Commonwealth: Tax Laws Amendment (2004 Measures No. 7) Act 2005 (Cth)

Tax Laws Amendment (2004 Measures No. 7) Act 2005 Act No. 41 of 2005 as amended This compilation was prepared on 16 August 2010 taking into account amendments up to Act No. 75 of 2010 The text of any of those amendments not in force on that date is appended in the Notes section The operation of amendments that have been incorporated may be affected by application provisions that are set out in the Notes section Prepared by the Office of Legislative Drafting and Publishing, Attorney‑General's Department, Canberra Contents 1 Short title [see Note 1]........................... 2 Commencement 3 Schedule(s) Schedule 1—25% entrepreneurs' tax offset Income Tax Assessment Act 1997 Taxation Administration Act 1953 Schedule 2—STS accounting method Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Schedule 3—Employee share schemes Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Schedule 4—FBT exemption thresholds for long service award benefits Fringe Benefits Tax Assessment Act 1986 Schedule 5—Petroleum exploration incentives Petroleum Resource Rent Tax Assessment Act 1987 Schedule 6—Consolidation Part 1—Application Part 2—Amount of certain liabilities for purpose of calculating allocable cost amount on exit Income Tax Assessment Act 1997 Part 3—Ensuring no double reduction in working out step 3 of allocable cost amount on entry Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Part 4—Bad debts Division 1—Main amendment Income Tax Assessment Act 1997 Division 2—Consequential amendments Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Part 5—Insurance companies Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Schedule 7—STS roll‑over Income Tax Assessment Act 1997 Schedule 8—Family trust elections Income Tax Assessment Act 1936 Schedule 9—Non‑commercial loans Part 1—Amendment commencing on 29 June 2004 Income Tax Assessment Act 1936 Part 2—Amendments commencing on Royal Assent Income Tax Assessment Act 1936 Schedule 10—Technical corrections and amendments Part 1—Technical corrections and amendments commencing on Royal Assent A New Tax System (Goods and Services Tax) Act 1999 A New Tax System (Wine Equalisation Tax) Act 1999 Fringe Benefits Tax Assessment Act 1986 Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 New Business Tax System (Consolidation and Other Measures) Act 2003 Petroleum Resource Rent Tax Assessment Act 1987 Product Grants and Benefits Administration Act 2000 Superannuation Guarantee (Administration) Act 1992 Taxation Administration Act 1953 Taxation Laws Amendment Act (No. 5) 2002 Venture Capital Act 2002 Part 2—Technical corrections and amendments commencing otherwise than on Royal Assent A New Tax System (Pay As You Go) Act 1999 Energy Grants (Credits) Scheme (Consequential Amendments) Act 2003 Fringe Benefits Tax Assessment Act 1986 Income Tax Assessment Act 1997 New Business Tax System (Consolidation) Act (No. 1) 2002 New Business Tax System (Consolidation and Other Measures) Act 2003 Taxation Laws Amendment (Company Law Review) Act 1998 Taxation Laws Amendment (Research and Development) Act 2001 Tax Laws Amendment (2004 Measures No. 2) Act 2004 Part 3—Removal of link notes Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Taxation Administration Act 1953 Venture Capital Act 2002 Schedule 11—Film tax offset amendments Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Notes An Act to amend the law relating to taxation, and for related purposes 1 Short title [see Note 1] This Act may be cited as the Tax Laws Amendment (2004 Measures No. 7) Act 2005. 2 Commencement (1) Each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms. Commencement information Column 1 Column 2 Column 3 Provision(s) Commencement Date/Details 1. Sections 1 to 4 and anything in this Act not elsewhere covered by this table The day on which this Act receives the Royal Assent. 1 April 2005 2. Schedules 1 to 8 The day on which this Act receives the Royal Assent. 1 April 2005 3. Schedule 9, Part 1 Immediately after the commencement of item 3 of Schedule 8 to the Tax Laws Amendment (2004 Measures No. 1) Act 2004. 29 June 2004 4. Schedule 9, Part 2 The day on which this Act receives the Royal Assent. 1 April 2005 5. Schedule 10, Part 1 The day on which this Act receives the Royal Assent. 1 April 2005 6. Schedule 10, item 244 Immediately after the commencement of Schedule 2 to the A New Tax System (Pay As You Go) Act 1999. 22 December 1999 7. Schedule 10, item 245 Immediately after the commencement of the Energy Grants (Credits) Scheme (Consequential Amendments) Act 2003. 1 July 2003 8. Schedule 10, item 246 1 April 2001. 1 April 2001 9. Schedule 10, item 247 Immediately after the commencement of the Family Law Legislation Amendment (Superannuation) (Consequential Provisions) Act 2001. 28 December 2002 10. Schedule 10, item 248 Immediately after the commencement of Schedule 7 to the New Business Tax System (Consolidation and Other Measures) Act 2003. 24 October 2002 11. Schedule 10, items 249 and 250 Immediately after the commencement of the New Business Tax System (Imputation) Act 2002. 29 June 2002 12. Schedule 10, items 251 to 257 Immediately after the commencement of Schedule 13 to the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002. 29 June 2002 13. Schedule 10, item 258 Immediately after the commencement of item 84 of Schedule 2 to the New Business Tax System (Miscellaneous) Act (No. 2) 2000. 30 June 2000 14. Schedule 10, item 259 Immediately after the start of the day on which the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 received the Royal Assent. 24 October 2002 15. Schedule 10, item 260 Immediately after the commencement of Schedule 1 to the New Business Tax System (Consolidation and Other Measures) Act (No. 1) 2002. 24 October 2002 16. Schedule 10, items 261 and 262 Immediately after the commencement of the A New Tax System (Goods and Services Tax) Act 1999. 1 July 2000 17. Schedule 10, items 263 and 264 Immediately after the commencement of the New Business Tax System (Imputation) Act 2002. 29 June 2002 18. Schedule 10, item 265 Immediately after the commencement of the New Business Tax System (Consolidation) Act (No. 1) 2002. 24 October 2002 19. Schedule 10, item 266 Immediately after the commencement of Schedule 1 to the New Business Tax System (Consolidation and Other Measures) Act (No. 1) 2002. 24 October 2002 20. Schedule 10, item 267 Immediately after the start of the day on which the Taxation Laws Amendment (Company Law Review) Act 1998 received the Royal Assent. 29 June 1998 21. Schedule 10, item 268 Immediately after the commencement of Schedule 4 to the Taxation Laws Amendment (Research and Development) Act 2001. 1 October 2001 22. Schedule 10, item 269 Immediately after the commencement of section 2 of the Tax Laws Amendment (2004 Measures No. 2) Act 2004. 25 June 2004 23. Schedule 10, Part 3 The later of: 1 April 2005 (a) the start of the day on which this Act receives the Royal Assent; and (paragraph (a) applies) (b) immediately after the commencement of Schedule 1 to the Tax Laws Amendment (2004 Measures No. 6) Act 2005. However, the provision(s) do not commence at all if the event mentioned in paragraph (b) does not occur. 24. Schedule 11 The day on which this Act receives the Royal Assent. 1 April 2005 Note: This table relates only to the provisions of this Act as originally passed by the Parliament and assented to. It will not be expanded to deal with provisions inserted in this Act after assent. (2) Column 3 of the table contains additional information that is not part of this Act. Information in this column may be added to or edited in any published version of this Act. 3 Schedule(s) Each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms. Schedule 1—25% entrepreneurs' tax offset Income Tax Assessment Act 1997 1 Section 13‑1 (after table item headed "eligible termination payments (ETPs)") Insert: entrepreneurs' tax offset see simplified tax system 2 Section 13‑1 (table item headed "partnerships") After "dividends", insert "and simplified tax system". 3 Section 13‑1 (after table item headed "sickness benefits") Insert: simplified tax system 25% entrepreneurs' tax offset...................... Subdivision 61‑J 4 Section 13‑1 (table item headed "trusts") After "dividends", insert "and simplified tax system". 5 After Subdivision 61‑I Insert: Subdivision 61‑J—25% entrepreneurs' tax offset Guide to Subdivision 61‑J 61‑500 What this Subdivision is about This Subdivision provides a 25% tax offset on your income tax liability related to the business income of a business in the simplified tax system with annual group turnover of less than $75,000. Your entitlement to the offset varies depending on what kind of entity you are. The amount of your offset varies depending on whether the annual group turnover is $50,000 or less or is more than $50,000. You may be entitled to more than 1 tax offset. For example, if you are an individual STS taxpayer running your own business, you may be entitled to a tax offset under section 61‑505. If you are also a beneficiary of a trust that is an STS taxpayer, you may be entitled to a tax offset under section 61‑520. Table of sections Operative provisions 61‑505 25% entrepreneurs' tax offset: individual or company 61‑510 25% entrepreneurs' tax offset: partner in a partnership 61‑515 25% entrepreneurs' tax offset: trustee of a trust 61‑520 25% entrepreneurs' tax offset: beneficiary of a trust 61‑525 Meaning of net STS income and STS annual turnover Operative provisions 61‑505 25% entrepreneurs' tax offset: individual or company Entitlement (1) You are entitled to a *tax offset for an income year if: (a) you are an individual or a company; and (b) you are an *STS taxpayer for the year; and (c) your *STS group turnover for the year is less than $75,000; and (d) you have *net STS income for the year. Amount (2) The amount of your *tax offset is worked out in this way: Method statement Step 1. Work out your taxable income for the income year. Step 2. Work out 25% of your basic income tax liability for the year (as worked out in step 2 of the method statement in subsection 4‑10(3)). Step 3. Work out the percentage (the STS percentage) using the formula: If that percentage is more than 100%, the STS percentage is 100%. Step 4. If your *STS group turnover for the year is $50,000 or less, multiply the amount at step 2 by the STS percentage: the result is the amount of your *tax offset. Step 5. If your *STS group turnover for the year is more than $50,000, work out the fraction (the STS phase‑out fraction) using the formula: The amount of your *tax offset is worked out using the formula: Example: A company runs a local sports business. The company is an STS taxpayer for the year. The company's STS group turnover for the year is $50,000, the company's net STS income for the year is $40,000 and the company's taxable income for the year is $80,000. The company is entitled to a tax offset. The amount of the offset is worked out in this way: The step 1 amount is $80,000. The step 2 amount is $6,000: 25% of the company's basic income tax liability of $24,000 ($80,000 multiplied by the 30% company tax rate). The step 3 STS percentage is: The amount of the company's tax offset (step 4) is: 61‑510 25% entrepreneurs' tax offset: partner in a partnership Entitlement (1) You are entitled to a *tax offset for an income year if: (a) you are a partner in a partnership during the year; and (b) the partnership is an *STS taxpayer for the year; and (c) the partnership's *STS group turnover for the year is less than $75,000; and (d) the partnership has *net STS income for the year; and (e) your assessable income for the year includes a share (your net STS income share) of that net STS income. Amount (2) The amount of your *tax offset is worked out in this way: Method statement Step 1. Work out your taxable income for the income year. Step 2. Work out 25% of your basic income tax liability for the year (as worked out in step 2 of the method statement in subsection 4‑10(3)). Step 3. Work out the percentage (the STS percentage) using the formula: If that percentage is more than 100%, the STS percentage is 100%. Step 4. If the partnership's *STS group turnover for the year is $50,000 or less, multiply the amount at step 2 by the STS percentage: the result is the amount of your *tax offset. Step 5. If the partnership's *STS group turnover for the year is more than $50,000, work out the fraction (the STS phase‑out fraction) using the formula: The amount of your *tax offset is worked out using the formula: 61‑515 25% entrepreneurs' tax offset: trustee of a trust Entitlement (1) You are entitled to a *tax offset for an income year if: (a) you are a trustee of a trust during the year; and (b) the trust is an *STS taxpayer for the year; and (c) the trust's *STS group turnover for the year is less than $75,000; and (d) the trust has *net STS income for the year; and (e) you are liable to be assessed under section 98, 99 or 99A of the Income Tax Assessment Act 1936 on a share (your net STS income share) of that net STS income. Amount (2) The amount of your *tax offset is worked out in this way: Method statement Step 1. Work out the *net income of the trust for the income year. Step 2. Work out 25% of the amount of income tax you are liable to pay for the year on that *net income (apart from any *tax offsets). Step 3. Work out the percentage (the STS percentage) using the formula: If that percentage is more than 100%, the STS percentage is 100%. Step 4. If the trust's *STS group turnover for the year is $50,000 or less, multiply the amount at step 2 by the STS percentage: the result is the amount of your *tax offset. Step 5. If the trust's *STS group turnover for the year is more than $50,000, work out the fraction (the STS phase‑out fraction) using the formula: The amount of your *tax offset is worked out using the formula: 61‑520 25% entrepreneurs' tax offset: beneficiary of a trust Entitlement (1) You are entitled to a *tax offset for an income year if: (a) you are a beneficiary of a trust during the year; and (b) the trust is an *STS taxpayer for the year; and (c) the trust's *STS group turnover for the year is less than $75,000; and (d) the trust has *net STS income for the year; and (e) your assessable income for the year includes a share (your net STS income share) of that net STS income. Amount (2) The amount of your *tax offset is worked out in this way: Method statement Step 1. Work out your taxable income for the income year. Step 2. Work out 25% of your basic income tax liability for the year (as worked out in step 2 of the method statement in subsection 4‑10(3)). Step 3. Work out the percentage (the STS percentage) using the formula: If that percentage is more than 100%, the STS percentage is 100%. Step 4. If the trust's *STS group turnover for the year is $50,000 or less, multiply the amount at step 2 by the STS percentage: the result is the amount of your *tax offset. Step 5. If the trust's *STS group turnover for the year is more than $50,000, work out the fraction (the STS phase‑out fraction) using the formula: The amount of your *tax offset is worked out using the formula: 61‑525 Meaning of net STS income and STS annual turnover Net STS income (1) An entity's net STS income for an income year is the amount by which the entity's *STS annual turnover for the year is more than the sum of the entity's deductions attributable to that turnover. STS annual turnover (2) An entity's STS annual turnover for an income year is the sum of the *value of the business supplies the entity made in the year. (3) To the extent that the *taxable supplies an entity makes in an income year includes *gambling supplies, use an amount equal to 11 times the entity's *global GST amount for those supplies rather than the *value of the business supplies in working out the entity's *STS annual turnover. (4) In working out the *value of the business supplies made by an entity, disregard: (a) any *supply made to the extent that the consideration for the supply is a payment or a supply by an insurer in settlement of a claim under an insurance policy; and (b) to the extent that a supply is constituted by a loan—any repayment of principal, and any obligation to repay principal. 6 At the end of section 328‑5 Add: Note: If you choose to become an STS taxpayer, you may be entitled to the 25% entrepreneurs' tax offset: see Subdivision 61‑J. 7 Subsection 328‑365(1) (note) Omit "Note", substitute "Note 1". 8 At the end of subsection 328‑365(1) Add: Note 2: If you choose to become an STS taxpayer, you may be entitled to the 25% entrepreneurs' tax offset: see Subdivision 61‑J. 9 Subsection 995‑1(1) Insert: net STS income has the meaning given by section 61‑525. 10 Subsection 995‑1(1) Insert: STS annual turnover has the meaning given by section 61‑525. 11 Application The amendments made by items 1 to 10 apply to assessments for the first income year starting on or after 1 July 2005 and later income years. Taxation Administration Act 1953 12 Section 45‑340 in Schedule 1 (before paragraph (a) of step 1 of the method statement) Insert: (aaa) Subdivision 61‑J of the Income Tax Assessment Act 1997 (the 25% entrepreneurs' tax offset); or 13 Application The amendment made by item 12 applies in relation to the calculation of an entity's adjusted tax: (a) for a base year that is the first income year starting on or after 1 July 2005 or is a later income year; and (b) only for the purposes of a PAYG instalment period that includes, or starts after, the day on which this Act receives the Royal Assent. Schedule 2—STS accounting method Income Tax Assessment Act 1997 1 Subsection 6‑5(4) (note) Repeal the note. 2 Subsection 8‑1(3) (note 1) Omit "Note 1", substitute "Note". 3 Subsection 8‑1(3) (note 2) Repeal the note. 4 Subsection 70‑15(3) (note 1) Omit "Note 1", substitute "Note". 5 Subsection 70‑15(3) (note 2) Repeal the note. 6 Section 328‑5 Omit "3". 7 Section 328‑5 Omit: • you use a cash accounting system for ordinary income, general deductions and deductions for tax‑related expenses and repairs; and 8 Section 328‑10 Repeal the section. 9 Subdivision 328‑C Repeal the Subdivision. Income Tax (Transitional Provisions) Act 1997 10 Before Division 330 Insert: Division 328—STS taxpayers Table of sections 328‑115 When you stop using the STS accounting method 328‑120 Continuing to use the STS accounting method 328‑125 Meaning of STS accounting method 328‑440 Becoming an STS taxpayer after stopping to be one 328‑115 When you stop using the STS accounting method (1) This section sets out what happens to your ordinary income and general deductions, and deductions under section 25‑5 or 25‑10 of the Income Tax Assessment Act 1997, if: (a) you are an STS taxpayer for an income year and for the following income year (the changeover year); and (b) you were using the STS accounting method for the income year before the changeover year; and (c) you change to an accruals accounting method for the changeover year. (2) This section also sets out what happens to your ordinary income and general deductions, and deductions under section 25‑5 or 25‑10 of the Income Tax Assessment Act 1997, if: (a) you stop being an STS taxpayer for an income year (also the changeover year); and (b) you were using the STS accounting method for the income year before the changeover year; and (c) you change to an accruals accounting method for the changeover year. (3) Any ordinary income that, apart from paragraph 328‑105(1)(a) of the Income Tax Assessment Act 1997, you would have derived before the changeover year (while you were an STS taxpayer) and you have not included in your assessable income because you have not received it is included in your assessable income for the changeover year. (4) Any general deductions, and deductions under section 25‑5 or 25‑10 of the Income Tax Assessment Act 1997, that, apart from paragraph 328‑105(1)(b) of that Act, you would have incurred before the changeover year (while you were an STS taxpayer) and that you have not deducted because you have not paid them can be deducted for the changeover year. 328‑120 Continuing to use the STS accounting method If you were an STS taxpayer for your first income year that started before 1 July 2005, you can continue to use the STS accounting method for your first income year starting on or after 1 July 2005 and later income years while you continue to be an STS taxpayer. 328‑125 Meaning of STS accounting method In sections 328‑115 and 328‑120, STS accounting method means the accounting method that was required by the Income Tax Assessment Act 1997 to be used by STS taxpayers for the 2004‑05 income year. 328‑440 Becoming an STS taxpayer after stopping to be one Subsection 328‑440(3) of the Income Tax Assessment Act 1997 does not apply to you, during the period of 5 years starting on 1 July 2005, if you chose to stop being an STS taxpayer for an income year before your first income year starting on or after 1 July 2005. 11 Application The amendments made by this Schedule apply to assessments for the first income year starting on or after 1 July 2005 and later income years. Schedule 3—Employee share schemes Income Tax Assessment Act 1936 1 Section 139A (after table item dealing with Subdivision D) Insert: DA Takeovers and restructures 2 Subsection 139C(4) After "The taxpayer does not", insert "(except for the purposes of Subdivision DA)". 3 Paragraph 139CA(2)(b) Before "the later of", insert "subject to subsection (4),". 4 At the end of section 139CA Add: (4) Paragraph (2)(b) does not apply in relation to a share that, because of section 139DQ, is treated, for the purposes of this Division, as if it were a continuation of a share acquired under an employee share scheme. Note: Subdivision DA can affect whether the taxpayer is treated as having disposed of a share or ceased employment. 5 Paragraphs 139CB(1)(c) and (d) Before "if the right is exercised", insert "subject to subsection (3),". 6 After paragraph 139CB(1)(d) Insert: (da) if subsection (3) applies—the time when the taxpayer disposes of the share referred to in paragraph (3)(b); 7 At the end of section 139CB Add: Note: Subdivision DA can affect whether the taxpayer is treated as having disposed of a right or ceased employment. (3) Paragraphs (1)(c) and (d) do not apply in relation to a right if: (a) a share has been or is acquired as a result of the exercise of the right; and (b) because of section 139DQ, another share is treated, for the purposes of this Division, as if it were a continuation of that share. 8 At the end of section 139CC Add: Note: Section 139DS can affect the amount of consideration that the taxpayer is treated as having paid or given. 9 After subsection 139DD(2) Insert: (2A) To avoid doubt, the taxpayer does not lose the right if, because of section 139DQ, another right is treated, for the purposes of this Division, as if it were a continuation of that right. 10 After subsection 139DD(3) Insert: (3A) To avoid doubt, the company does not cease to be the employer of the taxpayer or a holding company of the employer of the taxpayer if, because of section 139DQ, the taxpayer's employment by another company is treated, for the purposes of this Division, as if it were a continuation of that employment. 11 After Subdivision D of Division 13A of Part III Insert: Subdivision DA—Takeovers and restructures 139DP Object of this Subdivision The object of this Subdivision is to allow this Division to continue to apply, in appropriate circumstances, to 100% takeovers or restructures of companies that have employee share schemes. 139DQ The effect of 100% takeovers and restructures on employee share schemes Treating acquisitions as continuations of existing shares etc. (1) To the extent that: (a) a taxpayer acquires: (i) shares in a company (the new company) that can reasonably be regarded as matching shares in another company (the old company) that the taxpayer had acquired under an employee share scheme; or (ii) rights in a company (the new company) that can reasonably be regarded as matching rights in another company (the old company) that the taxpayer had acquired under an employee share scheme; and (b) the acquisition occurs in connection with a 100% takeover, or a restructure, of the old company; and (c) as a result of the takeover or restructure, the taxpayer ceased to hold the shares or rights in the old company; then, if the conditions in section 139DR are met, the matching shares or rights are treated, for the purposes of this Division, as if they were a continuation of the shares or rights in the old company. Note: In determining to what extent something can reasonably be regarded as matching shares or rights in the old company, one of the factors to consider is the respective market values of that thing and of those shares or rights. Treating acquisitions as disposals of existing shares etc. (2) However, to the extent that, in connection with the takeover or restructure, the taxpayer acquires anything that: (a) can reasonably be regarded as matching shares or rights in the old company that the taxpayer had acquired under an employee share scheme; but (b) is not a matching share or right to which subsection (1) applies; the taxpayer is treated, for the purposes of this Division, as having disposed of shares, or disposed of rights (other than by exercising them), that the taxpayer held, under an employee share scheme, in the old company immediately before the takeover or restructure. Treating new employment as continuation of existing employment (3) If subsection (1) applies, any employment of the taxpayer in: (a) the new company; or (b) a holding company of the new company; or (c) a subsidiary of the new company or of a holding company of the new company; is treated, for the purposes of this Division, as a continuation of the employment in respect of which he or she acquired the shares or rights in the old company or in a subsidiary of the old company. 139DR Conditions for the continuation of shares or rights (1) The first condition is that, immediately before the takeover or restructure, the taxpayer held shares or rights in the old company under an employee share scheme. (2) The second condition is that, at or about the time the taxpayer acquires the matching shares or rights, the taxpayer is an employee of: (a) the new company; or (b) a holding company of the new company; or (c) a subsidiary of the new company or of a holding company of the new company. (3) The third condition is that: (a) to the extent that the matching shares or rights are shares, they are ordinary shares; or (b) to the extent that the matching shares or rights are rights, they are rights to acquire ordinary shares. (4) The fourth condition is that, if subsection 139DQ(1) did not apply, the cessation time, for the shares or rights in the old company to which the matching shares or rights relate, would occur as a result of the takeover or restructure. (5) The fifth condition is that, at the time the taxpayer acquires the matching shares or rights, the taxpayer does not hold a legal or beneficial interest in more than 5% of the shares of the new company. (6) The sixth condition is that, at that time, the taxpayer is not in a position to cast, or control the casting of, more than 5% of the maximum number of votes that may be cast at a general meeting of the new company. 139DS Apportionment rules (1) If: (a) subsection 139DQ(1) applies to shares or rights that the taxpayer has acquired; and (b) the taxpayer had paid or given consideration (the original consideration) for an acquisition, under an employee share scheme, of any of the shares or rights in the old company (the original shares or rights); the taxpayer is treated as having paid or given, for any of the apportionable assets for the original shares or rights, consideration of an amount worked out by spreading the original consideration proportionately among all the apportionable assets according to their market values immediately after the takeover or restructure. Note: Subsection 139FA(4) alters the meaning of market value of a share or right for the purposes of this section. (2) The apportionable assets for the original shares or rights are: (a) all matching shares or rights held by the taxpayer that are treated because of this Division as a continuation of the original shares or rights; and (b) anything else that the taxpayer acquired in connection with the takeover or restructure and that can reasonably be regarded as matching the original shares or rights; and (c) in the case of a restructure—any shares or rights in the old company that the taxpayer held immediately before, and continues to hold immediately after, the restructure and that can reasonably be regarded as matching the original shares or rights. 12 At the end of section 139FA Add: (4) This section applies for the purposes of section 139DS as if references in this section to the one week period up to and including that day were references to the period consisting of that day. 13 Section 139GC Omit "Corporations Law", substitute "Corporations Act 2001". 14 After section 139GC Insert: 139GCA Meaning of subsidiary The expression subsidiary has the same meaning as in the Corporations Act 2001. 139GCB Meaning of 100% takeover A 100% takeover of a company by another company is an arrangement that is intended to result in the company becoming a 100% subsidiary of the other company, or of a holding company or subsidiary of the other company. 139GCC Meaning of restructure A restructure of a company is a change in the ownership, or the structure of the ownership, of the company as a result of which some or all shares or rights held in the company under an employee share scheme immediately before the change: (a) are replaced; or (b) could reasonably be regarded as having been replaced; wholly or partly by shares or rights in one or more other companies. 15 Section 139GH (before the table item dealing with Acquiring a share or right) Insert: 100% takeover 139GCB 16 Section 139GH (at the end of the table) Add: Restructure 139GCC Subsidiary 139GCA Income Tax Assessment Act 1997 17 Subsection 130‑80(1) Repeal the subsection, substitute: (1) This section sets out what happens if you: (a) *acquire a *share or right at a discount (within the meaning of Subdivision C of Division 13A of Part III of the Income Tax Assessment Act 1936) under an *employee share scheme; or (b) acquire a share or right that, because of section 139DQ of that Act, is treated, for the purposes of Division 13A of Part III of that Act, as if it were a continuation of a share or right acquired under an employee share scheme. 18 After subsection 130‑83(1) Insert: (1A) If: (a) a *CGT event happens in relation to the *share or right (the original share or right); and (b) it happens in connection with an acquisition (within the meaning of Subdivision C of Division 13A of Part III of the Income Tax Assessment Act 1936) of another share or right (the matching share or right); and (c) under section 139DQ of the Income Tax Assessment Act 1936 the matching share or right is treated, for the purposes of Division 13A of Part III of that Act, as if it were a continuation of the original share or right; any *capital gain or *capital loss you make from the CGT event is disregarded. 19 Section 130‑90 (heading) Repeal the heading, substitute: 130‑90 Share or right acquired under an employee share trust—beneficiary absolutely entitled 20 Subsection 130‑90(3) Repeal the subsection, substitute: (3) Either: (a) the individual, *associate or affiliate company must have acquired the *share or right under an *employee share scheme; or (b) the share or right must, because of section 139DQ of the Income Tax Assessment Act 1936, be a share or right that is treated, for the purposes of Division 13A of Part III of that Act, as if it were a continuation of a share or right acquired under an employee share scheme. 21 At the end of Subdivision 130‑D Add: 130‑95 Share or right acquired under an employee share trust—100% takeover or restructure If: (a) a *CGT event happens in relation to a *share or right (the original share or right); and (b) it happens in connection with an acquisition (within the meaning of Subdivision C of Division 13A of Part III of the Income Tax Assessment Act 1936) of another share or right (the matching share or right) by the beneficiary of an *employee share trust; and (c) under section 139DQ of the Income Tax Assessment Act 1936 the matching share or right is treated, for the purposes of Division 13A of Part III of that Act, as if it were a continuation of the original share or right; any *capital gain or *capital loss the trustee of the employee share trust makes from the CGT event is disregarded. 22 Application (1) The amendments made by this Schedule apply, and are taken to have applied, to acquisitions of shares or rights on or after 1 July 2004. (2) In this item: acquisition, of a share or right, has the same meaning as in Division 13A of Part III of the Income Tax Assessment Act 1936. Schedule 4—FBT exemption thresholds for long service award benefits Fringe Benefits Tax Assessment Act 1986 1 Paragraph 58Q(1)(c) (formula) Repeal the formula, substitute: 2 Paragraph 58Q(1)(d) (formula) Repeal the formula, substitute: 3 Application The amendments made by this Schedule apply to FBT years beginning on or after 1 April 2005. Schedule 5—Petroleum exploration incentives Petroleum Resource Rent Tax Assessment Act 1987 1 Section 2 Insert: designated frontier area means that block or those blocks that constitute both: (a) an area or part of an area: (i) specified in section 36A; or (ii) specified in an instrument made under subsection 36B(1); and (b) an exploration permit area. 2 Section 2 Insert: designated frontier expenditure, in relation to a petroleum project and a financial year, means exploration expenditure that is actually incurred: (a) by a person in that year where the eligible exploration or recovery area in relation to the project is a designated frontier area; and (b) during the original period of the exploration permit concerned (before the permit is first renewed or ceases to be in force); other than exploration expenditure that is incurred in evaluating or delineating a petroleum pool (within the meaning of the Petroleum (Submerged Lands) Act 1967) that has been discovered in a designated frontier area. 3 Section 2 Insert: uplifted frontier expenditure has the meaning given by section 36C. 4 After section 36 Insert: 36A Designated frontier areas for 2004 For the purposes of the definition of designated frontier area, the following areas are specified: (a) Area T04‑5, as first gazetted in the Tasmanian Government Gazette on 5 May 2004 under subsection 20(1) of the Petroleum (Submerged Lands) Act 1967; (b) Areas W04‑2, W04‑4, W04‑15 and W04‑16, as first gazetted in the Western Australia Government Gazette on 30 March 2004 under subsection 20(1) of the Petroleum (Submerged Lands) Act 1967; (c) Area NT04‑3, as first gazetted in the Northern Territory Government Gazette on 14 April 2004 under subsection 20(1) of the Petroleum (Submerged Lands) Act 1967. Note: An amount of exploration expenditure incurred in respect of an area that is specified under this section might be increased by 150% (before the GDP factor or the augmented bond rate is applied to the amount under the Schedule): see section 36C. 36B Designated frontier areas for 2005 to 2008 (1) For the purposes of the definition of designated frontier area, the Minister administering the Petroleum (Submerged Lands) Act 1967 may designate, in writing, up to (and including) 20% of potential exploration permit areas as frontier areas. Note: An amount of exploration expenditure incurred in respect of an area that is specified under this section might be increased by 150% (before the GDP factor or the augmented bond rate is applied to the amount under the Schedule): see section 36C. (2) The Minister must not specify new areas for a calendar year after 2008. (3) The Minister must publish an instrument made under subsection (1) in the Gazette. (4) An instrument made under subsection (1) is not a legislative instrument for the purposes of the Legislative Instruments Act 2003. (5) The Minister may, by signed instrument, delegate his or her power under subsection (1) to an SES employee or an acting SES employee in the Minister's Department. Note: The expressions SES employee and acting SES employee are defined in section 17AA of the Acts Interpretation Act 1901. (6) In this section: potential exploration permit area means an area or areas constituted by a block or blocks in respect of which applications for exploration permits have been invited, but not yet granted, under Division 2 of Part III of the Petroleum (Submerged Lands) Act 1967. 36C Uplifted frontier expenditure For the purposes of this Act, the amount of uplifted frontier expenditure that a person is taken to have incurred in a financial year in relation to a petroleum project is worked out as follows: 5 Subsection 45C(9) Omit ", within 60 days of being given the notice, lodge with the Commissioner a written objection against the decision setting out fully and in detail the grounds on which the person relies", substitute "object against the decision in the manner set out in Part IVC of the Taxation Administration Act 1953". 6 Subsection 45C(10) Repeal the subsection. 7 Clause 1 of the Schedule (definition of incurred exploration expenditure amount) Repeal the definition, substitute: incurred exploration expenditure amount, in relation to a petroleum project that is not a combined project and in relation to a financial year, means the sum of the following: (a) any amounts of exploration expenditure (other than designated frontier expenditure) actually incurred by the person in the financial year in relation to the project; (b) any amounts of uplifted frontier expenditure that the person is taken by section 36C to have incurred in the financial year in relation to the project; (c) any amounts of expenditure that the person is taken by subparagraph 48(1)(a)(ia) or paragraph 48A(5)(c) to have incurred in the financial year in relation to the project. Note: The effect of subsections 35A(2), 35B(2) and 45D(3) must be taken into account when working out an incurred exploration expenditure amount. 8 Clause 1 of the Schedule Insert: incurred exploration expenditure amount, in relation to a petroleum project that is a combined project and in relation to a financial year, means the sum of the following: (a) any amounts of: (i) exploration expenditure (other than designated frontier expenditure) actually incurred by the person; and (ii) uplifted frontier expenditure that the person is taken by section 36C to have incurred; in the financial year in relation to the project (not being amounts incurred before the project combination certificate in relation to the project came into force); (b) any amounts of expenditure that the person is taken by subparagraph 48(1)(a)(ia) or paragraph 48A(5)(c) to have incurred in the financial year in relation to the project; (c) if the project combination certificate came into force during the financial year: (i) any amounts of exploration expenditure (other than designated frontier expenditure) actually incurred by the person in the financial year; and (ii) any amounts of uplifted frontier expenditure that the person is taken by section 36C to have incurred in the financial year; and (iii) any amounts of exploration expenditure that the person is taken by section 48 or 48A to have incurred in the financial year; in relation to the pre‑combination projects. Note: The effect of subsections 35A(2), 35B(2) and 45D(3) must be taken into account when working out an incurred exploration expenditure amount. 9 Paragraph 15(1)(a) of the Schedule After "incurred exploration expenditure", insert ", or is taken to have incurred uplifted frontier expenditure,". 10 Subclause 15(1) of the Schedule Omit "all of the exploration expenditure is non‑transferable expenditure", substitute "the total of the amounts of exploration expenditure (other than designated frontier expenditure), and uplifted frontier expenditure, is taken to be non‑transferable expenditure". 11 Paragraph 15(2)(b) of the Schedule Repeal the paragraph, substitute: (b) the total of: (i) any amounts of exploration expenditure (other than designated frontier expenditure) actually incurred by the person; and (ii) any amounts of uplifted frontier expenditure taken to be incurred by the person in respect of designated frontier expenditure actually incurred by the person; in relation to the notional project in the financial year exceeds the excess referred to in paragraph (a) by an amount (the non‑transferable amount); 12 Subclause 15(2) of the Schedule Omit "so much of the exploration expenditure as equals the non‑transferable amount is non‑transferable expenditure", substitute "so much of the expenditure as equals the non‑transferable amount is taken to be non‑transferable expenditure". 13 Paragraph 15(3)(b) of the Schedule Omit "the exploration expenditure incurred", substitute "any exploration expenditure (other than designated frontier expenditure) incurred, or any uplifted frontier expenditure taken to be incurred,". 14 Paragraph 15(4)(c) of the Schedule Repeal the paragraph, substitute: (c) add amounts in accordance with the following rules: (i) start with the oldest amount of any exploration expenditure (other than designated frontier expenditure) incurred, or any uplifted frontier expenditure taken to be incurred, by the person in the financial year; (ii) add to that, in order starting with the next oldest amount, each of the other amounts incurred, or taken to be incurred, by the person in the financial year; (iii) if adding an amount of expenditure would make the total exceed the non‑transferable amount, add only so much of the amount as makes the total equal the non‑transferable amount and do not add any later amount of expenditure; 15 Paragraph 15(4)(d) of the Schedule Omit "subparagraphs (c)(i) and (ii)", substitute "paragraph (c)". 16 Paragraph 16(c) of the Schedule Repeal the paragraph, substitute: (c) the total of: (i) any amounts of exploration expenditure (other than designated frontier expenditure) actually incurred by the person; and (ii) any amounts of uplifted frontier expenditure taken to be incurred by the person in respect of designated frontier expenditure actually incurred by the person; in relation to the notional project during the period starting on 1 July 1990 and ending at the end of the assessable year; 17 Application (1) The amendments made by this Schedule (other than items 5 and 6) apply in respect of any exploration expenditure incurred (whether before or after this Schedule commences) where the eligible exploration or recovery area is a designated frontier area. (2) The amendments made by items 5 and 6 apply in respect of any objection made (whether before or after that item commences) that has not yet been finally determined or otherwise disposed of. Schedule 6—Consolidation Part 1—Application 1 Application The amendments made by this Schedule apply on and after 1 July 2002. Part 2—Amount of certain liabilities for purpose of calculating allocable cost amount on exit Income Tax Assessment Act 1997 2 At the end of section 711‑45 Add: Adjustment where amount of liability differed for purpose of calculating allocable cost amount on entry (8) If: (a) a leaving entity's liability mentioned in any preceding subsection was taken into account in working out the *allocable cost amount for a *subsidiary member (whether or not the leaving entity) of the old group in accordance with Division 705 (the entry ACA); and (b) the amount (the entry amount) of the liability that was so taken into account is different from the amount (the exit amount) of the liability taken into account in applying the subsection; and (c) the entry ACA was different from what it would have been if the exit amount, instead of the entry amount, had been taken into account in working it out; then, for the purpose of applying the subsection, the liability is taken to be of an amount equal to the entry amount. Part 3—Ensuring no double reduction in working out step 3 of allocable cost amount on entry Income Tax Assessment Act 1997 3 Subsection 705‑90(6) Repeal the subsection, substitute: Undistributed profits must have accrued to joined group (6) Next, work out the extent to which the undistributed profits that satisfy the requirements of subsection (3) accrued to the joined group before the joining time (subsection (7) states what it means for a profit to accrue to the joined group before the joining time). The result is the step 3 amount. Income Tax (Transitional Provisions) Act 1997 4 Paragraph 701‑30(2)(a) Omit ", and paragraph (6)(b),". Part 4—Bad debts Division 1—Main amendment Income Tax Assessment Act 1997 5 At the end of Division 709 Add: Subdivision 709‑D—Deducting bad debts Guide to Subdivision 709‑D 709‑200 What this Subdivision is about An entity can deduct a bad debt that: (a) has for a period been owed to a member of a consolidated group; and (b) has for another period been owed to an entity that was not a member of that group; only if each entity that has been owed the debt for such a period could have deducted the debt had it been written off as bad at the end of the period. This applies even if the debt is owed to the same entity for different periods. Table of sections Application and object 709‑205 Application of this Subdivision 709‑210 Object of this Subdivision Limit on deduction of bad debt 709‑215 Limit on deduction of bad debt Application and object 709‑205 Application of this Subdivision (1) This Subdivision affects whether an entity (the claimant) that is or has been a *member of a *consolidated group and writes off a debt, or part of a debt, as bad may deduct the debt or part if the conditions in subsection (2) exist. (2) The conditions are that, in the time starting when the debt was incurred (whether to the claimant or another entity) and ending when the claimant wrote off the debt or part: (a) the debt was owed to an entity (whether the claimant or another entity) for a period (a debt test period) when the entity was a *member of a *consolidated group; and (b) the debt was owed to an entity (whether the claimant or another entity) for a period (also a debt test period) when the entity was a not a member of that group. Note 1: The debt must have been owed to the claimant for at least one of the debt test periods for the claimant to have been able to write it off. Note 2: One effect of section 701‑1 (Single entity rule) is that a debt is taken to be owed to the head company of a consolidated group while the debt is owed to a subsidiary member of the group. (3) Ignore section 701‑5 (Entry history rule) and section 701‑40 (Exit history rule) in identifying a debt test period. Note: Subsection (3) does not affect sections 701‑5 and 701‑40 so far as they operate to treat the debt, or part of the debt, as having been included in the claimant's assessable income. That inclusion is generally a condition under section 25‑35 for the claimant to be able to deduct the debt. (4) This Subdivision does not apply in relation to a debt merely because it is assigned: (a) from an entity that is a *member of a *consolidated group to an entity that is not a member of that group; or (b) from an entity that is not a member of a consolidated group to an entity that is a member of a consolidated group; or (c) from an entity that is a member of a consolidated group to an entity that is a member of another consolidated group. This subsection has effect despite subsections (1) and (2). Note: There is not an assignment of a debt from one entity to another merely because section 701‑1 (Single entity rule) starts or ceases to apply in relation to the entities so that the debt ceases to be a debt owed to one entity and becomes a debt owed to the other entity. 709‑210 Object of this Subdivision The main object of this Subdivision is to ensure that the claimant can deduct the debt, or part of it, only if each entity that was owed the debt for a debt test period could have deducted the debt if it had been written off as bad at the end of the period. Limit on deduction of bad debt 709‑215 Limit on deduction of bad debt (1) The claimant can deduct the debt, or part of the debt, if, and only if: (a) section 8‑1 or 25‑35 permits the deduction (ignoring subsection 25‑35(5) and the provisions mentioned in that subsection); and (b) the condition in subsection (2) is met for each debt test period. (2) The condition is that the entity that was owed the debt for the debt test period could have deducted the debt for an income year (the debt test income year) starting and ending at the times identified in subsection (3) if: (a) the entity had written off the debt as bad at the end of the period; and (b) these provisions (the modified provisions) had effect as described in this section: (i) sections 165‑123 and 165‑126 (which are about conditions that must be met for a company to be able to deduct a bad debt); (ii) sections 266‑35, 266‑85, 266‑120, 266‑160 and 267‑25 in Schedule 2F to the Income Tax Assessment Act 1936 (which are about conditions that must be met for certain kinds of trusts to be able to deduct a bad debt); (iii) other provisions of this Act so far as they relate to a section listed in subparagraph (i) or (ii); and (c) these provisions did not apply: (i) subsections 165‑120(2) and (3); (ii) section 267‑65 in Schedule 2F to the Income Tax Assessment Act 1936. Note 1: Some of the other provisions of this Act that relate to a section listed in subparagraph (2)(b)(i) are sections 165‑120, 165‑129 and 165‑132 and Subdivision 166‑C. Note 2: Some of the other provisions of this Act that relate to a section listed in subparagraph (2)(b)(ii) are sections 266‑40, 266‑45, 266‑90, 266‑125, 266‑165, 267‑30, 267‑35, 267‑40 and 267‑45 in Schedule 2F to the Income Tax Assessment Act 1936. Debt test income year (3) The table shows when the debt test income year starts and ends. Start and end of debt test income year If: The start of the debt test income year is: The end of the debt test income year is: 1 Both these conditions are met: The later of these times (or either of them if they are the same): The end of the income year in which the write‑off time occurs (a) the entity that is owed the debt for the debt test period is the claimant; (a) the start of the income year in which the write‑off time occurs; (b) the period ends at the time (the write‑off time) the claimant actually writes off the debt or part of the debt (b) the start of the debt test period 2 Either: The later of these times (or either of them if they are the same): The end of the debt test period (a) the entity that is owed the debt for the debt test period is not the claimant; or (a) 12 months before the end of the debt test period; (b) that entity is the claimant but that period ends before the claimant actually writes off the debt or part of the debt (b) the start of the debt test period Continuity periods, ownership test periods and test periods (4) For the purposes of subsection (2), the modified provisions have effect as if: (a) the *first continuity period started at the start time shown in the table and ended at the start of the debt test income year; and (b) the *second continuity period were the debt test income year or, for the purposes of section 165‑123 and Subdivision 166‑C defining periods by reference to the second continuity period, the period: (i) starting at the start of the debt test income year; and (ii) ending at the end time shown in the table; and (c) each section listed in subparagraph (2)(b)(ii) specified that the test period identified in the section: (i) started at the start time shown in the table; and (ii) ended at the end time shown in the table. Start time and end time If: The start time is: The end time is: 1 All these conditions are met: The start of the debt test period The end of the income year in which the write‑off time occurs (a) the entity that is owed the debt for the debt test period is the claimant; (b) the period ends at the time (the write‑off time) the claimant actually writes off the debt or part of the debt; (c) the claimant is the *head company of a *consolidated group at the write‑off time 2 All these conditions are met: Just before the start of the debt test period The end of the income year in which the write‑off time occurs (a) the entity that is owed the debt for the debt test period is the claimant; (b) the period ends at the time (the write‑off time) the claimant actually writes off the debt or part of the debt; (c) the claimant is not the *head company of a *consolidated group at the write‑off time 3 The debt test period: The start of the debt test period Just after the end of the debt test period (a) starts at a time other than a time when the entity that is owed the debt for the period ceases to be a *member of a *consolidated group; and (b) ends when the entity becomes a member of such a group; (whether or not the entity was the *head company of another such group during the period) 4 Both these conditions are met: The start of the debt test period The end of the debt test period (a) the entity that is owed the debt for the debt test period is the *head company of a *consolidated group; (b) the period ends when: (i) a *subsidiary member of the group becomes a *member of another consolidated group; or (ii) the entity ceases to be the head company of the group without becoming a member of another consolidated group 5 The debt test period: Just before the start of the debt test period Just after the end of the debt test period (a) starts when the entity that is owed the debt for the period ceases to be a *member of a *consolidated group; and (b) ends later when the entity becomes a member of a consolidated group (5) For the purposes of subsection (2), the modified provisions have effect as if section 267‑25 in Schedule 2F to the Income Tax Assessment Act 1936 applied in relation to debts whether they were incurred in the income year or an earlier income year. Test time for same business test under section 165‑126 (6) For the purposes of subsection (2), the modified provisions have effect as if subsection 165‑126(2) specified that the test time were the later of these times (or either of them if they are the same): (a) the first time at which it is not practicable to show that the company will meet the conditions in section 165‑123 (as modified by this section); (b) the time just after the start of the debt test period. Business at and just after the end of the debt test period (7) If: (a) the debt test period ends when the entity that was owed the debt for the period becomes a *member of a *consolidated group; and (b) under the modified provisions, the *business that the entity carried on at or just after the end of the period is relevant to the question whether the entity could have deducted the debt as described in subsection (2); those provisions have effect for the purposes of that subsection as if the entity carried on at those times the business it carried on just before the end of the period. Division 2—Consequential amendments Income Tax Assessment Act 1936 6 At the end of subsection 266‑35(1) in Schedule 2F Add: Note: Subdivision 709‑D of the Income Tax Assessment Act 1997 modifies how this section operates in relation to a trust that used to be a member of a consolidated group and that writes off as bad a debt that used to be owed to a member of the group. 7 At the end of subsection 266‑85(3) in Schedule 2F Add: Note: Subdivision 709‑D of the Income Tax Assessment Act 1997 modifies how this section operates in relation to a trust that used to be a member of a consolidated group and that writes off as bad a debt that used to be owed to a member of the group. 8 At the end of subsection 266‑120(1) in Schedule 2F Add: Note: Subdivision 709‑D of the Income Tax Assessment Act 1997 modifies how this section operates in relation to a trust that used to be a member of a consolidated group and that writes off as bad a debt that used to be owed to a member of the group. 9 At the end of subsection 266‑160(2) in Schedule 2F Add: Note: Subdivision 709‑D of the Income Tax Assessment Act 1997 modifies how this section operates in relation to a trust that used to be a member of a consolidated group and that writes off as bad a debt that used to be owed to a member of the group. 10 At the end of subsection 267‑25(1) in Schedule 2F Add: Note: Subdivision 709‑D of the Income Tax Assessment Act 1997 affects the application of this section to a trust that used to be a member of a consolidated group and that writes off as bad a debt that used to be