The Tax Laws Amendment (2013 Measures No 1) Bill 2013 was introduced in the House of Reps on Wed 15.5.2013. It contains the following amendments:
- : the Bill proposes to amend the ITAA 1997: to Strengthening CGT scrip-for-scrip roll-over and other small business concessions (Schedule 1)ensure that certain integrity rules in the small business concessions and the scrip-for-scrip roll-over apply to life insurance companies, super funds, and trusts in the same way that they apply to other types of entities (ie the look-through approach). It also proposes to ensure that the integrity rules (and the CGT provisions generally) are applied as if absolutely entitled beneficiaries, bankrupt individuals, companies in liquidation and security providers are the owners of relevant assets. DATE OF EFFECT: Integrity rule changes that affect CGT provisions will take effect for CGT events after 7:30pm on 10 May 2011. The look-through treatment provisions will apply automatically from commencement and from the 2008-09 and later income years at the option of taxpayers.
- Tax exemption for ex-gratia payments for natural disasters (Schedule 2): the Bill proposes to amend the ITAA 1997 to exempt the Disaster Income Recovery Subsidy from income tax. The Subsidy is available to people who lost income as a result of disasters occurring across Australia during the period 3 January 2013 to 30 September 2013. DATE OF EFFECT: Will apply to payments relating to disasters occurring during the period starting on 3 January 2013 and ending on 30 September 2013.
- Addition of a new DGR category (Schedule 3): the Bill proposes to add a new general deductible gift recipient (DGR) category into the ITAA 1997. It will extend the tax deductibility of donations to public funds established solely for providing education in ethics in government schools in Australia as an alternative to religious instruction, where the ethics education to be provided is in accordance with State or Territory law. DATE OF EFFECT: Will commence from the date of Royal Assent.
[LTN 92 15/5/13]
Tax Bill (No 1) passes House of Reps
The Tax Laws Amendment (2013 Measures No 1) Bill 2013 was on Wed 29.5.2013, passed by the House of Reps without amendment (on a 71:70 vote) and then moved to the Senate.
[LTN 102, 29/5/13]
Extract from EM – Context of amendments (Schedule 1)
1.4 The ‘connected entity’ test in the small business entity provisions ensures that assets and turnover of related entities are taken into account in determining whether the limits for access to the relevant small business concessions have been exceeded.
1.5 The ‘significant’ and ‘common’ stakeholder tests contained in the CGT scrip for scrip roll‑over are designed to ensure that an entity that has a sufficiently high level of ownership in both the original and acquiring entity cannot use the roll-over to defer tax indefinitely on the disposal of the underlying assets of the original entity.
1.6 Broadly, the connected entity test and stakeholder tests seek to determine whether an entity controls, or has the potential to control or influence another entity having regard to the interests held in that other entity that carry voting, income and capital rights.
1.7 Currently, these tests apply only if entities hold the relevant interests ‘for their own benefit’. On one view, this requirement prevents the tests from applying to interests held by life insurance companies, superannuation funds and trusts because these entities do not own these interests for their own benefit, but rather for the benefit of their policy holders, members or beneficiaries.
1.8 As these entities can control or influence other entities by virtue of the interests that they own in those entities, it is appropriate that these tests be based on the legal ownership of interests, rather than on who benefits from those interests.
1.9 However, in determining whether these tests are satisfied, it would be inappropriate to use legal ownership for arrangements involving assets held on trust in respect of which there is an absolutely entitled beneficiary, assets of bankrupt individuals that have vested in their trustee in bankruptcy, assets of a company in liquidation that have vested in the liquidator* or assets provided by an entity as security. This is because the intention of the CGT provisions is to treat these underlying entities (that is, the absolutely entitled beneficiary, bankrupt individual, company in liquidation or security provider) as the relevant taxpayer in respect of the asset — rather than the entity that legally owns the asset.
1.10 Currently, the CGT provisions treat an act done by an entity that owns an asset in these circumstances as being done by the underlying entity. However, there is uncertainty as to whether that is sufficient for the stakeholder tests to apply to the underlying owner of the relevant interests. This is because simply treating certain acts done by the owner as having being done by the underlying entity may continue to acknowledge the holding entity as the owner of the asset. There is also uncertainty about how these rules extend to the connected entity test, which is located outside the CGT provisions.
Extract from EM – Summary of new law (Schedule 1)
1.11 Schedule 1 ensures that the small business connected entity test and the CGT scrip for scrip roll-over stakeholder tests apply on the basis of who owns relevant interests in an entity, rather than who benefits from the interests. This ensures that the tests apply to interests owned by life insurance companies, superannuation funds and trusts in the same way that they apply to interests owned by other types of entities.
1.12 Also, for these integrity rules and the CGT provisions more generally, absolutely entitled beneficiaries, bankrupt individuals, companies in liquidation* and security providers (underlying entities) are treated as the owners of relevant assets. This ensures that the underlying entity, rather than the holding entity, is considered in the connected entity and stakeholders tests and, more broadly, that all CGT consequences in respect of those assets rest with the underlying owner, rather than with the holding entity.
[*FJM Note: I don’t understand a company’s assets to ‘vest’ in the Liquidator, on liquidation, but rather continue to be owned by the company, and the Liquidator simply takes over the role of the Board for most purposes, in determining what the Company does. This contrasts with bankruptcy, where the individual’s assets do vest in their trustee in bankruptcy.]