Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008-2009
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
Tax Laws Amendment (2008 measures no. 6) bILL 2008
SUPPLEMENTARY EXPLANATORY MEMORANDUM
Amendments to be Moved on Behalf of the Government
(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 Assistance to individuals and communities affected by the
Victorian bushfires and North Queensland floods 5
Glossary
The following abbreviations and acronyms are used throughout this
supplementary explanatory memorandum.
|Abbreviation |Definition |
|Commissioner |Commissioner of Taxation |
|DGR |deductible gift recipient |
|ITAA 1936 |Income Tax Assessment Act |
| |1936 |
|ITAA 1997 |Income Tax Assessment Act |
| |1997 |
|PBIs |public benevolent |
| |institutions |
General outline and financial impact
Assistance to individuals and communities affected by the Victorian
bushfires and North Queensland floods
These Government amendments introduce Schedule 5 to the Bill.
Part 1 of Schedule 5 amends the Income Tax Assessment Act 1936 and
the Income Tax Assessment Act 1997 (ITAA 1997) to make the income
recovery subsidy exempt from income tax, and to ensure the subsidy
is not included in separate net income for the purposes of
calculating an entitlement to certain tax offsets. The income
recovery subsidy will provide financial assistance to employees,
small business owners and farmers who can demonstrate they have
experienced a loss of income as a direct result of the 2009
Victorian bushfires or North Queensland floods.
Part 2 of Schedule 5 amends the ITAA 1997 to provide that the
Treasurer may declare an event as a disaster for the purposes of
establishing Australian disaster relief funds. The declaration of
a disaster by the Treasurer will allow Australian disaster relief
funds to receive tax deductible donations, and provide money for
the relief of people in Australia in distress as a result of the
disaster. Public benevolent institutions, which must normally
operate for direct relief efforts, will also be able to establish
Australian disaster relief funds for longer term recovery and
community reconstruction efforts.
Part 2 also specifically lists the 2009 Victorian Bushfire Appeal
Trust Account as a deductible gift recipient (DGR) in Division 30
of the ITAA 1997. This will ensure that the fund can use tax
deductible donations for a wide range of activities, including
recovery and community reconstruction efforts in communities
affected by the 2009 Victorian bushfires, as well as providing
direct benevolent relief to affected communities.
Date of effect: The amendments which make the income recovery
subsidy exempt from income tax, and ensure the subsidy is not
included in separate net income, apply to the 2008-09 income year.
The amendments to the Australian disaster relief fund general
DGR category, and the specific listing as a DGR of the 2009
Victorian Bushfire Appeal Trust Account apply to the 2008-09 income
year and later income years.
Proposal announced: The Prime Minister announced the income
recovery subsidy in Parliament on 10 February 2009.
Financial impact: The amendments to make the income recovery
subsidy exempt from income tax, and to ensure the subsidy is not
included in separate net income have a zero revenue cost against
the forward estimates as the payments themselves are newly
announced and thus no tax on these payments is included in the
forward estimates revenue base. There will be a foregone cost to
revenue of approximately $16.3 million as a result of these
payments in the 2008-09 income year.
The amendments to the Australian disaster relief fund category have
a zero revenue cost against the forward estimates, as there are no
disaster relief funds currently awaiting deductible gift recipient
status under this general DGR category.
The amendment to specifically list the 2009 Victorian Bushfire
Appeal Trust Account is expected to have a negative revenue impact
of $46.5 million in the 2009-10 income year.
Compliance cost impact: Negligible.
Chapter 1
Assistance to individuals and communities affected by the Victorian
bushfires and North Queensland floods
Outline of chapter
1. These Government amendments introduce Schedule 5 to the Bill.
2. Part 1 of Schedule 5 amends the Income Tax Assessment Act 1936
(ITAA 1936) and the Income Tax Assessment Act 1997 (ITAA 1997) to
make the income recovery subsidy exempt from income tax, and to
ensure the subsidy is not included in separate net income for the
purposes of calculating an entitlement to certain tax offsets.
3. Part 2 of Schedule 5 amends the ITAA 1997 to provide that the
Treasurer may declare an event as a disaster for the purposes of
establishing Australian disaster relief funds. The declaration of
a disaster by the Treasurer will allow Australian disaster relief
funds to receive tax deductible donations, and provide money for
the relief of people in Australia in distress as a result of the
disaster. Public benevolent institutions, which must normally
operate for direct relief efforts, will also be able to establish
Australian disaster relief funds for longer term recovery and
community reconstruction efforts.
4. Part 2 of Schedule 5 also specifically lists the 2009 Victorian
Bushfire Appeal Trust Account as a deductible gift recipient (DGR)
in Division 30 of the ITAA 1997. This will ensure that the fund
can use tax deductible donations for a wide range of activities,
including recovery and community reconstruction efforts in
communities affected by the 2009 Victorian bushfires, as well as
providing direct benevolent relief to affected communities.
Context of amendments
Income recovery subsidy
5. The income recovery subsidy will provide financial assistance to
employees, small business owners and farmers who can demonstrate
they have experienced a loss of income as a direct result of the
2009 Victorian bushfires or North Queensland floods.
6. The Prime Minister announced the income recovery subsidy in
Parliament on 10 February 2009.
7. The income recovery subsidy is administered by Centrelink, and is
equivalent to the maximum rate of the Newstart allowance.
8. A payment received by a taxpayer as replacement for lost salary,
wages or income is generally taxable. A legislative amendment is
required to make the payment exempt from income tax.
9. Such payments would also normally be included in the calculation of
separate net income. The calculation of separate net income can
affect a taxpayer's eligibility for certain tax offsets.
10. Exempting these payments from income tax and separate net income
will lessen the financial hardship experienced by those individuals
and communities affected by the 2009 Victorian bushfires or North
Queensland floods.
Australian disaster relief funds
11. Subsection 30-15(2) of the ITAA 1997 allows a tax deduction to
taxpayers who make a gift or contribution to a fund, authority or
institution covered by the tables in Subdivision 30-B, subject to
certain conditions. Entities able to receive tax deductible gifts
are known as DGRs.
12. There are more than 35 existing general DGR categories.
Organisations which meet the criteria under these categories can
apply to be endorsed by the Commissioner of Taxation (Commissioner)
as a DGR. Gifts of $2 or more in cash or property to DGRs may be
tax deductible.
13. A public fund is eligible to be endorsed by the Commissioner as a
DGR under the Australian disaster relief fund category where it is
established and maintained for charitable purposes solely to
provide funds for the relief (including assistance to re-establish
a community) of people in Australia who have suffered a disaster.
14. For an event in Australia to be recognised as a disaster under the
current DGR provisions, it must be declared to be a disaster, or
give rise to a declaration of a state of emergency, by the relevant
Minister of a State or Territory.
15. Taxpayers can claim a tax deduction for a donation to an Australian
disaster relief fund endorsed as a result of a declared disaster if
it is made within two years from the first day of the event as
specified in the declaration, or if no day is declared, within two
years of the declaration.
16. Organisations endorsed as public benevolent institutions (PBIs)
must operate for the direct relief of poverty, sickness, suffering,
distress, misfortune, disability or helplessness. PBIs would not
generally be able to support longer term recovery or community
reconstruction efforts.
Victorian Government reconstruction fund - specific listing as a DGR
17. In order to be a DGR, an organisation must either be specifically
listed by name in the gift provisions of the ITAA 1997 or fall
within one of the general DGR categories set out in those
provisions.
18. Entities are specifically listed in the most exceptional
circumstances, and where the entity provides a broad public
benefit.
19. As a result of the 2009 Victorian bushfires, the 2009 Victorian
Bushfire Appeal Trust Account was established in partnership with
the Commonwealth Government and the Australian Red Cross. The 2009
Victorian Bushfire Appeal Trust Account was established under
section 19 of the Victorian Financial Management Act 1994.
20. This fund will receive monies collected from the Victorian Bushfire
Appeal 2009, a public appeal for donations coordinated by the
Australian Red Cross. It may also receive donations from other
entities.
Summary of new law
Income recovery subsidy
21. This measure amends:
. subsection 159J(6) of the ITAA 1936 to exclude the income
recovery subsidy from the definition of separate net
income; and
. section 51-30 of the ITAA 1997 to make the income recovery
subsidy exempt from income tax.
Australian disaster relief funds
22. This measure amends:
. subsection 30-45(1) of the ITAA 1997 to ensure that a PBI
may operate an Australian disaster relief fund; and
. that an Australian disaster relief fund may be established
as a result of a disaster event declared by the Treasurer.
Victorian Government reconstruction fund - specific listing as a DGR
23. This measure amends the table in subsection 30-45(2) of the
ITAA 1997 to provide that gifts made to the 2009 Victorian Bushfire
Appeal Trust Account are tax deductible, if the gift is made after
7 February 2009, and before 6 February 2014.
Detailed explanation of new law
Income recovery subsidy
Exclude the income recovery subsidy from the definition of separate
net income
24. A taxpayer may be eligible to certain tax offsets when they
contribute to the maintenance of a dependant, but eligibility for
an offset, or the amount of that offset, may be reduced as a
dependant's separate net income increases.
25. The amendment to subsection 159J(6) of the ITAA 1936 will exclude
the income recovery subsidy from the definition of separate net
income. [Schedule 5, item 1, paragraphs 159J(6)(e) and (f)]
26. The amendment will mean that an individual otherwise entitled to a
tax offset, will still be entitled to the same amount of offset,
despite any income recovery subsidy payments received by their
dependants.
Exempt the income recovery subsidy from income tax
27. Section 51-30 of the ITAA 1997 lists welfare recipients and
payments that are exempt from income tax.
28. The amendment to section 51-30 of the ITAA 1997 will make the
income recovery subsidy exempt from income tax. [Schedule 5, item
3, items 5.2 and 5.3 in the table in section 51-30]
29. Section 11-15 of the ITAA 1997 lists income which is exempt from
income tax only if it is derived by certain entities. This list
will be amended to include the income recovery subsidy as an exempt
payment. [Schedule 5, item 2, section 11-15]
Australian disaster relief funds
Ensure that a PBI may operate an Australian disaster relief fund
30. Subsection 30-45(1) of the ITAA 1997 sets out the general DGR
categories of welfare and rights, including Australian disaster
relief funds.
31. The amendment to item 4.1.5 in the table in subsection 30-45(1) of
the ITAA 1997 will ensure that a PBI may operate an Australian
disaster relief fund. [Schedule 5, item 7, item 4.1.5 in the table
in subsection 30-45(1)]
32. PBIs which collect donations for relief work as a result of a
disaster recognised under the DGR provisions may pass these funds
to another DGR fund established for relief or recovery work as a
result of that disaster.
Provide that an event may be declared as a disaster by the
Treasurer for DGR purposes
33. The amendment to item 4.1.5 in the table in subsection 30-45(1) of
the ITAA 1997 will provide that Australian disaster relief funds
may be established as a result of an event which is declared by the
Treasurer as a disaster. [Schedule 5, item 7, item 4.1.5 in the
table in subsection 30-45(1)]
34. The Treasurer may declare an event as a disaster for DGR purposes
if he or she is satisfied that it developed rapidly, and it
resulted in the death, serious injury or other physical suffering
of a large number of people, or in widespread damage to property or
the natural environment. [Schedule 5, item 9, subsection 30-
45A(1)]
35. The Treasurer's declaration of an event must be in writing, specify
the first day of the event, and be published on the Internet or by
another method. [Schedule 5, item 9, subsection 30-45A(2)]
36. Australian disaster relief funds established as a result of a
disaster declared by the Treasurer will be subject to the same
conditions as Australian disaster relief funds established under
the current provisions. The current provisions require that an
event must be declared to be a disaster, or give rise to a
declaration of a state of emergency, by the relevant Minister of a
State or Territory.
Victorian Government reconstruction fund - specific listing as a DGR
37. Subsection 30-45(2) of the ITAA 1997 sets out specific welfare and
rights DGR recipients.
38. The amendment to the table in section 30-45(2) will make the 2009
Victorian Bushfire Appeal Trust Account a DGR. [Schedule 5, item
8, item 4.2.41 in the table in subsection 30-45(2)]
39. The 2009 Victorian Bushfire Appeal Trust Account will use donated
monies for recovery and community reconstruction efforts, as well
as providing direct relief, for communities affected by the 2009
Victorian bushfires.
Application and transitional provisions
Income recovery subsidy
40. The income recovery subsidy amendments apply for the 2008-09 income
year. [Schedule 5, item 14]
41. As the amendments only apply for the 2008-09 income year, they will
be repealed on 1 July 2011, by which time the amendments would have
become inoperative. [Schedule 5, items 4 to 6]
Australian disaster relief funds
42. These amendments apply to gifts made in the 2008-09 income year and
later income years.
Victorian Government reconstruction fund - specific listing as a DGR
43. These amendments apply to gifts made after 7 February 2009 and
before 6 February 2014.
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