Legislation update

Revenue legislation introduced into Federal Parliament

Tax Laws Amendment (Luxury Car Tax) Bill 2008, introduced on 26 May 2008, proposes to implement the 2008-09 Federal Budget announcement to amend the A New Tax System (Luxury Car Tax) Act 1999 to give effect to the increase in the luxury car tax rate from 25 percent to 33 percent from 1 July 2008, as provided by the following associated Bills which were introduced at the same time:

• A New Tax System (Luxury Car Tax Imposition-General) Amendment Bill 2008
• A New Tax System (Luxury Car Tax Imposition-Customs) Amendment Bill 2008, and
• A New Tax System (Luxury Car Tax Imposition-Excise) Amendment Bill 2008.

• increase the maximum grant by $50,000 to $200,000
• allow the expenses of:

a. granting, registering or extending rights under foreign laws in relation to eligible intellectual property, and
b. obtaining insurance against costs likely to be incurred to protect the rights,

• allow approved State /Territory or regional not-for-profit bodies representing industries, substantial parts of an industry or a number of industries (including tourism bodies) which promote Australian exporters, to access the scheme

• lift the maximum turnover limit from $30 million to $50 million

• cut the minimum threshold of expenditure by $5,000 to a $10,000 minimum

• extend the limit on the number of grants from seven to eight annual grants

• replace the current list of eligible internal and external services with a new ‘non-tourism services’ category which will provide for all services supplied to foreign residents whether delivered inside or outside of Australia to be eligible unless specified in the EMDG Act Regulations, and

• introduce a performance measure for applicants that have already received two grants. Under these requirements, applicants claiming their third and subsequent EMDG grants (other than approved bodies and approved trading houses) must make a choice between two alternative ways to show that they meet the performance requirements.

Tax Laws Amendment (Budget Measures) Bill 2008, introduced on 27 May 2008, proposes to give effect to the 2008-09 Federal Budget proposals to:

• tighten the fringe benefits tax (FBT) rules for exempting work-related items and meal cards provided on a salary sacrifice basis

• increase the period over which ‘in-house software’ can be depreciated, and

• make amendments to the employee share scheme (ESS) rules so as to remove the double taxation that arises in relation to ESS trust arrangements and to restore the intent of the law in relation to the making of an ESS election for ‘qualifying shares or rights’.

Tax Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Bill 2008, introduced on 27 May 2008, proposes to give effect to the 2008-09 Federal Budget proposal to increase the Medicare levy low-income threshold amounts for individuals, families and pensioners below age-pension age, and to adjust the ‘phase-in’ limits. The proposed increased Medicare levy and Medicare levy surcharge low income thresholds are to apply from the 2007-08 income year and later income years.

Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008, introduced on 27 May 2008, proposes to give effect to the 2008-09 Federal Budget proposals to increase the Medicare levy surcharge threshold for individuals from $50,000 to $100,000 and to increase the Medicare levy surcharge threshold for families from $100,000 to $150,000. The proposed measures relating to the increased Medicare levy surcharge threshold are to apply to the 2008-09 year of income and later years of income.

Customs Tariff Amendment (Tobacco Content) Bill 2008, introduced on 28 May 2008, proposes a minor amendment to the Customs Tariff Act 1995 to implement the revenue protection measure announced in the 2008-09 Federal Budget.

First Home Saver Accounts Bill 2008, introduced on 28 May 2008, proposes to implement the Government’s election commitment to introduce First Home Saver Accounts (FHSAs). This Bill is part of a package of Bills detailed as follows which were introduced on the same day to give effect to the FHSAs scheme:

• First Home Saver Accounts (Consequential Amendments) Bill 2008, and
• Income Tax (First Home Saver Accounts Misuse Tax) Bill 2008.

Same-Sex Relationships (Equal Treatment in Commonwealth Laws - Superannuation) Bill 2008, introduced on 28 May 2008, proposes to implement the Attorney-General’s announcement of 30 April 2008 to eliminate discrimination against same-sex couples and the children of same-sex relationships in numerous Acts that provide for reversionary superannuation benefits upon the death of a scheme member, and in related taxation treatment of superannuation benefits. The following regulatory superannuation Acts and relevant taxation Acts are proposed to be amended by the Bill:

• Retirement Savings Accounts Act 1997
• Small Superannuation Accounts Act 1995
• Superannuation (Government Co-contribution for Low Income Earners) Act 2003
• Superannuation Industry (Supervision) Act 1993, and
• Income Tax (Transitional Provisions) Act 1997.

Tax Laws Amendment (2008 Measures No 3) Bill 2008, introduced on 29 May 2008, makes amendments to give effect to a number of income tax measures, in addition to amendments to the goods and services tax (GST) law, regarding the recovery and payment of a refund of indirect taxes. Specifically, the Bill proposes:

• to amend the income tax law to ensure that no amount is included in the assessable income of a shareholder in a company (or a unit-holder in a unit trust) as a result of being granted call options (rights to acquire shares or units as the case may be) by the company (or by the trustee of the unit trust) in respect of an existing holding of shares (or units) held on capital account, and

• to amend the income tax law so that, where an amount is included in the assessable income of a shareholder as a result of acquiring put options (rights to sell shares) issued by a company, the amount that is assessable is appropriately reflected in the cost base of the rights, and the market value substitution rule will not apply in relation to such rights if they are exercised.

The Bill also proposes to amend the Taxation Administration Act 1953 (TAA) to correct a deficiency in the tax law to ensure that the restriction on refunds applies whether or not a transaction in respect of which GST has been paid is in fact a supply. It also ensures that the four-year time limit on recovery applies where a refund is overpaid to a taxpayer. In addition, it ensures that the four-year time limit applies where a refund is payable by the Commissioner due to a reduction in the liability of a taxpayer. Some of these amendments result from the Government’s concern over the implications arising from the Federal Court’s decision in KAP Motors Pty Ltd v Commissioner of Taxation [2008] FCA 159, where the taxpayer was entitled to claim a GST refund (because there was no supply) even though the taxpayer had no obligation to pass on the refund to the party, which had paid to the taxpayer, the amount effectively incorporating the GST paid inadvertently to the Australian Taxation Office (ATO).

The amendments to be made with respect to the restriction on GST refunds are proposed to apply for tax periods starting on or after 1 July 2008. The amendments proposed to the four-year time limits are proposed to apply from 1 July 2008.

Tax Laws Amendment (2008 Measures No 2) Bill 2008), introduced on 20 March 2008, was amended during Parliamentary debate to include provisions designed to ensure that the following payments are exempt from income tax:

• rent assistance paid to Austudy recipients, and
• the Carer Adjustment Payment.

Family Assistance Legislation Amendment (Child Care Budget and Other Measures) Bill 2008, introduced on 29 May 2008, proposes to amend the family assistance law to give effect to the 2008-09 Federal Budget announcement in relation to the child care tax rebate (CCTR) and to make other amendments more generally in relation to family assistance as it affects debt recovery, civil penalties and expanded entry powers.

The proposed measures which relate to the CCTR are to commence on 1 July 2008.

Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (2008 Budget and Other Measures) Bill 2008, introduced on 29 May 2008, proposes to amend various Acts including the A New Tax System (Family Assistance) Act 1999, the Income Tax Assessment Act 1936 and the Medicare Levy Act 1986 to implement certain 2008-09 Federal Budget measures in relation to the Baby Bonus and the Family Tax Benefit Part B. Generally, the proposed law will place a $150,000 limit on primary earner income for family tax benefit Part B and related tax offsets and applies an income test for the Baby Bonus. These proposed amendments were outlined in our Federal Budget special edition of TaxTalk, issued on 14 May 2008.

Tax Laws Amendment (Election Commitments No 1) Bill 2008, introduced on 4 June 2008, proposes amendments to reduce the level of withholding tax on certain distributions from Australian managed investment trusts (MITs) to foreign resident investors, and also proposes to provide an income tax exemption for the Prime Minister’s Literary Award effective for the 2007-08 and subsequent years.

The provisions relating to MITs will replace the existing 30 percent non-final withholding regime applicable to certain distributions from Australian MITs (‘fund payments’) with a new final withholding tax regime. A fund payment is broadly a component of a distribution made by the trust of Australian sourced net income, other than dividends, interest and royalties (for example, rental income and capital gains). The new regime will be implemented over a three-year period and, once fully implemented, foreign investors of jurisdictions with which Australia has effective exchange of information on tax matters will be subject to a 7.5 percent final withholding tax. A 30 percent rate of withholding will apply to foreign investors resident in other jurisdictions.

The formal imposition of income tax, and the establishment of the applicable rate of tax, is provided for by the Income Tax (Managed Investment Trust Withholding Tax) Bill 2008 and the Income Tax (Managed Investment Trust Transitional) Bill 2008, which were introduced into Parliament on the same day. The measures are proposed to apply to fund payments in respect of income years starting on or after the first 1 July following Royal Assent.

ATO Legislative Instrument ID 2008/MEI/003, registered on the Federal Register for Legislative instruments on 29 May 2008, was made by the Deputy Commissioner of Taxation to revoke ATO Legislative Instrument ID 2007/MEI/008 to ensure that no withholding is required from lump sum superannuation member benefit payments made to a beneficiary when certification is provided that a terminal medical condition existed at the time the payment is received. This legislative instrument further provides that, for payments made in the 2007-08 year, certification that a medical condition existed can be provided within 90 days of receiving the payment or by 30 June 2008, whichever is the later. It also requires that of the two registered medical practitioners that must certify the person suffers from a terminal illness or injury, at least one of the registered medical practitioners is a specialist practising in an area related to the illness or injury suffered by the person and for each of the certificates, the certification period (life expectancy estimated under the certificate) has not ended.

The new instrument has a retrospective commencement date of 1 July 2007, to ensure that terminally ill beneficiaries who were granted the variation to PAYG withholding under the preceding (and now revoked) legislative instrument, as well as additional payees that will be eligible once the measures contained in Tax Laws Amendment (2008 Measures No 2) Bill become law, will not be disadvantaged.

Legislation referred to Senate Committee

On 19 June 2008, the Leader of the Opposition in the Senate issued a media release advising that the following Bills introduced into Parliament by the Rudd Government had been referred to a Senate Committee:

• Same-Sex Relationships (Equal Treatment in Commonwealth Laws-Superannuation) Bill 2008
• Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008
• National Health Amendment (Pharmaceutical and Other Benefits-Cost Recovery) Bill 2008
• Tax Laws Amendment (Luxury Car Tax) Bill 2008
• Excise Legislation Amendment (Condensate) Bill 2008
• National Fuelwatch (Empowering Consumers) Bill 2008
• Tax Laws Amendment (2008 Measures No. 3) Bill 2008, and
• Commonwealth Electoral Amendment (Political Donations an Other Measures) Bill 2008.

On 29 May 2008, the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs released for public comment an exposure draft package that will reform the registration and regulation of tax agent services for a fee.

The key elements of the regulatory reform package are:

• a national Tax Practitioners Board (the Board) to replace the existing state-based Tax Agent Boards

• registration and regulation of entities providing Business Activity Statement (BAS) services as BAS agents

• a legislated code of professional conduct to govern tax agents and BAS agents

• a wider and more flexible range of disciplinary sanctions which may be imposed by the Board

• civil penalties and injunctions to replace criminal penalties for certain misconduct by agents and unregistered entities, and

• ‘safe harbours’ which provide that, in certain circumstances, taxpayers who engage a tax agent or a BAS agent are not liable to certain administrative penalties that would otherwise ordinarily apply for making a false or misleading statement resulting in a tax shortfall amount, or for lodging a document late.

For further information, please contact your usual PricewaterhouseCoopers adviser.