Tax Law Improvement Act 1997 (Cth)

Tax Law Improvement Act 1997 Act No. 121 of 1997 as amended This compilation was prepared on 19 August 2003 [This Act was amended by Act No. 57 of 2002] Amendments from Act No. 57 of 2002 [Schedule 12 (item 65) amended Heading to Item 69 of Schedule 6 Schedule 12 (item 83) repealed Item 15 of Schedule 4 Schedule 12 (item 65) commenced on 1 July 1997 Schedule 12 (item 83) commenced on 3 July 2002] Prepared by the Office of Legislative Drafting, Attorney‑General's Department, Canberra Contents 1 Short title 2 Commencement 3 Schedule(s) 4 Application of amendments Schedule 1—Amendment of the Income Tax Assessment Act 1997 Schedule 2—Assessable income Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Part 4—Consequential amendments of other Acts Financial Corporations (Transfer of Assets and Liabilities) Act 1993 Schedule 3—Exempt income Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Part 4—Consequential amendments of other Acts Australian Industry Development Corporation Act 1970 Australian National Railways Commission Act 1983 Australian Postal Corporation Act 1989 Australian Trade Commission Act 1985 Development Allowance Authority Act 1992 Export Finance and Insurance Corporation Act 1991 Federal Airports Corporation Act 1986 Health Insurance Commission Act 1973 Legislative Instruments Act 1997 National Rail Corporation Agreement Act 1992 Social Security Act 1991 Superannuation Guarantee (Administration) Act 1992 Schedule 4—Deductions Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Part 4—Consequential amendments of other Acts Fringe Benefits Tax Assessment Act 1986 Schedule 5—Trading stock (and some related matters) Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Part 4—Consequential amendments of other Acts Cattle Transaction Levy Act 1995 Financial Corporations (Transfer of Assets and Liabilities) Act 1993 Schedule 6—Depreciation Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Part 4—Consequential amendments of other Acts Bounty and Capitalisation Grants (Textile Yarns) Act 1981 Income Tax Rates Act 1986 Sales Tax Assessment Act 1992 Social Security Act 1991 Student and Youth Assistance Act 1973 Veterans' Entitlements Act 1986 Schedule 7—Leased cars Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Schedule 8—Recoupment Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Part 4—Consequential amendments of other Acts Financial Corporations (Transfer of Assets and Liabilities) Act 1993 Schedule 9—Gifts or contributions Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Part 4—Consequential amendments of other Acts Customs Tariff Act 1995 Sales Tax (Exemptions and Classifications) Act 1992 Schedule 10—Entertainment expenses Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Part 4—Consequential amendments of other Acts Fringe Benefits Tax Assessment Act 1986 Schedule 11—Capital allowances for primary producers and some land‑holders Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Schedule 12—Miscellaneous Part 1—Amendment of the Income Tax Assessment Act 1997 Part 2—Amendment of the Income Tax Assessment Act 1936 Part 3—Amendment of the Income Tax (Consequential Amendments) Act 1997 Part 4—Consequential amendments of other Acts Airports (Transitional) Act 1996 Legislative Instruments Act 1997 Social Security Act 1991 Student and Youth Assistance Act 1973 Veterans' Entitlements Act 1986 An Act to amend the law about income tax, and for related purposes [Assented to 8 July 1997] The Parliament of Australia enacts: 1 Short title This Act may be cited as the Tax Law Improvement Act 1997. 2 Commencement (1) Subject to this section, this Act commences on the day on which it receives the Royal Assent. (2) Schedule 1 commences on 1 July 1997 immediately after the commencement of the Income Tax Assessment Act 1997. (3) Each of the other Schedules (except Schedule 12) commences immediately after the commencement of the immediately preceding Schedule. (4) If a note specifies the commencement of an item in Schedule 12, the item commences as specified in the note. (5) If there is no note specifying the commencement of an item in Schedule 12, the item commences on 1 July 1997 immediately after the commencement of the Income Tax Assessment Act 1997. 3 Schedule(s) Subject to section 2, each Act specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned. Any other item in a Schedule to this Act has effect according to its terms. 4 Application of amendments An amendment made by an item in a Schedule (except Schedule 1) applies to assessments for the 1997-98 income year and later income years, unless otherwise indicated in that Schedule. Schedule 1—Amendment of the Income Tax Assessment Act 1997 1 Chapter 2 (link note after heading) Repeal the link note. 2 Before Part 2‑5 Insert: Part 2-1—Assessable income [The next Division is Division 15.] Division 15—Some items of assessable income Guide to Division 15 15-1 What this Division is about This Division sets out some items that are included in your assessable income. Remember that the general rules about assessable income in Division 6 apply to these items. Table of sections Operative provisions 15-3 Return to work payments 15-5 Accrued leave transfer payments 15-10 Bounties and subsidies 15-15 Profit-making undertaking or plan 15-20 Royalties 15-25 Amount received for lease obligation to repair 15-30 Insurance or indemnity for loss of assessable income 15-35 Interest on overpayments and early payments of tax Operative provisions 15-3 Return to work payments Your assessable income includes an amount you receive under an *arrangement that an entity enters into for a purpose of inducing you to resume working for, or providing services to, any entity. 15-5 Accrued leave transfer payments Your assessable income includes an *accrued leave transfer payment that you receive. To find out if the payment is deductible to the payer, see section 26-10. 15-10 Bounties and subsidies Your assessable income includes a bounty or subsidy that: (a) you receive in relation to carrying on a *business; and (b) is not assessable as *ordinary income under section 6‑5. 15-15 Profit-making undertaking or plan (1) Your assessable income includes profit arising from the carrying on or carrying out of a profit-making undertaking or plan. (2) This section does not apply to a profit that: (a) is assessable as *ordinary income under section 6‑5; or (b) arises in respect of the sale of property acquired on or after 20 September 1985. Note: If you sell property you acquired before 20 September 1985 for profit-making by sale, your assessable income includes the profit: see section 25A of the Income Tax Assessment Act 1936. 15-20 Royalties Your assessable income includes an amount that you receive as or by way of royalty within the ordinary meaning of "royalty" (disregarding the definition of royalty in subsection 995-1(1)) if the amount is not assessable as *ordinary income under section 6‑5. 15-25 Amount received for lease obligation to repair Your assessable income includes an amount you receive from an entity if: (a) you receive it as a lessor or former lessor of premises; and (b) the entity pays you the amount for failing to comply with a lease obligation to make repairs to the premises; and (c) the entity uses or has used the premises for the *purpose of producing assessable income; and (d) the amount is not assessable as *ordinary income under section 6‑5. Note: The entity can deduct the amount: see section 25-15. 15-30 Insurance or indemnity for loss of assessable income Your assessable income includes an amount you receive by way of insurance or indemnity for the loss of an amount (the lost amount) if: (a) the lost amount would have been included in your assessable income; and (b) the amount you receive is not assessable as *ordinary income under section 6‑5. 15-35 Interest on overpayments and early payments of tax Your assessable income includes interest payable to you under the Taxation (Interest on Overpayments and Early Payments) Act 1983. The interest becomes assessable when it is paid to you or applied to discharge a liability you have to the Commonwealth. [The next Division is Division 20.] Division 20—Amounts included to reverse the effect of past deductions Table of Subdivisions Guide to Division 20 20-A Insurance, indemnity or other recoupment for deductible expenses 20-B Disposal of a car for which lease payments have been deducted Guide to Division 20 20-1 What this Division is about This Division includes amounts in your assessable income to reverse the effect of certain kinds of deductions. Table of sections 20-5 Other provisions that reverse the effect of deductions 20-5 Other provisions that reverse the effect of deductions The table lists other provisions that reverse the effect of certain kinds of deductions. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Provisions that adjust your tax position in respect of deductions Item In this situation: See: 1 A balancing charge for property on which you incurred expenditure deductible under a capital allowance is included in your assessable income. 40-25 and 40‑30 2 An amount you receive by way of insurance or indemnity for a loss of trading stock is included in your assessable income. 70-115 3 Because of: 330-350(3) • petroleum resource rent tax; or • an instalment of petroleum resource rent tax; that you have deducted or can deduct, an amount is refunded, credited, paid or applied: the amount is included in your assessable income. 4 You receive a fringe benefit by way of reimbursement or payment of a loss or outgoing you incurred: your deduction for the loss or outgoing is reduced. 51AH 5 A company receives (or becomes entitled to) an amount: 73B(27A) • in respect of the results of research and development activities on which it incurred deductible expenditure; or • attributable to it having incurred deductible expenditure on research and development activities. The amount is included in its assessable income. 6 You receive an amount as recoupment of expenditure on research and development activities that you have deducted at the rate of 150%: the rate of deduction is reduced to 100%. 73C 7 You receive an amount as recoupment for your local governing body election expenses: an amount is included in your assessable income. 74A(4) 8 You receive superannuation benefits as a result of someone's deductible contributions: the benefits are included in your assessable income. 82AAQ Subdivision 20-A—Insurance, indemnity or other recoupment for deductible expenses Guide to Subdivision 20-A 20-10 What this Subdivision is about Your assessable income may include an amount that you receive by way of insurance, indemnity or other recoupment if:  it is for a deductible expense; and  it is not otherwise assessable income. Table of sections 20-15 How to use this Subdivision What is an assessable recoupment? 20-20 Assessable recoupments 20-25 What is recoupment? 20-30 Tables of deductions for which recoupments are assessable How much is included in your assessable income? 20-35 If the expense is deductible in a single income year 20-40 If the expense is deductible over 2 or more income years 20-45 Effect of balancing charge 20-50 If the expense is only partially deductible 20-55 Meaning of previous recoupment law 20-15 How to use this Subdivision (1) First, read sections 20-20 to 20-30 to work out whether you have received an assessable recoupment. If not, you do not need to read the rest of the Subdivision. (2) If you have received one or more assessable recoupments, sections 20-35 to 20-55 tell you how much is included in your assessable income for an income year. What is an assessable recoupment? 20-20 Assessable recoupments Exclusion (1) An amount is not an assessable recoupment to the extent that it is *ordinary income, or it is *statutory income because of a provision outside this Subdivision. Insurance or indemnity (2) An amount you receive as *recoupment of a loss or outgoing is an assessable recoupment if: (a) you receive the amount by way of insurance or indemnity; and (b) you can deduct an amount for the loss or outgoing for the *current year, or you have deducted or can deduct an amount for it for an earlier income year, under any provision of this Act. Other recoupment (3) An amount you receive as *recoupment of a loss or outgoing (except by way of insurance or indemnity) is an assessable recoupment if: (a) you can deduct an amount for the loss or outgoing for the *current year; or (b) you have deducted or can deduct an amount for the loss or outgoing for an earlier income year; under a provision listed in section 20-30. 20-25 What is recoupment? General (1) Recoupment of a loss or outgoing includes: (a) any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described; and (b) a grant in respect of the loss or outgoing. Amount paid for you (2) If some other entity pays an amount for you in respect of a loss or outgoing that you incur, you are taken to receive the amount as recoupment of the loss or outgoing. Amount for disposing of right to recoupment (3) If you dispose of your right to receive an amount as *recoupment of a loss or outgoing you are taken to receive as recoupment of the loss or outgoing any amount you receive for disposing of that right. (The disposal need not be to another entity.) Amount received that is recoupment to an unspecified extent (4) If you receive an amount that is, to an unspecified extent, *recoupment of a loss or outgoing, the amount is taken to be recoupment of the loss or outgoing to whatever extent is reasonable. Balancing adjustments not covered (5) If a balancing adjustment is required for property on which you incurred a loss or outgoing, no part of the *termination value of the property is an amount you receive as recoupment of the loss or outgoing. Note: The termination value is usually the amount you receive because of disposal, loss or destruction of the property. 20-30 Tables of deductions for which recoupments are assessable (1) This table shows the deductions under the Income Tax Assessment Act 1997 for which recoupments are assessable. Note: References are to section numbers except where otherwise indicated. Provisions of the Income Tax Assessment Act 1997 Item Provision Description of expense 1.1 8-1 (so far as it allows you to deduct a bad debt, or part of a debt that is bad) bad debts 1.2 8-1 (so far as it allows you to deduct rates or taxes) rates or taxes 1.3 25-5 tax-related expenses 1.4 25-35 bad debts 1.5 25-45 embezzlement or larceny by an employee 1.6 25-60 election expenses, Commonwealth and State elections 1.7 25-75 rates and land taxes on premises used to produce mutual receipts 1.8 330-15 exploration or prospecting expenditure 1.9 330-80 allowable capital expenditure relating to mining or quarrying 1.10 330-370 transport capital expenditure relating to mining or quarrying 1.11 330-435 rehabilitation expenditure relating to mining or quarrying 1.12 330-485 balancing adjustment deduction for expenditure relating to mining or quarrying 1.13 Subdivision 387‑A landcare operations expenditure 1.14 Subdivision 387‑B expenditure on facilities to conserve or convey water 1.15 Subdivision 387‑D grapevine establishment expenditure 1.16 Subdivision 387‑E mains electricity connection expenditure (2) This table shows the deductions under the Income Tax Assessment Act 1936 for which recoupments are assessable. Note: References are to section numbers except where otherwise indicated. Provisions of the Income Tax Assessment Act 1936 Item Provision Description of expense 2.1 51(1) (so far as it allows you to deduct a bad debt, or part of a debt that is bad) bad debts 2.2 51(1) (so far as it allows you to deduct rates or taxes) rates or taxes 2.3 63 bad debts 2.4 69 tax-related expenses 2.5 70A(3) mains electricity connection expenditure 2.6 71 embezzlement or larceny by an employee 2.7 72 rates and land tax 2.8 73B research and development activity expenditure 2.9 74 election expenses, Commonwealth and State elections 2.10 75AA(1) or (6) grape vine establishment expenditure 2.11 75B(2) or (3A) water conservation or conveyance expenditure 2.12 75D(2) land degradation prevention expenditure 2.13 82AB development allowance expenditure 2.14 82BB environmental impact study expenditure 2.15 82BK environmental protection expenditure 2.16 82Z(1) currency exchange loss 2.17 Division 10 of mining and quarrying expenditure Part III 2.18 Division 10AAA of Part III expenditure on transport of minerals and quarry materials 2.19 Division 10AA of Part III expenditure on prospecting and mining for petroleum 2.20 124BA expenditure on rehabilitating mining, quarrying and petroleum sites 2.21 124ZZF horticultural plant establishment expenditure (effective life of the plant less than 3 years) 2.22 124ZZG horticultural plant establishment expenditure (effective life of the plant more than 3 years) 2.23 628 drought mitigation property expenditure by a primary producer 2.24 636 drought mitigation property expenditure by a leasing company How much is included in your assessable income? 20-35 If the expense is deductible in a single income year (1) Your assessable income includes an *assessable recoupment of a loss or outgoing if: (a) you can deduct the whole of the loss or outgoing for the *current year; or (b) you have deducted or can deduct the whole of the loss or outgoing for an earlier income year. Note 1: The operation of this section may be affected if a balancing charge has been included in your assessable income because of a deduction for the loss or outgoing: see section 20-45. Note 2: Recoupment of a loss or outgoing for which you can deduct amounts over more than one income year is covered by section 20-40. Note 3: Recoupment of a loss or outgoing that is only partially deductible is covered by section 20-50. Total assessed not to exceed the loss or outgoing (2) The total of all amounts that subsection (1) includes in your assessable income for one or more income years in respect of a loss or outgoing cannot exceed the amount of the loss or outgoing. Recoupment received before income year of the deduction (3) If: (a) you can deduct the whole of a loss or outgoing for the *current year; and (b) before the current year you received an *assessable recoupment of the loss or outgoing; your assessable income for the current year includes so much of the recoupment as subsection (1) would have included if you had instead received the recoupment at the start of the current year. 20-40 If the expense is deductible over 2 or more income years (1) This section includes an amount in your assessable income if: (a) you receive in the *current year an *assessable recoupment of a loss or outgoing for which you can deduct amounts over 2 or more income years; or (b) you received in an earlier income year an *assessable recoupment of a loss or outgoing of that kind (unless all of the recoupment has already been included in your assessable income for one or more earlier income years by this section or a *previous recoupment law). (This section applies even if the recoupment was received before the first of those income years.) Note: Recoupment of a loss or outgoing that is only partially deductible is covered by section 20-50. (2) Work out as follows how much is included in your assessable income for the *current year because of one or more *assessable recoupments of the loss or outgoing. Note: The method statement ensures that assessable recoupments are included: *  only so far as they have not already been included for an earlier income year; and *  only to the extent of your total deductions to date for the loss or outgoing. Method statement Step 1. Add up all the *assessable recoupments of the loss or outgoing that you have received (in the *current year or earlier). The result is the total assessable recoupment. Step 2. Add up the amounts (if any) included in your assessable income for earlier income years, in respect of the loss or outgoing, by this section or a *previous recoupment law. The result is the recoupment already assessed. (If no amount was included, the recoupment already assessed is nil.) Step 3. Subtract the recoupment already assessed from the total assessable recoupment. The result is the unassessed recoupment. Step 4. Add up each amount that you can deduct for the loss or outgoing for the *current year, or you have deducted or can deduct for the loss or outgoing for an earlier income year. The result is the total deductions for the loss or outgoing. Note: The total deductions may be reduced if an amount has been included in your assessable income because of a balancing adjustment: see section 20-45. Step 5. Subtract the recoupment already assessed from the total deductions for the loss or outgoing. The result is the outstanding deductions. Step 6. The unassessed recoupment is included in your assessable income, unless it is greater than the outstanding deductions. In that case, the amount of the outstanding deductions is included instead. Example: At the start of the 1997-98 income year, a mining company incurs $100,000 of expenditure on mining operations. $10,000 is deductible for the 1997-98 income year and for each of the following 9 income years under section 330-80. In the 1997-98 income year, the company receives $20,000 as recoupment. How much is assessable for the 1997-1998 income year? Applying the method statement: After Step 1: the total assessable recoupment is $20,000. After Step 2: the recoupment already assessed is nil. After Step 3: the unassessed recoupment is: total assessable recoupment – recoupment already assessed, ie $20,000 – 0 = $20,000. After Step 4: the total deductions for the loss or outgoing are $10,000. After Step 5: the outstanding deductions are: total deductions for the loss or outgoing – recoupment already assessed, ie $10,000 – 0 = $10,000. After Step 6: the unassessed recoupment (Step 3) is greater than outstanding deductions (Step 5), so the amount of the outstanding deductions is included in assessable income, ie $10,000. Applying the method statement to the 1998-99 income year: a further $10,000 is included in the company's assessable income. 20-45 Effect of balancing charge (1) This section may affect the operation of section 20-35 or 20-40 (as appropriate) if: (a) a balancing adjustment is required for the *current year (or for an earlier income year) because you have deducted or can deduct an amount for an income year for the loss or outgoing; and (b) an amount (the balancing charge) is included in your assessable income for the *current year (or for the earlier income year) because of the balancing adjustment. To find out about balancing adjustments, see section 40-25. Effect on section 20-35 (2) In applying section 20-35, treat each of the following as reduced by the balancing charge: (a) the amount of the loss or outgoing; (b) the total of what you can deduct for the loss or outgoing for the *current year, or have deducted or can deduct for an earlier income year. Effect on section 20-40 (3) In applying the method statement in subsection 20-40(3), reduce the total deductions for the loss or outgoing by the balancing charge. Example: Continuing the example in subsection 20-40(3): during the 2000-2001 income year, the mining company: *  receives a further $10,000 as recoupment of the original expenditure; and *  sells its mining operations for $75,000. As a result of the sale, a balancing charge of $5,000 is included under section 330-485 in the company's assessable income for that income year. How much of the recoupment amount received in the 2000-2001 income year is assessable for that income year? Applying the method statement in subsection 20-40(3): After Step 1: the total assessable recoupment is $30,000 (received during 1997‑98 and 2000-2001). After Step 2: the recoupment already assessed is $20,000 (for 1997‑98 and 1998-99).