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29 May 14 Medicare levy low-income threshold, discontinued announcements, dividend washing - amending Bill introduced

On 29 May 2014 the Parliamentary Secretary to the Treasurer introduced the Tax and Superannuation Laws Amendment (2014 Measures No 2) Bill 2014 into the House of Representatives.

The Bill:

  • amends the Medicare Levy Act 1986 to increase the Medicare levy low-income threshold
  • amends the Income Tax Assessment Act 1936 to ensure outcomes are preserved in relation to tax assessments where taxpayers have reasonably and in good faith anticipated the impact of identified announcements made by a previous government that the tax law would be amended with retrospective effect, and the current government has now decided that the announced proposal to change the law will not proceed
  • amends the Income Tax Assessment Act 1997 to introduce an integrity rule to limit the ability of taxpayers to obtain a tax benefit from “dividend washing”.

Medicare levy low-income threshold

The Bill will increase the family income threshold amount and the dependent child-student component of the “family income threshold”.

The family income threshold for the 2013-14 income year is $34,367.

The child-student component of the family income threshold for the 2013-14 income year is $3,156.

These amendments apply to assessments for the 2013-14 income year and later income years.

Discontinued announcements

The Bill introduces a protection provision to deal with cases where taxpayers have anticipated, reasonably and in good faith, the impact of an identified announcement (listed in the provision - see below) made by a previous government of a proposed change to the tax law with retrospective effect, where the government has now decided that the proposed change will not proceed.

This protection is primarily provided by placing a statutory bar on the Commissioner amending an income tax assessment about a particular to the extent that the particular reflects a taxpayer’s anticipation of the impact of an announcement that meets the conditions set out in the provision.

In addition, where a taxpayer’s anticipation of the impact of an announcement would otherwise allow the Commissioner to recover an overpayment he made to the taxpayer, protection will be provided by treating the taxpayer as being entitled to that amount if the conditions set out in the provision are satisfied.

Relief provided by the amending Bill will be subject to timing conditions, and also requires that the taxpayer would have a less favourable outcome if the Commissioner were to amend or adjust the position of the taxpayer to reflect the fact that the announced proposal to change the law has not been enacted.

The announced reforms which will not proceed, and which are affected by this amending Bill, are as follows:

  • Budget Paper No 2, Budget Measures 2012-13, Part 1, topic headed “Bad debts - ensuring consistent treatment in related party financing arrangements”
  • Budget Paper No 2, Budget Measures 2012-13, Part 1, topic headed “Capital gains tax - refinements to the income tax law in relation to deceased estates”, second dot point (which is about modifying application dates for 2 minor changes from the 2011-12 Budget)
  • Media Release No 137, issued by the then Assistant Treasurer on 9 October 2011, titled “No Capital Gains Tax for Properties in Natural Disaster Land Swap Programs”, and Budget Paper No 2, Budget Measures 2012-13, Part 1, topic headed “Capital gains tax - broadening relief for taxpayers affected by natural disasters”
  • Budget Paper No 2, Budget Measures 2011-12, Part 1, topic headed “Income tax relief for water reforms”
  • Budget Paper No 2, Budget Measures 2011-12, Part 1, topic headed “Capital gains tax and other roll-overs for amalgamations of indigenous corporations”
  • Budget Paper No 2, Budget Measures 2011-12, Part 1, topic headed “Securities lending arrangements tax rules - extending the scope to address insolvency issues”
  • Budget Paper No 2, Budget Measures 2011-12, Part 1, topic headed “Capital gains tax - exemption for incentives related to renewable resources or for preserving environmental benefits”
  • Budget Paper No 2, Budget Measures 2011-12, Part 1, topic headed “Improvements to the company loss recoupment rules”, but not the sentence stating “This measure will modify the continuity of ownership test so that ownership does not need to be traced through certain superannuation entities.”
  • Mid-Year Economic and Fiscal Outlook 2010-11, Appendix A, Part 2, topic headed “Consolidation - operation of the rules following a demerger”
  • Budget Paper No 2, Budget Measures 2009-10, Part 1, topic headed “Uniform capital allowance regime - technical changes”, and Media Release No 048, issued by the then Assistant Treasurer on 12 May 2009, Attachment D headed “Technical changes to uniform capital allowance regime”
  • Budget Paper No 2, Budget Measures 2007-08, Part 1, topic headed “Consolidation - further improvements to the operation of the income tax law for consolidated groups”, and Media Release No 050, issued by the then Minister for Revenue and Assistant Treasurer on 8 May 2007, topic headed “Extension of the single entity rule and entry history rule for certain CGT integrity provisions affecting third parties”
  • Budget Paper No 2, Budget Measures 2007-08, Part 1, topic headed “Consolidation - further improvements to the operation of the income tax law for consolidated groups”, and Media Release No 050, issued by the then Minister for Revenue and Assistant Treasurer on 8 May 2007, topic headed “Trusts joining or leaving a consolidated group or MEC group part way through an income year”
  • Budget Paper No 2, Budget Measures 2006-07, Part 1, topic headed “Simplified imputation system - franking credits available to life tenants”, and Media Release No 010, issued by the then Minister for Revenue and Assistant Treasurer on 20 March 2006, titled “Franking credits available to life tenants”.

Dividend washing

Broadly, dividend washing (or “distribution washing”) is a type of scheme by which a taxpayer can obtain multiple franking credits in respect of a single economic interest by selling an interest after an entitlement to a franked distribution has accrued and then immediately purchasing an equivalent interest with a further entitlement to a corresponding franked distribution.

The amendments made by this Bill will provide that franked distributions which a taxpayer receives due to distribution washing will not entitle the taxpayer to a tax offset or require a taxpayer to include the amount of the franking credit in their assessable income.

A distribution will be considered to be one received as a result of distribution washing, where the taxpayer has also received a corresponding distribution in respect of a substantially identical interest that the taxpayer sold before acquiring the current interest.

These amendments will apply to distributions made on or after 1 July 2013.

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