent per annum.
[Schedule 3, item 12, subsection 40-1005(2)]
74. This deduction will allow a straight line write-off of 7 per cent
per income year over 14 years and 105 days. However, the taxpayer
is not able to deduct more than the total amount incurred on
establishing the trees. [Schedule 3, item 12, subsection 40-
1005(3)]
1.
Matthews Carbon Sinks Services Ltd establishes trees for the
purpose of carbon sequestration on 1 September 2012.
Matthews Carbon Sinks Services Ltd incurred establishment
expenditure of $400,000.
The allowable deduction for these trees is:
2012-13 income year
[pic]
[pic]
2013-14 income year
[pic]
2027-28 income year
As the write-off period is 14 years 105 days after the first
day of the income year in which the trees were established,
105 days are remaining in the 2027-28 income year.
[pic]
[pic]
That is, $8,000 as subsection 40-1005(3) limits the
deduction to the amount of capital expenditure incurred.
Notice of establishment
75. At the time the trees are established, the owner of the trees must
give a notice to the Commissioner. Further details are provided in
paragraphs 3.24 to 3.32.
Non-arm's length transaction
76. The amount of capital expenditure on which a deduction is based
cannot exceed the market value of what the expenditure was for, if
any of the parties to an arrangement under which the expenditure is
incurred are not dealing at arm's length. [Schedule 3, item 6,
section 40-1025]
Destruction of trees in a carbon sink forest
77. A taxpayer cannot claim the deduction for trees in a carbon sink
forest if the trees are destroyed. The number of write-off days
used in the formula in paragraph 3.51 will not include the days in
the income year after which the trees were destroyed.
78. However, an extra deduction for any undeducted establishment
expenditure will be allowed for an income year if the trees are
destroyed in an income year after they are established and the
write-off period has not ceased. [Schedule 3, item 20, section 40-
1030]
79. To work out the deduction, the first step is to calculate the total
amounts the taxpayer could have deducted for the trees for the
period that starts when the trees were established and ends when
they were destroyed. [Schedule 3, item 20, subsection 40-1030(2),
paragraphs (a) and (b) of step 1]
80. Secondly, subtract from the capital expenditure incurred for
establishing the trees, the result from step 1 as well as any
amount received for the destruction (such as the proceeds of an
insurance policy). The remaining amount is the deduction allowed
for the destruction. [Schedule 3, item 20, subsection 40-1030(2),
paragraphs (a) and (b) of step 2]
81. This deduction for destruction is in addition to any other
deduction for the trees for the income year under these provisions.
[Schedule 3, item 20, subsection 40-1030(3)]
1.
Matthews Carbon Sinks Services Ltd establishes trees for the
purpose of carbon sequestration on 1 September 2012.
Matthews Carbon Sinks Services Ltd incurred establishment
expenditure of $400,000.
On 8 February 2015, the trees are destroyed due to fire. An
insurance payout of $200,000 is received.
The deduction is worked out as follows:
Step 1
2012-13 income year
[pic]
2013-14 income year
[pic]
2014-15 income year
The trees are destroyed on 8 February. The number of days
in the 2014-15 income year that the expenditure can be
written off is 223 days:
[pic]
Total amount that could have been deducted = $73,107
Step 2
Establishment expenditure: $400,000
Less result from step 1: $73,107
Less any insurance moneys received: $200,000
Total deduction available for destruction of trees:
$126,893
This is in addition to the deduction of $17,107 the taxpayer
would have claimed for the trees for that income year.
82. If trees in a carbon sink forest, which received an immediate
deduction, are destroyed, no extra deduction can be obtained. This
is because the total amount of the establishment expenditure is
deducted in the income year in which it is incurred and there is no
undeducted establishment expenditure. Therefore, this extra
deduction for destruction is not available for trees established in
carbon sink forests that receive an immediate deduction in the 2007-
08 to 2011-12 income years (inclusive).
Obtaining information for the acquisition of trees in a carbon sink
forest
83. When a taxpayer acquires trees in a carbon sink forest from another
entity in circumstances that makes the taxpayer eligible to claim
the deduction, section 40-1035 will ensure sufficient information
is given to a taxpayer who acquired the trees in a carbon sink
forest from the last taxpayer who deducted an amount for this
capital expenditure. [Schedule 3, item 20, subsection 40-1035(1)]
84. The inclusion of amounts of establishment expenditure used by the
entity in calculating the deduction, as well as the period when the
deductions started in the calculations for the trees, must continue
to be applied by the taxpayer who acquired the trees.
85. The taxpayer who acquired the trees may, within 60 days of
satisfying a condition in subsection 40-1005(5), give a written
notice to the other entity seeking certain information [Schedule 3,
item 20, subsections 40-1035(2) and (3)]. Only one notice can be
served on the other entity [Schedule 3, item 20, subsection 40-
1035(8)]. The written notice must address the following matters:
. a request that the other entity provide information as to
the amount of establishment expenditure for the trees, and
the first day of the income year in which the trees were
established [Schedule 3, item 20, subsection 40-1035(2)];
. the other entity has at least 60 days in which to reply to
the taxpayer who acquired the trees [Schedule 3, item 20,
paragraph 40-1035(3)(b)]; and
. the notice must advise the other entity that failure to
comply with the request will subject the entity to a
penalty of 10 penalty units if the entity does not have a
reasonable excuse and fails or intentionally refuses to
comply with the notice [Schedule 3, item 20, subsection 40-
1035(4)].
86. Where the other entity is a partnership, the notice is properly
served where the taxpayer gives the notice to any one of the
partners of the partnership. [Schedule 3, item 20, paragraph 40-
1035(5)(a)]
87. The obligation to provide the information requested by the taxpayer
is imposed on each of the partners, not the partnership. In order
to discharge the obligation, any one of the partners may respond to
the request. [Schedule 3, item 20, paragraph 40-1035(5)(b)]
88. There is a penalty of 10 penalty units if a partner fails, or
intentionally refuses, to comply with the request for information
from the taxpayer. [Schedule 3, item 20, subsection 40-1035(6)]
Application and transitional provisions
89. Amendments provided for the income years 2007-08 to 2011-12
(inclusive) apply to the 2007-08 income year and later income
years. [Schedule 3, item 11]
90. Amendments provided for the income year 2012-13 and later years
apply to the 2012-13 income year and later income years.
[Schedule 3, item 21]
Consequential amendments
91. An amendment is made to subsection 40-50(1) to ensure that
expenditure for the establishment of trees in carbon sink forests
cannot be written off under Subdivision 40-B of the uniform capital
allowances provisions. [Schedule 3, item 4, subsection 40-50(1)]
92. An amendment is made to section 40-630 to ensure that trees in
carbon sink forests cannot be deducted under Subdivision 40-G of
the uniform capital allowances provisions. [Schedule 3, item 5,
subsection 40-630(2B)]
93. An amendment is made to section 70-120 to ensure that a taxpayer
cannot claim a deduction under the trading stock provisions for
felling a carbon sink forest. [Schedule 3, item 7, subsection 40-
120(5)]
94. Consequential amendments are made to paragraphs 40-1010(1)(b) to
(f), (h) and (4)(a) for changes to the write-off rate to 7 per cent
for the income year 2012-13 and later income years. [Schedule 3,
items 13 to 19]
95. Consequential amendments are made to the guide material in section
12-5 to reflect the introduction of this measure. [Schedule 3,
items 1 and 2, section 12-5, item in the table headed 'capital
allowances' and after the item in the table headed 'travel
expenses']
96. A consequential amendment is made to the simplified outline of
Division 40 to reflect the introduction of this measure. [Schedule
3, item 3, section 40-10, at the end of the table]
Chapter 4
Extension of the beneficiary tax offset to the Equine Workers Hardship Wage
Supplement Payment
Outline of chapter
97. Schedule 4 to this Bill amends the Income Tax Assessment Act 1936
(ITAA 1936) and the Income Tax Assessment Act 1997 (ITAA 1997) to
extend eligibility for the beneficiary tax offset to individuals in
receipt of the Equine Workers Hardship Wage Supplement Payment (the
Supplement).
Context of amendments
Equine Workers Hardship Wage Supplement Payment
98. The Supplement provides ex-gratia income support to individuals who
can demonstrate loss of their primary source of income, which is
derived from the commercial horse industry, as a direct result of
the Equine Influenza outbreak and its associated quarantine and
movement restrictions.
99. The Supplement was part of a broader Equine Influenza assistance
package which was announced on 9 September 2007.
100. The rates of the Supplement are equivalent to the single rate,
couple rate and single with dependent child rate of Newstart
Allowance (Newstart) depending on the applicant's circumstances.
Applicants must satisfy an income test but there are no assets or
activity tests.
Taxable status
101. It is a general principle of income tax law that any payment
received by a person as income support, or as a replacement for
lost salary, wages or other assessable income, is taxable.
Therefore, payments of the Supplement will be taxable in the hands
of the recipient as they will be treated as ordinary income.
102. Newstart is also a form of income support which is received as
ordinary income by the recipient. However, Newstart is a rebatable
benefit to which the beneficiary tax offset applies. This ensures
that any person who receives Newstart for the full year, and has no
other income, pays no tax on the Newstart income.
103. This amendment will extend the beneficiary tax offset to the
Supplement to ensure consistent taxation treatment with the
taxation treatment of Newstart.
Summary of new law
104. This measure amends:
. subsection 160AAA(1) of the ITAA 1936 to include the
Supplement in the definition of 'rebatable benefit' to
which the beneficiary tax offset applies; and
. section 13-1 of the ITAA 1997 to list the Supplement as a
payment that is allowed a tax offset.
Detailed explanation of new law
Include the Equine Workers Hardship Wage Supplement Payment in the
definition of rebatable benefit for beneficiary tax offset purposes
105. Subsection 160AAA(1) of the ITAA 1936 has a definition of
'rebatable benefit' for the purposes of the beneficiary tax offset.
Included in the definition of rebatable benefit are payments made
under provisions of the Social Security Act 1991 such as Newstart.
106. This amendment to subsection 160AAA(1) of the ITAA 1936 includes
the Supplement as a 'rebatable benefit' to which the beneficiary
tax offset applies. This ensures that taxpayers in receipt of the
Supplement are treated consistently with recipients of Newstart.
[Schedule 4, item 1, subsection 160AAA(1)]
107. Subsection 160AAA(3) of the ITAA 1936 provides that where a
taxpayer receives an amount of 'rebatable benefit' greater than the
tax-free threshold, the taxpayer may be entitled to a tax offset.
Include the Equine Workers Hardship Wage Supplement Payment in the
Division 13 guide of tax offsets
108. Section 13-1 of the ITAA 1997 lists payments that are allowed a tax
offset and the relevant provision of the ITAA 1936 or ITAA 1997
that provides that offset. Payments are listed under headings
classifying the type of payment.
109. The first amendment to section 13-1 of the ITAA 1997 will include
the Supplement in the list of payments that attract a tax offset
and direct readers to the item headed 'social security and other
benefit payments'. [Schedule 4, item 2, section 13-1]
110. The second amendment to section 13-1 lists the reference to the
Supplement under the item headed 'social security and other benefit
payments'. [Schedule 4, item 3, section 13-1]
Application and transitional provisions
111. These amendments apply to assessments for the 2007-08 income year
and later income years.
Chapter 5
Tax-free grants for certain tobacco growers
Outline of chapter
1. Schedule 5 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) to provide tax-free grants, under the Tobacco Growers
Adjustment Assistance Programme 2006, to tobacco growers who
undertake to exit all agricultural enterprises for at least five
years.
Context of amendments
112. On 26 October 2006, the then Minister for Agriculture, Fisheries
and Forestry announced that tobacco growers will receive up to
$150,000 from the Australian Government to assist them to move into
alternative business activities.
113. Generally, government grants paid to assist businesses to exit an
industry are assessable under the capital gains tax (CGT)
provisions, rather than as ordinary or statutory income.
114. The former Government decided to make the grants tax free for those
tobacco growers who undertake to exit all agricultural enterprises
for at least five years.
Summary of new law
115. This measure amends:
. section 53-10 of the ITAA 1997 to list the Tobacco Growers
Adjustment Assistance Programme 2006 grant as exempt
income; and
. subsection 118-37(1) of the ITAA 1997 to exempt the
Tobacco Growers Adjustment Assistance Programme 2006 grant
from CGT for Tobacco Growers Adjustment Assistance
Programme 2006 grant recipients who fulfil certain
conditions.
Detailed explanation of new law
The Tobacco Growers Adjustment Assistance Programme 2006 grant as exempt
income
116. Section 53-10 of the ITAA 1997 lists various payments which are
wholly or partly exempt from income tax. The exemptions may be
subject to certain conditions as listed within the section.
117. The amendment to section 53-10 of the ITAA 1997 ensures that the
Tobacco Growers Adjustment Assistance Programme 2006 grant is
exempt from income tax. [Schedule 5, item 3, section 53-10]
118. This exemption only applies to those recipients who undertake to
exit all agricultural enterprises for at least five years. This
provides certainty for those grant recipients who qualify for the
exemption.
The Tobacco Growers Adjustment Assistance Programme 2006 grant is exempt
from CGT
119. Subsection 118-37(1) of the ITAA 1997 lists various payments for
which capital gains and losses are disregarded for tax purposes.
120. The amendment to subsection 118-37(1) of the ITAA 1997 ensures that
the Tobacco Growers Adjustment Assistance Programme 2006 is exempt
from CGT. [Schedule 5, item 4, subsection 118-37(1)]
121. This exemption only applies to those recipients who undertake to
exit all agricultural enterprises for at least five years.
Application and transitional provisions
122. This measure applies to the 2006-07 and later income years.
[Schedule 5, item 5]
Consequential amendments
123. A reference to the Tobacco Growers Adjustment Assistance Programme
2006 grant is added to the table in section 11-15 of the ITAA 1997.
[Schedule 5, item 2]
124. The reference to 'sugar industry exit grants' is shifted from
section 11-10 to section 11-15 of the ITAA 1997. [Schedule 5,
items 1 and 2]
Chapter 6
Farm management deposits
Outline of chapter
125. Schedule 6 to this Bill amends the farm management deposit (FMD)
scheme in the Income Tax Assessment Act 1936 (ITAA 1936) to align
the tax law with the guidelines for declaring either all primary
producers in a geographical area, or specified classes of primary
producers within a geographical area, to be in exceptional
circumstances.
Context of amendments
126. Schedule 2G to the ITAA 1936 contains the provisions for FMDs. An
FMD is a tax-linked, financial risk management tool for eligible
primary producers. It is designed to allow eligible primary
producers to set aside income in profitable years for subsequent
withdrawal in low-income years. This reduces the risk to eligible
primary producers of income variability owing to factors such as
drought.
127. FMDs cannot be withdrawn within 12 months of the deposit other than
because the owner dies, becomes bankrupt, ceases to be an eligible
primary producer, or transfers their deposit to another financial
institution. Failure to comply with this rule may result in the
deposit not being treated as an FMD from the time the deposit was
made.
128. The FMD scheme provides an exception to the 12-month rule for
primary producers who conduct their primary production business
wholly or partly in exceptional circumstance areas. These persons
are able to withdraw deposits early and still retain the tax
benefit in the year of income in which the deposit was made. This
is subject to the exceptional circumstances declaration not being
in force when the deposit was made.
129. An exceptional circumstances declaration allows eligible primary
producers, who have an exceptional circumstances certificate,
access to their FMD within 12 months of deposit and the retention
of their tax benefits.
130. To confirm their exceptional circumstances status at the time of
the relevant withdrawal, the owner of the FMD will have until
three months after the end of the year of income, in which the
withdrawal was made, to obtain an exceptional circumstances
certificate from the Secretary of the Department of Families,
Housing, Community Services and Indigenous Affairs. This ensures
that primary producers will be able to take advantage of the
exceptional circumstances concession prior to the certificate
actually being issued.
131. A minor inconsistency exists under the current law, which denies
eligible primary producers the tax benefits of an FMD as a
consequence of withdrawing their FMD early. This inconsistency
exists because certain classes of primary producers are in an area
that has previously been declared in exceptional circumstances,
even though the exceptional circumstances declaration did not apply
to them because of their producer class.
Summary of new law
132. This measure will remove a minor inconsistency where an eligible
primary producer is denied the tax benefits as a consequence of
withdrawing their FMD early when they are in an area that has
previously been declared in exceptional circumstances, even though
the exceptional circumstances declaration did not apply to them
because of their producer class.
Comparison of key features of new law and current law
|New law |Current law |
|Eligible primary |Eligible primary |
|producers can retain the|producers can retain the|
|tax benefit when |tax benefit when |
|withdrawing from their |withdrawing from their |
|FMD within 12 months if,|FMD within 12 months if,|
|at the time of the |at the time of the |
|withdrawal, they: |withdrawal, they: |
|are eligible to be |are conducting a primary|
|issued an exceptional |production business in |
|circumstances |the geographical area |
|certificate; and |that is declared to be |
|made the FMD before the |in exceptional |
|exceptional |circumstances; and |
|circumstances |made the FMD before the |
|declaration applied to |exceptional |
|them. |circumstances |
| |declaration applied to |
| |their geographical area.|
Detailed explanation of new law
133. Eligible primary producers can retain the tax benefit in the year
the FMD is made, despite the withdrawal of all or part of their FMD
within 12 months if:
. the withdrawal is made in the year of income following the
year of income in which the deposit occurs;
. at the time of the withdrawal, the owner of the FMD is
eligible to be issued an exceptional circumstances
certificate in relation to their primary production
business;
. the owner of the FMD obtains an exceptional circumstances
certificate no later than three months after the year of
income of the withdrawal; and
. the owner made the deposit before the exceptional
circumstances declaration relating to that primary
production business was in force.
[Schedule 6, item 1, paragraphs 393-37(3)(b) to (d) in Schedule 2G
to the ITAA 1936]
1.
[pic]EC - exceptional circumstances
Application and transitional provisions
134. This measure will commence retrospectively from 1 July 2002. This
will ensure that those taxpayers that were previously disadvantaged
by this inconsistency get the opportunity to receive the tax
benefit, despite the early withdrawal of their FMD. [Schedule 6,
item 2]
Index
Schedule 1: Political contributions and gifts
|Bill reference |Paragraph |
| |number |
|Item 1, subsections 78A(2), (3) and (4) of |1.12 |
|the ITAA 1936 | |
|Item 2, section 12-5 |1.10 |
|Item 3, section 26-22 |1.8 |
|Items 3, 11 and 12, section 26-22, |1.7 |
|subsections 110-38(6) and 110-55(9F) | |
|Items 4 to 10, Subdivision 30-DA, |1.6 |
|subsections 30-5(1), 30-15(2) and item 87 in| |
|the table in subsection 30-315(2) | |
|Items 13 and 14, definition of 'independent |1.11 |
|candidate' and 'independent member' in | |
|subsection 995-1(1) of the ITAA 1997 | |
|Item 15 |1.9 |
Schedule 2: Superannuation lump sum paid to a member having a terminal
medical condition
|Bill reference |Paragraph |
| |number |
|Item 1, section 11-55 of the ITAA 1997 |1.6 |
|Item 2, section 303-10 of the ITAA 1997, and|1.5 |
|item 3, definition of 'terminal medical | |
|condition' in subsection 995-1(1) of the | |
|ITAA 1997 | |
|Item 5 |1.7 |
Schedule 3: Capital expenditure for the establishment of trees in carbon
sink forests
|Bill reference |Paragraph |
| |number |
|Items 1 and 2, section 12-5, item in the |3.75 |
|table headed 'capital allowances' and after | |
|the item in the table headed 'travel | |
|expenses' | |
|Item 4, subsection 40-50(1) |3.71 |
|Item 5, subsection 40-630(2B) |3.72 |
|Item 6, subsection 40-1005(1) |3.21 |
|Item 6, subsection 40-1005(2) |3.14 |
|Item 6, subsection 40-1005(3) |3.20 |
|Item 6, subsection 40-1005(4) |3.23 |
|Item 6, subsection 40-1005(5), item 1 in the|3.12 |
|table | |
|Item 6, subsection 40-1005(5), item 2 in the|3.12 |
|table | |
|Item 6, subsection 40-1005(5), item 3 in the|3.12 |
|table | |
|Item 6, paragraphs 40-1010(1)(a) to (c) |3.8 |
|Item 6, paragraphs 40-1010(1)(a) to (g) |3.19 |
|Item 6, paragraph 40-1010(1)(d) |3.33 |
|Item 6, paragraphs 40-1010(1)(d) and (e) |3.9 |
|Item 6, paragraph 40-1010(1)(f) |3.10 |
|Item 6, paragraph 40-1010(1)(g) |3.15 |
|Item 6, paragraph 40-1010(1)(h) |3.24 |
|Item 6, subsection 40-1010(2) |3.16 |
|Item 6, paragraph 40-1010(2)(d) and |3.18 |
|subsection 40-1010(3) | |
|Item 6, subsection 40-1010(4) |3.25 |
|Item 6, subsection 40-1010(5) |3.28 |
|Item 6, subsections 40-1010(5) and (6) |3.29 |
|Item 6, subsection 40-1010(7) |3.30 |
|Item 6, subsection 40-1010(8) |3.27 |
|Item 6, section 40-1015 |3.35 |
|Item 6, section 40-1020 |3.38 |
|Item 6, section 40-1025 |3.42, 3.56 |
|Item 7, subsection 40-120(5) |3.73 |
|Item 8, definition of 'carbon sequestration'|3.35 |
|in subsection 995-1(1) of the ITAA 1997 | |
|Items 9 and 10, definition of 'Climate |3.43 |
|Change Minister' and 'Climate Change | |
|Secretary' in subsection 995-1(1) of the | |
|ITAA 1997 | |
|Item 11 |3.69 |
|Item 12, subsection 40-1005(1) |3.44 |
|Item 12, subsection 40-1005(2) |3.49, 3.51, |
| |3.53 |
|Item 12, paragraph 40-1005(2)(a) |3.52 |
|Item 12, subsection 40-1005(3) |3.54 |
|Item 12, paragraphs 40-1010(1)(d) and (e) |3.45 |
|Item 12, paragraph 40-1010(1)(f) |3.46 |
|Items 13 to 19 |3.74 |
|Item 20, section 40-1030 |3.58 |
|Item 20, subsection 40-1030(2), paragraphs |3.59 |
|(a) and (b) of step 1 | |
|Item 20, subsection 40-1030(2), paragraphs |3.60 |
|(a) and (b) of step 2 | |
|Item 20, subsection 40-1030(3) |3.61 |
|Item 20, subsection 40 1035(1) |3.63 |
|Item 20, subsection 40-1035(2) |3.65 |
|Item 20, subsections 40-1035(2) and (3) |3.65 |
|Item 20, paragraph 40-1035(3)(b) |3.65 |
|Item 20, subsection 40-1035(4) |3.65 |
|Item 20, paragraph 40-1035(5)(a) |3.66 |
|Item 20, paragraph 40-1035(5)(b) |3.67 |
|Item 20, subsection 40-1035(6) |3.68 |
|Item 20, subsection 40-1035(8) |3.65 |
|Item 21 |3.70 |
Schedule 4: Tax offset for Equine Workers Hardship Wage Supplement
Payments
|Bill reference |Paragraph |
| |number |
|Item 1, subsection 160AAA(1) |1.10 |
|Item 2, section 13-1 |1.13 |
|Item 3, section 13-1 |1.14 |
Schedule 5: Tobacco industry exit grants
|Bill reference |Paragraph |
| |number |
|Items 1 and 2 |5.14 |
|Item 2 |5.13 |
|Item 3, section 53-10 |5.7 |
|Item 4, subsection 118-37(1) |5.10 |
|Item 5 |5.12 |
Schedule 6: Farm management deposits
|Bill reference |Paragraph |
| |number |
|Item 1, paragraphs 393-37(3)(b) to (d) in |6.9 |
|Schedule 2G to the ITAA 1936 | |
|Item 2 |6.10 |