The Commonwealth Treasury


Tax Expenditures Statement - 2007

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6.2 Income tax benchmark (continued)

Business income

Tax expenditures for general public services

B1 Exemption for certain payments made out of the National Guarantee Fund
General public services - Financial and fiscal affairs ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- 2 - - - - - -
Tax expenditure type:
Exemption
2006 TES code:
B1
Commencement date:
2003
Expiry date:
-
Legislative reference:
Taxation Laws (Clearing and Settlement Facility Support) Act 2004

No income tax consequences arise when certain payments are made out of the National Guarantee Fund.

Up until 31 March 2005 the National Guarantee Fund undertook the dual roles of investor protection and clearing support for the Australian Stock Exchange. The Corporations Act 2001 provides for the splitting of these functions by allowing the transfer of funds for clearing and settlement system support to another entity. A tax expenditure arises because these transfers are permitted free of tax consequences.

International tax expenditures

B2 Exemptions for prescribed international organisations
General public services - Foreign affairs and economic aid ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Exemption
2006 TES code:
B67
Commencement date:
1963
*Category:
2+
Expiry date:
-
Legislative reference:
Section 6, International Organisations (Privileges and Immunities) Act 1963

The income of certain international organisations is exempt from income tax. Furthermore, interest and dividends received by these organisations are exempt from the interest and dividend withholding tax, respectively. Prescribed international organisations include the United Nations, the World Trade Organisation, the Organisation for Economic Cooperation and Development and various United Nations specialised agencies.

B3 Interest withholding tax and dividend withholding tax exemptions for overseas charitable institutions
General public services - Foreign affairs and economic aid ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Exemption
2006 TES code:
B68
Commencement date:
1936
*Category:
2+
Expiry date:
-
Legislative reference:
Paragraph 128B(3)(aa) Income Tax Assessment Act 1936

Interest and dividends received by certain overseas charitable institutions are exempt from the interest and dividend withholding tax, respectively. This exemption only applies where the institutions are exempt from tax in their home country. Tax exempt organisations generally cannot claim credit for foreign taxes paid.

B4 Income tax exemption for certain US projects in Australia
Defence ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Exemption
2006 TES code:
B80
Commencement date:
Introduced before 1985
*Category:
1+
Expiry date:
-
Legislative reference:
Section 23AA Income Tax Assessment Act 1936

The profits and remuneration of United States contractors, United States armed forces members, or other United States residents or citizens in connection with certain United States Government projects in Australia are exempt from Australian income tax. This exemption only applies where the income is subject to tax in the United States.

B5 Concessional tax treatment for foreign authorised deposit-taking institutions
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * - - - -
Tax expenditure type:
Concessional rate
2006 TES code:
B76
Commencement date:
1993
*Category:
2+
Expiry date:
2006
Legislative reference:
Part B Income Tax Assessment Act 1936, Sections 7(6)(c), 20(2)(bb)(ii)(B) and 24(2)(bb)(ii)(B), Schedules 1 and 2, Sections 170-33(2) and 170-133(2) Financial Corporations (Transfer of Assets and Liabilities) Act 1993

Foreign banks could transfer a tax loss or a net capital loss from locally incorporated subsidiaries to their Australian branches. A similar regime applied to other non-bank financial entities. As a result, such banks and financial entities could benefit from a reduced tax liability.

Foreign banks were also able to transfer assets and liabilities from their subsidiaries to their branches without creating a tax liability.

B6 Concessional tax treatment of income of offshore banking units
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
55 75 90 160 160 160 160 160
Tax expenditure type:
Concessional rate
2006 TES code:
B73
Commencement date:
1992
Expiry date:
-
Legislative reference:
Part III, Division 9A Income Tax Assessment Act 1936

Income (other than capital gains) derived by an offshore banking unit (OBU) from offshore banking activities is taxed at a concessional rate of 10 per cent. Interest paid by an OBU on qualifying offshore borrowings, and gold fees paid by an OBU on certain offshore gold borrowings, are exempt from withholding tax.

B7 Deductibility of costs of setting up a regional headquarters
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
.. .. .. .. .. .. .. ..
Tax expenditure type:
Deduction
2006 TES code:
B72
Commencement date:
1994
Expiry date:
-
Legislative reference:
Sections 82C to CE Income Tax Assessment Act 1936

Eligible regional headquarters (RHQs) are entitled to deductions in respect of set-up costs. Set-up costs include relocation and incorporation costs. These costs must be incurred within a two-year period commencing 12 months before and ending 12 months after the RHQ first derives assessable income from the provision of ‘regional headquarters support’.

B8 Deemed tax credits under tax sparing provisions in Australia's tax treaties
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
5 5 7 11 7 5 5 ..
Tax expenditure type:
Exemption
2006 TES code:
B69
Commencement date:
Date of effect depends on the date of effect of the tax treaty
Expiry date:
-
Legislative reference:
Provided for in Australia’s tax treaties

The tax sparing provisions in Australia’s tax treaties apply to tax incentives (for example, tax holidays) offered by developing countries to foreign investors. The effect of these tax sparing provisions is that income earned by Australian taxpayers who invest in certain developing countries is effectively subject to a tax exemption. Under tax sparing, the tax forgone by the country providing the tax concession to Australian resident investors is deemed to have been paid for the purposes of Australia’s foreign tax credit system. This enables Australian residents to claim a tax credit in relation to their investments despite receiving a tax concession by the foreign country. Tax sparing arrangements in most tax treaties have now expired.

B9 Exemption for foreign branch profits from income tax
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Exemption
2006 TES code:
B70
Commencement date:
1990
*Category:
3+
Expiry date:
-
Legislative reference:
Section 23AH Income Tax Assessment Act 1936

In general, income from a business carried on by an Australian company through a permanent establishment (branch) in a foreign country is exempt from income tax. For income years starting before 1 July 2004, the exemption was only available for branches in listed countries. The exempt income broadly comprises operating profits and capital gains but does not include passive or other tainted income where the branch fails an active income test.

B10 Exemption from accrual taxation for certain transferor trusts
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Exemption
2006 TES code:
B79
Commencement date:
1990
*Category:
2+
Expiry date:
-
Legislative reference:
Sub subparagraph 102AAT(1)(a)(i)(F) and paragraph 102AAT(1)(c) Income Tax Assessment Act 1936

Under the transferor trust rules, accrual taxation would normally be applied to the transferor. Transfers made to an offshore discretionary trust are not subject to the rules if the transfer was made before the transferor came to Australia or before the original trust measures were announced, provided the transferor does not control the trust.

B11 Exemption from accrual taxation for controlled foreign companies
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Exemption
2006 TES code:
B78
Commencement date:
1990
*Category:
2+
Expiry date:
-
Legislative reference:
Sections 384-5 Income Tax Assessment Act 1936

Most tainted income derived by controlled foreign companies (CFCs) in broad exemption listed countries is exempt from accrual taxation (applied to the attributable taxpayer) as it is generally comparably taxed. An exemption also applies to CFCs that derive more than 95 per cent of their income from genuine business activities.

B12 Exemption from interest withholding tax on widely held debentures
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
510 440 580 770 1030 1370 1820 2420

Note: estimates include tax expenditures B12 and B14

Tax expenditure type:
Exemption
2006 TES code:
B81
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Section 128F and 128FA Income Tax Assessment Act 1936

Certain widely held debentures are exempt from interest withholding tax. This exemption was extended to publicly offered corporate securities issued in Australia, as well as securities issued by non-resident companies operating through a permanent establishment in Australia. The exemption is available where it will not be exploited by a group of associated companies seeking to move profits offshore through a series of intra-group loans.

B13 Exemption of inbound non-portfolio dividends from income tax
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
20 20 80 110 120 130 140 140
Tax expenditure type:
Exemption
2006 TES code:
B77
Commencement date:
1990
Expiry date:
-
Legislative reference:
Section 23AJ Income Tax Assessment Act 1936

Non-portfolio dividends are exempt from income tax where they are paid to an Australian resident company by a company resident in a foreign country. For dividends paid on or before 30 June 2004, the exemption only applied for non-portfolio dividends paid from a listed country.

B14 Interest withholding tax concession on interest payments by Australian branches to foreign banks
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Included in B12
Tax expenditure type:
Concessional rate
2006 TES code:
B71
Commencement date:
1994
Expiry date:
-
Legislative reference:
Section 160ZZZJ Income Tax Assessment Act 1936

The notional interest paid to a foreign bank from its Australian branch attracts a reduced interest withholding tax rate. Tax is paid on only half of the taxable amount. For amounts of interest paid to, and derived by, a foreign bank during an income year that began before 1 July 2001, tax was paid on half of the taxable amount less the notional equity requirement. The notional equity requirement was removed with effect from the 2001-02 income year when the new thin capitalisation rules commenced.

B15 Threshold exemption for thin capitalisation
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Deduction
2006 TES code:
B75
Commencement date:
2001
*Category:
1+
Expiry date:
-
Legislative reference:
Sections 820-35 and 820-37 of Income Tax Assessment Act 1997

A taxpayer may claim debt deductions of up to $250,000 in any income year without being subject to thin capitalisation rules. An additional rule excludes outward investing entities from the thin capitalisation regime if at least 90 per cent of their assets (excluding those of a private or domestic nature) are Australian assets.

B16 Unfranked dividends paid to foreign shareholders by Pooled Development Funds
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
1 1 1 1 1 1 1 2
Tax expenditure type:
Exemption
2006 TES code:
B74
Commencement date:
1992
Expiry date:
-
Legislative reference:
Sections 128B(3)(ba) and 124ZM of the Income Tax Assessment Act 1936

The unfranked portion of a dividend paid by a Pooled Development Fund to a foreign shareholder is exempt from withholding tax.

Tax expenditures for health

B17 Income tax exemption for public and non-profit hospitals
Health ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Exemption
2006 TES code:
B3
Commencement date:
Introduced before 1985
*Category:
1+
Expiry date:
-
Legislative reference:
Section 50-30 Income Tax Assessment Act 1997

The income of public hospitals as well as hospitals operated by a society or association, provided they are not operated for gain or profit of their individual members, is exempt from income tax. Furthermore, these hospitals must incur expenditure principally in Australia.

B18 Income tax exemption for registered health benefit organisations
Health ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
45 105 150 240 275 325 380 430
Tax expenditure type:
Exemption
2006 TES code:
B2
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Section 50-30 Income Tax Assessment Act 1997

The income of health benefit organisations registered under the National Health Act 1953 is exempt from income tax. This exemption is only available where the organisations are not operated for the gain or profit of their individual members.

Tax expenditures for social security and welfare

B19 Concessional taxation of life insurance investment income
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Exemption, Offset, Concessional rate
2006 TES code:
B6
Commencement date:
2000
*Category:
2+
Expiry date:
-
Legislative reference:
Sections 26AH and 160AAB of the Income Tax Assessment Act 1936

Some life insurance investment policyholders receive a concessional rate of tax because the policyholders’ undistributed income is taxed at the company rate.

When a life insurance policy matures, is forfeited, or is surrendered the income distributed is known as a reversionary bonus. Reversionary bonuses that are distributed to policyholders more than 10 years after the commencement of the policy are exempt from further tax. If the bonuses are distributed in the ninth or tenth year after commencement of the policy, then only a fraction (two thirds or one third respectively) of the bonuses are taxable. If the bonuses are distributed within eight years of the commencement of the policy, they are fully taxable. To the extent that reversionary bonuses are taxable, then policyholders are allowed a rebate at the company rate of tax.

This tax expenditure ensures that reversionary bonuses, on which a life insurance company has paid tax, are not subject to a form of double taxation when paid to policyholders during the taxable period of a policy.

B20 Concessional taxation treatment of mining payments made in respect of mining and exploration activities on Aboriginal land
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Exemption
2006 TES code:
B5
Commencement date:
2000
*Category:
1+
Expiry date:
-
Legislative reference:
Section 59-15 of the Income Tax Assessment Act 1997

Certain mining payments to Aboriginal and Torres Strait Islander persons or certain distributing bodies are exempt from income tax where those payments have already attracted mining withholding tax. Payments that are subject to the mining withholding tax of four per cent include royalties for mining on Aboriginal land and payments to Aboriginal Land Councils.

B21 Deductibility of charitable entertainment
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Deduction
2006 TES code:
B7
Commencement date:
1985
*Category:
na
Expiry date:
-
Legislative reference:
Section 32-50 of the Income Tax Assessment Act 1997

The cost of gratuitous entertainment provided to members of the public who are sick, disabled, poor or otherwise disadvantaged is tax deductible.

B22 Income tax exemption for religious, scientific, charitable or public educational institutions
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Exemption
2006 TES code:
B4
Commencement date:
Introduced before 1985
*Category:
3+
Expiry date:
-
Legislative reference:
Section 50-5 Income Tax Assessment Act 1997

The income of the following organisations is exempt from tax:

These funds, societies, associations or clubs must satisfy certain conditions to qualify for this exemption.

Tax concessions for certain taxpayers

B23 Exemption of foreign currency gains and losses from certain low balance accounts
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Exemption
2006 TES code:
B8
Commencement date:
1 July 2003
*Category:
2+
Expiry date:
-
Legislative reference:
Subdivision 775-D of the Income Tax Assessment Act 1997

Taxpayers with low balance bank accounts or credit card accounts denominated in a foreign currency may elect to disregard gains and losses attributable to changes in exchange rates (made in respect of the account). This option is available to all taxpayers other than authorised deposit-taking institutions (ADIs) and non-ADI financial institutions. Accounts with a combined credit or debit balance that does not exceed the foreign currency equivalent of A$250,000 will generally be eligible.

B24 Off-market share buy-backs
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
315 550 440 660 * * * *
Tax expenditure type:
Offset
2006 TES code:
B9
Commencement date:
1990
*Category:
3+
Expiry date:
-
Legislative reference:
Division 16K of Part III and 177EA Income Tax Assessment Act 1936

The proceeds paid to shareholders who participate in an off-market share buy-back are split into a dividend component and a capital component. The dividend component of the buy-back proceeds may be fully franked. This allows companies that undertake off-market share buy-backs to distribute franking credits to participating shareholders beyond the level that would normally be available. Treating part of the proceeds as a dividend makes off-market share buy-backs more attractive to low rate taxpayers. This facilitates streaming of franking credits to those shareholders that can obtain the most benefit with the tax expenditure equal to the difference in tax payable had those franking credits been distributed uniformly to all shareholders.

The tax expenditure from off-market share buy-backs may be partly offset by the anti-streaming provisions in the income tax law that operate to ensure that part of the buy-back proceeds are treated as capital (and therefore give rise to a capital gain or a capital loss rather than a franked dividend).

Projections beyond 2006-07 are not reported because of the likely volatility of this item.

Tax exemptions for certain government income support payments

B25 Exemption of Tobacco Growers Adjustment Assistance grants
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - - - 1 1 - -
Tax expenditure type:
Exemption
2006 TES code:
New
Commencement date:
1 July 2006
Expiry date:
-
Legislative reference:
Not yet legislated

Tobacco growers who receive a Restructuring Grant of up to $150,000 under the Tobacco Growers Adjustment Assistance Program 2006 are exempt from tax if they undertake to exit all agricultural enterprises for at least five years.

B26 Business Assistance Fund for disasters
Other economic affairs - Total labour and employment affairs ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - - 10 11 8 5 3
Tax expenditure type:
Exemption
2006 TES code:
B10
Commencement date:
22 March 2006
Expiry date:
30 June 2007
Legislative reference:
Tax Laws Amendment (2006 Measures No. 3) Act 2006

Payments from the Business Assistance Fund to businesses adversely affected by Cyclone Larry or flooding owing to the cumulative effects of Cyclones Larry and Monica are exempt from tax.

B27 Cyclone Larry – fuel excise relief
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - - 1 .. .. .. ..
Tax expenditure type:
Exemption
2006 TES code:
B11
Commencement date:
26 March 2006
Expiry date:
30 June 2007
Legislative reference:
Schedule 2 of the Tax Laws Amendment (2006 Measures No. 3) Act 2006

Taxpayers are exempt from tax on Government reimbursements for fuel excise paid to businesses adversely affected by Cyclone Larry.

Tax expenditures for recreation and culture

B28 Exemption of Refundable Film Tax Offset payments
Recreation and culture ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
3 16 7 10 18 38 42 48
Tax expenditure type:
Exemption
2006 TES code:
B15
Commencement date:
2001
Expiry date:
-
Legislative reference:
Division 376 of the Income Tax Assessment Act 1997

Payments made under the refundable tax offset for large scale film production are exempt from tax. Producers of qualifying large scale films are eligible to receive a refundable tax offset equivalent to 12.5 per cent of qualifying Australian production expenditure on a film. The offset is paid through the tax system directly to producers.

Producers of qualifying Australian films are eligible to receive a refundable producer tax offset equivalent to 40 per cent of qualifying Australian production expenditure incurred on a feature film, or 20 per cent of qualifying Australian production expenditure incurred on films that are not feature films. The producer tax offset is available in relation to qualifying Australian production expenditure incurred on or after 1 July 2007.

Producers of qualifying large scale films are eligible to receive a refundable location tax offset equivalent to 15 per cent of qualifying Australian production expenditure on a film which commenced principal photography on or after 8 May 2007. Films which commenced principal photography prior to 8 May 2007 will continue to be eligible for the 12.5 per cent offset.

A refundable tax offset is available for qualifying Australian production expenditure that relates to the post, digital and visual effects production of a film. The offset is equivalent to 15 per cent of qualifying Australian production expenditure and is available for post, digital and visual effects production that commences on or after 1 July 2007.

B29 Income tax exemption for certain not-for-profit societies
Recreation and culture ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
10 15 20 15 15 15 15 15
Tax expenditure type:
Exemption
2006 TES code:
B12
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Sections 50-10 and 50-45 Income Tax Assessment Act 1997

Subject to certain conditions, the income of not-for-profit societies, associations or clubs established for the encouragement of sport or games, music, art, animal racing, literature, or for community service purposes is exempt from income tax.

For those not-for-profit societies, associations or clubs to which the ‘mutuality principle’ applies, this tax expenditure exempts from income tax those amounts that are not already excluded by the ‘mutuality principle’. (For a brief explanation of the mutuality principle, refer to section 4.2 of chapter 4.)

B30 Income tax exemption for certain promotion and development not-for-profit societies
Recreation and culture ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
25 25 25 25 25 25 25 30
Tax expenditure type:
Exemption
2006 TES code:
B14
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Section 50-40 Income Tax Assessment Act 1997

An income tax exemption applies to the income of not-for-profit societies or associations predominantly devoted to promoting the development of aviation or tourism, or of agricultural, pastoral, horticultural, viticultural, manufacturing or industrial resources of Australia. This expenditure includes the income tax exemption applying to not-for-profit societies or associations established for the purpose of promoting the development of Australian information and communication technology resources.

For those not-for-profit societies, associations or clubs to which the ‘mutuality principle’ applies, this tax expenditure exempts from income tax those amounts that are not already excluded by the ‘mutuality principle’. (For a brief explanation of the mutuality principle, refer to section 4.2 of chapter 4.)

B31 Income tax exemption for the Australian Film Finance Corporation
Recreation and culture ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
.. .. .. .. .. .. .. ..
Tax expenditure type:
Exemption
2006 TES code:
B13
Commencement date:
1988
Expiry date:
-
Legislative reference:
Section 50-45 Income Tax Assessment Act 1997

An income tax exemption applies to income earned by the Australian Film Finance Corporation. This exemption is consistent with the exemption provided to cultural organisations generally.

Tax expenditures relating to prepayments and advance expenditures

B32 Exemption from the tax shelter prepayments measure for certain passive investments
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Accelerated write-off
2006 TES code:
B65
Commencement date:
1988
*Category:
na
Expiry date:
-
Legislative reference:
Section 82 KZME of the Income Tax Assessment Act 1936

A prepayment in relation to investments in infrastructure bonds, shares, units, rental property and arrangements entered into before 1 July 2000, to which product rulings apply, continues to be immediately deductible. This is conditional upon the prepayment expenditure meeting the requirements described in the tax expenditure Prepayment rule for Simplified Tax System taxpayers and non-business expenditure by individuals. The benchmark treatment of prepayments is that they are deductible over the period of the expenditure. The tax expenditure allows deductions to be spread over a shorter period and consequently it allows greater deductions than the benchmark treatment.

B33 Forestry managed investments – prepayment rule
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
-15 40 40 -10 -5 -95 - -
Tax expenditure type:
Accelerated write-off
2006 TES code:
B66
Commencement date:
2001
Expiry date:
30 June 2008
Legislative reference:
Section 82KZMG of the Income Tax Assessment Act 1936

Prepayments on seasonally dependent agronomic operations in the establishment of a forestry plantation are immediately deductible. This is conditional upon the prepayment expenditure meeting the requirements of section 82KZMG, including that the activities in question are completed within 12 months of the prepayment being made or the activities commencing and by the end of the following financial year. This tax expenditure is available for investors in forestry managed investment schemes. The benchmark treatment of prepayments is that they are deductible over the period of the expenditure. The tax expenditure allows deductions to be spread over a shorter period and consequently it allows greater deductions than the benchmark treatment.

The prepayment rule has been replaced by a statutory deduction for investments in forestry managed investment schemes.

B34 Prepayment rule for Simplified Tax System taxpayers and non-business expenditure by individuals
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Accelerated write-off
2006 TES code:
B62
Commencement date:
2001
*Category:
2+
Expiry date:
-
Legislative reference:
Section 82 KZM of the Income Tax Assessment Act 1936

Prepayments by Simplified Tax System taxpayers and non-business prepayments by individual taxpayers are immediately deductible. This is conditional upon the service being provided over a period not exceeding 12 months and ending at the end of the income year following the income year in which the prepayment expenditure is incurred. This provision replaced the remaining applications of the ’13 month rule’ (described in the tax expenditure Transitional arrangements for prepayments), which was previously removed on 21 September 1999 for businesses with a turnover of $1 million or more per annum.

From 1 July 2007, small businesses with average annual turnover of less than $2 million have been able to access this concession under the Small Business Framework.

B35 The 10-year rule for prepayments
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Accelerated write-off
2006 TES code:
B64
Commencement date:
1988
*Category:
na
Expiry date:
-
Legislative reference:
Subsection 82 KZL(1) of the Income Tax Assessment Act 1936

A prepayment for services to be provided over a period of 10 years or more (for example, life membership) is evenly deducted over the first 10 years of that period. The benchmark treatment of prepayments is that they are deductible over the period of the expenditure. The tax expenditure allows deductions to be spread over a shorter period and consequently it allows greater deductions in the first 10 years than the benchmark treatment.

B36 Transitional arrangements for prepayments
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
-170 -40 -15 - - - - -
Tax expenditure type:
Accelerated write-off
2006 TES code:
B63
Commencement date:
21 September 1999
Expiry date:
30 June 2003
Legislative reference:
Sections 82 KZL(1), 82KZMB and 82KZMC of the Income Tax Assessment Act 1936

Before 21 September 1999, an immediate prepayment deduction was available for expenditure for services provided within 13 months after the prepayment expenditure was incurred. This immediate deduction subsequently was removed and a five-year transitional rule was introduced to phase in the impact of its removal. The benchmark treatment of prepayments is that they are deductible over the period of the expenditure. The negative tax expenditure in the transitional period reflects the phasing in of the removal of the immediate prepayment deduction.

Tax expenditures for agriculture, forestry and fishing

B37 Deferral of income from double wool-clips
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Deferral
2006 TES code:
B84
Commencement date:
1966
*Category:
1+
Expiry date:
-
Legislative reference:
Section 385-130 of the Income Tax Assessment Act 1997

As a consequence of drought, fire or flood, primary producers carrying on a sheep grazing business in Australia may conduct advanced shearing. In these circumstances, a woolgrower may elect to have the assessment of the profit from advanced shearing deferred to the succeeding income year.

B38 Deferral or spreading of income from the forced disposal or death of livestock
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Deferral
2006 TES code:
B86
Commencement date:
1961
*Category:
na
Expiry date:
-
Legislative reference:
Sections 385-90 to 385-125 of the Income Tax Assessment Act 1997

Primary producers are eligible for a tax concession on the forced disposal or death of livestock resulting from certain events. These events include:

Primary producers who receive income from such disposals or deaths can elect to defer this income and use it to reduce the cost of replacement livestock in the disposal year or in any of the next five income years. Alternatively, primary producers can elect to spread profits between the income year of the disposal or death and the next four income years (or 10 years if the forced disposal was in relation to the control of bovine tuberculosis).

B39 Exemption of Sugar Industry Exit grants
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
.. 2 3 6 3 - - -
Tax expenditure type:
Exemption
2006 TES code:
B89
Commencement date:
1 February 2003
Expiry date:
-
Legislative reference:
Section 15-65 and 118-37(f) of the Income Tax Assessment Act 1997

Grants to individuals who exit the sugar industry under the Sugar Industry Reform Program are exempt from tax if the recipient remains out of the agricultural industry for at least five years.

B40 Farm Management Deposit scheme
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
245 95 115 75 85 * * *
Tax expenditure type:
Deferral
2006 TES code:
B83
Commencement date:
1999
*Category:
na
Expiry date:
-
Legislative reference:
Schedule 2G and Division 393 of the Income Tax Assessment Act 1936

The Farm Management Deposit (FMD) scheme allows primary producers (with a limited amount of non-primary production income) to defer their income tax liability. Primary producers are able to claim deductions for their FMD made in the year of deposit, with subsequent withdrawals being subject to assessment in the year of withdrawal. The FMD has a maximum limit on deposits of $400,000. Primary producers in exceptional circumstance areas are able to withdraw their deposits within 12 months while maintaining the concessional tax treatment of the scheme. The FMD scheme replaced the Income Equalisation Deposits and Farm Management Bonds schemes on 2 January 1999.

Projections beyond 2007-08 are not reported as the tax expenditure is very sensitive to variations in the amounts deposited and withdrawn in any year, which are dependent on a number of external factors.

B41 Income tax averaging for primary producers
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
150 110 85 65 55 * * *
Tax expenditure type:
Concessional rate
2006 TES code:
B82
Commencement date:
1938
*Category:
2+
Expiry date:
-
Legislative reference:
Division 392 of the Income Tax Assessment Act 1997

Primary producers can elect to pay tax at a tax rate based on their average income earned over the previous five income years. If the taxpayer has not been using this facility for five years, the tax rate is based on the income years in which averaging has applied, and the previous year. This provides a concession because, on balance, the saving from paying less tax in high income years outweighs additional tax paid in low income years.

Projections beyond 2007-08 are not reported as the tax expenditure is very sensitive to variations in primary production income, which depends on a number of external factors.

B42 Income tax exemption for Dairy Exit Program payments
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
.. - - - - - - -
Tax expenditure type:
Exemption
2006 TES code:
B88
Commencement date:
2000
Expiry date:
2002
Legislative reference:
Section 118-37(1)(e) of the Income Tax Assessment Act 1997

Payments made under the Dairy Exit Program (DEP) were exempt from income tax. Between 2000 and 2002, the DEP provided a grant of up to $45,000 to farmers in the dairy industry who decided to leave farming. The DEP also provided a retraining grant to eligible farmers to assist them in finding an alternative career after they exited farming.

B43 Spreading of income from insurance recoveries for loss of timber or livestock
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Deferral
2006 TES code:
B85
Commencement date:
1956
*Category:
na
Expiry date:
-
Legislative reference:
Section 385-130 of the Income Tax Assessment Act 1997

Insurance recoveries may be received in relation to timber lost to fire or livestock lost due to disasters (for example, drought, fire, flood or disease). Primary producers who receive such insurance recoveries can elect to spread the income equally over five income years, resulting in a tax deferral. This concession only applies where the livestock are assets of a primary production business carried on in Australia.

B44 Tax exemption for Farm Help re-establishment grants
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
3 2 1 1 * * * *
Tax expenditure type:
Exemption
2006 TES code:
New
Commencement date:
1 December 1997
*Category:
1+
Expiry date:
-
Legislative reference:
Paragraph 118-37(1)(d) of the Income Tax Assessment Act 1997

Re-establishment grants of up to $75,000 provided to eligible farmers who choose to sell their farm and exit farming for at least five years are tax exempt.

B45 Valuation of livestock from natural increase
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
105 150 90 90 * * * *
Tax expenditure type:
Deferral
2006 TES code:
B87
Commencement date:
1951
*Category:
2+
Expiry date:
-
Legislative reference:
Section 70-55 of the Income Tax Assessment Act 1997

Animals acquired by natural increase (that is, newborn animals) in livestock may be valued at cost, market selling value or replacement value. If valued at cost, the taxpayer can use actual cost or costs prescribed by the regulations. These prescribed costs may be lower than the actual cost of production, giving a concessional tax treatment.

Tax expenditures for manufacturing and mining

B46 Infrastructure Bonds Scheme
Mining, manufacturing and construction ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
20 20 20 15 5 5 .. ..
Tax expenditure type:
Exemption, Offset
2006 TES code:
B90
Commencement date:
1992
Expiry date:
1997
Legislative reference:
Division 16L of the Income Tax Assessment Act 1936

Interest income from loans to eligible infrastructure facilities is exempt from income tax and the interest paid by the borrower is not deductible. After 15 December 1994, the lender could elect to include the income in assessable income and receive an offset at the company tax rate for the income. This scheme was closed to new projects from 14 February 1997, and replaced by the Land Transport Infrastructure Borrowings Tax Offset Scheme in 1998.

B47 Land Transport Infrastructure Borrowings Tax Offset Scheme
Mining, manufacturing and construction ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
25 15 10 5 5 .. - -
Tax expenditure type:
Offset
2006 TES code:
B91
Commencement date:
1998
Expiry date:
-
Legislative reference:
Section 396-5 to 396-110 of the Income Tax Assessment Act 1997

A tax offset at the company tax rate is available to resident lenders who receive interest income from loans given for approved land transport infrastructure projects. This offset is available for the first five years of interest payments. The interest paid by the borrower is not deductible. The cost of the scheme is capped at $75 million per annum.

Since May 2004 no new projects have been admitted to the scheme.

Tax expenditures for other economic affairs

B48 Deductions for boat expenditure
Other economic affairs - Tourism and area promotion ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
-7 -5 -4 -4 -4 .. .. ..
Tax expenditure type:
Deferral of deduction
2006 TES code:
B29
Commencement date:
1974
Expiry date:
-
Legislative reference:
Former section 26-50 Income tax Assessment Act 1997 and section 26-47 Income tax Assessment Act 1997

Taxpayers cannot claim deductions between 1 July 1974 and 1 July 2007 for boat expenditure unless they can demonstrate that they were carrying on an active business using a boat.

From 1 July 2007, taxpayers will be allowed to claim deductions for the costs associated with hiring out their boats whether or not they cannot demonstrate that they are carrying on an active business using a boat. The non-business deductions will be quarantined against boating income.

B49 Income tax exemption for trade unions and registered organisations
Other economic affairs - Total labour and employment affairs ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
10 10 10 10 10 10 10 10
Tax expenditure type:
Exemption
2006 TES code:
B17
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Section 50-15 Income Tax Assessment Act 1997

Subject to certain conditions, the income of trade unions and registered associations of employers and employees is exempt from income tax. For those trade unions and registered associations of employers and employees to which the ‘mutuality principle’ applies, this tax expenditure exempts from income tax those amounts that are not already excluded by the ‘mutuality principle’. (For a brief explanation of the mutuality principle, refer to section 4.2 in chapter 4.)

B50 25 per cent entrepreneurs’ tax offset
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - - 130 160 270 270 280
Tax expenditure type:
Offset
2006 TES code:
B30
Commencement date:
2005
Expiry date:
-
Legislative reference:
Subdivision 61-J of the Income Tax Assessment Act 1997

Small businesses that have an annual turnover of $50,000 or less are eligible for a tax offset of 25 per cent of the income tax liability attributable to their business income. The offset phases out for annual turnover between $50,001 and $75,000. From 1 July 2007, this concession applies to any small business entity, whereas previously the concession only applied to taxpayers in the then Simplified Tax System.

B51 Capital gains tax concession for carried interests paid to venture capital managers
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
3 35 9 10 10 10 10 10
Tax expenditure type:
Denial of deduction, Deferral of deduction
2006 TES code:
B16
Commencement date:
2002
Expiry date:
-
Legislative reference:
Sections 104-255 and 118-21 of the Income Tax Assessment Act 1997

Venture capital fund managers may be paid a performance-based share of partnership profits by investors. Such performance payments are ‘carried interests’. Under the benchmark, these entitlements are taxable income of the fund managers as they accrue. Instead, an entitlement to receive a carried interest is a capital gains tax event in the hands of venture capital fund managers and is not treated as income. Consequently, taxation of the income is deferred until the gains are realised. Individual managers are eligible for the 50 per cent discount on their carried interest.

B52 Capital protected borrowings
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
15 20 25 35 45 55 65 80
Tax expenditure type:
Deduction, Discounted valuation
2006 TES code:
B27
Commencement date:
16 April 2003
Expiry date:
-
Legislative reference:
Division 247 of the Income Tax Assessment Act 1997

Taxpayers are able to claim a deduction for some or all of the cost of the capital protection associated with capital protected borrowings.

The cost of capital protected borrowings includes the cost of borrowing and the cost of capital protection. Under the benchmark, the cost of borrowing is deductible, however the cost of capital protection where it is considered capital in nature is not deductible but instead included in the cost base of the asset.

Since 16 April, 2003 a concessional interest rate has been used to value the capital protection component of these losses.

B53 Certain term subordinated notes
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Deduction
2006 TES code:
B26
Commencement date:
1 July 2001
*Category:
2+
Expiry date:
-
Legislative reference:
Division 974 of the Income Tax Assessment Act 1997

‘Solvency clauses’ do not preclude certain term subordinated notes from being classed as debt for tax purposes. A solvency clause allows the issuer to defer payment if the payment would cause insolvency. Under the benchmark, term subordinated notes with solvency clauses would typically be classified as equity under the debt-equity rules.

B54 Changes to the consolidation tax cost-setting rules
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - - - * * * *
Tax expenditure type:
Denial of deferral
2006 TES code:
New
Commencement date:
12 October 2007
*Category:
3-
Expiry date:
-
Legislative reference:
Not yet legislated

When an entity joins a consolidated group or multiple entry consolidated group following a capital gains tax roll-over affecting the membership interests of the joining entity (such as a scrip for scrip roll-over) the allocable cost amount of the joining entity will be reduced to reflect the cost bases of the joining entity’s assets, having regard to the extent to which the group acquires the membership interests of the joining entity by an exchange of scrip. The modifications will apply to relevant arrangements entered into after 12 October 2007.

B55 Concessional tax treatment for Pooled Development Funds
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
7 8 7 8 11 10 8 7

Note: estimates include tax expenditures B55 and B58

Tax expenditure type:
Exemption, Concessional rate
2006 TES code:
B19
Commencement date:
1992
Expiry date:
-
Legislative reference:
Section 118-13 Income tax Assessment Act 1997, Division 10E of Part III Income Tax Asessment Act 1936 and subsections 23(4C), (4D) of the Income Tax Rates Act 1986

Concessional taxation treatment is available to investment companies that are established and registered as Pooled Development Funds (PDFs). Income arising from investments in small to medium enterprises is taxed at 15 per cent and other income is taxed at 25 per cent. These concessional tax rates are designed to encourage PDFs to invest in small to medium enterprises. In addition, investors who invest in PDFs are not liable for tax either on dividends paid by the PDF or on capital gains made on the sale of their shares in the PDF.

The PDF program was closed to applications for registration on 21 June 2007 as a result of the new tax concessions for early stage venture capital limited partnerships. The PDF program continues to operate for registered PDFs.

B56 Concessions resulting from the clarification of the debt or equity treatment of perpetual subordinated debt
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Deduction
2006 TES code:
B22
Commencement date:
2001
*Category:
2+
Expiry date:
-
Legislative reference:
Division 974 Income tax Assessment Act 1997 and Division 974 of the Income Tax Assessment Regulations 1997

Perpetual subordinated debt issued by financial institutions to raise capital would typically be classified as equity under the benchmark debt-equity rules. Under certain circumstances, Upper Tier 2 perpetual subordinated debt and similar instruments may be treated as debt for tax purposes, thereby allowing the issuer of the perpetual subordinated debt to claim a deduction.

B57 Exemption for early stage venture capital limited partnerships
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - - - .. 1 5 9
Tax expenditure type:
Exemption
2006 TES code:
B25
Commencement date:
1 July 2006
Expiry date:
-
Legislative reference:
Sections 26-68, 51-52, 51-54 and Subdivision 118-F of the Income Tax Assessment Act 1997

Resident and foreign partners are exempt from tax on revenue and capital gains derived in respect of their eligible investments in early stage venture capital limited partnerships.

An early stage venture capital limited partnership is a flow-through investment vehicle that is progressively replacing the Pooled Development Fund program.

To qualify as an early stage venture capital limited partnership, the size of the fund cannot exceed $100 million and the total assets of investee companies cannot exceed $50 million immediately prior to investment. The early stage venture capital limited partnership must divest itself of any holdings once the total assets of the investee company exceed $250 million.

B58 Exemption for superannuation funds that invest through Pooled Development Funds in venture capital
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Included in B55
Tax expenditure type:
Exemption
2006 TES code:
B20
Commencement date:
1992
Expiry date:
-
Legislative reference:
Section 118-13 and Division 210 Income tax Assessment Act 1997 and Division 10E of Part III Income tax Assessment Act 1936

Australian superannuation funds and related entities that invest in venture capital through Pooled Development Funds (PDFs) are eligible for a tax exemption on certain franked dividends. Capital gains and dividends paid to superannuation funds by PDFs are exempt from tax. Superannuation funds that invest in venture capital through PDFs are also entitled to a refundable imputation credit for the tax paid by the PDF.

B59 Exemption of refundable research and development tax offset payments
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
35 1 -35 -65 -90 -105 -115 -105
Tax expenditure type:
Exemption
2006 TES code:
B23
Commencement date:
2001
Expiry date:
-
Legislative reference:
Section 73I of the Income Tax Assessment Act 1936

Companies with an annual turnover of less than $5 million that undertake up to $1 million of research and development (R&D) are eligible to receive a refundable tax offset equivalent to the value of the R&D tax concession, that is, at the rate of either 125 per cent or 175 per cent.

The refundable R&D tax offset is an expense item and accordingly does not appear as a tax expenditure in its own right. Payments made under the refundable R&D offset are exempt from tax.

In addition, companies that claim the refundable R&D tax offset are unable to claim deductions for the R&D expenditures concerned. This is because the refundable R&D tax offset has already provided these companies with a benefit equivalent to the value of these deductions. The absence of these deductions constitutes a negative tax expenditure and explains why the estimates become negative from 2005-06.

B60 Immediate deduction for expenditure on core technology related to research and development activities
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Included in B94
Tax expenditure type:
Deduction
2006 TES code:
B24
Commencement date:
1996
Expiry date:
-
Legislative reference:
Sections 73B(12) to 73B(12C) of the Income Tax Assessment Act 1936

Expenditure on core technology, except where incurred by companies in partnerships, is deductible at a rate of 100 per cent over the period of related research and development activities. This deduction is only available if the deduction is not greater than one third of the firm’s expenditure on related research and development. The benchmark treatment for such expenditure is that it is deductible over its effective life and consequently the scope for the 100 per cent rate potentially allows a greater rate of deduction than the benchmark.

B61 Income tax exemptions for foreign superannuation funds
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Exemption
2006 TES code:
B18
Commencement date:
1981
*Category:
1+
Expiry date:
-
Legislative reference:
Paragraphs 128B(3)(a) and (jb) Income Tax Assessment Act 1936

Interest income and dividends received by foreign superannuation funds are exempt from income tax. This income is also exempt from interest and dividend withholding taxes if it is exempt from income tax in the country in which the foreign superannuation fund resides.

B62 Tax exemption for small credit unions
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
.. .. .. .. .. .. .. ..
Tax expenditure type:
Exemption
2006 TES code:
B21
Commencement date:
1985
Expiry date:
-
Legislative reference:
Section 23G Income Tax Assessment Act 1936
Section 23(6) Income Tax Rates Act 1986

Interest income derived from loans to members by small credit unions is exempt from income tax. Small credit unions have a notional taxable income less than $50,000. This exemption does not extend to other income. A credit union that is treated in this way is not eligible for assessment as a co-operative company.

B63 Trust loss rules – family trusts
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Deduction
2006 TES code:
B28
Commencement date:
9 May 1995
*Category:
3+
Expiry date:
-
Legislative reference:
Subdivision 272-D of Schedule 2F of the Income Tax Assessment Act 1936

The family trust rules provide a concession to the ‘test individual’ of a family trust, and their family group, by allowing the transfer of losses and debt deductions to members of the family trust.

The trust loss rules - the benchmark - restrict trust losses and debt deductions from being transferred to persons who did not bear the economic burden. This is achieved by imposing tests on trusts to determine if any losses and debt deductions can be claimed. The tests examine whether there has been a change in underlying ownership or control of a trust and whether certain schemes have been entered into in order to take advantage of losses or debt deductions. Family trusts have to satisfy only the income injection test. The income injection test relates to schemes where persons outside the defined family group inject income into the trust to take advantage of trust losses and debt deductions. Distributions of trust income or capital made outside the family group will generally be subject to a family trust distribution tax.

Tax expenditures relating to capital expenditure, effective life and depreciation

B64 Film Licensed Investment Company Scheme – two year extension
Recreation and culture ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - - 4 4 - - -
Tax expenditure type:
Deduction
2006 TES code:
B32
Commencement date:
1 July 2005
Expiry date:
30 June 2007
Legislative reference:
Sections 375-850 to 375-880 of the Income Tax Assessment Act 1997

Amounts paid by investors in 2005-06 and 2006-07 for shares in a Film Licensed Investment Company are immediately deductible. In the 2007-08 Budget, the Government announced that the Film Licensed Investment Company scheme would not be renewed beyond its current expiry date of 30 June 2007.

B65 Tax incentives for film investment
Recreation and culture ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
3 -1 -2 -13 -13 -20 -22 -18
Tax expenditure type:
Deduction, Accelerated write-off
2006 TES code:
B31
Commencement date:
15 November 1956
Expiry date:
-
Legislative reference:
Divisions 10B and 10BA of the Income Tax Assessment Act 1936

Capital expenditure incurred in acquiring an interest in the initial copyright of a new Australian film can either be deducted immediately (for certain types of film) or written off over two years.

The initial deduction under Division 10B must be made in relation to the 2008-09 year of income or an earlier year of income. A deduction under Division 10BA is not allowable in relation to the 2009-10 year of income or later year of income. The divisions will be repealed effective from 1 July 2010.

B66 Accelerated depreciation for grapevine plantings
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
9 10 8 5 1 -3 -7 -8
Tax expenditure type:
Accelerated write-off
2006 TES code:
B40
Commencement date:
1993
Expiry date:
Not available for grapevines planted after 1 October 2004
Legislative reference:
Subdivision 40-F of the Income Tax Assessment Act 1997

Prior to 1 October 2004, capital expenditure incurred in acquiring and establishing grapevines could be written off on a prime cost basis over four years, with the deductions being available from the time the vines were planted. Since 1 October 2004, new grapevine plantings are subject to the capital allowances regime applicable to horticultural plants. That is, the establishment costs of the grapevine may be written off at 13 per cent per annum (the write-off rate applicable to a plant with an effective life of 13 years to fewer than 30 years) with deductions available from the income year in which the grapevine’s first commercial season starts.

B67 Deduction for horse breeding stock
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Accelerated write-off
2006 TES code:
B37
Commencement date:
1992
*Category:
na
Expiry date:
-
Legislative reference:
Sections 70-60 and 70-65 of the Income Tax Assessment Act 1997

Taxpayers can elect to write off horse breeding stock acquired on or after 19 August 1992 on a prime cost basis. Up to 25 per cent of the cost of sires and up to 33 1/3 per cent of the cost of mares can be written off per annum.

B68 Deduction of the capital cost of telephone lines and electricity connections
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
15 15 15 15 15 15 15 15
Tax expenditure type:
Accelerated write-off
2006 TES code:
B38
Commencement date:
24 June 1981
Expiry date:
-
Legislative reference:
Subdivision 40-G of the Income Tax Assessment Act 1997

Capital expenditure incurred in connecting a telephone line to a primary production property and capital expenditure incurred in connecting or upgrading mains electricity to a property on which a business is conducted can be deducted in equal instalments over ten years.

B69 Landcare and water facility offset
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
.. .. .. .. .. .. .. ..
Tax expenditure type:
Offset
2006 TES code:
B36
Commencement date:
1998
Expiry date:
2001
Legislative reference:
Former Subdivision 388 of the Income Tax Assessment Act 1997

Primary producers and users of rural land with taxable incomes of up to $20,000 a year were able to claim a 30 per cent tax offset for capital expenditure on soil conservation, prevention of land degradation and related measures incurred until the end of the 2000-01 income year. This concession was claimed as an alternative to the landcare deduction. The tax offset was based on one third of the eligible expenditure and was available in the year the expenditure was incurred and in each of the subsequent two years.

The offset will continue to apply after 1 July 2002 to expenditure incurred before that date where the offset is apportioned over three years, or where taxpayers had insufficient tax payable to claim the entire offset in earlier income years.

B70 Landcare deduction for primary producers
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - - - - - - -
Tax expenditure type:
Deduction
2006 TES code:
B34
Commencement date:
11 December 1973
Expiry date:
-
Legislative reference:
Subdivision 40-G Income tax Assessment Act 1997

Primary producers and users of rural land can claim a deduction for capital expenditure on a landcare operation in the year that it is incurred. Landcare operations may include soil conservation, prevention of land degradation or other related measures.

B71 Tax write-off for horticultural plants
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
4 4 4 4 5 5 6 8
Tax expenditure type:
Accelerated write-off
2006 TES code:
B39
Commencement date:
1995
Expiry date:
-
Legislative reference:
Subdivision 40-F of the Income Tax Assessment Act 1997

Capital expenditure incurred in establishing horticultural plants can be written off using an accelerated depreciation regime, with deductions available from the first commercial season. The cost of establishing plants with an effective life of less than three years can be written off in the first commercial year. Plants with an effective life of more than three years can be depreciated over a shorter period than their effective life using the maximum write-off periods set out in the legislation.

B72 Three year write-off for expenditure on water facilities for primary producers
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
25 25 25 30 30 35 35 40
Tax expenditure type:
Accelerated write-off
2006 TES code:
B33
Commencement date:
23 May 1980
Expiry date:
-
Legislative reference:
Subdivision 40-F of the Income Tax Assessment Act 1997

Primary producers can claim a deduction for capital expenditure on water facilities over three years. Water facilities include dams, earth tanks, underground tanks, concrete or metal tanks, tank stands, bores, wells, irrigation channels or similar improvements, pipes, pumps, water towers, and windmills. One-third of the expenditure is deductible in the income year in which it is incurred, and one-third is deductible in each of the following two years. The expenditure must be incurred primarily for conserving and conveying water for use in primary production.

B73 Water facilities and land care concession for irrigation water providers
Agriculture, forestry and fishing ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - - - - - - -
Tax expenditure type:
Deduction
2006 TES code:
B35
Commencement date:
1 July 2004
Expiry date:
-
Legislative reference:
Subdivisions 40-F and 40-G of the Income Tax Assessment Act 1997

Certain irrigation water providers can claim an immediate deduction for capital expenditure on landcare activities and claim a deduction for capital expenditure on water facilities over three years. The measure aligns the deductions available to primary producers and businesses using rural land with deductions available to irrigation water providers which supply those primary producers and businesses with water.

B74 Absence of depreciation recapture for certain assets
Mining, manufacturing and construction ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Deduction
2006 TES code:
B46
Commencement date:
1982
*Category:
na
Expiry date:
-
Legislative reference:
Division 43 and Section 110-45 of the Income Tax Assessment Act 1997

Certain buildings and structures receive deductions that are not recaptured by balancing adjustment on disposal of the asset. This tax expenditure is offset by reductions in the capital gains tax cost base of the assets concerned.

B75 Accelerated depreciation allowance for plant and equipment
Mining, manufacturing and construction ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
-680 -850 -890 -840 -800 -750 -660 -630

Note: estimates include tax expenditures B75 and B77

Tax expenditure type:
Accelerated write-off
2006 TES code:
B47
Commencement date:
1992
Expiry date:
2001
Legislative reference:
Former Division 42 and Subdivision 40-B of the Income Tax Assessment Act 1997 as adjusted by Sections 40-10 and 40-12 of the Income Tax (Transitional Provisions) Act 1997

Accelerated depreciation allows a taxpayer depreciation deductions at a higher rate than the expected decline in value of the asset.

An accelerated depreciation allowance was provided for plant and equipment acquired under contract, or commenced to be constructed, on or after 27 February 1992. This concession was removed for individuals and businesses with an annual turnover of $1 million or more on 21 September 1999. The treatment was removed for individuals and businesses with annual turnovers under $1 million from 1 July 2001, when they could elect to enter the Simplified Tax System and use the simplified capital allowances system.

The negative estimates for this tax expenditure stem from the fact that accelerated depreciation allows greater deductions early in an asset’s effective life, offset by smaller deductions later in its effective life. With the removal of accelerated depreciation, the tax expenditure estimates became negative from 2002-03. This is because, from that date, deductions for assets acquired before accelerated depreciation was abolished are lower than they would have been if depreciation were calculated over the effective life of the asset.

This tax expenditure will have an ongoing impact until all plant and equipment that utilised this concession would have otherwise been fully depreciated under the uniform capital allowance.

B76 Accelerated depreciation for Australian trading ships
Mining, manufacturing and construction ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
-14 -11 -9 -8 -7 -6 -5 -4
Tax expenditure type:
Accelerated write-off
2006 TES code:
B50
Commencement date:
12 April 1984
Expiry date:
1997
Legislative reference:
Section 53I(2) and 57AM of the Income Tax Assessment Act 1936

Australian trading ships, commissioned between 29 July 1977 and 1 July 1997, can be depreciated on a prime cost basis over five years. The estimates for this tax expenditure reflect the fact that it brings forward the timing of tax deductions relative to deductions available under the effective life benchmark. This tax expenditure will have a transitional impact until all trading ships that utilised this concession have been fully depreciated.

B77 Accelerated depreciation for employees' amenities
Mining, manufacturing and construction ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Included in B75
Tax expenditure type:
Accelerated write-off
2006 TES code:
B48
Commencement date:
1994
Expiry date:
2001
Legislative reference:
Former Section 42-150 and Subdivision 40-B of the Income Tax Assessment Act 1997 as adjusted by Sections 40-10 and 40-12 of the Income Tax (Transitional Provisions) Act 1997

Plant, including plumbing fixtures and fittings, acquired for providing meals, meal facilities, clothing cupboards, first aid, restrooms or recreational facilities for employees or their children, was deductible over three years. This concession was removed for individuals and businesses with a turnover of $1 million or more per annum on 21 September 1999. The treatment was removed for individuals and businesses with turnovers of less than $1 million per annum from 1 July 2001. These businesses can elect to enter the Simplified Tax System from this time and use the simplified capital allowances system. This tax expenditure will have a transitional impact until all eligible plant expenditure has been fully depreciated.

B78 Accelerated depreciation for mining buildings
Mining, manufacturing and construction ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
360 310 260 220 170 90 .. ..
Tax expenditure type:
Accelerated write-off
2006 TES code:
B49
Commencement date:
1982
Expiry date:
2001
Legislative reference:
Former Subdivision 330-C and subdivision 40-B of the Income Tax Assessment Act 1997 as adjusted by Section 40-35 of the Income Tax (Transitional Provisions) Act 1997

Buildings used to carry on mining and quarrying operations and for housing and welfare in relation to carrying on mining operations can be deducted over the lesser of the life of the project or 10 years (20 years for quarrying). This concession was removed from 1 July 2001 for buildings constructed or acquired on or after this date. This tax expenditure will have a transitional impact until all eligible capital expenditure incurred before 1 July 2001 has been fully depreciated.

B79 Capital expenditure deduction for mining, quarrying and petroleum operations
Mining, manufacturing and construction ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
20 20 20 20 20 10 10 10
Tax expenditure type:
Accelerated write-off
2006 TES code:
B42
Commencement date:
1921
Expiry date:
2001
Legislative reference:
Subdivision 40-B of the Income Tax Assessment Act 1997 as adjusted by sections 40-35, 40-40 and 40-75 of the Income Tax (Transitional Provisions) Act 1997

Certain capital expenditure incurred in carrying on a prescribed mining, petroleum or quarrying operation can be deducted over the lesser of the life of the project or 10 years (20 years for quarrying). The deduction is available for expenditure incurred before 1 July 2001 or expenditure relating to a depreciating asset acquired before 1 July 2001 (excluding plant and equipment).

Expenditure incurred on or after 1 July 2001 can be deducted over the life of the project.

B80 Deduction for environmental protection activities
Mining, manufacturing and construction ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
13 7 6 10 10 10 10 10

Note: estimates include tax expenditures B80 and B81.

Tax expenditure type:
Deduction
2006 TES code:
B45
Commencement date:
1992
Expiry date:
-
Legislative reference:
Sections 40-755 and 40-760 of the Income Tax Assessment Act 1997

Expenditure used to control pollution or manage waste is immediately deductible if the pollution or waste is a result of the taxpayer’s business or is on the site of the taxpayer’s business. Expenditure to prevent pollution that is likely to occur is also immediately deductible.

B81 Deduction for expenditure on environmental impact studies
Mining, manufacturing and construction ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Included in B80
Tax expenditure type:
Accelerated write-off
2006 TES code:
B44
Commencement date:
1991
Expiry date:
2001
Legislative reference:
Subdivision 40-I of the Income Tax Assessment Act 1997 as adjusted by Section 40-55 of the Income Tax (Transitional Provisions) Act 1997

Expenditure incurred on an eligible environmental impact study can be deducted over the lesser of 10 years or the life of the project to which it relates. This deduction applies to expenditure incurred before 1 July 2001. Expenditure incurred on or after 1 July 2001 can be deducted over the life of the project.

B82 Development allowance
Mining, manufacturing and construction ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
60 35 25 10 2 - - -
Tax expenditure type:
Deduction
2006 TES code:
B41
Commencement date:
1992
Expiry date:
1996
Legislative reference:
Former sections 82AAAA to 82AQ of the Income Tax Assessment Act 1936 and former sections 15, 27 and 40 Development Allowance Authority Act 1992

For major projects approved by the Development Allowance Authority, 10 per cent of capital expenditure on plant and equipment, including motor vehicles and primary production, was immediately deductible. Registrations for projects closed on 31 July 1996 for plant and equipment that was first used or installed ready for use before 1 July 2002.

B83 Exploration and prospecting deduction
Mining, manufacturing and construction ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Deduction
2006 TES code:
B43
Commencement date:
1968
*Category:
na
Expiry date:
-
Legislative reference:
Section 40-25, subsection 40-80(1) and section 40-730 of the Income Tax Assessment Act 1997

Expenditure on exploration or prospecting for the purpose of mining and quarrying is immediately deductible. The immediate deduction does not extend to capital expenditure on depreciating assets.

B84 Statutory effective life caps
Transport and communication ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* 130 175 230 310 385 425 450
Tax expenditure type:
Accelerated write-off
2006 TES code:
B51
Commencement date:
2002, 2004
*Category:
na
Expiry date:
-
Legislative reference:
Section 40-102 of the Income Tax Assessment Act 1997

‘Statutory effective life caps’ act to override the Commissioner of Taxation’s determinations of the ‘safe harbour’ effective life of assets in certain cases. This provides a shorter write-off period for those assets subject to a statutory cap where the effective life determined by the Commissioner exceeds the cap.

Statutory caps exist for a range of assets, including:

B85 Accelerated depreciation for software
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
270 150 60 20 35 60 75 85
Tax expenditure type:
Accelerated write-off
2006 TES code:
B59
Commencement date:
1998
Expiry date:
-
Legislative reference:
Subdivision 40-E of the Income Tax Assessment Act 1997

Expenditure incurred in acquiring, developing or commissioning software that is mainly used in performing the functions for which the software was developed can be depreciated over 2.5 years instead of the effective life of the software. This gives rise to a tax expenditure in relation to software which has an effective life greater than 2.5 years.

B86 Deduction for capital works expenditure
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Deduction
2006 TES code:
New
Commencement date:
21 August 1979
*Category:
4+
Expiry date:
-
Legislative reference:
Division 43 of the Income tax Assessment Act 1997

A taxpayer can claim a deduction for capital works expenditure incurred in constructing capital works, including buildings and structural improvements and environment protection earthworks.

The deduction is either 2.5 per cent (over 40 years) or 4 per cent (over 25 years) of the construction expenditure, depending on when construction started and how the capital works are used.

A capital works deduction is generally available if the capital works are used for income producing purposes.

B87 Depreciation balancing adjustment roll-over relief
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Deferral
2006 TES code:
B53
Commencement date:
1952
*Category:
1+
Expiry date:
-
Legislative reference:
Section 40-340 of the Income Tax Assessment Act 1997

‘Balancing adjustments’ arise when the disposal value of a depreciating asset varies from its depreciated value. The tax liability for such balancing adjustments can be deferred where the balancing adjustment arises from certain changes in ownership, such as disposal as a result of a marriage breakdown. The transferee is taken to acquire the asset at the written down value and must depreciate the asset in the same way as the transferor.

Prior to 21 September 1999, balancing adjustment offsets were also available when replacement items of plant and equipment were acquired. This treatment is available to businesses with turnover of less than $1 million for assets acquired before 1 July 2001.

B88 Depreciation pooling for low value assets
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
100 100 90 80 70 60 60 60
Tax expenditure type:
Accelerated write-off
2006 TES code:
B54
Commencement date:
2000
Expiry date:
-
Legislative reference:
Subdivision 40-E of the Income Tax Assessment Act 1997

Assets costing less than $1,000 can be written off at the declining balance rate of 37.5 per cent through a low value asset pool. Once a taxpayer elects to create a low value pool, all assets that cost less than $1,000 are subject to the declining balance rate treatment. A low value asset pool is available to taxpayers who choose not to, or are ineligible to, enter the Simplified Tax System.

A low value pool mechanism for the depreciation of assets was introduced to reduce taxpayers’ compliance costs by removing the need to track individual items for depreciation purposes.

B89 Depreciation to nil value rather than estimated scrap value
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Deferral
2006 TES code:
B52
Commencement date:
1936
*Category:
1+
Expiry date:
-
Legislative reference:
Division 40 of the Income Tax Assessment Act 1997

Taxpayers are entitled to write-off the cost of depreciating assets to zero value, rather than to the estimated disposal value of the asset. Any gain on disposal of the asset is assessed as income at the time of disposal through a balancing adjustment. This results in a tax deferral.

B90 Establishment costs for carbon sink forests
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - - - - 5 9 11
Tax expenditure type:
Deduction, Accelerated write-off
2006 TES code:
New
Commencement date:
1 July 2007
Expiry date:
-
Legislative reference:
Not yet legislated

Establishment costs will be immediately deductible for trees established in carbon sink forests in the 2007-08 to 2011-12 income years inclusive. After this initial period, establishment costs will be deductible over 14 years and 105 days at a rate of 7 per cent per annum.

To be eligible for the deduction, the taxpayer must be carrying on a business and the carbon sink forest must meet Environmental and Natural Resource Management Guidelines.

B91 Immediate deductibility for GST-related plant and software
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
-40 -35 -10 - - - - -
Tax expenditure type:
Accelerated write-off
2006 TES code:
B61
Commencement date:
2000
Expiry date:
2000
Legislative reference:
Sections 25-80 and 42-168 of the Income Tax Assessment Act 1997

Expenditure incurred by small and medium size businesses on acquiring plant or software (including upgrades) for the purpose of implementing the GST was immediately deductible. This deduction was available for the year ending 30 June 2000, provided that the equipment was ordered by 30 June 2000 and installed by 30 June 2001.

The estimates for this tax expenditure reflect that it brings forward the timing of tax deductions relative to deductions available under the effective life benchmark. This tax expenditure has a transitional impact until all eligible GST-related plant and software would have otherwise been fully depreciated.

B92 Immediate deduction relating to Year 2000 upgrades
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* - - - - - - -
Tax expenditure type:
Accelerated write-off
2006 TES code:
B60
Commencement date:
1998
*Category:
2-
Expiry date:
1999
Legislative reference:
Sections 46-1 to 46-110 of the Income Tax Assessment Act 1997

Expenditure on software related to Year 2000 upgrades was immediately deductible if it was incurred between 11 May 1998 and 1 July 1999. The estimates for this tax expenditure reflect that it brings forward the timing of tax deductions relative to deductions available under the effective life benchmark. This tax expenditure has a transitional impact until all eligible software acquired between 11 May 1998 and 1 July 1999 would have otherwise been fully depreciated.

B93 Premium tax concession for additional research and development expenditure
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
85 100 130 180 280 340 360 390
Tax expenditure type:
Deduction, Accelerated write-off
2006 TES code:
B58
Commencement date:
2001
Expiry date:
-
Legislative reference:
Section 73Q to 73Z of the Income Tax Assessment Act 1936

Companies that increase expenditure on labour related components of research and development (R&D) which are Australian-owned are eligible to receive a 175 per cent tax concession for increases above the average of the previous three years’ R&D expenditure. The 175 per cent premium covers all additional R&D expenditure excluding plant, pilot plant, contracted plant, plant leases, core technology, R&D related interest and items excluded from the 125 per cent R&D tax concession.

The concession is available to the extent that total R&D expenditure has increased. Total R&D expenditure includes both the Australian-owned and foreign-owned components of the premium tax concession. This deduction has been available to companies from the first income year starting after 30 June 2001.

Companies that undertake research and development (R&D) on behalf of a grouped foreign company are eligible for a 175 per cent tax concession for increases in R&D expenditure above the average of the previous three years' of R&D expenditure. Expenditure on behalf of a grouped foreign company which contributes to the calculation of the 175 per cent tax concession must be labour related and will be subject to a specific deduction at the rate of 100 per cent.

The concession is only available to the extent that total R&D expenditure has increased. Total R&D expenditure includes both the Australian-owned and foreign-owned components of the premium tax concession. This deduction has been available to companies from 1 July 2007.

B94 Research and development tax concession
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
320 330 360 390 420 460 490 530

Note: estimates include tax expenditures B94 and B60

Tax expenditure type:
Deduction, Accelerated write-off
2006 TES code:
B57
Commencement date:
1985
Expiry date:
-
Legislative reference:
Sections 73B and 73BA of the Income Tax Assessment Act 1936

Certain taxpayers are entitled to a deduction at the rate of 125 per cent of their eligible expenditure on research and development (R&D) activities. Until 29 January 2001, eligible expenditure on R&D plant was deductible at 125 per cent over three years. Expenditure on plant used in R&D activities after 29 January 2001 is deductible at 125 per cent over its effective life.

B95 Small business - simplified depreciation rules
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - - - 240 265 275 255
Tax expenditure type:
Accelerated write-off
2006 TES code:
B55
Commencement date:
2007
Expiry date:
-
Legislative reference:
Division 328 of the Income Tax Assessment Act 1997

Small businesses with annual turnover of less than $2 million may choose to use a simplified capital allowances regime for depreciating assets. Small businesses may write off immediately purchases costing less than $1,000 and depreciate assets that cost $1,000 or more at accelerated rates under a pooled arrangement. Depreciating assets with an effective life of less than 25 years are depreciated in a general pool at a rate of 30 per cent. Depreciating assets with an effective life of 25 years or more are depreciated in a long life pool at a rate of 5 per cent.

Prior to July 2007, this concession was available only to taxpayers that were part of the former Simplified Tax System. As part of aligning small business thresholds, the turnover eligibility threshold was raised from $1 million to $2 million.

B96 Small business - Simplified trading stock rules
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - - - * * * *
Tax expenditure type:
Deferral
2006 TES code:
B55
Commencement date:
2007
*Category:
1+
Expiry date:
-
Legislative reference:
Division 328 of the Income Tax Assessment Act 1997

Small businesses with annual turnover of less than $2 million may choose to use a simplified trading stock regime. Under this regime, in certain circumstances, changes in the value of trading stock do not have to be accounted for and stocktaking is not required at the end of the income year.

Before July 2007, this regime was available only to taxpayers that were part of the former simplified tax system. As part of aligning small business thresholds, the turnover eligibility threshold was raised from $1 million to $2 million.

B97 The Simplified Tax System
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
440 260 260 230 - - - -
Tax expenditure type:
Deduction, Deferral, Accelerated write-off
2006 TES code:
B55
Commencement date:
2001
Expiry date:
2007
Legislative reference:
Division 328 of the Income Tax Assessment Act 1997

The Simplified Tax System (STS) allowed eligible small businesses to access a range of tax concessions including simplified depreciation and trading stock rules. As part of the Government's initiative to align small business thresholds, the STS was replaced by the Small Business Framework which allows small business entities (with a turnover under $2 million) to choose the concessions that best meet their specific needs, subject to meeting any specific criteria for each concession. The concessions within the former STS can now be selected individually.

B98 Transitional exemption of small business from abolition of accelerated depreciation, balancing adjustment offset and low value pooling
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
-90 -60 -40 - - - - -
Tax expenditure type:
Accelerated write-off
2006 TES code:
B56
Commencement date:
21 September 1999
Expiry date:
30 June 2001
Legislative reference:
Subdivision 42-K of the Income Tax Assessment Act 1997

A range of accelerated depreciation measures that were terminated as of 21 September 1999 were retained for eligible businesses until the commencement of the Simplified Tax System on 1 July 2001. Eligible businesses were those with three-year average annual turnovers of less than $1 million. As well as accelerated depreciation, other concessions available to eligible businesses include the balancing adjustment offset, the pooling of low value depreciating assets, and the immediate deductibility of plant items costing up to $300.

Miscellaneous tax expenditures

B99 Deduction for certain co-operative companies
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Deduction
2006 TES code:
B93
Commencement date:
1973
*Category:
2+
Expiry date:
-
Legislative reference:
Sections 117 and 120 of the Income Tax Assessment Act 1936

Deductions are provided to certain co-operative companies for the repayment of principal of Australian and State Government loans provided for the purchase of assets required for the purpose of carrying on the business of the co-operative.

B100 Exemption from non-commercial losses provisions (primary producers and artists)
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
100 105 105 100 100 100 100 100
Tax expenditure type:
Exemption
2006 TES code:
B92
Commencement date:
2000
Expiry date:
-
Legislative reference:
Subsections 35-10(4) and (5) Income Tax Assessment Act 1997

Primary producers and artists with other assessable income of less than $40,000 are exempt from the non-commercial losses provisions. Under the non-commercial loss provisions, losses from a ‘non-commercial’ business activity may be prevented from being offset against other assessable income, even though the activity qualifies as carrying on a business under the income tax law.

B101 Forestry managed investment schemes – tax deductibility
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - - - - 140 365 425
Tax expenditure type:
Accelerated write-off
2006 TES code:
New
Commencement date:
2007
Expiry date:
-
Legislative reference:
Division 394 of the Income Tax Assessment Act 1997

Investors in forestry managed investment schemes (MIS) are able to claim immediate upfront deductions for their expenditure on such schemes, provided that, amongst other requirements, at least 70 per cent of the expenditure is directly related to developing forestry.

The statutory deduction means that investors in forestry MIS are unaffected by the ruling by the Commissioner of Taxation in Taxation Ruling TR2007/8 that, with effect from 1 July 2008, investments in agricultural managed investment schemes (including forestry) are capital in nature and therefore not deductible.

Interests in forestry MISs can be traded, subject to a four-year holding period rule and a market value pricing rule for initial investors. The proceeds on the sale or harvest of a forestry MIS interest by an initial investor are taxable income of the investor.

B102 Small business related party at call loans taken to be debt interests
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - * * * * * *
Tax expenditure type:
Deduction
2006 TES code:
B97
Commencement date:
1 July 2005
*Category:
2+
Expiry date:
-
Legislative reference:
Division 794 of the Income Tax Assessment Act 1997

A related party at call loan is typically a loan made to a company by a related entity, has no fixed term and is repayable on demand. Under the benchmark debt-equity rules, such a loan would generally give rise to an equity interest rather than a debt interest. This means that interest payable on the loan would be frankable (but not deductible by the company).

From 1 July 2005, these loans are taken to be debt interests for companies that have an annual turnover of less than $20 million.

B103 Transitional tax exemption for certain life insurance management fees
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
250 290 - - - - - -
Tax expenditure type:
Exemption
2006 TES code:
B94
Commencement date:
2000
Expiry date:
2005
Legislative reference:
Section 320-40 of the Income Tax Assessment Act 1997

A tax exemption applies to life insurance companies on one-third of specified management fees received on certain life insurance policies taken out before 1 July 2000. Specified management fees do not apply on all life insurance policies. For example, there are no specified management fees on policies where amounts would be paid only on death or disability of a person. This exemption ceases to apply to amounts that become specified management fees after 30 June 2005.

B104 Income tax exemption for municipal authorities and other local governing bodies
Other purposes - General purpose inter-governmental transactions ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
430 540 630 700 770 860 950 1060
Tax expenditure type:
Exemption
2006 TES code:
B96
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Section 50-25 Income Tax Assessment Act 1997
Part III Division 1AB Income Tax Assessment Act 1936

The income of municipal corporations as well as those local governing bodies and public authorities which are constituted under a Commonwealth, State or Territory law is exempt from income tax. This exemption includes the local governing bodies in Norfolk, Cocos (Keeling) and Christmas Islands.

B105 Income tax exemption for State and Territory bodies
Other purposes - General purpose inter-governmental transactions ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Exemption
2006 TES code:
B95
Commencement date:
Introduced before 1985
*Category:
4+
Expiry date:
-
Legislative reference:
Part III Division 1AB Income Tax Assessment Act 1936

The income of an Australian State or Territory body is exempt from income tax unless it is excluded under section 24AT of the Income Tax Assessment Act 1936.

 

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