Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008-2009-2010
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
Tax Laws Amendment (2010 Measures No. 3) Bill 2010
REVISED EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
THIS MEMORANDUM TAKES ACCOUNT OF AMENDMENTS MADE BY THE HOUSE OF
REPRESENTATIVES TO THE BILL AS INTRODUCED
Table of contents
Glossary 1
General outline and financial impact 3
Chapter 1 Government co-contribution for low income earners 7
Chapter 2 Thin capitalisation - modification of the rules in relation to
the application of accounting standards for authorised deposit-
taking institutions 13
Chapter 3 Transactions involving security and intelligence agencies
25
Chapter 4 Special Disability Trusts - changes to the taxation of
unexpended income 31
Chapter 5 Definition of a managed investment trust 39
Index 73
Glossary
The following abbreviations and acronyms are used throughout this
revised explanatory memorandum.
|Abbreviation |Definition |
|ADIs |authorised deposit-taking |
| |institutions |
|APRA |Australian Prudential |
| |Regulation Authority |
|ASIC |Australian Securities and |
| |Investments Commission |
|CGT |capital gains tax |
|Co-contribution Act |Superannuation (Government |
|2003 |Co-Contribution for Low |
| |Income Earners) Act 2003 |
|Commissioner |Commissioner of Taxation |
|EMVONA |Excess market value over net |
| |assets |
|GST |goods and services tax |
|ITAA 1936 |Income Tax Assessment Act |
| |1936 |
|ITAA 1997 |Income Tax Assessment Act |
| |1997 |
|MIS |managed investment scheme |
|MIT |managed investment trust |
|PAYG |pay as you go |
|SDT |Standard Disability Trust |
|TAA 1953 |Taxation Administration Act |
| |1953 |
|TFN |tax file number |
General outline and financial impact
Government co-contribution for low income earners
Schedule 1 to this Bill freezes indexation of the co-contribution
income thresholds for the 2010-11 and 2011-12 income years.
Schedule 1 also permanently maintains the current matching rate and
maximum co-contribution that is payable on an individual's eligible
superannuation contributions.
Date of effect: 1 July 2010.
Proposal announced: This measure was announced in the 2010-
11 Budget on 11 May 2010.
Financial impact: These amendments are expected to result in a
$645 million fiscal saving over the forward estimates period.
Compliance cost impact: Low.
Thin capitalisation - modification of the rules in relation to the
application of accounting standards for authorised deposit-taking
institutions
Schedule 2 to this Bill amends the operation of the thin
capitalisation rules for authorised deposit-taking institutions
(ADIs) to take account of the change in the accounting treatment of
certain assets from the adoption of the Australian equivalents to
International Financial Reporting Standards in January 2005.
The relevant assets are:
. treasury shares;
. one component of the business asset excess market value
over net assets - the EMVONA asset. The relevant
component is the value of business in force at the time of
acquisition of the relevant subsidiaries; and
. capitalised software costs.
Certain treasury shares are to be included in adjusted average
equity capital.
The safe harbour capital amount is adjusted to exclude the value of
business in force component of the business asset excess market
value over net assets - the EMVONA asset. This amount is only
excluded to the extent to which it is reflected in the goodwill or
intangible assets of the ADI group.
The safe harbour capital amount is further adjusted to include only
4 per cent of the value of capitalised software costs.
Date of effect: These amendments will apply to income years
commencing on or after 1 January 2009. These amendments do not
adversely affect taxpayers.
Proposal announced: This measure was announced in the then
Assistant Treasurer and Minister for Competition Policy and
Consumer Affairs' Media Release No. 048 of 2009.
Financial impact: Unquantifiable revenue implications from the
2009-10 income year.
Compliance cost impact: Low.
Transactions involving security and intelligence agencies
Schedule 3 to this Bill amends the tax law to provide the heads of
the Australian Security Intelligence Organisation and the
Australian Secret Intelligence Service with the power to declare
that Commonwealth tax laws do not apply to a particular entity in
relation to a particular transaction. This ensures that the tax
authorities will not need to obtain information that should remain
secret in the interests of national security.
Date of effect: Royal Assent.
Proposal announced: This measure has not previously been
announced.
Financial impact: An unquantifiable but low revenue impact.
Compliance cost impact: Low.
Special Disability Trusts - changes to the taxation of unexpended income
Schedule 4 to this Bill amends Division 6 of the Income Tax
Assessment Act 1936 so that the unexpended income of a Special
Disability Trust is taxed at the relevant principal beneficiary's
personal income tax rate rather than automatically at the top
personal tax rate plus the Medicare levy.
Date of effect: These amendments apply from 1 July 2008 and are
beneficial to taxpayers.
Proposal announced: This measure was announced jointly by the
Minister for Families, Housing, Community Services and Indigenous
Affairs and the Parliamentary Secretary for Disabilities and
Children's Services in Media Release Extra support for people with
disability and their carers of 12 May 2009.
Financial impact: This measure will have these revenue
implications:
|2009-10 |2010-11 |2011-12 |2012-13 |
|-$1.0m |-$1.0m |-$1.0m |-$1.0m |
Compliance cost impact: Low. This measure will affect only a
small proportion of individuals and businesses. There is a low
ongoing compliance cost impact and a low transitional impact,
reflecting the need for some taxpayers to be aware of the
amendments.
Definition of a managed investment trust
Schedule 5 to this Bill amends the definition of a 'managed
investment trust' (MIT) in Subdivision 12-H of Schedule 1 to the
Taxation Administration Act 1953. The amended definition will
apply for the purposes of the MIT withholding tax rules in that
Subdivision, and for the purposes of the capital account treatment
rules for MITs in Division 275 of the Income Tax Assessment Act
1997 (ITAA 1997).
These amendments to the definition of a MIT also apply in relation
to capital gains tax (CGT) events happening on or after 1 November
2008, for the purpose of Subdivision 126-G of the ITAA 1997.
Date of effect: The amendments will apply to fund payments in
respect of the first income year starting on or after the first 1
July after the day on which this Bill receives Royal Assent and
later income years.
However, if a trust was a MIT for an income year starting before
26 May 2010 (the date of introduction of this Bill to Parliament),
or a trust would have been a MIT in such an income year if the
trustee of the trust had made a fund payment in relation to the
income year in that income year (and before 26 May 2010), the
amendments made by this Schedule will not apply to that trust for
the 2010-11 through to 2016-17 income years.
The amendments will generally apply in relation to Division 275 of
the ITAA 1997 in the same way as the amendments made by Schedule 3
to the Tax Laws Amendment (2010 Measures No. 1) Bill 2010 apply in
relation to that Division.
These amendments to the definition of a MIT apply in relation to
Subdivision 126-G of the ITAA 1997 in relation to CGT events
happening on or after 1 November 2008, consistent with the
application date of the limited roll-over in that Subdivision.
Proposal announced: This measure was announced in the Assistant
Treasurer's Media Release No. 020 of 10 February 2010.
Financial impact: Unquantifiable revenue implications from the
2010-11 income year.
Compliance cost impact: Low.
Chapter 1
Government co-contribution for low income earners
Outline of chapter
1. Schedule 1 to this Bill amends the Superannuation (Government Co-
contribution for Low Income Earners) Act 2003 (Co-contribution
Act 2003) to freeze indexation of the co-contribution income
thresholds for the 2010-11 and 2011-12 income years.
2. Schedule 1 also amends the Co-contribution Act 2003 to permanently
maintain the current matching rate and maximum co-contribution
payable for eligible personal superannuation contributions.
Context of amendments
3. The co-contribution matches eligible personal superannuation
contributions made by low to middle income earners. The maximum co-
contribution may be payable to persons with incomes up to the lower
income threshold. The maximum amount phases down above this level,
until it is phased out completely at the higher income threshold.
4. The income thresholds are indexed annually to average weekly
ordinary time earnings. The lower and higher income thresholds for
the 2009-10 income year are $31,920 and $61,920 respectively.
5. In the 2009-10 Budget the Government announced a temporary
reduction in the matching rate and maximum Government co-
contribution payable for eligible personal superannuation
contributions. The matching rate and maximum co-contribution are
currently legislated to revert back to the levels of the 2008-09
income year in the 2014-15 income year and for later income years.
6. In the 2010-11 Budget the Government announced that it would freeze
indexation of the co-contribution lower and higher income
thresholds for the 2010-11 and 2011-12 income years.
7. In the 2010-11 Budget the Government also announced that it would
permanently maintain the current matching rate of 100 per cent and
maximum co-contribution payable of $1,000.
Summary of new law
8. The Government will freeze indexation of the superannuation co-
contribution income thresholds for the 2010-11 and 2011-12 income
years.
9. The Government will permanently maintain the superannuation co-
contribution matching rate at 100 per cent and the maximum co-
contribution payable at $1,000.
Comparison of key features of new law and current law
|New law |Current law |
|For the 2010-11 and |In the 2009-10 income |
|2011-12 income years, the|year the lower and higher|
|lower and higher income |income thresholds are |
|thresholds will remain at|$31,920 and $61,920 |
|$31,920 and $61,920 |respectively. |
|respectively. |The lower income |
|Current indexation |threshold is indexed |
|arrangements will |annually to average |
|recommence for the |weekly ordinary time |
|2012-13 and later income |earnings and the higher |
|years. |income threshold is |
| |increased by the |
| |indexation increase in |
| |the lower income |
| |threshold for that year. |
|For the 2009-10 or a |For the 2009-10, 2010-11 |
|later income year, |and 2011-12 income years,|
|eligible personal |eligible personal |
|superannuation |superannuation |
|contributions will be |contributions are matched|
|matched at one dollar for|at one dollar for every |
|every dollar contributed |dollar contributed up to |
|up to a maximum |the maximum |
|co-contribution of $1,000|co-contribution of $1,000|
|for individuals on |for individuals on |
|incomes at or below the |incomes at or below the |
|lower income threshold. |lower income threshold. |
|The maximum |The maximum |
|co-contribution will be |co-contribution will be |
|reduced by 3.333 cents |reduced by 3.333 cents |
|for each dollar by which |for each dollar by which |
|an individual's total |an individual's total |
|income for the income |income for the income |
|year exceeds the lower |year exceeds the lower |
|income threshold. |income threshold. |
| |For the 2012-13 and |
| |2013-14 income years, |
| |eligible personal |
| |superannuation |
| |contributions are matched|
| |at $1.25 for every dollar|
| |contributed up to a |
| |maximum co-contribution |
| |of $1,250 for individuals|
| |at or below the lower |
| |income threshold. The |
| |maximum co-contribution |
| |will be reduced by |
| |4.167 cents for each |
| |dollar by which the |
| |individual's total income|
| |for the income year |
| |exceeds the lower income |
| |threshold. |
| |For the 2014-15 and later|
| |income years, eligible |
| |personal superannuation |
| |contributions are matched|
| |at $1.50 for each dollar |
| |contributed up to a |
| |maximum Government |
| |co-contribution of $1,500|
| |for individuals on |
| |incomes at or below the |
| |lower income threshold. |
| |The maximum |
| |co-contribution will be |
| |reduced by 5 cents for |
| |each dollar by which the |
| |individual's total income|
| |for the income year |
| |exceeds the lower income |
| |threshold. |
Detailed explanation of new law
10. The co-contribution is payable for eligible individuals who make
personal contributions into superannuation for which a tax
deduction has not been claimed. The maximum co-contribution is
payable for individuals whose income is at or below the lower
income threshold. The co-contribution phases out for individuals
whose income is up to the higher income threshold.
11. The lower income threshold is indexed annually to full time adult
average weekly ordinary time earnings and the higher income
threshold is increased by the indexation increase in the lower
income threshold for that year. Indexation for an income year is
calculated by multiplying the lower income threshold for the
previous year by the indexation factor for that later income year.
12. Section 10A of the Co-contribution Act 2003 sets out arrangements
for increases in the lower and higher income threshold.
13. Section 10A will be amended to freeze indexation arrangements for
the 2010-11 and 2011-12 income years. These amendments will
operate by setting the indexation factor for the 2010-11 and 2011-
12 income years at one, which will lead to the income thresholds
not changing for these years.
14. Subsection 9(1) of the Co-contribution Act 2003 sets out the basic
rule for the matching of eligible personal superannuation
contributions by the Government co-contribution.
15. Section 10 of the Co-contribution Act 2003 sets out the maximum
amount of the Government co-contribution payable for an individual
for an income year, and the rate at which this amount reduces where
an individual's income is above the lower income threshold.
16. Subsection 9(1) and section 10 will be amended to provide for the
permanent retention of a matching rate of 100 per cent and a
maximum co-contribution payable of $1,000.
17. For the 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 income
years, the Government co-contribution will continue to be equal to
150 per cent of the eligible personal superannuation contributions
made by an individual during those years.
18. The maximum Government co-contribution remains at $1,500 for
eligible personal superannuation contributions made in the 2004-05,
2005-06, 2006-07, 2007-08 and 2008-09 income years by individuals
with incomes under the lower income threshold. The maximum co-
contribution in those years will continue to be reduced by 5 cents
for each dollar by which the individual's total income exceeds the
lower income threshold in the relevant year.
19. For the 2009-10 and later income years, the Government co-
contribution matching rate will be equal to 100 per cent of the
eligible personal superannuation contributions made by an
individual during those years.
20. For eligible personal superannuation contributions made in the 2009-
10 and later income years the maximum Government co-contribution
will be $1,000 for individuals with incomes below the lower income
threshold. The maximum co-contribution payable will be reduced by
3.333 cents for each dollar by which the individual's total income
exceeds the lower income threshold in the relevant year.
1.
Jane works for Lemon Pty Ltd. In 2010-11 she makes a
personal contribution into superannuation of $1,000 and does
not claim a deduction for this contribution. Her assessable
income for that year is $30,000 and she has no reportable
fringe benefits or reportable employer superannuation
contributions. The Commissioner of Taxation determines that
Jane is eligible for a Government co-contribution and pays
$1,000 into Jane's superannuation account.
Application and transitional provisions
21. These amendments will apply to the 2009-10 and later income years.
Chapter 2
Thin capitalisation - modification of the rules in relation to the
application of accounting standards for authorised deposit-taking
institutions
Outline of chapter
1. Schedule 2 to this Bill modifies the thin capitalisation rules
contained within Division 820 of the Income Tax Assessment Act 1997
(ITAA 1997) in relation to the use of accounting and prudential
standards for valuing certain assets of authorised deposit-taking
institutions (ADIs).
2. This measure aims to adjust for certain impacts from the 2005
adoption of the Australian equivalents to International Financial
Reporting Standards on an ADI's thin capitalisation position. It
does this by adjusting the application of accounting and prudential
standard treatment of specified assets.
3. This chapter outlines the circumstances in which certain assets are
to be recognised by particular entities for thin capitalisation
purposes. The relevant assets are:
. treasury shares;
. one component of the business asset excess market value
over net assets - the EMVONA asset. The relevant
component is the value of business in force at the time of
acquisition of the relevant subsidiaries; and
. capitalised software costs.
22. All references to legislative provisions in this chapter are
references to the ITAA 1997 unless otherwise stated.
Context of amendments
23. The thin capitalisation rules in Division 820 are designed to
ensure that Australian and foreign-owned multinational entities do
not allocate an excessive amount of debt to their Australian
operations thereby inappropriately reducing their Australian
profits and tax. The thin capitalisation rules provide this by
disallowing a proportion of otherwise deductible finance expenses
(for example, interest) where the debt used to fund the Australian
operations exceeds certain limits. The allowable level of debt for
an ADI is calculated by reference to a minimum amount of equity
capital.
24. Thin capitalisation rules use the accounting standards as the basis
for the identification and valuation of assets, liabilities and
equity capital. Prior to 2005, the relevant accounting standards
were the Australian Generally Accepted Accounting Principles.
However, from 1 January 2005 the Australian Generally Accepted
Accounting Principles were replaced by the Australian equivalents
to International Financial Reporting Standards. The adoption of
Australian equivalents to International Financial Reporting
Standards is regarded as having aligned Australia more closely with
international accounting practice.
25. Transitional provisions were introduced to insulate affected
entities, including ADIs, from potential adverse impacts on their
thin capitalisation position from the 2005 adoption of the
Australian equivalents to International Financial Reporting
Standards. These transitional arrangements enabled entities to
elect to apply the accounting standards as they existed immediately
before 1 January 2005 (rather than the Australian equivalents to
International Financial Reporting Standards) for a period of up to
four income years from the first income year commencing on or after
1 January 2005. These arrangements are set out in section 820-45
of the Income Tax (Transitional Provisions) Act 1997.
26. Under subsection 820-45(4) of the Income Tax (Transitional
Provisions) Act 1997, if an ADI makes a choice to use accounting
standards that existed before 1 January 2005 (for an income year),
the ADI must also choose to use the prudential standards in force
under the Banking Act 1959 immediately before 1 January 2005
(rather than current prudential standards) for calculating amounts
applicable to the ADI under Division 820.
27. The application of these transitional provisions began expiring
from 1 January 2009.
28. The amendments in Schedule 2 implement the announcement in the 2009-
10 Budget (Assistant Treasurer and Minister for Competition Policy
and Consumer Affairs' Media Release No. 048 of 12 May 2009). In
that media release, the Government announced it would introduce
changes to the thin capitalisation regime for ADIs.
29. The amendments effectively establish the framework to apply on
expiration of the current transitional arrangements and will apply
to relevant entities whether or not an entity elected to use the
transitional provisions.
30. At the time the Australian equivalents to International Financial
Reporting Standards was adopted, certain impacts of the new
standards for taxpayers subject to the thin capitalisation regime
were expected, however other outcomes were unexpected and could not
be considered at that time.
31. This measure does not reflect an intention to neutralise, for the
purposes of the thin capitalisation rules, all differences in
outcomes between the previous and current accounting standards. It
is not intended to provide entities with scope to artificially
inflate their asset base to support higher gearing levels
inconsistent with the broader intent of this regime.
Summary of new law
32. For income years commencing on or after 1 January 2009, ADIs will
be able to deviate from the accounting standard treatment of
certain assets and liabilities when doing their thin capitalisation
calculations.
Comparison of key features of new law and current law
|New law |Current law |
|Treasury shares are not |Where the transitional |
|excluded from the |provisions no longer |
|calculation of adjusted |apply, under Australian |
|average equity capital. |equivalents to |
| |International Financial |
| |Reporting Standards, |
| |treasury shares are |
| |deducted from equity |
| |capital. This results in|
| |the value of the treasury|
| |shares not being included|
| |in adjusted average |
| |equity capital. |
| |Where the transitional |
| |provisions still apply, |
| |treasury shares are |
| |included in the |
| |calculation of adjusted |
| |average equity capital. |
|The value of business in |Where the transitional |
|force component of the |provisions no longer |
|business asset EMVONA is |apply, under Australian |
|excluded from step 3 of |equivalents to |
|the safe harbour |International Financial |
|calculation. The value |Reporting Standards all |
|of business in force at |components of the |
|acquisition is not |business asset EMVONA are|
|recognised as a tier 1 |included in step 3 of the|
|prudential capital |safe harbour calculation.|
|deduction and does not |EMVONA is recognised as a|
|increase the safe harbour|tier 1 prudential capital|
|capital amount. |deduction and increases |
| |the safe harbour capital |
| |amount. |
| |Where the transitional |
| |provisions still apply, |
| |the value of business in |
| |force component of EMVONA|
| |is excluded from step 3 |
| |of the safe harbour |
| |calculation. The value |
| |of business in force at |
| |acquisition is not |
| |recognised as a tier 1 |
| |prudential capital |
| |deduction and does not |
| |increase the safe harbour|
| |capital amount. |
|Capitalised software |Where the transitional |
|expenses are included in |provisions no longer |
|step 1 and excluded from |apply, under Australian |
|step 3 of the safe |equivalents to |
|harbour capital amount |International Financial |
|calculation. Capitalised|Reporting Standards |
|software expenses are not|capitalised software |
|recognised as a |costs are included in |
|prudential capital |step 3 of the safe |
|deduction and increase |harbour calculation. |
|the safe harbour capital |These costs are |
|amount by 4 per cent of |recognised as a tier 1 |
|their value. |prudential capital |
| |deduction and increase |
| |the safe harbour capital |
| |amount by their full |
| |value. |
| |Where the transitional |
| |provisions still apply, |
| |capitalised software |
| |expenses are included in |
| |step 1 and excluded from |
| |step 3 of the safe |
| |harbour calculation. |
| |Capitalised software |
| |expenses are not |
| |recognised as a tier 1 |
| |prudential capital |
| |deduction and increase |
| |the safe harbour capital |
| |amount by 4 per cent of |
| |their value. |
Detailed explanation of new law
Treasury shares
33. Treasury shares are equity instruments that an entity acquires in
itself (AASB 132 Financial Instruments Presentation). The amount
of treasury shares held must be disclosed separately either on the
face of the balance sheet or in the notes (AASB 101 Presentation of
Financial Statements).
34. The circumstances in which an entity can hold shares in itself are
strictly limited under the Corporations Act 2001. However, within
these limits it is common business practice for the subsidiary of a
bank to invest in the parent company. Two examples of an entity
holding treasury shares are:
. life insurance company subsidiaries of the group holding
equity in the parent bank as part of investment portfolios
supporting policyholder liabilities; and
. employee share plan arrangements where entities hold
parent company shares as part of the consolidated group's
employee share plan arrangements.
35. Under AASB 1038 Life Insurance Business, issued 17 November 1998,
direct investments in a particular bank's shares by that company's
life insurance subsidiary's statutory funds are recognised in the
group's balance sheet at market value (that is, recognised as
investments relating to the life insurance business).
Consequently, under this accounting standard, this amount was
included in the calculation of adjusted average equity capital.
36. Section 820-300 is modified so that, for the purposes of
calculating the adjusted average equity capital for an income year,
certain treasury shares in the entity will be treated as included
in the ADI's equity capital to the extent that those shares are
part of the entity's eligible tier 1 capital [Schedule 2, item 1,
subsection 820-300(4)]. These treasury shares are both shares held
by a group member to support liabilities to third parties (that is,
policy holders) and shares that offset the accrued expense of a
share-based compensation scheme (as described in paragraphs 34 and
35 of Australian Prudential Standard 111 Capital Adequacy:
Measurement of Capital issued January 2008).
37. Section 820-300 is amended to substantively retain the treatment,
for thin capitalisation purposes, of a direct investment in a
particular bank's shares by that company's life insurance
subsidiary which existed immediately before 1 January 2005.
Value of business in force
38. An ADI group may include a life insurance subsidiary. Where this
is the case, the accounting and prudential treatment of the assets
of the life insurance company are relevant to the calculation of
the safe harbour capital amount for the group.
39. Under Australian Generally Accepted Accounting Principles and AASB
1038 Life Insurance Business, a life insurer was able to recognise
as a separate asset (in its consolidated financial statements) the
excess of the market value of interests in subsidiaries over the
net amount of the assets and liabilities of those subsidiaries as
recognised in the consolidated financial statements. This was
known as the 'EMVONA' asset.
40. EMVONA may be valued using various methodologies, including
valuation as a composition of acquired goodwill arising from
acquisitions of subsidiaries, comprising:
. the value of business in force at the time of acquisition,
which includes the net present value of the expected
distributable profits of business in force at that time;
. the value of new business, which is the net present value
of the expected distributable profits of business expected
to be written over future periods of time; and
. any changes in the value of business in force and value of
new business since acquisition.
41. Prior to 1 January 2005, the value of business in force at the time
of acquisition was treated as an asset for regulatory capital
purposes and as such was deducted from total capital, but not from
tier 1 capital. The value of new business was an intangible asset
and a tier 1 prudential capital deduction. Consequently, the value
of business in force did not increase safe harbour capital amount.
The value of new business did.
42. The amendment to the safe harbour capital amount method statement
reduces the minimum amount of equity capital that an ADI must hold
to meet thin capitalisation requirements. The minimum amount is
reduced by the amount of goodwill or intangible assets recorded in
the financial accounts of an entity that are attributable to the
acquisition of a life company's subsidiary which relates to the
EMVONA asset and is referrable to the value of business in force at
the time of acquisition. This represents a divergence from current
accounting practice and a reinstatement of the treatment under the
Australian Generally Accepted Accounting Principles. [Schedule 2,
items 4 and 7, section 820-310 (step 3(d) in the method statement)
and subsection 820-680(1)(note)]
43. That is, the value of business in force at acquisition that forms
part of the EMVONA asset is the relevant amount for the purposes of
step 3(c) in the method statement. Any changes in the value of
business in force post acquisition are ignored. The adjusted
amount of regulatory capital may be included in the value of
business in force at the time of acquisition. However as it is not
part of EMVONA it too falls outside the exclusion in step 3(c) of
the safe harbour capital amount method statement. [Schedule 2,
items 4, 6 and 8, section 820-310 (step 3(c) in the method
statement), subsection 820-310(2) and the definition of value of
business in force in subsection 995-1(1)]
44. The amount of goodwill or intangible asset that relates to the
EMVONA asset must be adjusted to reflect any impairment of the
class of assets comprising the life company business of the ADI
group. In turn this impairment limits the amount of the goodwill
or intangible asset that can relate to EMVONA or the value of
business in force. [Schedule 2, item 4, section 820-310 (step 3(c)
in the method statement)]
45. The value of business in force at acquisition is the amount
calculated by an actuary according to Australian actuarial
practice. If the prescribed actuarial calculation is not
undertaken, the value of business in force will be nil. [Schedule
2, item 6, section 820-310]
1. : Life company acquired on 1 July 2001
On 1 July 2001, Bank Group Ltd indirectly acquired through
another of its life insurance company subsidiaries 100 per
cent interest in Life Co Ltd, which carried on Australian
life insurance business. At the time of the acquisition
Bank Group Ltd prepared financial statements in accordance
with Australian Generally Accepted Accounting Principles.
Under Australian Generally Accepted Accounting Principles,
the consolidated accounts of Bank Group Ltd recognised an
EMVONA asset.
Based on an actuarial assessment prepared at the time of
acquisition by an Accredited Member of the Institute of
Actuaries of Australia in accordance with Actuarial Guidance
Notes 225 and 552, Life Co Ltd was valued as explained in
Table 2.1.
1. : Valuation of Life Co Ltd: 1 July 2001
|Component |Description |Amount $m|
|Net assets |Net tangible |$1,604 |
|acquired |assets recognised| |
| |in the accounts | |
| |of Life Co Ltd. | |
|Value of |The value of the |$2,412 |
|business in |existing business| |
|force |in force, being | |
| |the net present | |
| |value of the | |
| |expected | |
| |distributable | |
| |profit of | |
| |business in force| |
| |at the time of | |
| |acquisition. | |
|Value of new |The value of new |$2,493 |
|business |business, being | |
| |the net present | |
| |value of the | |
| |expected profits | |
| |of the new | |
| |business to be | |
| |written over | |
| |future periods of| |
| |time. | |
|Total value |Total value of |$6,509 |
| |Life Co Ltd on | |
| |the date of | |
| |acquisition. | |
The consolidated accounts of Bank Group Ltd therefore
recognised EMVONA of $4,905 as at 30 June 2002, being the
sum of the value of business in force and the value of new
business at that date ($2,412 + $2,493 = $4,905).
On 1 July 2001 the value of business in force was $2,412.
Based on an actuarial assessment of the value of Life Co Ltd
at 30 June 2002 by an Accredited Member of the Institute of
Actuaries of Australia in accordance with Actuarial Guidance
Notes 225 and 552, Life Co Ltd was valued as explained in
Table 2.2.
2. : Valuation of Life Co Ltd: 30 June 2002
|Component |Description |Amount $m|
|Net assets |Net tangible |$1,604 |
|acquired |assets recognised| |
| |in the accounts | |
| |of Life Co Ltd. | |
|Value of |The value of the |$2,412 |
|business in |existing business| |
|force |in force, being | |
| |the net present | |
| |value of the | |
| |expected | |
| |distributable | |
| |profit of | |
| |business in force| |
| |at the time of | |
| |acquisition. | |
|Value of new |The value of new |$2,493 |
|business |business, being | |
| |the net present | |
| |value of the | |
| |expected profits | |
| |of the new | |
| |business to be | |
| |written over | |
| |future periods of| |
| |time. | |
|Change in the |The net change in|$219 |
|value of |value of the | |
|business in |value of business| |
|force and the |in force and the | |
|value of new |value of new | |
|business |business. | |
|Total value |Total value of |$6,728 |
| |Life Co Ltd as at| |
| |30 June 2002. | |
The value of business in force at the time of acquisition at
30 June 2002 was $2,412. It does not include the $219
change in the value of the value of new business and the
value of business in force.
For the year ending 30 June 2002, Bank Group Ltd, under the
Australian Prudential Regulation Authority's (APRA's)
regulatory regime that operated at that time, was required
to treat the value of new business amount of $2,493 as a
tier 1 prudential capital deduction. The value of business
in force at acquisition amount of $2,412 was deducted from
total capital. It was not a tier 1 prudential capital
deduction.
For the year ending 30 June 2002, the safe harbour capital
amount of Bank Group Ltd does not include the value of
business in force amount of $2,412 in the safe harbour
capital amount.
2. : Life company acquired on 1 July 2011
On 1 July 2011 Savings Group Ltd indirectly acquires through
another life insurance company subsidiary a 100 per cent
interest in Insurance Co Ltd, which carries on Australian
life insurance business. At the time of the acquisition,
Savings Group Ltd prepares its accounts in accordance with
the Australian equivalents to International Financial
Reporting Standards.
Under the Australian equivalents to International Financial
Reporting Standards, the consolidated accounts of Savings
Group Ltd do not recognise an EMVONA asset in relation to
the holding of Insurance Co Ltd. The value of business in
force in relation to the acquisition of Insurance Co Ltd is
not separately identified. However, this amount is included
in the 'goodwill or intangible assets' of the group.
If, at the time of acquisition of Insurance Co Ltd, an
actuarial valuation of the company was undertaken by an
Accredited Member of the Institute of Actuaries of Australia
in accordance with Actuarial Guidance Notes 225 and 552,
then those values may be used for the purposes of Savings
Group Ltd thin capitalisation calculations.
The valuation must identify the EMVONA component of
Insurance Co Ltd and the value of business in force of
Insurance Co Ltd at the time of the acquisition. Insurance
Co Ltd was valued as explained in Table 2.3.
3. : Valuation of Life Co Ltd: 1 July 2011
|Component |Description |Amount |
|Net assets |Net tangible |$6,805 |
|acquired |assets recognised| |
| |in the accounts | |
| |of Insurance Co | |
| |Ltd. | |
|Value of |The value of the |$5,911 |
|business in |existing business| |
|force |in force, being | |
| |the net present | |
| |value of the | |
| |expected | |
| |distributable | |
| |profit of | |
| |business in force| |
| |at the time of | |
| |acquisition. | |
|Value of new |The value of new |$3,493 |
|business |business, being | |
| |the net present | |
| |value of the | |
| |expected profits | |
| |of the new | |
| |business to be | |
| |written over | |
| |future periods of| |
| |time. | |
|Total value |Total value of |$16,209 |
| |Insurance Co Ltd | |
| |on the date of | |
| |acquisition. | |
The value of business in force at 1 July 2011 is $5,911.
For the year ending 30 June 2012, Savings Group Ltd, will
have a value of business in force at acquisition of $5,911.
Under APRA's regulatory regime (assuming it remains
unchanged), it will be a tier 1 prudential capital deduction
For the year ending 30 June 2012, the safe harbour capital
amount of Savings Group Ltd excludes the value of business
in force at acquisition of $5,911 from the safe harbour
capital amount.
For the year ending 30 June 2013 the class of assets that
includes the investment in Insurance Co Ltd (which in turn
includes the value of business in force) is impaired by
$3,000. This represents a 50 per cent reduction in that
class of assets from the previous year. The goodwill or
intangible assets recorded in the accounts of Savings Group
Ltd are to be adjusted to reflect this impairment.
Therefore on 30 June 2003 the value of business in force at
acquisition, will be $2,955.50 (0.5 × $5,911).
Capitalised software expenses
46. Under Australian Generally Accepted Accounting Principles,
capitalised software costs that were identified as 'other assets'
and not intangible assets were treated as risk-weighted assets and
increased the safe harbour capital amount required to be held by 4
per cent of their value.
47. Australian equivalents to International Financial Reporting
Standards AASB 138: Intangible Assets treats all capitalised
software costs as intangible assets. Intangible assets are a tier
1 prudential capital deduction and as such, in the absence of this
amendment, would reduce the safe harbour capital amount by 100 per
cent of their value.
48. The safe harbour method statement in section 820-310 is amended to
substantively retain the treatment of capitalised software costs
under the accounting and prudential standards that existed
immediately before the Australian equivalents to International
Financial Reporting Standards were adopted.
49. That is, intangible assets referrable to capitalised software costs
are not treated as a tier 1 prudential capital deduction as they
are excluded from step 3 of the safe harbour capital amount method
statement in section 820-310. Capitalised software costs retain
risk-weighted asset treatment and increase the safe harbour capital
amount required to be held by 4 per cent of their value by virtue
of their inclusion at step 1 of that method statement. [Schedule
2, items 3 and 4, section 820-310 (step 1 in the method statement),
section 820-310 (step 3(d) in the method statement)]
Requirement to use accounting standards
50. Subsection 820-680(1) requires an entity to comply with the
accounting standards in identifying its assets and liabilities and
in determining the value of its assets, liabilities and equity.
The note following subsection 820-680(1) refers to provisions which
modify this requirement. That note is amended to include the
changes made by this Schedule to the treatment of the value of
business in force component of the 'EMVONA' asset. [Schedule 2,
item 7, subsection 820-680(1)(note)]
Application and transitional provisions
51. The transitional arrangements in the Income Tax (Transitional
Provisions) Act 1997 cease to apply for income years commencing on
or after 1 January 2009. The amendments made by this Schedule
apply to assessments for each income year starting on or after
1 January 2009. [Schedule 2, item 9]
Chapter 3
Transactions involving security and intelligence agencies
Outline of chapter
52. Schedule 3 to this Bill amends the tax law to provide the heads of
the Australian Security Intelligence Organisation and the
Australian Secret Intelligence Service with the power to declare
that Commonwealth tax laws do not apply to a specified entity in
relation to a specified transaction. This ensures that the tax
authorities will not need to obtain information that should remain
secret in the interests of national security.
Context of amendments
53. Under current tax law, the administrative obligations on tax
authorities can require them to seek information that, for reasons
of Australia's national security, is very sensitive and should
remain confidential. In practice, the tax authorities have usually
respected requests from the security and intelligence agencies not
to seek such information but there are doubts whether complying
with such requests would always be legally justified.
Summary of new law
54. These amendments grant a power to the Director-General of Security
and the Director-General of the Australian Secret Intelligence
Service to declare that a specified entity is not subject to
Commonwealth tax laws in relation to a specified transaction.
Making a declaration about a transaction will mean that the tax
authorities will not need to seek information about that
transaction and so will not have to choose between observing their
obligations under the tax laws and preserving Australia's national
security interests.
Comparison of key features of new law and current law
|New law |Current law |
|Where they believe it |There is no express |
|necessary for the proper |exemption from the tax |
|performance of the |laws for transactions |
|functions of Australia's |related to the |
|security and intelligence|operational activities of|
|agencies, the |Australia's security and |
|Director-General of |intelligence agencies. |
|Security and the |Accordingly, the tax |
|Director-General of the |authorities could be |
|Australian Secret |obliged to seek |
|Intelligence Service can |information, even if |
|declare specified |providing it might |
|entities exempt from the |jeopardize Australia's |
|tax laws in relation to |national security |
|specified transactions. |interests. |
|Therefore, the tax | |
|authorities will not need| |
|to seek information about| |
|those transactions. | |
Detailed explanation of new law
55. Situations can arise where transactions entered into in connection
with the operational activities of Australia's security and
intelligence agencies could attract taxation consequences. In
working out how the tax laws apply to those transactions, the tax
authorities may need information that should be kept secret in the
interests of Australia's national security. This can result in a
conflict between the interests of national security and the tax
law.
56. While these conflicts have been managed till now by the tax
authorities taking a reasonable approach when asked to by the
security and intelligence agencies, it would be preferable to
provide legislative guidance to deal with these cases.
57. These amendments address the conflicts by giving the heads of the
relevant security and intelligence agencies the power to declare
that specified entities are not subject to Commonwealth tax laws in
relation to specified transactions. The result will be that the
tax authorities will not need to seek information about entities in
relation to transactions subject to a declaration. [Schedule 3,
item 1, subsection 850-100(1)]
58. Unless otherwise specified, legislative references in this chapter
are to provisions in Schedule 1 to the Taxation Administration Act
1953.
Making a declaration
59. A declaration can be made by the Director-General of Security or by
the Director-General of the Australian Secret Intelligence Service
[Schedule 3, item 1, subsections 850-100(2) and (3)]. To make a
declaration, they must be satisfied that it is necessary for the
proper performance of the functions (respectively) of the
Australian Security Intelligence Organisation or the Australian
Secret Intelligence Service [Schedule 3, item 1, subsection 850-
100(4)].
60. A declaration must be made in writing and must be signed by the
relevant Director-General [Schedule 3, item 1, subsection 850-
100(5)]. It must also specify one or more entities and one or more
transactions. It is not enough to specify an entity without also
specifying a transaction, or vice versa [Schedule 3, item 1,
subsections 850-100(2) and (3)].
Entities
61. 'Entity' is a widely defined term (see subsection 960-100(1) of the
Income Tax Assessment Act 1997 (ITAA 1997)). It includes
individuals, corporations, trusts, partnerships, superannuation
funds and bodies politic. It is not necessary for a declaration to
name a particular entity; it can specify a class of entities (see
subsection 46(3) of the Acts Interpretation Act 1901). For
instance, a declaration would sufficiently specify an entity if it
said that it applied to the parties to a specified transaction.
62. These amendments make it clear that a declaration can specify the
Australian Security Intelligence Organisation or the Australian
Secret Intelligence Service as entities. [Schedule 3, item 1,
subsections 850-100(2) and (3)]
63. The specified entity need not still exist when the declaration is
made. For instance, a declaration could specify a deceased
individual or a liquidated company. [Schedule 3, item 1, paragraph
850-100(6)(b)]
Transactions
64. A declaration must specify a transaction. As with entities, it can
do that by specifying a class of transactions instead of naming a
particular transaction (see subsection 46(3) of the Acts
Interpretation Act 1901).
65. A declaration can specify a transaction that has already happened
before the declaration is made [Schedule 3, item 1, paragraph 850-
100(6)(a)]. It does not matter that the specified transaction
happened before these amendments commence [Schedule 3, item 1,
subsection 850-100(4)].
Revoking a declaration
66. The Directors-General also have the power to revoke or vary any
declaration they have made (see subsection 33(3) of the Acts
Interpretation Act 1901).
Effect of a declaration
67. For an entity specified in a declaration, the specified
transactions are disregarded in determining the entity's tax-
related liabilities under any Commonwealth law [Schedule 3, item 1,
paragraph 850-100(8)(a)]. The transactions are also disregarded in
determining the entity's entitlement to any tax-related benefit
under any Commonwealth law [Schedule 3, item 1, paragraph 850-
100(8)(b)].
1. : Entity not liable to taxation or entitled to refund
A declaration is stated as applying the exempting provisions
to a service that James pays Jack to provide. The result is
that Jack and James are not liable for taxation or entitled
to any tax credit or refund in relation to their
transaction. Jack will not treat the payment as assessable
income for income tax purposes and will not pay goods and
services tax (GST) for providing the service. James will
not be able to deduct the payment for income tax purposes,
will not be liable for any superannuation guarantee charge
in relation to the payment, and will not be entitled to any
input tax credit for GST purposes.
68. These effects of a declaration apply even to tax consequences that
a provision of a law says can only be exempted by another provision
if it expressly says that it is providing an exemption from that
consequence. [Schedule 3, item 1, paragraph 850-100(8)(a)]
69. These amendments are drafted that way (as opposed to expressly
mentioning particular consequences) to ensure that all provisions
of that sort are covered. Current examples of 'exemption
limitation' provisions covered by the amendments are:
1. : Exemption limitation provisions covered
|Provision |Tax |
|Section 14-85 |TFN withholding |
| |tax |
|Section 177-5 of the A New|GST |
|Tax System (Goods and | |
|Services Tax) Act 1999 | |
|Section 21-5 of the A New |Luxury car tax |
|Tax System (Luxury Car | |
|Tax) Act 1999 | |
|Section 27-25 of the A New|Wine tax |
|Tax System (Wine | |
|Equalisation Tax) Act 1999| |
|Section 131B of the |Duties of customs|
|Customs Act 1901 | |
|Section 54A of the Excise |Excise duty |
|Act 1901 | |
|Section 14 of the |'Levy' within the|
|Financial Institutions |meaning of Part 2|
|Supervisory Levies |of that Act |
|Collection Act 1998 | |
|Section 66 of the Fringe |Fringe benefits |
|Benefits Tax Assessment |tax |
|Act 1986 | |
|Section 5A of the |Superannuation |
|Superannuation Guarantee |guarantee charge |
|(Administration) Act 1992 | |
|Section 15DH of the |'Levy' within the|
|Superannuation (Self |meaning of Part |
|Managed Superannuation |IIIAA of that Act|
|Funds) Taxation Act 1987 | |
70. An amount of ordinary income (such as wages) that is excluded from
being assessable income will usually be exempt income for income
tax purposes (see subsection 6-20(2) of the ITAA 1997). Exempt
income can reduce the recipient's income tax losses of previous
years (see Division 36 of the ITAA 1997). Amounts arising under a
transaction specified in a declaration do not have that effect
because the transaction is disregarded in working out tax-related
liabilities and benefits, including the effect of a tax loss.
[Schedule 3, item 1, subsection 850-100(6)]
71. For an entity specified in a declaration, the specified
transactions are also disregarded in determining whether the entity
has any rights or obligations in relation to tax-related
liabilities or benefits. If it does, the transactions are ignored
in determining the extent of those rights and obligations.
[Schedule 3, item 1, paragraph 850-100(8)(c)]
1. : Entity not liable to taxation or entitled to refund
Continuing the previous example, Jack's and James'
transaction is ignored in working out whether James has to
withhold any part of his payment to Jack or whether either
of them has to keep records about the transaction.
Miscellaneous aspects of declarations
Legislative instruments
72. A declaration would probably be a legislative instrument within the
meaning of the Legislative Instruments Act 2003. That Act requires
that legislative instruments, unless exempt, be registered on the
Federal Register of Legislative Instruments (see section 24 of that
Act) and to be tabled in Parliament (see section 38 of that Act),
and would usually result in the instrument ceasing to apply after
10 years (see section 50 of that Act). Those outcomes would not be
appropriate for reasons of national security and personal privacy.
Declarations will necessarily contain sensitive operational
information and personal information, which should not be publicly
disclosed. For that reason, these amendments provide that the
declarations are not legislative instruments and are therefore
exempt from the requirements of the Legislative Instruments Act
2003. [Schedule 3, item 1, subsection 850-100(9)]
Evidence
73. Something that purports to be a signed declaration is to be taken
to be a properly made declaration in the absence of evidence to the
contrary. That avoids the possibility that the tax authorities
would need to seek information to satisfy themselves that a
declaration was validly made before giving effect to it. [Schedule
3, item 1, subsection 850-100(7)]
74. The Inspector-General of Intelligence and Security provides
independent assurance for ministers and Parliament as to whether
Australia's security and intelligence agencies are acting legally
and with propriety by inspecting, inquiring into and reporting on
their activities. It would be inconsistent with the proper
performance of that function for the Inspector-General to be
required to presume that the declarations were properly made.
Therefore, the presumption does not apply to the activities of the
Inspector-General. [Schedule 3, item 1, subsection 850-100(7)]
Oversight
75. As well as being reviewed by the Inspector-General of Intelligence
and Security, who is appointed under the Inspector-General of
Intelligence and Security Act 1986, the making of declarations will
be generally overseen by the Parliamentary Joint Committee on
Intelligence and Security. That committee is established under
section 28 of the Intelligence Services Act 2001 and has among its
functions, reviewing the administration and expenditure of the
security and intelligence agencies (see paragraph 29(1)(a) of that
Act).
Application and transitional provisions
76. These amendments apply from commencement on Royal Assent [Clause 2,
item 3 in the table]. However, a declaration can be made in
relation to a transaction that occurred before commencement
[Schedule 3, item 1, subsection 850-100(6)].
Chapter 4
Special Disability Trusts - changes to the taxation of unexpended income
Outline of chapter
77. Schedule 4 to this Bill amends Division 6 of the Income Tax
Assessment Act 1936 (ITAA 1936) so that the unexpended income of a
Special Disability Trust (SDT) is taxed at the relevant principal
beneficiary' personal income tax rate rather than automatically at
the top personal tax rate plus the Medicare levy.
78. All legislative references in this chapter are made to the
ITAA 1936 unless otherwise specified.
Context of amendments
79. In 2006, SDTs were introduced to assist families and carers to make
private financial provision for the current and future care and
accommodation needs of a family member with severe disability -
referred to as the principal beneficiary. The benefits of
establishing these trusts are a gifting concession of up to
$500,000 combined for eligible family members of the principal
beneficiary and an assets test exemption of up to $551,750 indexed
annually for the principal beneficiary. In order to access these
concessions the trust must be established in accordance with
Part 3.18A of the Social Security Act 1991.
80. These amendments ensure that the taxation of the unexpended income
of a trust is not a disincentive to the establishment of an SDT.
81. SDTs are currently taxed in accordance with the general rules for
the taxation of trusts in Division 6 of the ITAA 1936. Whether the
beneficiary or the trustee pays tax under these rules depends on a
range of factors, including whether the beneficiary is presently
entitled to a share of the income of the trust and whether they are
under a legal disability.
82. Broadly, the principal beneficiary of an SDT is deemed to be
presently entitled to the income of the SDT that is expended for
their care and accommodation, in accordance with section 101. This
amount is then included in the assessable income of the principal
beneficiary under section 97 if they are a resident, or section 98A
if they are a non-resident where they are not under a legal
disability. Alternatively, if the principal beneficiary is deemed
to be presently entitled to the income of the SDT and is under a
legal disability, the trustee of the SDT is assessed on their
behalf under section 98.
83. Where the income of an SDT is not fully expended on the care and
accommodation of the principal beneficiary, this unexpended income
is retained in the trust. The trustee of the trust is assessed on
this income under section 99A at penalty rates of tax - being 46.5
per cent.
84. On 15 May 2008 the Senate referred a number of matters relating to
SDTs to the Community Affairs Committee for inquiry and report by
18 September 2008, including:
. why more families of dependents with disabilities are not
making use of the current provisions to establish SDTs;
. the effectiveness of Part 3.18A of the Social Security
Act 1991;
. barriers in the relevant legislation to the establishment
of SDTs; and
. possible amendments to the relevant legislation.
85. In its report, which was tabled on 16 October 2008, the Committee
highlighted that the tax arrangements that apply to SDTs diminish
their value for carers and people with disabilities.
86. As part of the 2009-10 Budget the Government announced that it
would tax the unexpended income of an SDT at the principal
beneficiary's personal income tax rate rather than at the top
personal tax rate plus the Medicare levy.
87. These amendments address one of the tax issues identified by the
Senate Standing Committee on Community Affairs and are designed to
ensure that taxation is not a disincentive to the establishment of
an SDT.
Summary of new law
88. These amendments ensure that from the 2008-09 income year all of
the net income of an SDT is brought to tax at the marginal tax rate
of the principal beneficiary of that SDT.
89. To achieve this result, these amendments provide that the net
income of an SDT is, in the first instance, assessed to the trustee
of the trust. The entire amount of the net income of the SDT may
then be included in the assessable income of the principal
beneficiary. To ensure that the net income of the SDT is not
effectively taxed twice, an offset is provided to the principal
beneficiary for the amount of tax paid or payable by the trustee
where the net income of the SDT is also assessed to the principal
beneficiary.
Comparison of key features of new law and current law
|New law |Current law |
|From the 2008-09 income |Some or all of the net |
|year, all of the net |income of an SDT may be |
|income of an SDT is taxed|subject to tax under |
|at the principal |section 99A at the top |
|beneficiary's marginal |personal marginal tax |
|tax rate. |rate plus the Medicare |
| |levy. |
Detailed explanation of new law
90. In order to ensure that all of the net income of an SDT is taxed at
the marginal tax rate of the principal beneficiary, these
amendments make a number of modifications to the operation of
Division 6.
Eligibility for these modifications
91. The modifications made by these amendments to Division 6 only apply
in relation to a year of income where a trust estate is an SDT at
the end of the income year.
[Schedule 4, item 3, subsection 95AB(1)]
1.
Andrea is an elderly single parent who has a son John, who
is severely disabled. During the 2008-09 income year Andrea
decides to establish an SDT in order to provide for John's
future care and accommodation.
The SDT is established on 1 June 2009. It is assessed
taking into account the modifications to Division 6 provided
for in section 95AB for the entire 2008-09 income year.
92. Where a trust estate is not an SDT at the end of an income year the
trust estate is subject to the ordinary operation of Division 6.
1.
On 1 January 2009, Casey, who is the principal beneficiary
of the Ackroyd SDT, passes away. Due to Casey's death, the
Ackroyd SDT ceases to be a complying SDT as the trust does
not have a principal beneficiary.
The net income of the Ackroyd trust is assessed in
accordance with the ordinary operation of Division 6 for the
entire 2008-09 income year.
Present entitlement to the income of an SDT
93. Division 6 relies on the concept of present entitlement in order to
determine how and to whom the net income of a trust is assessed.
Under Division 6, a beneficiary is only assessable on a share of
the trust's net income if they are presently entitled to a share of
the income of the trust estate. If there is a share of the income
of the trust estate to which no beneficiary is presently entitled,
the trustee of the trust is assessed on that share of the net
income of the trust under section 99A or (where applicable) section
99.
94. As the Social Security Act 1991 currently places a number of
restrictions upon how the income of an SDT can be applied, it is
common for the principal beneficiary of an SDT not to be presently
entitled to all of the income of the SDT. The result under the
current law is that a portion of the net income of the trust
remains in an SDT at the end of the income year and is assessed to
the trustee at penalty rates under section 99A, reducing the amount
that can be applied for the future care and accommodation of the
principal beneficiary.
95. These amendments treat the principal beneficiary of an SDT as if
they are presently entitled to all of the income of the SDT. This
change ensures that there is no net income of an SDT that is
assessed to the trustee under section 99A, even where income is
retained in the trust at the end of the income year, increasing the
amount available for the care and accommodation of the principal
beneficiary in future income years.
[Schedule 4, item 3, subsection 95AB(2)]
1.
Sammy and Scott are an elderly couple. Their daughter
Rachel is severely disabled. Sammy and Scott establish an
SDT in order to provide for Rachel's care and accommodation
needs.
In the 2008-09 income year, the SDT has income of $15,000.
The SDT's net income is also $15,000. The trustee of the
SDT applies $10,000 for Rachel's reasonable care and
accommodation costs and retains the remaining $5,000 in the
trust.
Rachel is deemed to be presently entitled to all of the
$15,000 of the trust's income for the 2008-09 income year
although $5,000 of the income is retained in the trust.
SDT has no income for an income year
96. Currently where a trust does not have any trust income for the
purposes of section 97 or 98, but has net income as defined under
the tax law, the trustee of the trust is assessed under section 99A
on the whole of the net income of the trust.
97. These amendments ensure that where an SDT has no trust income but
has net income, the SDT is treated as if it has income. In
addition, where paragraph 95AB(4)(a) operates to treat the trust as
if it has income, the principal beneficiary of the SDT is treated
as being presently entitled to all of that income.
[Schedule 4, item 3, paragraph 95AB(4)(b)]
98. This treatment ensures that the trustee of an SDT is not assessed
under section 99A, ensuring that the whole of the net income of the
SDT is assessed at the marginal tax rate of the principal
beneficiary. [Schedule 4, item 3, subsection 95AB(4)]
1.
Andrew is the principal beneficiary of the Walker SDT.
In the 2008-09 income year, the Walker SDT has no trust
income but has net income of $5,000 from the sale of a
parcel of shares.
Although the trust does not have any income for the 2008-09
income year, it is treated as if it has income for the
purposes of Division 6.
In addition, Andrew is treated as if he is presently
entitled to all of the income of the trust.
Resident principal beneficiary treated as being under a legal disability
99. In order to tax the unexpended income of an SDT at the marginal tax
rate of the principal beneficiary, these amendments ensure that the
income of the SDT is in the first instance assessed to the trustee
of the trust and then (in relevant circumstances) to the principal
beneficiary of the trust.
100. This approach to taxing a trust's net income currently applies
under subsection 98(3) and section 98A where a beneficiary is a non-
resident at the end of an income year and under subsection 98(1)
and section 100 where a beneficiary is under a legal disability and
has income from other sources (or is a beneficiary in more than one
trust).
101. There is no mechanism in the existing law that allows this approach
to be adopted where the beneficiary of a trust is a resident and is
not under a legal disability. In order to tax the income of an SDT
at the marginal tax rate of the principal beneficiary, these
amendments treat principal beneficiaries of SDTs, who are residents
at the end of the income year, as if they are under a legal
disability for the purposes of Division 6.
[Schedule 4, item 3, subsection 95AB(3)]
102. This treatment ensures that the net income of an SDT is always
taxed to the trustee in the first instance under subsection 98(1)
and then if appropriate, included in the principal beneficiary's
assessable income under section 100 along with any relevant tax
offset.
1.
Rummana is an Australian resident and is not under a legal
disability. She is the principal beneficiary of the Chang
SDT for the 2008-09 income year.
The Chang SDT has income (and net income) of $10,000 for the
2008-09 income year. Pursuant to the trust's deed, $5,000
is applied for Rummana's reasonable care and accommodation
costs. The remaining $5,000 is accumulated in the trust.
Rummana is treated as if she is presently entitled to the
entire income of the Chang SDT and under a legal disability.
Consequently, the trustee of the Chang SDT is assessed on
the entire $10,000 of net income in accordance with
subsection 98(1).
Offset for an amount paid or payable by the trustee of an SDT
103. Under the existing law, where both the trustee and beneficiary of a
trust are assessed on all or part of the net income of a trust, an
offset is provided to the beneficiary for the tax paid or payable
by the trustee. In particular, where the trustee is assessed under
subsection 98(1) and the beneficiary under section 100, an offset
is available to the beneficiary under subsection 100(2). This
avoids double taxation.
104. Where the amount of tax paid by the trustee of a trust, on behalf
of the beneficiary under subsection 98(3) exceeds the beneficiary's
individual tax liability under subsection 98A(1), the Commissioner
of Taxation (Commissioner) is obliged to pay to the beneficiary an
amount equal to the difference between the two amounts in
accordance with paragraph 98A(2)(b). Currently there is no
requirement for the Commissioner to make such a payment in relation
to the offset provided for under subsection 100(2).
105. To ensure that all of the net income of an SDT is taxed at the
marginal tax rate of the principal beneficiary, subsection 95AB(5)
of these amendments provides for an appropriate portion of the
offset available to the principal beneficiary to be refunded where
the tax assessed to the beneficiary is less than the amount of tax
the trustee is liable to pay under subsection 98(1). The
refundable amount, determined under subsection 95AB(5), is subject
to the existing refundable tax offset rules in Division 67 of the
Income Tax Assessment Act 1997.
1.
In the 2008-09 income year, Mark is the principal
beneficiary of the Lang SDT. Mark is a resident, is not
under a legal disability and has a part-time job during the
2008-09 income year from which he earns $5,000.
During the 2008-09 income year, the Lang SDT earns income of
$25,000. The net income of the trust is also $25,000.
The trustee of the Lang SDT applies $20,000 for Mark's
reasonable care and accommodation costs during the income
year and retains the remaining $5,000 in the trust.
Mark is treated as if he is presently entitled to all of the
income of the Lang SDT and under a legal disability. The
trustee of the Lang SDT is therefore assessed on the entire
$25,000 in accordance with subsection 98(1). However as
Mark has also derived income from his part-time employment,
he is required to include the entire income of the SDT in
his assessable income under subsection 100(1).
Mark is assessed on $30,000 at his marginal rates of tax for
the 2008-09 income year. He is also able to offset any tax
paid or payable by the trustee of the Lang SDT on the
$25,000 of trust net income against his individual
assessment.
Before the 2008-09 income year Mark would have been assessed
on $25,000 at his marginal rates of tax and the trustee of
the Lang SDT would have been assessed on $5,000 at 46.5 per
cent.
2.
In the 2008-09 income year, Maria is the principal
beneficiary of the Barker SDT. She is a under a legal
disability and is an Australian resident. She derives
$5,000 of income during the 2008-09 income year from other
sources.
The Barker SDT has income of $35,000 for the 2008-09 income
year. The net income of the trust is also $35,000. The
trustee of the Barker SDT applies $20,000 for Maria's
reasonable care and accommodation costs and retains $15,000
in the trust.
As a result of these amendments, the trustee of the Barker
SDT is assessed on the entire $35,000 under
subsection 98(1). However as Maria has also derived income
from other sources she is required to include the entire
income of the SDT in her assessable income.
Maria is assessed on $40,000 at her marginal rates of tax
for the 2008-09 income year. She is also able to offset any
tax paid or payable by the trustee of the Barker SDT on the
$35,000 of trust net income against her individual
assessment.
Before the 2008-09 income year Maria would have been
assessed on $25,000 at her marginal rates of tax and the
trustee of the Barker SDT would have been assessed on
$15,000 at 46.5 per cent.
Minor principal beneficiaries
106. Under the existing law, principal beneficiaries of SDTs who are
minors are generally treated as excepted persons under
section 102AC. These amendments put this outcome beyond doubt and
ensure that all minors who are the principal beneficiaries of SDTs
are excepted persons for the purposes of section 102AC.
[Schedule 4, item 4, paragraph 102AC(2)(d)]
Application and transitional provisions
107. These amendments apply for the 2008-09 income year and later income
years. [Schedule 4, item 8]
Chapter 5
Definition of a managed investment trust
Outline of chapter
108. Schedule 5 to this Bill makes amendments to Subdivision 12-H of
Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) which
applies for withholding tax purposes.
109. This Schedule:
. amends Subdivision 12-H of Schedule 1 to the TAA 1953
dealing with the definition of a 'managed investment
trust' (MIT); and
. makes consequential amendments to Division 275 of the
Income Tax Assessment Act 1997 (ITAA 1997).
110. All legislative references are to Schedule 1 to the TAA 1953 unless
otherwise stated.
Context of amendments
111. The MIT withholding tax rules were enacted by Subdivision 12-H of
Schedule 1 to the TAA 1953. The rules were enacted by the Tax Laws
Amendment (Election Commitments No. 1) Act 2008.
112. These rules specify the definition of a MIT for the purpose of pay
as you go (PAYG) withholding on certain fund payments to foreign
residents.
113. The intention of the MIT withholding tax regime - to enhance the
competitiveness of the Australian managed funds industry in
attracting future foreign investment - is achieved by subjecting
most foreign investors to a reduced rate of final withholding tax
on fund payments from the MIT. This rate will fall to a 7.5 per
cent final withholding tax for fund payments in respect of the
income year beginning on or after 1 July 2010.
114. The reduced withholding tax rates only apply where the investor is
a resident of a country with which Australia has effective exchange
of information on taxation matters. In other cases, the rate is 30
per cent.
115. Dividends, royalties and interest payments are specifically
excluded from being fund payments. Implicitly, fund payments are
other Australian sourced income derived from passive investments.
116. The Government announced amendments to the definition of a MIT in
the Assistant Treasurer's Media Release No. 020 of
10 February 2010. On that day, the Government introduced
amendments to the ITAA 1997 to provide for a capital account
election mechanism for trusts that are MITs (the MIT capital
measure). For the purpose of the capital measure, a trust that is
a MIT (as defined in the TAA 1953) is generally a MIT for capital
account treatment.
117. The current definition of a MIT for withholding tax purposes
precludes some wholesale funds from being treated as a MIT.
Provided genuine wholesale funds are subject to regulation in
Australia and are appropriately widely held, it is appropriate for
these trusts to be MITs for withholding tax purposes and for their
foreign resident investors to receive the benefit of the reduced
withholding tax rates.
118. The Government, in furthering its objective to secure Australia's
position as a financial services centre, is amending the definition
of a MIT to ensure that certain widely-held wholesale managed
investment schemes (MISs) and government-owned MISs, are able to
qualify as MITs under new rules applying to these funds.
119. In addition, new rules will apply to ensure the MIT withholding tax
rules are operating as originally intended. The first new rule is
the introduction of a trading business test to ensure that
Australian active businesses (operating through any structure) are
not at a competitive disadvantage. This is also consistent with
the policy basis that the MIT definition is aimed at covering only
collective investment vehicles that predominantly undertake passive
investment.
120. Secondly, in line with ensuring the provisions are operating as
originally intended, the MIT definition will be limited to
qualifying trusts where a substantial proportion of the investment
management activities relating to the assets of the trust with a
relevant connection with Australia are carried out in Australia.
The relevant investment management activities are generally
undertaken by the manager of the fund. Such decisions relate to
the type of, and timing of the purchase of, investment assets.
121. This change is designed to ensure that one of the original
objectives of the MIT withholding rules - to enhance the
competitiveness of the Australian funds management industry - is
met. As this policy objective is not as relevant for the MIT
capital measure (which is directed more towards increasing
certainty for investors and managed funds), this rule will not
apply for the purposes of that measure.
122. Thirdly, consistent with the objective of both the MIT withholding
tax rules and the MIT capital measure, a further change will ensure
only genuinely widely-held trusts are able to qualify as a MIT.
This will be achieved through introducing an exclusion for closely-
held trusts.
Summary of new law
123. Schedule 5 makes amendments to the definition of a MIT for
withholding tax purposes. A MIT, as defined in subsection 995-1(1)
of the ITAA 1997, has the meaning given by section 12-400. The
amended definition will also generally apply for the purposes of
the rules dealing with capital account treatment for MITs in
Division 275 of the ITAA 1997.
124. These amendments extend the definition of a MIT to allow certain
MISs that are not required to be registered under the Corporations
Act 2001 because they provide financial services to wholesale
clients (unregistered wholesale funds) to qualify as a MIT,
provided other requirements to be a MIT are satisfied.
125. The amendments also extend the definition of a MIT to allow a MIS
that is unable to register under the Corporations Act 2001 because
it is operated by an entity in the capacity of the Crown
(government-owned), to qualify as a MIT. Likewise, a wholesale MIS
that is operated or managed by an entity that is not required to be
a financial services licensee because it is an entity in the
capacity of the Crown may qualify as a MIT. The amendments will
extend to cases where a MIS is operated or managed by an entity
that is a wholly-owned subsidiary of a Crown entity and the
Australian Securities and Investments Commission (ASIC) has issued
an exemption instrument that has effect in relation to the entity
and the operation of the MIS.
126. These amendments set out a new definition of MIT for both
registered MISs (those registered under the Corporations Act 2001
generally operated by a financial services licensee (as defined by
section 761A of that Act) whose licence covers operating such a
MIS) that are not wholesale MISs and wholesale MISs (that are both
registered and unregistered).
127. Irrespective of the type of MIS (that is, whether it is a
registered wholesale MIS, unregistered wholesale MIS, or registered
MIS that is not a wholesale trust), the definition of a MIT is
being amended to provide that, subject to satisfying other
conditions, the trust must be:
. an Australian resident trust;
. a MIS (as defined by section 9 of the Corporations
Act 2001); and
. widely held.
128. These amendments introduce separate tests for registered wholesale
MISs, registered MISs that are not wholesale trusts, and
unregistered wholesale MISs to determine whether they are widely
held. Having a separate widely-held test for each type of MIS is
appropriate because holdings in each type of MIS, including direct
and indirect holdings, are generally quite different.
129. To add further integrity to the MIT withholding tax rules, a trust
that breaches the closely-held requirements (being the small group
closely-held test and the foreign resident individual closely-held
test) will not be able to qualify as a MIT.
130. New rules will ensure the intended objectives of the MIT
withholding tax rules, when originally introduced, are satisfied.
A unit trust that would otherwise qualify as a MIT will no longer
qualify if it is a trading trust for the purposes of Division 6C in
Part III of the Income Tax Assessment Act 1936 (ITAA 1936). Any
other trust will no longer qualify if, in the year of income, the
trust carried on a trading business or controlled (or was able to
control) directly or indirectly the affairs or operations of
another person in respect of the carrying on by that other person
of a trading business (within the meaning of Division 6C).
131. The effect of these additional requirements is to broaden the
current exclusion that applies to public trading trusts and
corporate unit trusts to all trading trusts.
132. Consistent with the original policy objectives underpinning the MIT
withholding tax rules - to support the Australian funds management
industry - the amendments provide that a substantial proportion of
the investment management activities carried out throughout the
income year in relation to the assets of the trust with a relevant
connection with Australia must be carried out in Australia. If
this additional requirement is not met, the trust will not qualify
as a MIT for the withholding tax rules but may still be treated as
a MIT for the purposes of the MIT capital account treatment rules.
133. The amendments made by this Schedule apply for Subdivision 12-H
purposes in relation to fund payments made in relation to the first
income year starting on or after the first 1 July after Royal
Assent.
134. However, in situations where a trust was a MIT for an income year
starting before 26 May 2010 (the date of introduction of this Bill
to Parliament), or a trust would have been a MIT in such an income
year if the trustee of the trust had made a fund payment in
relation to the income year in that income year (and before 26 May
2010), the amended rules do not apply to that trust in relation to
the 2010-11 through to 2016-17 income years.
135. This preserves the status of the trust as a MIT if it qualified as
a MIT before the amendments made by this Schedule to this Bill.
This transitional rule applies in respect of the MIT withholding
tax rules and the capital account treatment rules.
136. The amended rules generally apply in relation to Division 275 of
the ITAA 1997 (the MIT capital measure) in the same way as the
amendments made by Schedule 3 to the Tax Laws Amendment (2010
Measures No. 1) Bill 2010. Generally, this is in relation to
certain capital gains tax (CGT) events that happen on or after the
start of the 2008-09 income year.
137. These amendments to the definition of a MIT apply in relation to
Subdivision 126-G of the ITAA 1997 in relation to CGT events
happening on or after 1 November 2008, consistent with the
application date of the limited roll-over in that Subdivision.
Comparison of key features of new law and current law
|New law |Current law |
|An unregistered wholesale|An unregistered MIS |
|MIS will qualify as a MIT|cannot qualify as a MIT |
|(provided it meets |as the trust is not |
|certain requirements). |operated by an entity |
| |that holds an Australian |
| |Financial Services |
| |Licence to operate such a|
| |scheme. |
|A registered MIS (whether|A registered MIS can |
|a wholesale trust or not)|qualify as widely held if|
|can qualify as widely |one of the entities that |
|held if one of the |is a member of the MIS is|
|entities that is a member|a specified widely-held |
|of the MIS is a specified|entity (for example, a |
|widely-held entity (for |complying superannuation |
|example, a complying |fund that has at least 50|
|superannuation fund that |members). |
|has at least 50 members) | |
|and holds more than 25 | |
|per cent of the interest | |
|in, control of, or rights| |
|to distributions from, | |
|the trust, and no other | |
|single entity holds more | |
|than a 60 per cent | |
|equivalent interest in | |
|the trust (provided the | |
|trust meets certain other| |
|requirements). | |
|A unit trust that is a |A trust that is carrying |
|trading trust (under |on a trading business and|
|Division 6C of the |is not a public trading |
|ITAA 1936) or another |trust (that is, a private|
|trust that is carrying on|trust) is not restricted |
|a trading business (or |from qualifying as a MIT |
|controls the carrying on |(provided the other |
|of such a business) will |requirements to be a MIT |
|not qualify as a MIT. |are satisfied). |
|A MIS that is operated by|No equivalent. |
|an entity that is a Crown| |
|entity (or a wholly-owned| |
|subsidiary of a Crown | |
|entity) that is exempt | |
|from holding an | |
|Australian Financial | |
|Services Licence to | |
|operate such a MIS will | |
|be able to qualify as a | |
|MIT (by being treated as | |
|satisfying the | |
|'registered MIS' | |
|requirement, but still | |
|having to satisfy the | |
|other requirements to be | |
|a MIT). | |
|An unregistered MIS that |No equivalent. |
|is operated or managed by| |
|an entity that is a Crown| |
|entity (or a wholly-owned| |
|subsidiary of a Crown | |
|entity for which ASIC has| |
|issued an exemption | |
|instrument) will be able | |
|to qualify as a MIT | |
|(provided it meets | |
|certain requirements). | |
|A registered MIS that is |A registered MIS cannot |
|not a wholesale trust |be a MIT if a foreign |
|will not be a MIT if 20 |resident individual holds|
|or fewer persons hold 75 |10 per cent or more |
|per cent or more interest|interest in, control of, |
|in, control of, or rights|or rights to |
|to distributions in, the |distributions in, the |
|trust, or if a foreign |trust. |
|resident individual holds| |
|a 10 per cent equivalent | |
|interest. | |
|A registered or |A registered MIS cannot |
|unregistered wholesale |be a MIT if a foreign |
|MIS will not be a MIT if |resident individual holds|
|10 or fewer persons hold |10 per cent or more |
|75 per cent or more |interest in, control of, |
|interest in, control of, |or rights to |
|or rights to |distributions in, the |
|distributions in, the |trust. |
|trust, or if a foreign | |
|resident individual holds| |
|a 10 per cent equivalent | |
|interest. | |
|To qualify as a MIT for |No equivalent. |
|withholding tax purposes | |
|a substantial proportion | |
|of the investment | |
|management activities | |
|relating to the assets of| |
|the trust with a relevant| |
|connection with Australia| |
|must be carried out in | |
|Australia. | |
|For the purposes of |No equivalent. |
|determining whether a | |
|trust is widely held, the| |
|following entities will | |
|be treated as specified | |
|widely-held entities: | |
|certain pooled | |
|superannuation trusts, | |
|foreign collective | |
|investment vehicles, | |
|tax-exempt foreign | |
|government pension funds,| |
|sovereign wealth funds, | |
|entities established and | |
|wholly-owned by an | |
|Australian government | |
|entity and any entity of | |
|a kind similar to an | |
|entity listed as | |
|specified in regulations.| |
|A trust is taken to have |A trust is taken to have |
|satisfied the widely-held|satisfied the widely-held|
|requirements for an |requirements for an |
|income year if it is |income year if it is |
|created any time in the |created any time in that |
|18 months prior to the |income year. |
|end of that income year. | |
|A transitional rule |No equivalent. |
|(through the application | |
|provision) will apply to | |
|ensure that a trust that | |
|qualifies as a MIT before| |
|the introduction of these| |
|amendments, or would have| |
|qualified as a MIT if | |
|(provided it was | |
|established before 26 May| |
|2010) it had made a fund | |
|payment before that date,| |
|will continue to be able | |
|to qualify as a MIT for | |
|the next seven income | |
|years for the purposes of| |
|the MIT withholding tax | |
|and capital account | |
|treatment rules. | |
Detailed explanation of new law
Extending the meaning of a MIT
138. The current definition of a MIT in item 2 of the table in
subsection 12-400(1) requires that a MIS (as defined by section 9
of the Corporations Act 2001) be operated by a financial services
licensee (as defined by section 761A of the Corporations Act 2001)
whose licence covers operating such a MIS. In this context, the
financial services licensee is a person who holds an Australian
Financial Services Licence to operate the MIS.
139. This requirement in the current law was targeted at MISs that are
registered under the Corporations Act 2001, which generally
includes 'retail' funds but may also include some 'wholesale' funds
- provided the funds are registered.
140. The current definition of MIT precludes some unregistered wholesale
MISs from qualifying as MITs. This is because an Australian
Financial Services Licence to operate a MIS (through a licence to
operate a scheme or a class of schemes) only covers what are
commonly referred to as retail MISs.
141. While it is possible for the manager of an unregistered MIS to hold
an Australian Financial Services Licence, the licence will not
necessarily cover the operation of an unregistered scheme - that
is, the current legislative requirement that the MIS be operated by
a financial services licensee whose licence covers operating such a
MIS will not be satisfied.
142. When Subdivision 12-H was inserted by the Tax Laws Amendment
(Election Commitments No. 1) Act 2008, it was not intended that, as
a general rule, MISs operating as wholesale funds were to be
excluded from the definition of a MIT.
143. Although the Corporations Law did not require unregistered
wholesale funds to be operated as registered MISs, previously,
subsection 601FC(4) of the Corporations Act 2001 prohibited a
registered scheme (for example, a retail fund) from investing in a
MIS that was not registered. Therefore, in practice, many
wholesale funds did register under the Corporations Act 2001 in
order to receive investment funds from the retail funds sector
(even though the wholesale fund itself was not required to be
registered). With the repeal of subsection 601FC(4) of the
Corporations Act 2001, there is a reduced practical need for
wholesale funds to be registered MISs.
144. Broadly, amendments made by this Schedule ensure that an Australian
resident trust that is a MIS that is widely held (and that meets
the other requirements to be a MIT) can qualify as a MIT. These
are referred to as the general requirements for a trust to be a MIT
(and are discussed in paragraphs 5.39 to 5.66). [Schedule 5, item
4, subsection 12-400(1)]
145. Under the new definition of a MIT, the distinction between a MIS
that is registered and one that is not is important, as is the
distinction between a MIS with wholesale membership (referred to as
a wholesale trust) and a MIS without wholesale membership. These
distinctions are important in determining whether the trust is
widely held, with different rules applying for the following
categories:
. a MIS that is a registered trust and a wholesale trust;
. a MIS that is a registered trust but not a wholesale
trust; and
. a MIS that is not registered but is a wholesale trust.
What are the general requirements for a trust to be a MIT?
146. For any trust to qualify as a MIT in relation to an income year -
whether a registered MIS under section 601EB of the Corporations
Act 2001 or not - the following requirements must be satisfied:
. at the time the trustee of the trust makes the first fund
payment in relation to the income year, or at an earlier
time in the income year the trust has a relevant
connection with Australia;
. at the time the payment is made, the trust is a MIS (as
defined by section 9 of the Corporations Act 2001);
. the trust is not a trading trust (for a unit trust) or
carrying on a trading business (for any other trust) in
relation to the income year or controlling the carrying on
of such a business; and
. a substantial proportion of the investment management
activities carried out in relation to the trust in respect
of the Australian assets under management are carried out
in Australia throughout the income year.
[Schedule 5, item 4, paragraphs 12-400(1)(a) to (d)]
147. Each of these general requirements is considered in detail in
paragraphs 5.42 to 5.66.
148. Further to these general requirements, there are specific
requirements relevant for a MIS that is registered under the
Corporations Act 2001 and is a wholesale trust (refer to paragraphs
5.69 to 5.101); for a trust that is so registered and is not a
wholesale trust (refer to paragraphs 5.102 to 5.114); and for a
trust that is not so registered but is a wholesale trust (refer to
paragraphs 5.115 to 5.129). [Schedule 5, item 4, paragraphs 12-
400(1)(e) to (g), and sections 12-401, 12-402 and 12-402A]
The trust must have a relevant connection to Australia
149. The first requirement to be met is that the trust must have a
relevant connection with Australia. At the time the first fund
payment is made (or at an earlier time in the income year), the
trustee must be an Australian resident or the central management
and control of the trust must be in Australia [Schedule 5, item 4,
paragraph 12-400(1)(a)]. This requirement currently applies in
item 1 in the table in subsection 12-400(1).
150. For the purposes of applying the definition of MIT for the capital
account election in Division 275 of the ITAA 1997, if no fund
payment is made by the trust, section 275-20 will apply to test
whether the trust has a relevant connection with Australia on the
first and last days of the relevant income year.
The trust must be a MIS
151. The second requirement to be met in order to qualify as a MIT is
that, at the time the first fund payment is made, the trust is a
MIS, as defined in section 9 of the Corporations Act 2001.
[Schedule 5, item 4, paragraph 12-400(1)(d)]
152. This is the same condition as currently applies in item 2 in the
table in subsection 12-400(1) which, when introduced in 2008, was
designed to ensure that the MIT withholding tax rules only applied
to trusts subject to an appropriate level of regulation within
Australia.
153. The requirement that the trust be a MIS is an appropriate and
reliable measure of the regulation of the trust itself and is
designed to:
. ensure only a trust associated with the management of
investments as regulated by the Corporations Act 2001 can
possibly qualify as a MIT;
. ensure the trust is a genuine collective investment
vehicle; and
. limit the ability of foreign residents to establish a
trust for the purposes of accessing the MIT withholding
tax rate.
154. The MIS requirement acts as a safeguard on the types of trusts that
can access the MIT withholding tax rates. For example, where
interest holders in a trust have day-to-day control over the
operation of the trust, it cannot be a MIS and, therefore, cannot
qualify as a MIT for withholding tax purposes. This ensures
foreign residents cannot simply establish trusts (that are not
regulated by the Corporations Act 2001) to qualify as MITs for the
purposes of accessing the MIT withholding tax rates on
distributions from the trust.
1.
ABC trust invests in Australian property. The trust is
owned by another trust, interests in which are held by more
than 50 foreign individual investors. The foreign investors
have the day-to-day control of the operation of the trust
and the trust does not qualify as a MIS under section 9 of
the Corporations Act 2001. ABC trust cannot qualify as a
MIT.
The trust must not be a 'trading trust'
155. The third general requirement that must be satisfied in determining
whether a trust can qualify as a MIT is that the trust must not be:
. in the case of a unit trust, a 'trading trust', as defined
under Division 6C of Part III of the ITAA 1936. This
exclusion is based on the trading trust definition in
Division 6C to ensure consistency with the treatment of
unit trusts under that Division [Schedule 5, item 4,
paragraph 12-400(2)(a)]; and
. in the case of any other trust, carrying on a trading
business or controlling, or being able to control
(directly or indirectly) the affairs or operations of
another person in respect of the carrying on by that other
person of a trading business (within the meaning of
Division 6C in Part III of the ITAA 1936) [Schedule 5,
item 4, paragraph 12-400(2)(b)].
156. A 'trading business' is a business that does not consist wholly of
an eligible investment business. An 'eligible investment business'
generally means investing in land for rent, or for the primary
purpose of deriving rent, or trading and investing in shares, units
and financial instruments.
157. For a unit trust, the trading trust test; and for other trusts, the
test for what is a trading business - both in Division 6C - are
appropriate tests to adopt for the purposes of this measure. This
is because the MIT withholding tax rules are targeted at passive
investments (as are typically undertaken by genuine collective
investment vehicles). This can be contrasted with investments that
are more akin to the carrying on of an active business operation.
Where a trust carries out an active business operation it is more
closely aligned with a commercial business than a collective
investment vehicle. Such widely-held trusts are generally taxed
like companies and are not intended to qualify for MIT concessions.
158. A requirement that the trust must not be a trading trust ensures
that the definition of a MIT is appropriately targeted to attract
and retain foreign investment into trusts that are carrying on an
eligible investment business, while ensuring they do not put
Australian active businesses at a competitive disadvantage. This
ensures a level playing field in terms of tax when active business
investments are involved and also reduces the erosion of the
corporate tax base.
159. While the purpose of the MIT withholding tax rules is to encourage
foreign investment, the 'trading trust' test appropriately balances
the Government's encouragement of foreign investment into the
Australian funds management sector and the protection of the
integrity of the tax system.
160. The new 'trading trust' tests apply in addition to the current
rules that ensure a public trading trust cannot qualify as a MIT
(see subsection 102T(16) of the ITAA 1936). Under the new rules,
public trading trusts will continue to be denied MIT status. The
new rules will also deny MIT status to:
. any unit trust that is a trading trust, including any
private trading trust; and
. any other trust that is carrying on (or has control of) a
trading business.
161. However, a trust that is a MIT under the current law (or would have
qualified as a MIT if it had have made a fund payment before 26 May
2010 and it was in existence before that date) will continue to be
eligible to qualify as a MIT for income years up to and including
the 2016-17 income year for MIT withholding tax purposes even
though it is a trading trust. [Schedule 5, subitem 7(2)]
1.
PP Trust is an Australian unit trust that is a registered
MIS. PP Trust has been operating since 1 July 2008 and had
made a fund payment prior to the introduction of this Bill.
PP Trust owns and operates an infrastructure asset in
Australia, and derives its income from the operation of that
asset. PP Trust is a trading trust (under section 102N of
the ITAA 1936), but is not a public trading trust because it
is not a public unit trust. One of PP Trust's members is a
complying superannuation fund with more than 50 members.
Other members of the trust include both resident and foreign
resident investors. Based on these facts, PP Trust, having
been in operation since 1 July 2009, is a MIT in respect of
the 2009-10 income year.
PP Trust will continue to be able to qualify as a MIT for
the 2010-11 through to the 2016-17 income years for the
purposes of the MIT withholding tax rules and for the MIT
capital account election.
162. The trading trust exclusion for unit trusts is partially ignored
for the purposes of Division 275 [Schedule 5, item 1, section 275-5
of the ITAA 1997]. This is to ensure that despite these trusts
being excluded from the definition of a MIT for withholding tax
purposes, the trust is eligible to make the choice to have capital
account treatment apply. However, the trust will not be eligible
for capital account treatment while the trust is a trading trust
(within the meaning of Division 6C of the ITAA 1936). This is
consistent with the policy objective of Division 6C, which is to
tax such trusts like companies.
1.
Assume the same facts as in Example 5.2, except that PP
Trust is established on 1 July 2010. PP Trust is a trading
trust for the purpose of Division 6C of Part III of the ITAA
1936. It will not qualify as a MIT for withholding tax
purposes but will be eligible to make the choice to have
capital account treatment apply. However, while it is a
trading trust, the trust will not be eligible for capital
account treatment rules.
The investment management activities in relation to the trust must
be carried out in Australia
163. The fourth general requirement in order for a trust to qualify as a
MIT is that a substantial proportion of the investment management
activities relating to assets of the trust that have a relevant
connection with Australia must be carried out in Australia.
[Schedule 5, item 4, paragraph 12-400(1)(c)]
164. Since the introduction of the MIT withholding tax rules there is
evidence that trusts qualifying as MITs are not necessarily managed
by the Australian funds management industry. This can occur where
the operator (often the trustee) of the trust outsources the
investment management control to a fund manager operating outside
Australia.
165. Permitting such trusts to qualify as MITs would be inconsistent
with the objectives of the MIT withholding tax measure, which is to
increase the level of foreign capital managed by Australian fund
managers and support the export of Australian funds management
services.
166. The requirement that the investment management activities be
carried out in Australia does not apply for the purposes of the MIT
capital account treatment rules in Division 275 of the ITAA 1997
[Schedule 5, item 1, section 275-10 of the ITAA 1997]. The reason
for having the investment management activities rule is to ensure
the objectives of the MIT withholding tax rules are met. Those
objectives are not identical to the objectives of the MIT capital
account measure and therefore this requirement is not extended to
that measure.
What are investment management activities?
167. At a practical level, the activities involved in operating and
managing a fund are quite varied and diverse, and depend on the
nature of the underlying investments of the fund. Activities
include - but are not limited to - the provision of custodian
services, the management and servicing of the underlying assets of
the fund (for example, commercial property) and the provision of
professional services in relation to various acquisitions, due
diligences and disposals of underlying assets.
168. These activities can be compared to the investment management
activities of a fund - the activities of the fund manager in
relation to the investments of the fund. The manager of a MIS is
generally appointed to invest and manage the assets of the MIS (the
'portfolio'). The manager must keep the portfolio under review,
keep proper books of account in relation to the portfolio and is
generally subject to investment instructions (as per the agreement
between the manager and operator of the fund) which may set out
limitations to the manager's investment discretion.
169. Where the manager delegates any of its investment management
obligations to another entity, the investment management activities
include the activities undertaken in relation to the trust by that
other entity. It is these activities that are central to the
policy objectives of the MIT withholding tax rules - the policy
being that a substantial proportion of the investment management
functions in relation to the assets of the fund that have a
relevant connection with Australia should be carried out in
Australia.
170. The physical location of investment management activities does not
only refer to the place where the final decision to invest (or not)
is taken. The fund management activities of the entity must be
examined holistically - including market analysis, identification
of potential investments and carrying out of due diligence,
culminating in the particular investment decision.
171. The other activities - such as asset management - that flow from
attracting foreign capital to Australia are merely incidental to
the fund management activities. It is possible that, particularly
in the case of Australian assets under management, the asset
management activities will occur in Australia in any case
regardless of the nature of the investor/purchaser and whether or
not such investments are structured through a trust that qualifies
as a MIT.
1. : Meaning of investment management activities
PT unit trust is an Australian trust (established on 1 July
2012) that is operated by a trustee (responsible entity) and
is a registered MIS. The only assets that PT unit trust
holds are commercial property in Australia. It is not a
trading trust and has more than 50 members (and so is widely
held). Asset management, custodial services, accounting and
legal services are provided in Australia, but the fund is
managed by SFM Co - a fund manager based in Singapore. SFM
Co does preparatory work around market analysis, identifying
potential investments and carrying out due diligence on
potential investments. This work is undertaken from its
office in Singapore.
As SFM Co has no presence in Australia, it is not carrying
out the investment management activities in Australia. PT
unit trust would not be a MIT for the withholding tax rules
but would be treated in the same way as a MIT for the
purposes of MIT capital account treatment (Division 275 of
the ITAA 1997).
172. The investment management requirement only applies in respect of
assets of the trust that have a relevant connection with Australia.
Assets that have a relevant connection with Australia are assets
of the trust that are situated in Australia, taxable Australian
property or shares, units or interests traded on an Australian
stock exchange. [Schedule 5, item 4, subparagraphs 12-400(1)(c)(i)
to (iii)]
173. Restricting the investment management requirement to such assets
ensures that trusts that have a mix of Australian and offshore
assets, where the investment management activities are located
where the assets are located, remain eligible for the definition of
a MIT.
1. : Trusts with both Australian and offshore investment
AMT is an Australian trust that holds Australian property
and an interest in an offshore joint venture investment.
The Australian investment manager of AMT performs, in
Australia, the preparatory work around market analysis,
identifying potential investments and carrying out due
diligence on potential investments. AMT also invests in an
offshore joint venture which owns real estate in the United
States. The offshore joint venture enters into investment
management agreements with a United States wholly-owned
subsidiary of AMT's investment manager with respect to the
management of the offshore real estate portfolios. As the
Australian investment manager of AMT performs in Australia
the investment management activities in relation to the
Australian assets, AMT satisfies the investment management
requirement and may qualify as a MIT (provided it satisfies
the other requirements to be a MIT).
2. : Investment in international equities
AMF is an Australian trust that invests in both Australian
shares and holds an international equities portfolio. The
Australian investment manager of AMF performs all investment
management activities in relation to the Australian equities
in Australia and makes key decisions in relation to where to
invest, choice of industry sector, allocation to the
respective countries and industry sector. The Australian
investment manager of AMF enters into a sub-advisory
investment management agreement with offshore professional
investment managers in the respective countries and sub-
delegates the investment decisions to the offshore
investment managers to make investments on behalf of AMF
that are within the specific investment mandate in relation
to the international equities. An offshore custodian is
appointed to hold the offshore equities portfolio.
As there is a substantial proportion of the investment
management activities in relation to those relevant
Australian assets which is carried on in Australia, AMF
satisfies the investment management requirement and will
qualify as a MIT (provided it satisfies the other
requirements to be a MIT). This will be the case whether the
offshore assets of AMF constitute 20 per cent of the overall
assets of AMF or, say, 80 per cent of the assets.
3. : Investment in Australian assets by global fund
Global real estate fund GREF, which satisfies the conditions
to be a specified widely-held listed entity, holds a global
real estate investment portfolio, including investments in
Australian real estate through a managed investment scheme
(AMIT).
The global investment manager of GREF has a wholly-owned
Australian investment manager. All investment management
activities in relation to the Australian real estate
portfolio are either performed by the wholly-owned
Australian investment manager or sub-contracted to
Australian third party service providers.
AMIT will satisfy the investment management requirement
notwithstanding that the global investment manager provides
substantial or significant investment management services in
relation to AMIT's non-Australian global real estate
portfolio. The exact nature and quantum of the offshore
activities and the nature, size or value of offshore assets
are not relevant to whether AMIT passes the investment
management activity test in relation to its Australian
assets.
AMIT will qualify as a MIT (provided it satisfies the other
requirements to be a MIT).
4. : Offshore manager for Australian assets
PT unit trust is an Australian trust holding commercial
property in Australia. The asset management, custodial
services, accounting and legal services are provided in
Australia, but the fund is managed by SFM Co - a fund
manager based in Singapore. SFM Co does preparatory work
around market analysis, identifying potential investments
and carrying out due diligence on potential investments.
Officers of SFM Co are flown to Australia on two occasions
over the course of the income year. While in Australia
these officers make certain investment management decisions
as to the purchase of property and carry out final due
diligence work associated with that purchase by PT unit
trust. SFM Co has no physical presence in Australia and has
carried out preparatory activities in relation to the
investment management in Singapore. As the substantial
proportion of the investment management activities in
relation to the Australian assets of PT unit trust are
undertaken from an office in Singapore, PT unit trust would
not satisfy the investment management requirement and could
not qualify as a MIT.
What are the 'widely-held' requirements for each particular type of trust?
174. Further to the general requirements that apply to determine if a
trust may qualify as a MIT, the trust must be 'widely held'. The
'widely-held' test differs depending on the type of trust being
tested - that is whether it is registered or not, and whether it is
a wholesale trust or not. These distinctions between types of
trusts are important in determining whether the trust is widely
held, with different rules applying for the following categories:
. a MIS that is a registered trust and a wholesale trust;
. a MIS that is a registered trust but not a wholesale
trust; and
. a MIS that is not registered but is a wholesale trust.
175. The widely-held requirements for each of these categories of trusts
are incorporated in the explanation below dealing with further
specific requirements for each of these categories of trust.
What are the further specific requirements for a trust that is registered
and is a wholesale trust?
176. The current law provides that an Australian trust that is a MIS is
eligible to qualify as a MIT if, amongst other requirements, it is
a MIS operated by a financial services licensee whose licence
covers operating such a MIS. The amendments maintain this rule but
refer to a trust that is registered under section 601EB of the
Corporations Act 2001 [Schedule 5, item 4, subparagraphs 12-
400(1)(e)(ii), 12-400(1)(f)(i) and (ii)]. The amendments are
intended to have the same effect as the current requirement.
177. Further to the distinction between a registered trust and an
unregistered trust, for the purpose of determining whether a trust
is widely held, the amendments to the definition of a MIT
distinguish between a trust that is a wholesale fund (with
wholesale membership) within section 12-401 (referred to as a
wholesale trust) and a trust that does not have wholesale
membership (commonly referred to as a retail trust).
What is a wholesale trust?
178. There is no definition of a wholesale fund in the
Corporations Act 2001. A trust is determined to be a genuine
wholesale fund if, at the time the fund payment is made:
. it is not required to be registered in accordance with
section 601ED of the Corporations Act 2001 (whether or not
it is registered) because of subsection 601ED(2);
. the total number of retail clients that are members of the
trust is no more than 20; and
. those retail clients do not have any more than 10 per cent
of the interests in, control of, or rights to distribution
from, the trust.
[Schedule 5, item 4, section 12-401]
179. Amendments made by this Schedule include a requirement that if the
MIS is not required to be registered, it is because it only
provides financial services advice to sophisticated investors (for
example, wholesale clients) or only has a small number of retail
investors and so is not required to issue a product disclosure
statement. [Schedule 5, item 4, paragraph 12-401(a)]
180. A trust with no more than 20 retail members will be considered a
wholesale trust where those retail members hold no more than a
10 per cent interest in the trust [Schedule 5, item 4,
paragraphs 12-401(b) and (c)]. This de minimis rule ensures the
rules defining a MIT are consistent with the Corporate law
provisions which allow an unregistered (wholesale) MIS to have up
to 20 retail clients.
Widely-held requirements for a registered wholesale trust
181. A registered trust that is a wholesale trust will be considered to
be widely held if it satisfies one of two criteria. They are:
. the trust has at least 25 wholesale members; or
. one or more specifically listed widely-held entities
together hold at least 25 per cent and no single other
type of entity holds in excess of 60 per cent of the
interests in the trust.
[Schedule 5, item 4, subsections 12-402(1) and 12-402A(1)]
25 wholesale member rule - nominal membership of specified listed
entities
182. In determining the number of members of the trust for the first
criterion, there is a special rule for counting the members of the
trust that are specifically listed widely-held entities holding an
interest, either directly or indirectly in the value of, over the
control of, or rights to, distributions of, income from the trust.
183. The entities that are covered as specifically listed widely-held
entities are:
. a life insurance company;
. a complying superannuation fund, complying approved
deposit fund or foreign superannuation fund, being a fund
with at least 50 members;
. a MIT in relation to the income year;
. a pooled superannuation trust that has at least one member
that is a complying superannuation fund that has at least
50 members;
. an entity that is recognised under a foreign law as being
used for collective investment by means of pooling the
contributions of at least 50 members of the entity as
consideration to acquire rights to benefits produced by
the entity if the members of the entity do not have day-to-
day control over the operation of the entity;
. an entity whose principal purpose is to fund pensions
(including disability and similar benefits) for the
citizens or other contributors of a foreign country, so
long as the entity is a fund established by an exempt
foreign government agency or under a foreign law for such
an agency, or a wholly-owned subsidiary of either of these
entities (a foreign government pension fund);
. an entity that is wholly-owned by one or more foreign
government agencies, or is a wholly-owned subsidiary of
one or more foreign government agencies (a sovereign
wealth fund);
. an entity established and wholly-owned by an Australian
government agency if the capital (and returns) are used
for the primary purpose of meeting statutory government
liabilities or obligations; and
. an entity of a kind similar to an entity listed and which
is specified in the regulations.
[Schedule 5, item 4, subsection 12-402(3)]
184. The first three entities listed above are broadly consistent with
the list of entities in the current subsection 12-400(2).
185. The list has been extended to include certain pooled superannuation
trusts, where at least one member is a complying superannuation
fund with at least 50 members. Including these pooled
superannuation trusts in the list of specified widely-held entities
is consistent with the intention of the MIT withholding tax rules
and MIT capital account treatment rules when originally introduced.
[Schedule 5, item 4, paragraph 12-402(3)(c)]
186. The list has also been amended to better define those foreign
entities that are recognised under a foreign law as having a
similar status to a managed investment scheme. The amendment
better targets this type of entity to a foreign collective
investment vehicle, which is an entity with at least 50 members
that is recognised under a foreign law as being used for collective
investment where member contributions are pooled together in
exchange for rights to the benefits produced by the entity and
where members do not have day-to-day control over the operation of
the entity. This definition will more appropriately capture foreign
collective investment vehicles, such as US real estate investment
trusts (US REITs) and foreign mutual funds. [Schedule 5, item 4,
paragraph 12-402(3)(e)]
187. The list is also extended to include tax-exempt foreign government
pension funds (or their wholly-owned subsidiaries) where the
principal purpose of the fund is to fund pensions for citizens or
contributors to the fund (these are commonly referred to as
'foreign government pension funds'). [Schedule 5, item 4,
paragraph 12-402(3)(f)]
188. The inclusion of sovereign wealth funds in the list of specified
entities, for the purposes of the definition of a MIT, covers an
entity that is wholly-owned by one or more foreign government
agencies (or is a wholly-owned subsidiary of one or more such
agencies), established using only public money or public property,
and where all economic benefits of the fund have or are expected to
pass to that foreign government. [Schedule 5, item 4, paragraph 12-
402(3)(g)]
189. The list is also extended to include an entity established and
wholly-owned by an Australian government agency (being a
Commonwealth, State or Territory agency). To qualify, the capital
of the entity and the returns on that capital must be used for the
primary purpose of meeting statutory government liabilities or
obligations (such as superannuation and compensation). This would
include the Australian Future Fund (established under the Future
Fund Act 2006). [Schedule 5, item 4, paragraph 12-402(3)(h)]
190. Finally, a specified widely-held entity will also include certain
entities of a kind similar to an entity mentioned in the list, that
is specified in the regulations. [Schedule 5, item 4, paragraph 12-
402(3)(i)]
Determining a 'notional member' from membership holdings by a
specified widely-held entity
191. The percentage holding by one of these specifically listed entities
is multiplied by 50 (generally the minimum number of members that
such an entity must have to qualify as a specifically listed widely-
held entity) to provide a 'notional member' number of members.
[Schedule 5, item 4, paragraph 12-402(2)(c)]
192. This notional member number is aggregated and added to the number
of any other members (not counted through the notional member count
and only including wholesale clients) to determine the total number
of members of the fund [Schedule 5, item 4, paragraphs 12-402(2)(b)
to (d)]. If this number is at least 25 at the time the fund
payment is made then, subject to not breaching the specific
'closely-held' tests (see paragraphs 5.93 to 5.98), the trust would
be treated as widely held.
193. In identifying the members of the trust that are entities
specifically listed in proposed subsection 12-402(3), a
specifically listed entity cannot itself be traced-through when
applying the interposed trust rule [Schedule 5, item 4, subsection
12-402(5)]. This avoids any double-counting of indirect members
through specifically listed entities.
194. The effect of this 'notional member' calculation is that a
registered trust can qualify as widely held if it has only one
member (for tax purposes) and that member is a specifically listed
widely-held entity [Schedule 5, item 4, paragraph 12-402(2)(c)].
However, the trust would still need to satisfy the remaining
requirements to qualify as a MIT, including that the trust is a
MIS. [Schedule 5, item 4, paragraph 12-400(1)(d)].
195. Note there is an exception to the requirement that the trust is a
MIS, for the purpose of the MIT capital account election rules
only, where the trust is wholly-owned by certain special entities
(see paragraph 5.150).
Qualifying specified widely-held member holding
196. The second criterion provides that a registered wholesale trust
will be widely held if one or more specified widely-held entities
together hold at least 25 per cent and no single other type of
entity holds in excess of 60 per cent of interests in the trust.
[Schedule 5, item 4, section 12-402A]
197. To ensure the appropriate operation of the widely-held test, two
rules apply as follows:
. The first rule provides that to the extent an entity that
is a specified widely-held entity (the first entity), has
an interest in a trust (the purported MIT) through its
interest in another specified widely-held entity (the
second entity), only the interest of the first entity is
taken into account for the purposes of the widely-held
test [Schedule 5, item 4, paragraph 12-402A(2)(a)].
. The second rule is that if an entity that is not a trust
indirectly holds an interest in a trust (the purported
MIT) through a chain of trusts, only the interests of the
non-trust entity are taken into account for the purposes
of the widely-held test. That is, the interests of
interposed trusts are disregarded [Schedule 5, item 4,
paragraph 12-402A(2)(b)] .
198. For the purposes of this rule, if the interposed entity is a
specified widely-held entity, it is not treated as a trust (that
is, it cannot be traced-through). This outcome is consistent with
the underlying rationale for a list of designated widely-held
entities, which are intended to be entities through which tracing
is not required. [Schedule 5, item 4, subsection 12-402A(3)]
199. Further, for the purposes of this rule, an individual, his or her
relatives, and nominees of that individual will be treated as one
entity. [Schedule 5, item 4, subsection 12-402A(4) and subsection
12-402(6)]
Closely-held rules
200. In addition to satisfying the widely-held rules outlined above, a
registered wholesale trust must satisfy the closely-held rules.
[Schedule 5, item 4, section 12-402B]
201. In the case of a registered wholesale trust, the closely-held test
will not be satisfied where 10 or fewer persons have an interest of
75 per cent or more in the trust or one foreign resident individual
has an interest of 10 per cent or more in the trust.
202. A registered wholesale trust will be closely held if, at any time
in the income year, 10 or fewer persons directly or indirectly:
. hold, or have the right to acquire, interests representing
75 per cent or more of the value of the interests in the
trust;
. have the control of, or the ability to control,
75 per cent or more of the rights attaching to membership
interests in the trust; or
. have the right to receive 75 per cent or more of any
distribution of income that the trust may make.
[Schedule 5, item 4, paragraphs 12-400(1)(g) and 12-402B(1)(a),
section 12-404]
203. The number of persons in the small group closely-held test, limited
to 10 or fewer for registered wholesale funds, is lower than that
which applies to registered funds that are not wholesale trusts
(20 persons). This is because overall, a registered fund that is
not a wholesale trust must have at least 50 members, while a
wholesale trust must have at least 25 members (50 per cent lower
than the level for trusts that are not wholesale trusts). The
member number for the small group closely-held rule is likewise set
at 50 per cent lower than the total member number required for
registered funds that are not wholesale trusts.
204. This percentage in the holding of interest, control of the rights
attaching to membership interests, or rights to distribution of
income is called the 'MIT participation interest' [Schedule 5,
items 3 and 4, subsection 995-1(1) of the ITAA 1997 and section 12-
404]. This measurement of interest in the trust is the same as
that used in the current law in subsection 12-400(3).
205. In addition to the small group closely-held test, the trust must
also not breach the foreign resident individual closely-held test.
A trust will breach this test (and, therefore, fail the requirement
to be widely held) if, at any time in the income year, one foreign
resident individual has a MIT participation interest in the trust
of 10 per cent or more. [Schedule 5, item 4, paragraphs 12-
400(1)(g) and 12-402B(1)(c), section 12-404]
1.
AF Trust, established in 2008, is a registered MIS with 30
wholesale members. One of those members is a foreign
limited partnership which has a right to receive 75 per cent
of the distribution of income by AF Trust for the 2017-18
income year. As AF Trust is a closely-held trust for that
income year, AF Trust will not satisfy the widely-held
requirements and, therefore, will not be a MIT for the 2017-
18 income year.
However, if AF Trust made a fund payment in relation to the
income year ending 30 June 2009 (or if it did not actually
make a fund payment but would have qualified as a MIT if it
had made a payment in that income year), it would be able to
qualify as a MIT (for the purpose of withholding tax) for
the income years 2010-11 through to 2016-17 (provided in
those income years it qualifies as a MIT under the rules
prior to the amendments made by this Schedule).
Special rule for start-up and wind-down phases of a trust
206. For trusts that are in a start-up phase or a wind-down phase, the
widely-held requirements will be deemed to be met.
207. The start-up rules will provide that a trust established at any
time in the 18 months prior to the end of an income year will be
deemed to satisfy the widely-held requirements for that income
year. This will provide trusts that are set up towards the end of
an income year with additional time (of up to six months) in which
to meet the widely-held requirements. [Schedule 5, item 4,
paragraph 12-400(4)(a)]
208. The wind-down phase rule cannot apply in a year following one in
which the start-up phase rule has applied. [Schedule 5, item 4,
paragraph subsection 12-400(4)(b)]
What are the further specific requirements for a trust that is a registered
fund that is not a wholesale trust?
209. The widely-held test for registered trusts that are not wholesale
trusts (that is, they do not meet the requirements in section 12-
401), will be satisfied if:
. the trust is listed on an approved securities exchange in
Australia;
. the trust has at least 50 members; or
. one or more specifically listed widely-held entities
together hold at least 25 per cent and no single other
type of entity holds in excess of 60 per cent of the
interests in the trust.
[Schedule 5, item 4, subsections 12-402(1A) and 12-402A(1)]
210. The first of the widely-held rules is consistent with the current
law. The second of the widely-held rules is broadly consistent
with the current law, but also applies to look through entities in
determining if the trust has 50 members.
211. In determining the number of members of the registered trust that
is not a wholesale trust, there is a special rule for counting the
members of the trust that are specifically listed widely-held
entities holding a particular percentage of the value, control of,
or rights to, distributions of income from the trust. This rule is
broadly the same as that which applies for a trust that is a
registered wholesale trust and is described at paragraphs 5.84 to
5.87. The difference in application of the tests is that for a
registered trust that is not a wholesale trust an individual that
is not a 'wholesale' member is counted as a 'member' and the
relevant member count is 50 rather than 25 members. [Schedule 5,
item 4, paragraph 12-402(4)(ba)]
212. The third widely-held alternative rule is the same rule that
applies for a registered trust that is a wholesale trust. It is a
special rule that applies for registered trusts only (whether or
not the trust is a wholesale trust). This rule is described in
paragraphs 5.89 to 5.92.
213. In addition to these widely-held rules, the trust must not be
'closely held' by a small group (20 or fewer persons) and not
'closely held' by one foreign resident individual [Schedule 5, item
4, paragraphs 12-402B(1)(b) and (c)]. For the purposes of the
small group closely-held test, an individual, his or her relatives,
and nominees of that individual will be treated as one entity
[Schedule 5, item 4, subsections 12-402B(4) and 12-402(6)].
214. A registered trust that is not a wholesale trust will be a closely-
held trust if, at any time in the income year, 20 or fewer persons
directly or indirectly:
. hold, or have the right to acquire, interests representing
75 per cent or more of the value of the interests in the
trust;
. have the control of, or the ability to control,
75 per cent or more of the rights attaching to membership
interests in the trust; or
. have the right to receive 75 per cent or more of any
distribution of income that the trust may make.
[Schedule 5, item 4, paragraph 12-402B(1)(b) and section 12-404]
215. This percentage in the holding of interest, control of the rights
attaching to membership interests, or rights to distribution of
income is called the 'MIT participation interest' [Schedule 5,
items 3 and 4, subsection 995-1(1) of the ITAA 1997 and section 12-
404]. This measurement of interest in the trust is the same as
that used in the current law in subsection 12-400(3).
216. In addition to the small group closely-held test, the trust must
also not breach the foreign resident individual closely-held test.
A trust will breach this test (and, therefore, fail the requirement
to be widely held) if, at any time in the income year, one foreign
resident individual has a MIT participation interest in the trust
of 10 per cent or more. [Schedule 5, item 4, paragraphs 12-
400(1)(g) and 12-402B(1)(c), section 12-404]
Special rule for start-up and wind-down phases of a trust
217. For trusts that are in a start-up phase or a wind-down phase, the
widely-held requirements will be deemed to be met. These rules are
the same as those that apply for a registered trust that is a
wholesale trust and are described in paragraphs 5.99 to 5.101.
Includes government-owned MISs
218. The amendments allow MISs that are not actually registered -
because they are operated by certain Crown (government-owned)
entities and are not required or able to register because of the
operation of subsection 5A(4) of the Corporations Act 2001 - to be
eligible to qualify as a MIT. [Schedule 5, item 4, paragraph 12-
400(3)(a)]
219. Similar eligibility rules apply to a MIS that is operated by a
wholly-owned subsidiary of a Crown entity that would, but for an
exemption instrument issued by ASIC under the Corporations Act 2001
that has effect in relation to the entity and operation of the MIS,
be required to hold a licence that would cover operating the MIS.
[Schedule 5, item 4, paragraph 12-400(3)(b)]
220. These rules ensure that government-owned corporations that are
bound by all provisions of the Corporations Act 2001 except for
Chapters 6A to 6D, 6CA and 7, are treated in the same way as trusts
that are operated by a non-government-owned entity.
221. Relaxing the Australian Financial Services Licence requirement for
state government-owned corporations is consistent with the policy
objectives of the MIT withholding tax rules. The amendments ensure
that foreign investors in trusts operated by state government-owned
corporations can qualify as MITs and be able to access the MIT
withholding tax rates. It also ensures a level playing field for
trusts operated by state government-owned corporations seeking to
attract foreign investment.
What are the further specific requirements for a trust that is an
unregistered fund that is a wholesale trust?
222. In addition to satisfying the general requirements to be a MIT (see
paragraphs 5.39 to 5.66), a trust that is not registered must also
satisfy the following specific requirements:
. the trust is a wholesale trust;
. the trust must be appropriately regulated; and
. the trust must be widely held.
[Schedule 5, item 4, subparagraphs 12-400(1)(e)(i) and (f)(iii),
and paragraph 12-400(1)(h)]
What is a wholesale trust?
223. The requirements that must be met for a trust to be a genuine
wholesale fund discussed in paragraphs 5.71 to 5.73 are the
relevant requirements.
The trust must be operated or managed by a financial services
licensee
224. A further requirement that an unregistered trust that is a
wholesale fund must meet in order to qualify as a MIT is that it is
operated or managed by a financial services licensee, or by an
authorised representative of a financial services licensee.
[Schedule 5, item 4, paragraphs 12-403(1)(a) and 12-400(1)(h)]
225. Only trusts that are subject to an appropriate level of regulatory
oversight should be able to qualify as a MIT. This requirement
will be satisfied where an unregistered wholesale trust is either
operated or managed by the holder of an Australian Financial
Services Licence. The trust may satisfy this requirement in cases
where the trustee does not hold an Australian Financial Services
Licence but the manager of the fund does - a common scenario in the
wholesale fund market. Likewise, a trust may qualify as a MIT
where the trustee operator of the fund, but not the manager of the
trust, holds an Australian Financial Services Licence. [Schedule 5,
item 4, subparagraph 12-403(1)(a)(i)]
226. In addition, a trust may qualify as a MIT where the operation or
management of the trust is carried out by an authorised
representative of the holder of an Australian Financial Services
Licence [Schedule 5, item 4, subparagraph 12-403(1)(a)(ii)]. This
recognises there may be cases where the operation or management of
a trust is delegated by the holder of an Australian Financial
Services Licence to another entity.
Extension to include government-owned MISs
227. For similar reasons as provided for registered trusts operated by a
government-owned entity, an unregistered government-owned MIS that
would otherwise be required to be registered, will be able to
qualify as a MIT if the trust is operated or managed by an entity
that:
. would be required under the Corporations Act 2001 to hold
a financial services licence but for subsection 5A(4) of
that Act (about the Crown not being bound by certain
requirements of that Act); or
. is a wholly-owned subsidiary of such an entity and because
of this, the wholly-owned subsidiary is exempt from the
requirement to hold a financial services licence because
of an instrument issued by ASIC.
[Schedule 5, item 4, paragraphs 12-403(1)(b) and (c) and
subsections 12-403(2) and (3)]
228. This amendment is targeted at trusts that are operated or managed
by government-owned entities and is not intended to cover any
broader class of entities for which ASIC may have issued an
exemption instrument (which could be for a variety of reasons).
229. The reference to subsection 5A(4) of the Corporations Act 2001 is
to cover a government-owned corporation. A government-owned
corporation is bound by all provisions of the Corporations Act 2001
except for Chapters 6A to 6D, 6CA and 7. Those chapters do not
apply to the government-owned corporation under the rules dealing
with the application of the Corporations Act 2001 to the Crown in
right of the Commonwealth, states and territories etc. Chapter 7
is the chapter dealing with, amongst other things, the requirement
to have an Australian Financial Services Licence when operating a
financial services business.
When is an unregistered wholesale trust widely held?
230. If a trust is not registered, and it is a genuine wholesale fund
(that is, one with predominantly wholesale clients), there is only
one widely-held rule that can be met.
231. Subject to specific closely-held tests (see paragraphs 5.127 and
5.128), the widely-held test for an unregistered wholesale trust
requires that the trust have at least 25 wholesale members (which
is lower than the 50 member rule that applies for a trust that is
not a wholesale trust). [Schedule 5, item 4, subparagraph 12-
400(1)(f)(iii) and subsection 12-402(1)]
232. The 25 member test does not count objects of the trust or
individuals (other than individuals that are wholesale clients) as
members [Schedule 5, item 4, paragraphs 12-402(4)(b) and (ba)]. It
also treats each included individual together with their relatives
and nominees as one member [Schedule 5, item 4, paragraphs 12-
402(4)(c) and (6)(a)]. It also treats a member of the trust that
is not an individual and nominees of that member as one member
[Schedule 5, item 4, paragraph 12-402(6)(b)]. A similar rule also
applies for the small group closely-held test.
233. In determining the number of members of the unregistered wholesale
trust, there is a special rule for counting the members of the
trust that are specifically listed widely-held entities holding a
particular percentage of the value, control of, or rights to,
distributions of income from the trust. This rule is the same as
that which applies for a trust that is a registered wholesale trust
and is described at paragraphs 5.75 to 5.87.
1.
The INS Trust is an unregistered wholesale trust that is an
Australian resident MIS operated by the holder of an
Australian Financial Services Licence in Australia. The
members of the INS Trust include a life insurance company
and a pooled superannuation trust and four other members,
two of whom are wholesale clients. The life insurance
company has a 40 per cent interest and the pooled
superannuation trust has a 30 per cent interest. The
members of the pooled superannuation trust include a
complying superannuation fund with 50 members.
The INS Trust will be treated as having the equivalent of 20
members from the life insurance company (50 × 40%), 15
members from the pooled superannuation trust (50 × 30%).
The total membership of the INS Trust, for the purposes of
the minimum (25) membership rule including the other two (2)
wholesale members, is 37.
Specific 'closely-held' tests for unregistered wholesale MISs
234. Even if the unregistered trust has at least 25 wholesale members,
it will not qualify as a MIT if it is closely held under either of
the following rules:
. if, at any time in the income year, 10 or fewer persons
have a MIT participation interest in the trust of
75 per cent or more (the small group closely-held test);
or
. if, at any time in the income year, one foreign resident
individual has a MIT participation interest in the trust
of 10 per cent or more (the foreign resident closely-held
test).
[Schedule 5, item 4, paragraphs 12-402B(1)(a) and (c)]
235. These rules are the same as those that apply for a registered trust
that is a wholesale trust and are described in paragraphs 5.93 to
5.98.
1.
IMF Trust is an Australian trust that is an unregistered
wholesale trust that is a MIS. It has three members. One
of its members is PS Trust, a pooled superannuation trust.
PS Trust itself has five members, one of which is CSF, a
complying superannuation fund with 50 members. The second
member of IMF Trust is BSF, a complying superannuation fund
with 100 members. PS Trust holds a 40 per cent interest in
IMF Trust, BSF holds a 45 per cent interest in IMF Trust and
Mr Jones (a foreign resident wholesale client) holds a 15
per cent interest in IMF Trust.
For the purposes of the widely-held test in proposed
subsection 12-402(2), IMF trust has 46 members (20 from the
holding by PS trust (50 × 40%) plus 23 from the holding by
BSF (50 × 45%) and one from Mr Jones).
However, as Mr Jones, a foreign resident holds an interest
in the trust of more than 10 per cent, IMF Trust will not be
able to qualify as a MIT.
A special rule for start-up and wind-down phases of a trust
236. For trusts that are in a start-up phase or a wind-down phase, the
widely-held requirements will be deemed to be met. These rules are
the same as those that apply for a registered trust that is a
wholesale trust and are described at paragraphs 5.99 to 5.101.
Application and transitional provisions
When will these amendments apply from?
Application of the amendments for MIT withholding tax purposes
237. The amendments made by this Schedule apply to fund payments made in
relation to the first income year starting on or after the first 1
July after the day on which the amending Act receives Royal Assent
and later income years. [Schedule 5, subitem 6(1)]
238. However, if before 26 May 2010, the trust qualified as a MIT in
relation to an income year the amendments will not apply to that
trust for the 2010-11 to 2016-17 income years. [Schedule 5, item
7]
239. If the trustee of the trust did not make a fund payment before that
date but, if it had done so (and if it was in existence before that
date), the trust would have qualified as a MIT, the amendments
will not apply to the trust for the 2010-11 through to 2016-17
income years. This will allow certain trusts that have not made a
fund payment under the law and, therefore, not technically
qualified as a MIT prior to 26 May 2010 to be able to qualify as a
MIT (which effectively treats the trust as if it had made a
distribution before 26 May 2010). [Schedule 5, item 7]
240. These 'transitional' application rules are to provide time for
investors and managed funds to reorder or restructure their
arrangements to comply with the new definition of MIT.
241. The transitional rules apply on a year-by-year basis. This will
enable the new definition to apply prior to the end of the seven-
year period, where the trust now satisfies the new definition.
242. Trusts with substituted accounting periods can qualify as a MIT
with effect from the first 1 July after Tax Laws Amendment (2010
Measures No. 3) Bill 2010 receives Royal Assent. [Schedule 5, item
8]
Application of the amendments for MIT capital account treatment
rules in Division 275 of the ITAA 1997
243. The amendments made by this Schedule generally apply in relation to
Division 275 of the ITAA 1997 in the same way as the amendments
made by Schedule 3 to the Tax Laws Amendment (2010 Measures No. 1)
Act 2010 apply in relation to that Division.
244. Division 275 of the ITAA 1997 allows eligible Australian MITs to
make an irrevocable election to apply the CGT provisions as the
primary code for the taxation of gains and losses on disposal of
certain assets held as passive investments.
245. These rules broadly rely on the section 12-400 definition of a MIT
and then treat other trusts (that meet conditions set out in the
new Division 275) 'in the same way as a MIT'.
246. The transitional application rules that apply for the purposes of
the MIT withholding tax rules also apply for the purposes of the
capital account rules. [Schedule 5, subitem 6(2) and item 7]
Application of the amended definition of a MIT for the purposes of
Subdivision 126-G of the ITAA 1997
247. These amendments to the definition of a MIT apply in relation to
Subdivision 126-G of the ITAA 1997 in relation to CGT events
happening on or after 1 November 2008, consistent with the
application date of the limited roll-over in that Subdivision.
[Schedule 5, subitem 6(3)]
248. This ensures that the extended MIT definition applies to a 'savings
clause' that may allow a MIT to access the limited roll-over for
fixed trusts even though the trust has material discretionary
elements. This ensures that CGT considerations are not an undue
impediment to the restructure of affected MITs.
249. This savings clause was intended to apply to trusts that would meet
the extended definition of a MIT. However, the decision was
undertaken to proceed with the roll-over without the extended MIT
definition as its development was incomplete at that time.
250. The transitional application rules that apply for the purposes of
the MIT withholding tax rules also apply for the purposes of the
limited roll-over rules in Subdivision 126-G of the ITAA 1997.
[Schedule 5, item 7]
Consequential amendments
251. The trading trust exclusion for unit trusts is partially ignored
for the purposes of Division 275 [Schedule 5, item 1, section 275-5
of the ITAA 1997]. This is to ensure that despite these trusts
being excluded from the definition of a MIT for withholding tax
purposes, the trust is eligible to make the choice to have capital
account treatment apply.
252. The exclusion only applies to the unit trusts that are trading
trusts, as other trusts that carry on (or control) a trading
business are not covered by Division 275.
253. The requirement that a substantial proportion of the investment
management activities in relation to Australian assets of the trust
does not apply for the purposes of the MIT capital account
treatment rules in Division 275 of the ITAA 1997 [Schedule 5,
item 1, section 275-10 of the ITAA 1997]. The reason for having
the investment management activities rule is to ensure the
objectives of the MIT withholding tax rules are met. Those
objectives are not identical to the objectives of the MIT capital
account measure and this requirement is not extended to that
measure.
254. The amendments made by this Schedule apply for the purposes of
Division 275 of the ITAA 1997. Where a fund payment is not made by
a trust, the timing rules in section 12-400 that rely on a fund
payment being made will be 'deemed' to have been met on the first
and last days of the income year under section 275-20 of the ITAA
1997.
255. Section 275-15 of the ITAA 1997 is amended to ensure that an
Australian trust will not automatically be treated in the same way
as a MIT where every member of the trust is a MIT. This situation
is now covered by the look-through rule where a member is a MIT.
[Schedule 5, item 4, paragraph 12-402(3)(d)]
256. Trusts that would have been treated in the same way as a MIT under
section 275-15 of the ITAA 1997 now must satisfy a further
requirement - that the trust is a MIS and is subject to appropriate
regulation. [Schedule 5, item 4, paragraph 12-400(1)(d)]
257. A trust will be treated in the same way as a MIT where the only
member of the trust is one of the specifically listed widely-held
entities (except an entity covered by paragraph 12-402(3)(e)) so
long as the trust meets the relevant licensing requirements
[Schedule 5, item 2, section 275-15 of the ITAA 1997]. This will
ensure that these trusts, which are wholly-owned by specifically
listed widely-held entities and, therefore, may not qualify as a
MIS under the Corporations Law, are nevertheless able to qualify as
a MIT for the purposes of the MIT capital account election rules.
258. A consequential amendment is made to paragraph 45-286(b) as a
result of the repeal of subsection 12-400(1). [Schedule 5, item 5,
paragraph 45-286(b)]
Index
Schedule 2: Thin capitalisation
|Bill reference |Paragraph |
| |number |
|Item 1, subsection 820-300(4) |2.18 |
|Items 3 and 4, section 820-310 (step 1 in |2.31 |
|the method statement), section 820-310 (step| |
|3(d) in the method statement) | |
|Items 4, 6 and 8, section 820-310 (step 3(c)|2.25 |
|in the method statement), subsection | |
|820-310(2) and the definition of value of | |
|business in force in subsection 995-1(1) | |
|Item 4, section 820-310 (step 3(c) in the |2.26 |
|method statement) | |
|Items 4 and 7, section 820-310 (step 3(d) in|2.24 |
|the method statement) and | |
|subsection 820-680(1)(note) | |
|Item 6, section 820-310 |2.27 |
|Item 7, subsection 820-680(1)(note) |2.32 |
|Item 9 |2.33 |
Schedule 3: Exempting certain transactions involving security agencies
|Bill reference |Paragraph |
| |number |
|Clause 2, item 3 in the table |3.25 |
|Item 1, subsection 850-100(1) |3.6 |
|Item 1, subsections 850-100(2) and (3) |3.8, 3.9, 3.11|
|Item 1, subsection 850-100(4) |3.8, 3.14 |
|Item 1, subsection 850-100(5) |3.9 |
|Item 1, subsection 850-100(6) |3.19, 3.25 |
|Item 1, paragraph 850-100(6)(a) |3.14 |
|Item 1, paragraph 850-100(6)(b) |3.12 |
|Item 1, subsection 850-100(7) |3.22, 3.23 |
|Item 1, paragraph 850-100(8)(a) |3.16, 3.17 |
|Item 1, paragraph 850-100(8)(b) |3.16 |
|Item 1, paragraph 850-100(8)(c) |3.20 |
|Item 1, subsection 850-100(9) |3.21 |
Schedule 4: Special disability trusts
|Bill reference |Paragraph |
| |number |
|Item 3, subsection 95AB(1) |4.15 |
|Item 3, subsection 95AB(2) |4.19 |
|Item 3, subsection 95AB(3) |4.25 |
|Item 3, subsection 95AB(4) |4.22 |
|Item 3, paragraph 95AB(4)(b) |4.21 |
|Item 4, paragraph 102AC(2)(d) |4.30 |
|Item 8 |4.31 |
Schedule 5: Managed investment trusts
|Bill reference |Paragraph |
| |number |
|Item 1, section 275-5 of the ITAA 1997 |1.55, 1.144 |
|Item 1, section 275-10 of the ITAA 1997 |1.59, 1.146 |
|Item 2, section 275-15 of the ITAA 1997 |1.150 |
|Items 3 and 4, subsection 995-1(1) of the |1.97, 1.108 |
|ITAA 1997 and section 12-404 | |
|Item 4, subsection 12-400(1) |1.37 |
|Item 4, paragraph 12-400(1)(a) |1.42 |
|Item 4, paragraphs 12-400(1)(a) to (d) |1.39 |
|Item 4, paragraph 12-400(1)(c) |1.56 |
|Item 4, subparagraphs 12-400(1)(c)(i) to |1.65 |
|(iii) | |
|Item 4, paragraph 12-400(1)(d) |1.44, 1.149, |
| |1.87 |
|Item 4, paragraphs 12-400(1)(e) to (g), and |1.41 |
|sections 12-401, 12-402 and 12-402A | |
|Item 4, subparagraphs 12-400(1)(e)(i) and |1.115 |
|(f)(iii), and paragraph 12-400(1)(h) | |
|Item 4, paragraphs 12-400(1)(g) and |1.95 |
|12-402B(1)(a), section 12-404 | |
|Item 4, paragraphs 12-400(1)(g) and |1.98, 1.109 |
|12-402B(1)(c), section 12-404 | |
|Item 4, subparagraphs 12-400(1)(e)(ii), |1.69 |
|12-400(1)(f)(i) and (ii) | |
|Item 4, paragraph 12-400(2)(a) |1.48 |
|Item 4, paragraph 12-400(2)(b) |1.48 |
|Item 4, paragraph 12-400(3)(a) |1.111 |
|Item 4, paragraph 12-400(3)(b) |1.112 |
|Item 4, paragraph 12-400(4)(a) |1.100 |
|Bill reference |Paragraph |
| |number |
|Item 4, paragraph subsection 12-400(4)(b) |1.101 |
|Item 4, section 12-401 |1.71 |
|Item 4, paragraph 12-401(a) |1.72 |
|Item 4, paragraphs 12-401(b) and (c) |1.73 |
|Item 4, subsections 12-402(1) and 12-402A(1)|1.74 |
|Item 4, subsections 12-402(1A) and |1.102 |
|12-402A(1) | |
|Item 4, paragraphs 12-402(2)(b) to (d) |1.85 |
|Item 4, paragraph 12-402(2)(c) |1.84, 1.87 |
|Item 4, subsection 12-402(3) |1.76 |
|Item 4, paragraph 12-402(3)(c) |1.78 |
|Item 4, paragraph 12-402(3)(d) |1.148 |
|Item 4, paragraph 12-402(3)(e) |1.79 |
|Item 4, paragraph 12-402(3)(f) |1.80 |
|Item 4, paragraph 12-402(3)(g) |1.81 |
|Item 4, paragraph 12-402(3)(h) |1.82 |
|Item 4, paragraph 12-402(3)(i) |1.83 |
|Item 4, paragraphs 12-402(4)(b) and (ba) |1.125 |
|Item 4, paragraph 12-402(4)(ba) |1.104 |
|Item 4, paragraphs 12-402(4)(c) and (6)(a) |1.125 |
|Item 4, subsection 12-402(5) |1.86 |
|Item 4, paragraph 12-402(6)(b) |1.125 |
|Item 4, section 12-402A |1.89 |
|Item 4, paragraph 12-402A(2)(a) |1.90 |
|Item 4, paragraph 12-402A(2)(b) |1.90 |
|Item 4, subsection 12-402A(4) and subsection|1.92 |
|12-402(6) | |
|Item 4, section 12-402B |1.93 |
|Item 4, paragraphs 12-402B(1)(a) and (c) |1.127 |
|Item 4, paragraphs 12-402B(1)(b) and (c) |1.106 |
|Item 4, paragraph 12-402B(1)(b) and section |1.107 |
|12-404 | |
|Item 4, subsections 12-402B(4) and 12-402(6)|1.106 |
|Item 4, paragraphs 12-403(1)(a) |1.117 |
|and 12-400(1)(h) | |
|Item 4, subparagraph 12-403(1)(a)(i) |1.118 |
|Item 4, subparagraph 12-403(1)(a)(ii) |1.119 |
|Item 4, paragraphs 12-403(1)(b) and (c) and |1.120 |
|subsections 12-403(2) and (3) | |
|Item 5, paragraph 45-286(b) |1.151 |
|Bill reference |Paragraph |
| |number |
|Subitem 6(1) |1.130 |
|Subitem 6(2) and item 7 |1.139 |
|Subitem 6(3) |1.140 |
|Item 7 |1.131, 1.132, |
| |1.143 |
|Subitem 7(2) |1.54 |
|Item 8 |1.135 |
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