The Commonwealth Treasury


Tax Expenditures Statement - 2007

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Chapter 6: Tax expenditures

6.1 Introduction

This chapter provides information on all Australian Government tax expenditures. Details include a description of the tax expenditure, its commencement date and (where applicable) its expiry date, legislative references for the tax expenditure and estimates of the annual benefit derived by the recipients of the tax expenditure.

Tax expenditures are grouped according to the benchmark against which they are estimated and by the broad subject category to which they relate. The table below provides details of how this chapter is organised.

Benchmark

Specific benchmark category

Subject category

TES reference
code

Income Tax (A – E)

Personal income (A)

Tax expenditures for general public services

A1 – A7

   

Tax expenditures for defence

A8 – A16

   

Tax expenditures for education

A17 – A19

   

Tax expenditures for health

A20 – A26

   

Tax expenditures for social security and welfare

A27 – A28

   

Tax concessions for certain taxpayers

A29 – A38

   

Tax exemptions for certain government income support payments

A39 – A46

   

Tax expenditures for housing and community amenities

A47 – A48

   

Tax expenditures for recreation and culture

A49 – A50

   

Tax expenditures for other economic affairs

A51 – A59

   

Concessions under the substantiation provisions for employment-related expenses

A60 – A62

   

Miscellaneous tax expenditures

A63 – A70

 

Business income (B)

Tax expenditures for general public services

B1

   

International tax expenditures

B2 – B16

   

Tax expenditures for health

B17 – B18

   

Tax expenditures for social security and welfare

B19 – B22

   

Tax concessions for certain taxpayers

B23 – B24

   

Tax exemptions for certain government income support payments

B25 – B27

   

Tax expenditures for recreation and culture

B28 – B31

   

Tax expenditures relating to prepayments and advance expenditures

B32 – B36

   

Tax expenditures for agriculture, forestry and fishing

B37 – B45

   

Tax expenditures for manufacturing and mining

B46 – B47

   

Tax expenditures for other economic affairs

B48 – B63

   

Tax expenditures relating to capital expenditure, effective life and depreciation

B64-B98

   

Miscellaneous tax expenditures

B99 – B105

 

Retirement savings (C)

Tax expenditures for social security and welfare

C1 – C15

   

Tax expenditures for other economic affairs

C16 – C19

 

Fringe Benefits Tax (D)

Tax expenditures for general public services

D1

   

Tax expenditures for defence

D2 – D4

   

Tax expenditures for education

D5

   

Tax expenditures for health

D6 – D7

   

Tax expenditures for social security and welfare

D8 – D13

   

Tax expenditures for housing and community amenities

D14 – D15

   

Tax expenditures for transport and communications

D16 – D18

   

Tax expenditures for other economic affairs

D19 – D29

   

Miscellaneous tax expenditures

D30 – D50

 

Capital Gains Tax (E)

Tax expenditures for defence

E1

   

Tax expenditures for health

E2

   

Tax expenditures for housing and community amenities

E3 – E5

   

Tax expenditures for recreation and culture

E6

   

Tax expenditures for other economic affairs

E7 – E29

Consumption Tax
(F – G)

Commodity taxes (F)

Fuel

F1 – F6

   

Tobacco

F7 – F8

   

Alcohol

F9 – F18

   

Motor vehicles

F19

   

General consumption tax expenditures

F20 – F22

 

Natural resource taxes (G)

Tax expenditures for manufacturing and mining

G1 – G3

   

Petroleum

G4

 

The descriptions of tax expenditures included in this chapter present a range of information about each identified tax expenditure item. The following example illustrates the information included for a given tax expenditure.

This example illustrates the information included for a given tax expenditure.

The reference information provides details of:

  • the type of expenditure, for instance a tax exemption, deduction or tax offset;
  • the year a tax expenditure commenced;
  • the year a tax expenditure will cease to operate (if applicable);
  • where to find the provisions implementing the tax expenditure in the legislation;
  • the 2006 Tax Expenditures Statement reference code for a tax expenditure that is not new; and
  • a category classification for a tax expenditure for which estimates are not available, indicating an order of magnitude range for the likely size of the tax expenditure.

 

Tax expenditures by functional categories are summarised in Table 2.4. The functional categories are based on an international standard classification of functions of government that is incorporated into the Government Finance Statistics framework.

The ‘type of tax expenditure’ in the reference information classifies tax expenditures according to the way in which they are delivered, for instance, by way of a tax exemption, tax deduction, tax offset, concessional tax rate or deferral of a tax liability.

In the case of fringe benefits tax, tax expenditures may also be delivered through a reduction in taxable value, discounted valuation or record keeping exemption. A reduction in taxable value is a tax expenditure that arises where the taxable value of the fringe benefit is reduced by some factor. A discounted valuation describes provisions where a valuation other than the actual value of the benefit is used as a basis for calculating the tax. Record keeping exemptions arise where an employer is not obliged to maintain current records of benefits to calculate the tax.

Certain tax expenditures relating to depreciation allow for the accelerated write-off of depreciable assets and these tax expenditures are identified as accelerated write-off. In the early years of an asset’s life, accelerated write-offs allow larger deductions than the benchmark depreciation treatment. In the later years of an asset’s life when the accelerated write-off is complete, deductions that would be allowed under the benchmark are no longer available. Thus, accelerated write-offs act like tax deferrals.

Order of magnitude range

In many cases, estimates for tax expenditures are not available because of data limitations or because of the nature of the tax expenditure itself. The various modelling techniques used to estimate the value of tax expenditures, which are discussed in detail in Appendix A, are unable to be utilised fully to produce reliable estimates.

The following categories are used to provide an indication of the size of the expenditure for those tax expenditures for which an estimate is not available. A positive sign denotes a positive tax expenditure, while a negative sign denotes a negative tax expenditure.

Table: Order Magnitude Range

The category classifications are provided as a broad guide only and have been estimated without the benefit of detailed data. They are based on assumptions and judgment and as such they should be treated with caution. Tax expenditures which are categorised in this way are not included in the aggregate measured tax expenditures reported in Chapter 2.

The category assigned to an unquantifiable tax expenditure refers to the year the tax expenditure is considered to be most significant. The category classification also indicates whether a tax expenditure is positive or negative. For example, reliable estimates for an exemption from fringe benefits tax that applies to benefits provided by certain international organisations (D1) are not available. As such, category 1+ has been allocated to this tax expenditure to indicate the broad range of the size of the tax expenditure. It indicates that this tax expenditure is considered to be up to $10 million in the year the tax expenditure is most significant.

Where a tax expenditure for which an estimate is not available is small and is expected to average zero over the reporting period, it is classified as category 0. Lastly, for a tax expenditure where neither an estimate, nor an order of magnitude could be assigned, a ‘na’ classification has been adopted.

 

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Chapter 5: New, modified and deleted tax expenditures
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