Commonwealth Numbered Regulations - Explanatory Statements

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TAX LAWS AMENDMENT (2014 MEASURES NO. 1) REGULATION 2014 (SLI NO 90 OF 2014)

EXPLANATORY STATEMENT

Select Legislative Instrument No. 90, 2014

Issued by authority of the Treasurer

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997

Tax Laws Amendment (2014 Measures No. 1) Regulation 2014

Section 266 of the Income Tax Assessment Act 1936 (the ITAA 1936) and section 909-1 of the Income Tax Assessment Act 1997 (the ITAA 1997) provide that the Governor-General may make regulations prescribing matters required or permitted by the relevant Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the relevant Act.

The purpose of the Tax Laws Amendment (2014 Measures No. 1) Regulation 2014 (Regulation) is to make a number of amendments to the Income Tax Regulations 1936 (the ITR 1936) and the Income Tax Assessment Regulations 1997 (ITAR 1997) as detailed below.

Amendments to tax arrangements for overseas Defence Force personnel

Section 23AD of the ITAA 1936 provides an exemption from income tax of pay and allowances of Australian Defence Force (ADF) members performing certain overseas duty.  Subsection 23AD(1) of the Act exempts the pay and allowances earned by ADF members from income tax where there is a certificate in force, issued in writing by the Chief of the Defence Force, to the effect that the members are on 'eligible duty'.  Subsection 23AD(2) of the Act provides that the regulations may declare that duty with a specified organisation, in a specified area outside Australia, and after a specified day, is 'eligible duty' for the purposes of that section.

Regulation 7A of the ITR 1936 specifies duty with various organisations in various areas outside Australia and declares that duty to be 'eligible duty' for the purposes of section 23AD of the Act.

Operation Slipper is the ADF contribution to the international campaign to combat terrorism and support maritime security in the Middle East.  The ITR 1936 previously specified that eligible duty includes duty undertaken within specified geographical co-ordinates as part of Operations Slipper for the period to 30 June 2014.  Operation Slipper has now been extended until the end of 2014 and its geographic parameters have to encompass activities through-out Afghanistan.  Item 2 in Schedule 1 to the Regulation amends the ITAR 1936 to specify that, from 1 July 2014 to 31 December 2014, eligible duty includes duty with Operation Slipper in Afghanistan, including within the land territory, internal waters, airspace, and superjacent airspace of Afghanistan.

Items 1, 3 and 4 in Schedule 1 to the Regulation also remove redundant and inoperative provisions relating to ADF operations that have concluded in previous tax years.

Amendments related to the closure of the Australian Valuation Office

On 24 January 2014, the Government announced that the Australian Valuation Office (AVO) would cease to operate from 30 June 2014.

Sections 30-212 and 31-15 of the ITAA 1997 require that taxpayers seek to have certain property valued by the Commissioner before the taxpayer can obtain a deduction for the gifting of property to a deductible gift recipient, such as a public benevolent institution, or placing some or all of the property under a conservation covenant.  Subsections 30-212(2) and 31-15(2) of the ITAA 1997 specify that the Commissioner may charge the taxpayer an amount worked out in accordance with the regulations for making the valuation.

Divisions 30 and 31 of the ITAR 1997 specify the method for working out the fee.  Previously, both Divisions required that an application must be lodged with the General Manager of the AVO.  From 30 June 2014, with the closure of the AVO, this would not be possible.

To ensure that the rules for obtaining valuation continue to operate smoothly, Schedule 2 to the Regulation makes a number of amendments to the ITAR 1997. 

First, items 1 and 5 replace all references to General Manager of the AVO with references to the Commissioner of Taxation.  This ensures that taxpayers will be able to lodge the request as required following the closure of the AVO.

Secondly, items 4 and 7 amend the ITAR 1997 to simplify the methods for determining the fees taxpayers must pay for a valuation.  A number of rules in the existing provision about how the fee was calculated were only needed where valuations were undertaken internally by the AVO.  Now that valuations will no longer be performed by the AVO, these rules are not needed and have been repealed. 

Thirdly, items 2 and 6 amend the ITAR 1997 to provide additional flexibility for the Commissioner to determine an appropriate application fee by specifying it in the approved form, up to a cap of $1,000.  The fee may differ between classes of valuation.  While the actual application fee is to be set at the discretion of the Commissioner, it is expected in most cases it will initially be well below this cap.  The flexible fee allows the Commissioner to require an appropriate prepayment to reflect the initial cost of identifying and engaging suitable valuers.

Finally, items 3, 4 and 7 also make two minor technical amendments to clarify the operation of the valuation provisions. 

Details of the Regulation are set out in the Attachment.

The amendments made in Schedule 2 have no revenue impact.  The amendments made in Schedule 2 will reduce revenue by $3.9 million in 2014-15 and $2.1 million in 2015-16.

The ITAA 1936 and ITAA 1997 specify no conditions that needed to be met before the power to make the Regulation may be exercised.

No public consultation was undertaken on the Regulation.  The amendments to tax arrangements for overseas Defence Force personnel were a minor change that simply extended the existing treatment of duty as part of Operation Slipper.  These amendments were developed in consultation with the Department of Defence.  The amendments to the valuation rules were also a minor change that only involves technical alterations to accommodate the closure of the AVO.  In both cases the changes are consistent with current policy.

All of the changes made by this regulation are both minor and machinery in nature and have negligible compliance cost impacts.

The Regulation commenced on the day after registration.

ATTACHMENT

Details of the Tax Laws Amendment (2014 Measures No. 1) Regulation 2014

Section 1 -- Name of Regulation

This section provides that the title of the Regulation is the Tax Laws Amendment (2014 Measure No. 1) Regulation 2014 (Regulation).

Section 2 -- Commencement

This section provides that the Regulation commences on the day after registration.

Section 3 -- Authority

This section provides that the Regulation is made under the Income Tax Assessment Act 1936 and Income Tax Assessment Act 1997.

Section 4 -- Schedules

This section provides that each instrument that is specified in a Schedule to this instrument is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this instrument has effect according to its terms.

Schedule 1 -- Defence force pay and allowances

Section 23AD of the Income Tax Assessment Act 1936 (ITAA 1936) provides an exemption from income tax of pay and allowances of Australian Defence Force (ADF) members performing certain overseas duty.  Subsection 23AD(1) of the Act exempts the pay and allowances earned by ADF members from income tax where there is a certificate in force, issued in writing by the Chief of the Defence Force, to the effect that the members are on 'eligible duty'.  Subsection 23AD(2) of the Act provides that the regulations may declare that duty with a specified organisation, in a specified area outside Australia, and after a specified day, is 'eligible duty' for the purposes of that section.

Regulation 7A of the Income Tax Regulations 1936 (ITAR 1936) specifies duty with various organisations in various areas outside Australia and declares that duty to be 'eligible duty' for the purposes of section 23AD of the Act.

Operation Slipper is the ADF contribution to the international operation to combat international terrorism and support maritime security in the Middle East.    The ITAR 1936 previously specified that eligible duty includes duty undertaken within specified geographical co-ordinates as part of Operation Slipper for the period to 30 June 2014.  Operation Slipper has now been extended until the end of 2014 and its geographic parameters have changed.  Item 2 in Schedule 1 to the Regulation amends the ITAR 1936 to specify that, from 1 July 2014 to 31 December 2014, eligible duty includes duty with Operation Slipper in Afghanistan, including within the land territory, internal waters, and airspace, and superjacent airspace of Afghanistan.

Items 1, 3 and 4 in Schedule 1 to the Regulation also remove redundant and inoperative provisions that refer to operations that have now ceased.  The effect of the repealed provisions is preserved in relation to the prior periods in which they could apply by the operation of the Acts Interpretation Act 1901 and the Legislative Instruments Act 2003.

Schedule 2 -- Australian Valuation Office

Sections 30-212 and 31-15 of the ITAA 1997 require taxpayers to seek to have certain property valued by the Commissioner before the taxpayer can obtain a deduction for the gifting of property to a deductible gift recipient, such as a public benevolent institution, or placing part or all of the property under a conservation covenant.  Subsections 30-212(2) and 31-15(2) of the ITAA 1997 specify that the Commissioner may charge the taxpayer an amount worked out in accordance with the regulations for making the valuation.

Divisions 30 and 31 of the ITAR 1997 specify the method for working out the fee.  Both Divisions require that an application must be lodged with the General Manager of the Australian Valuation Office.  From 30 June 2014 the Australian Valuation Office will cease to operate and this will no longer be possible.

To ensure that this issue did not arise and that the rules for obtaining a valuation continue to operate smoothly, Schedule 2 to the Regulation makes a number of amendments to the ITAR 1997. 

First, items 1 and 5 of Schedule 2 replace all references to General Manager of the Australian Valuation Office with references to the Commissioner of Taxation.  This ensures that taxpayers will be able to lodge the request as required following the closure of the Australian Valuation Office.

Secondly, items 4 and 7 amend the ITAR 1997 to simplify the methods for determining the fees taxpayers must pay for a valuation.  Divisions 30 and 31 of the ITAR 1997 include rules for determining the fee for valuation as the greater of the cost of obtaining the valuation and a fixed hourly rate.  Now valuations will no longer be performed by the AVO, the fixed hourly rate is no longer relevant and will be removed. 

Thirdly, items 2 and 6 amend the ITAR 1997 to provide additional flexibility for the Commissioner to determine an appropriate application fee by specifying it in the approved form, up to a cap of $1,000.  The fee may differ between classes of valuation.  While the actual application fee is to be set at the discretion of the Commissioner, it is expected, at least initially in most cases it will be well below this cap.  The flexible fee allows the Commissioner to require an appropriate prepayment to reflect the initial cost of identifying and engaging suitable valuers in relation to certain classes of property.  Administrative costs greater than the application fee are likely to be involved in obtaining a valuation in some cases and are taken into account in arriving at the actual cost of obtaining the valuation. The existing regulations make it clear that the application fee is credited against the actual cost of the valuation so that only the actual cost of obtaining the valuation is recovered.

Finally, items 3, 4 and 7 also make two minor technical amendments to clarify the operation of the valuation provisions.  Division 30 of the ITAR 1997 previously contained an internal reference that was misnumbered, referring to a non-existent provision.   Item 3 corrects this reference.  Divisions 30 and 31 of the ITAR 1997 also both referred to the 'actual cost of the valuation'.  To address any doubts that may arise due to the greater use of external valuers, the references to actual cost have been clarified to expressly state that this includes the cost to the Commissioner in obtaining the valuation.

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Tax Laws Amendment (2014 Measures No. 1) Regulation 2014

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Legislative Instrument

Amendments to tax arrangements for overseas Defence Force personnel

Section 23AD of the ITAA 1936 provides an exemption from income tax of pay and allowances of Australian Defence Force (ADF) members performing certain overseas duty.  Subsection 23AD(1) of the Act exempts the pay and allowances earned by ADF members from income tax where there is a certificate in force, issued in writing by the Chief of the Defence Force, to the effect that the members are on 'eligible duty'.  Subsection 23AD(2) of the Act provides that the regulations may declare that duty with a specified organisation, in a specified area outside Australia, and after a specified day, is 'eligible duty' for the purposes of that section.

Regulation 7A of the ITAR 1936 specifies duty with various organisations in various areas outside Australia and declares that duty to be 'eligible duty' for the purposes of section 23AD of the Act.

Operation Slipper is the ADF contribution to the international campaign against terrorism and maritime security in the Middle East Area of Operations and countering piracy in the Gulf of Aden.  The ITAR 1936 previously specified that eligible duty includes duty undertaken within specified geographical co-ordinates as part of Operations Slipper for the period to 30 June 2014.  Operation Slipper has now been extended until the end of 2014 and its geographic parameters have changed.  Item 2 in Schedule ## to the Regulation amends the ITAR 1936 to specify that, from 1 July 2014 to 31 December 2014, eligible duty includes duty with Operation Slipper in Afghanistan, including within the land territory, internal waters, airspace, and superjacent airspace of Afghanistan.

Amendments related to the closure of the Australian Valuation Office

On 24 January 2014, the Government announced that the Australian Valuation Office would cease to operate from 30 June 2014.

Sections 30-212 and 31-15 of the ITAA 1997 require taxpayers to seek to have certain property valued by the Commissioner before the taxpayer can obtain a deduction for gifting of the property to a deductible gift recipient, such as a charity, or placing part or all of the property under a conservation covenant.  Subsections 30-212(2) and 31-15(2) of the ITAA 1997 specify that the Commissioner may charge the taxpayer an amount worked out in accordance with the regulations for making the valuation.

Divisions 30 and 31 of the ITAR 1997 specify the method for working out the fee.  Both Divisions require that an application must be lodged with the General Manager of the Australian Valuation Office.  From 30 June 2014, this will not be possible.

The Regulation replaces all references to General Manager of the Australian Valuation Office with references to the Commissioner of Taxation.  It also simplifies the methods for determining the fees taxpayers must pay for a valuation by removing rules that are not needed now all valuations will be performed on the Commissioner's behalf by external valuers and allow the Commissioner additional flexibility in determining application fees to ensure these fees appropriately reflect market costs.

Human rights implications

This Legislative Instrument does not engage any of the applicable rights or freedoms.  The amendments to tax arrangements for overseas Defence Force personnel were a minor change that simply extended the existing treatment of duty as part of Operation Slipper.  The amendments to the valuation rules were also a minor change that only involves technical alterations to accommodate the closure of the AVO.

Conclusion

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.


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