Commonwealth Numbered Regulations - Explanatory Statements

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Issued by authority of the Assistant Treasurer

Income Tax Assessment Act 1997

Income Tax Assessment Amendment Regulations 1999 (No. 2)

The Income Tax Assessment Act 1997 (the Act) was amended by Taxation Laws Amendment Act (No. 3) of 1998 to remove the exemption from income tax for those organisations who are located offshore or pursue their objectives principally offshore.

The purpose of the amendments, which took effect retrospectively from 1 July 1997, was to address tax avoidance arrangements which could use charitable trusts and certain other nonprofit organisations to shift untaxed funds overseas. As a result of the amendments, certain nonprofit organisations such as religious institutions, who were previously exempt from Australian. income tax, no longer enjoy tax exempt status.,

Section 50-50 of the Act sets out the conditions that must be met before a religious institution can be exempt from Australian income tax. Section 50-55 sets out the conditions that must be met before a public educational institution can be tax exempt and section 50-70 sets out the conditions that must be met before a sporting body can be tax exempt. Both of these sections also provide for institutions to be prescribed in the regulations to be exempt if they do not meet the general exemption conditions.

The purpose of the new regulations is to prescribe certain religious institutions (including peak bodies) and the International Olympic Committee (IOC) to be exempt from Australian income tax. These bodies would otherwise be subject to Australian income tax because they pursue their objects principally outside Australia.

The regulations ensure that these organisations are exempt from income tax from the date that the amendments in Taxation Laws Amendment Act (No.3) of 1998 took effect (1 July 1997) and, accordingly, ensure continuity of their income tax exempt status.

Although the new regulations take effect retrospectively from 1 July 1997 they do not operate to the detriment of taxpayers. Accordingly, they do not contravene subsection 48(2) of the Acts Interpretation Act 1901 which prohibits the retrospective operation of regulations which affect the rights of, or impose liabilities on, taxpayers.

Two of the prescribed institutions, Missions Interlink and the Evangelical Missionary Alliance NSW are both peak bodies who have the responsibility to monitor their membership and expel members who fail to meet requirements relating to the source and use of fluids. The consequence of a member's expulsion will be the loss of the benefit being prescribed for the peak body.

The exemptions for Bar-Ilan University, Tel-Aviv University, the Hebrew University of Jerusalem and the University of Haifa contain a sunset clause and each exemption will only apply until 30 June 2000.

The exemption for the IOC contains a sunset clause, that is the exemption will only apply until 30 June 2002. This is because the exemption relates directly to the Sydney Olympic Games in 2000.

Details of the new regulations are set out below.

Regulation 1: Provides the name of the amending regulations.

Regulation 2:       Provides that the regulations are taken to have commenced on 1 July 1997.

Regulation 3:       Provides that Schedule 1 amends the Income Tax Assessment Regulations 1997, by inserting Regulations 50-50.01, 50-55.01 and 50-70.01 as follows:

50-50.01         Prescribed Institutions (Act, s 50-50)

For paragraph 50-50(d) of the Act, the following institutions, and institutions that are their members, are prescribed institutions:

(a)       Australian Advisory Council of the Christian Leaders' Training College of

       Papua New Guinea;

(b)       Australian Evangelical Alliance Incorporated (Missions Interlink);

(c)       Evangelical Missionary Alliance NSW;

(d)       Steer Incorporated;

(e)       Zebedee Investments Ltd.

50-55.01        Prescribed institutions (Act, s 50-55)

For paragraph 50-55(c) of the Act, the following institutions are prescribed institutions until the end of 30 June 2000:

(a) Bar-Ilan University

(b) Tel-Aviv University

(c) the Hebrew University of Jerusalem

(d) the University of Haifa

50-70.01         Prescribed societies, associations or clubs (Act, s 50-70)

For paragraph 50-70(c) of the Act, the International Olympic Committee is a prescribed association until the end of 30 June 2002.

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