The Commonwealth Treasury


TAX EXPENDITURES STATEMENT 2004

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Chapter 6: Tax expenditures

Business income

Tax expenditures for general public services

B1 Exemption for certain payments made out of the National Guarantee Fund

General public services (B) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Exemption
2003 TES code
New
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.

The National Guarantee Fund has to date undertaken the dual roles of investor protection and clearing support for the Australian Stock Exchange. The Corporations Act now 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.

 

Tax expenditures for health

B2 Income tax exemption for registered health benefit organisations

Health ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
105 220 30 45 45 45 50 50
Tax expenditure type:
Exemption
2003 TES code
B1
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Section 50-30 ITAA97

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.

The growth in the estimates in 2000-01 and 2001-02 reflects increased health fund membership and greater profitability of the sector. The decrease in estimates thereafter reflects subsequent reduced profitability of the sector.

 

B3 Income tax exemption for public and non-profit hospitals

Health ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
.. .. .. .. .. .. .. ..
Tax expenditure type:
Exemption
2003 TES code
B2
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Section 50-30 ITAA97

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.

 

Tax expenditures for social security and welfare

B4 Income tax exemption for religious, scientific, charitable or public educational institutions

Social Security and welfare ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Exemption
2003 TES code
B3
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Section 50-5 ITAA97

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.

 

B5 Concessional taxation treatment of mining payments made in respect of mining and exploration activities on Aboriginal land

Social security and welfare ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
.. .. .. .. .. .. .. ..
Tax expenditure type:
Exemption
2003 TES code
B4
Commencement date:
2000
Expiry date:
 
Legislative reference:
Section 59-15 ITAA97

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.

 

B6 Concessional taxation of life insurance investment income

Social Security and welfare ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Concessional rate
2003 TES code
B5
Commencement date:
2000
Expiry date:
 
Legislative reference:
Sections 26AH and 160AAB ITAA36

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. However, 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.

More information can be found on the Australian Taxation Office website www.ato.gov.au

 

B7 Deductibility of charitable entertainment

Social Security and welfare ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Deduction
2003 TES code
B6
Commencement date:
1985
Expiry date:
 
Legislative reference:
Section 32-50 ITAA97

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

 

Tax concessions for certain taxpayers

B8 Exemption of foreign currency gains and losses from certain low balance accounts

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Exemption
2003 TES code
New
Commencement date:
July 2003
Expiry date:
 
Legislative reference:
Subdivision 775-D ITAA97

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.

This exception was introduced to reduce compliance costs, as part of a comprehensive regime for the taxation of foreign currency gains and losses introduced in 1 July 2003.

 

Tax expenditures for recreation and culture

B9 Income tax exemption for certain non-profit societies

Recreation and culture ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
20 15 15 10 15 15 15 15
Tax expenditure type:
Exemption
2003 TES code
B7
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Section 50-45 ITAA97

For those non-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 the Benchmarks chapter.)

 

B10 Income tax exemption for the Australian Film Finance Corporation

Recreation and culture ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
.. .. .. .. .. .. .. ..
Tax expenditure type:
Exemption
2003 TES code
B8
Commencement date:
1988
Expiry date:
 
Legislative reference:
Section 50-45 ITAA97

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.

 

B11 Income tax exemption for certain promotion and development non-profit societies

Recreation and culture ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
30 25 25 25 25 25 25 25
Tax expenditure type:
Exemption
2003 TES code
B9
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Section 50-40 ITAA97

Subject to certain conditions, the income of non-profit societies, associations or clubs established for the encouragement of sport or games, music, art, animal racing and literature is exempt from income tax.

For those non-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 the Benchmarks chapter.)

 

B12 Exemption of Refundable Film Tax Offset payments

Recreation and culture ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- - 1 3 25 30 30 35
Tax expenditure type:
Exemption
2003 TES code
B10
Commencement date:
2001
Expiry date:
 
Legislative reference:
Division 376 ITAA97

Payments made under the refundable tax offset for large-scale film production are exempt from tax. Producers of qualified 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. To be eligible, films need at least $15 million of qualifying Australian expenditure and that expenditure must amount to at least 70 per cent of the total production cost. However, if qualifying Australian expenditure is over $50 million, the 70 per cent criterion does not apply. The offset is designed to ensure that Australia remains competitive in attracting large-scale film productions.

 

Tax expenditures for other economic affairs

B13 Income tax exemption for trade unions and registered organisations

Other economic affairs (B) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
10 10 10 10 10 10 10 10
Tax expenditure type:
Exemption
2003 TES code
B24
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Section 50-15 ITAA97

Subject to certain conditions, the income of trade unions and registered associations of employers and employees is exempt from income tax. However, certain ordinary and statutory income of some associations of employees and some registered trade unions may be subject to 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 of the Benchmarks chapter.)

 

B14 Income tax exemption for Commonwealth Rebate for Apprentice Full-time Training (CRAFT)

Other economic affairs (B) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
11 4 - - - - - -
Tax expenditure type:
Exemption
2003 TES code
B25
Commencement date:
Introduced before 1985
Expiry date:
No longer available for apprentices starting after 1997
Legislative reference:
Section 51-10 Item 2.2 ITAA97

Payments made to employers who take on apprentices under the Commonwealth Rebate for Apprentice Full-time Training (CRAFT) scheme are exempt from income tax. This was converted into a grants program on 1 January 1998 and therefore this tax exemption only applies to apprentices who commenced work before that date.

More information can be found at the Department of Education website www.dest.gov.au.

 

B15 Concessional tax rate for the life insurance business of friendly societies

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
5 - - - - - - -
Tax expenditure type:
Concessional rate
2003 TES code
B26
Commencement date:
Introduced before 1985
Expiry date:
2002
Legislative reference:
Subsection 23C of the Income Tax Rates Act 1986

Traditionally the life insurance business of friendly societies was treated more concessionally than that of life insurance companies. The benefit was wound back progressively after 1983-84 when the exemption for this business of friendly societies was removed and a 20 per cent tax rate applied. The rate was increased to 30 per cent from 1988-89 and to 33 per cent in 1994-95. In contrast, a 39 per cent tax rate applied to the life insurance business of life insurance companies during most of this period.

The tax rate differential was removed from the 2001-02 income year when the rate for both friendly societies and life insurance companies decreased to 30 per cent.

 

B16 Income tax exemptions for foreign superannuation funds

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Exemption
2003 TES code
B27
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Paragraphs 23(jb) and 128B (3)(a) ITAA36

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

Exempting foreign superannuation funds from income tax aims to encourage their investment in Australia. Overseas jurisdictions use similar concessions, and consequently, without such an exemption, foreign entities may be discouraged from investing in Australia. Payment of withholding tax in Australia by a foreign superannuation fund may generate a credit that the fund can apply against its income tax liability in its own country.

 

B17 Concessional tax treatment for Pooled Development Funds

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
5 5 5 6 6 6 6 6
Tax expenditure type:
Concessional rate
2003 TES code
B28
Commencement date:
1992
Expiry date:
 
Legislative reference:
Sections 46(1), (2), (7), (7A); 46A(1), (5), (9), (10); Division 10E of Part III and Division 12A of Part IIIA ITAA36; and Sections 3(1); 23(4C), (4D) of the Income Tax Rates Act 1986

Note: estimates include tax expenditures B17 and B18.

Concessional taxation treatment is available to investment companies that are established and registered as Pooled Development Funds (PDFs). Income arising from investments in small-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 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.

 

B18 Exemption for superannuation funds that invest through Pooled Development Funds in venture capital

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Included in B17
Tax expenditure type:
Exemption
2003 TES code
B29
Commencement date:
1992
Expiry date:
 
Legislative reference:
Sections 46(1), (2), (7), (7A); 46A(1), (5), (9), (10); Division 10E of Part III and Division 12A of Part IIIA ITAA36; and Sections 3(1); 23(4C), (4D) of the Income Tax Rates Act 1986

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. Specifically, 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. This exemption is designed to encourage investment in venture capital by superannuation funds.

 

B19 Tax exemption for small credit unions

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
.. .. .. .. .. .. .. ..
Tax expenditure type:
Exemption
2003 TES code
B30
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Section 23G ITAA 1936 and Section 23(6) of the 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.

 

B20 Concessions resulting from the clarification of the debt or equity treatment of perpetual subordinated debt

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- - - * * * * *
Tax expenditure type:
Deduction
2003 TES code
B31
Commencement date:
2001
Expiry date:
 
Legislative reference:
Not yet legislated

Banks issue financial instruments such as equity or debt in order to raise capital. The benchmark treatment of these financial instruments depends on whether they are classified as debt or equity according to certain tests. Perpetual subordinated debt (PSD) is a form of financial instrument that, according to these tests, would typically be classified as equity. However, under certain circumstances, PSD instruments may be treated as debt for tax purposes, thereby allowing the issuer of the PSD to claim a deduction.

This tax expenditure is principally designed to enable Australian banks to raise capital in international capital markets on competitive terms with banks in other jurisdictions.

 

B21 Exemption of refundable research and development tax offset payments

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- - 40 30 - -30 -45 -60
Tax expenditure type:
Exemption
2003 TES code
B32
Commencement date:
2001
Expiry date:
 
Legislative reference:
Section 73I ITAA36

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 tax offset enables small companies to receive support for undertaking R&D.

The refundable R&D tax offset is treated as an expense item and accordingly does not appear as a tax expenditure in its own right. However, 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.

 

B22 Immediate deduction for expenditure on core technology related to research and development activities

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Included in B53
Tax expenditure type:
Deduction
2003 TES code
B33
Commencement date:
1996
Expiry date:
 
Legislative reference:
Sections 73B(12) to 73B(12C) ITAA36

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.

 

B23 25 per cent entrepreneurs' tax offset

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- - - - - - 400 390
Tax expenditure type:
Offset
2003 TES code
New
Commencement date:
2005
Expiry date:
 
Legislative reference:
Not yet legislated

Small businesses in the Simplified Tax System (STS) that have an annual turnover of $50,000 or less are eligible for a tax offset of 25 per cent of their income tax liability attributable to their business income. The offset phases out for annual turnover between $50,001 and $75,000.

 

Tax expenditures relating to capital expenditure, effective life and depreciation

B24 Tax incentives for film investment

Recreation and culture ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
6 -6 -1 -2 -3 -4 -4 -3
Tax expenditure type:
Deduction, accelerated write-off
2003 TES code
B34
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Divisions 10B and 10BA ITAA36

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

 

B25 Film Licensed Investment Companies

Recreation and culture ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
6 - - - - - - -
Tax expenditure type:
Deduction
2003 TES code
B35
Commencement date:
1998
Expiry date:
2000
Legislative reference:
Sections 375-850 to 375-880 ITAA97

Amounts paid by investors in 1998-99 and 1999-2000 for shares in a Film Licensed Investment Company were immediately deductible.

 

B26 Three year write-off for expenditure on water facilities for primary producers

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
20 20 25 25 25 25 25 25
Tax expenditure type:
Acceslerated write-off
2003 TES code
B36
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Subdivision 40F ITAA97

Note: estimates include tax expenditures B26, B27 and B28.

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.

More information on this concession can be found on the Australian Tax Office website www.ato.gov.au.

 

B27 Landcare deduction for primary producers

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Included in B26
Tax expenditure type:
Deduction
2003 TES code
B37
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Sections 40-630 to 40-640 ITAA97

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.

More information on this concession can be found on the Australian Tax Office website www.ato.gov.au.

 

B28 Water facilities and land care concession for irrigation water providers

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Included in B26
Tax expenditure type:
Deduction
2003 TES code
New
Commencement date:
July 2004
Expiry date:
 
Legislative reference:
Subdivision 40F and 40G of the ITAA97

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. The measure will also assist in the renewal of water supply infrastructure with a view to enhancing the efficiency of water delivery to primary producers and to carry out landcare work on land affected by delivery of this water.

More information on this concession can be found on the Australian Tax Office website www.ato.gov.au.

 

B29 Landcare and water facility offset

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
.. .. .. .. .. .. .. ..
Tax expenditure type:
Offset
2003 TES code
B38
Commencement date:
1998
Expiry date:
2001
Legislative reference:
Former Subdivision 388 ITAA97

Primary producers and users of rural land with taxable income 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 could be claimed as an alternative to the landcare deduction (B27). 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.

More information on this concession can be found on the Australian Tax Office website www.ato.gov.au.

 

B30 Deduction for horse breeding stock

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Accelerated write-off
2003 TES code
B39
Commencement date:
1992
Expiry date:
 
Legislative reference:
Sections 70-60, 70-65 ITAA97

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.

 

B31 Deduction of the capital cost of telephone lines and electricity connections

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
8 8 8 8 8 8 8 8
Tax expenditure type:
Accelerated write-off
2003 TES code
B40
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Sections 40-645, 40-655 ITAA97

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.

More information on this concession can be found on the Australian Tax Office website www.ato.gov.au.

 

B32 Tax write-off for horticultural plants

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
5 5 6 7 8 8 9 9
Tax expenditure type:
Accelerated write-off
2003 TES code
B41
Commencement date:
1995
Expiry date:
 
Legislative reference:
Subdivision 40-F ITAA97

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 prime cost method.

More information on this concession can be found on the Australian Tax Office website www.ato.gov.au.

 

B33 Accelerated depreciation for grapevine plantings

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
8 12 13 14 15 14 10 6
Tax expenditure type:
Accelerated write-off
2003 TES code
B42
Commencement date:
1993
Expiry date:
Not available for vines planted after 1 October 2004
Legislative reference:
Subdivision 40-F ITAA97

Prior to 1 October 2004, capital expenditure incurred in acquiring and establishing grape vines 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 depreciated over their effective life, with deductions available from the income year in which the plant's first commercial season starts.

 

B34 Drought investment allowance

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
5 1 - - - - - -
Tax expenditure type:
Deduction
2003 TES code
B43
Commencement date:
1995
Expiry date:
2000
Legislative reference:
Part XII of the ITAA36

Taxpayers were entitled to an immediate deduction of 10 per cent of capital expenditure incurred on drought preparedness assets up to 1 July 2000 (up to a maximum deduction of $5,000). This allowance was in addition to depreciation deductions that can be claimed for the assets.

 

B35 Development allowance

Manufacturing and mining ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
220 200 170 - - - - -
Tax expenditure type:
Deduction
2003 TES code
B44
Commencement date:
1992
Expiry date:
1996
Legislative reference:
Sections 82AAAA to 82AQ ITAA36 and 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.

 

B36 Capital expenditure deduction for mining, quarrying and petroleum operations

Manufacturing and mining ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
30 30 20 20 20 10 10 10
Tax expenditure type:
Accelerated write-off
2003 TES code
B45
Commencement date:
Introduced before 1985
Expiry date:
2001
Legislative reference:
Subdivision 40-B ITAA97 as adjusted by sections 40-35, 40-40 and 40-75 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 but this does not constitute a tax expenditure. However, the deduction will have a transitional impact until all eligible expenditure incurred before 1 July 2001 is fully depreciated.

 

B37 Deduction for patents, designs and copyrights

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
30 30 - - - - - -
Tax expenditure type:
Deduction
2003 TES code
B46
Commencement date:
Introduced before 1985
Expiry date:
2001
Legislative reference:
Former Division 373 ITAA97

Expenditure incurred in obtaining, or seeking to obtain, the registration or extension of a patent, design or copyright was immediately deductible. This deduction is available for expenditure incurred before 1 July 2001.

Expenditure incurred on or after 1 July 2001 can be deducted over the life of the underlying intellectual property but this does not constitute a tax expenditure. However, the deduction will have a transitional impact until all eligible expenditure incurred before 1 July 2001 is fully depreciated.

 

B38 Exploration and prospecting deduction

Manufacturing and mining ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Deduction
2003 TES code
B47
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Subsection 40-80(1) and Section 40-730 ITAA97


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.

 

B39 Deduction for expenditure on environmental impact studies

Manufacturing and mining ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Included in B40
Tax expenditure type:
Accelerated write-off
2003 TES code
B48
Commencement date:
1991
Expiry date:
2001
Legislative reference:
Subdivision 40-B ITAA97 as adjusted by Section 40-55 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 but this does not constitute a tax expenditure. However, the deduction will have a transitional impact until all eligible expenditure incurred before 1 July 2001 is fully depreciated.

 

B40 Deduction for environmental protection activities

Manufacturing and mining ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
13 5 11 8 8 8 8 8
Tax expenditure type:
Deduction
2003 TES code
B49
Commencement date:
1992
Expiry date:
 
Legislative reference:
Subsection 40-75 and 40-760 ITAA97

Note: estimates include tax expenditures B39 and B40.

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.

 

B41 Balancing charge roll-over relief for exploration, mining and quarrying activities

Manufacturing and mining ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Deferral
2003 TES code
B50
Commencement date:
Introduced before 1985
Expiry date:
2001
Legislative reference:
Sections 330-540 and 330-552 ITAA97

Balancing adjustments arising from certain changes in ownership interests in property (including depreciating assets) used for exploration or prospecting for minerals or quarry materials can be rolled over. Such changes include the disposal of an asset within a wholly-owned group or as a result of a marriage breakdown. This roll-over relief results in a deferral of tax.

With the introduction of the uniform capital allowance system on 1 July 2001 this specific treatment is no longer available. The general balancing adjustment roll-over relief (see B49) will provide some of the treatment previously provided by this tax expenditure for depreciable assets.

 

B42 Absence of depreciation recapture for certain assets

Manufacturing and mining ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Deduction
2003 TES code
B51
Commencement date:
Introduced before 1985
Expiry date:
2001
Legislative reference:
Division 43 and Section 110-45 ITAA97

Certain buildings and structures receive deductions that are not recaptured by balancing adjustment on disposal of the asset. Capital gains tax (CGT) cost base reduction rules can have a practical effect that is (when viewed very broadly) similar to a depreciation balancing charge. The cost base of assets acquired after 13 May 1997 needs to be reduced by deductible amounts. These rules also apply to improvement expenditure incurred after 30 June 1999 for land and buildings acquired on or before 13 May 1997.

The rationale for the CGT cost base reduction rules is that expenditure should be deductible for income tax purposes or included in CGT cost base of an underlying asset, but not both.

 

B43 Accelerated depreciation allowance for plant and equipment

Manufacturing and mining ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
1,710 620 -200 -680 -850 -890 -840 -800
Tax expenditure type:
Accelerated write-off
2003 TES code
B52
Commencement date:
1992
Expiry date:
2001
Legislative reference:
Former Division 42 and Subdivision 40-B ITAA97 as adjusted by
Sections 40-10 and 40-12 Income Tax (Transitional Provisions) Act 1997

Note: estimates include tax expenditures B43 and B44.

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 a turnover of $1 million or more per annum on 21 September 1999. This treatment was removed for businesses with an annual turnover of less than $1 million from 1 July 2001. These businesses can opt to enter the simplified tax system from this time and utilise the simplified capital allowances system (see B51).

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. It becomes a negative tax expenditure from 2002-03 because, for investments made before accelerated depreciation was abolished, deductions in coming years will be lower than they would have been under the benchmark as these deductions have already been claimed.

 

B44 Accelerated depreciation for employees' amenities

Manufacturing and mining ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Included in B43
Tax expenditure type:
Accelerated write-off
2003 TES code
B53
Commencement date:
1994
Expiry date:
2001
Legislative reference:
Former Section 42-150 and Subdivision 40-B ITAA97 as adjusted by
Sections 40-10 and 40-12 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 businesses with a turnover of $1 million or more per annum and for individuals on 21 September 1999. This treatment was removed for all other businesses (that is, 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 (see B51). This tax expenditure will have a transitional impact until all eligible plant expenditure has been fully depreciated.

 

B45 Accelerated depreciation for mining buildings

Manufacturing and mining ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
450 400 360 310 260 220 150 50
Tax expenditure type:
Accelerated write-off
2003 TES code
B54
Commencement date:
1982
Expiry date:
2001
Legislative reference:
Former Subdivision 330-C and subdivision 40-B ITAA97 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.

 

B46 Accelerated depreciation for Australian trading ships

Manufacturing and mining ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
-25 -25 -17 -14 -11 -9 -8 -7
Tax expenditure type:
Accelerated write-off
2003 TES code
B55
Commencement date:
Introduced before 1985
Expiry date:
1997
Legislative reference:
Section 53I(2), 57AM ITAA36

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.

 

B47 Statutory effective life caps

Transport and communications ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- - * * 100 150 250 260
Tax expenditure type:
Accelerated write-off
2003 TES code
B56
Commencement date:
2002, 2004
Expiry date:
 
Legislative reference:
Section 40-102 ITAA97

‘Statutory effective life caps’ limit the number of years over which an asset can be depreciated, where a taxpayer could otherwise choose to use the Commissioner of Taxation’s safe harbour effective life. In effect, the caps allow businesses to claim larger capital allowance deductions than those available under the Commissioner's safe harbour effective life determinations. The caps exist for a range of assets, including aircraft and certain assets used in the oil and gas industries (effective from July 2002). In addition, in August 2004, the Australian Government announced that it would also introduce caps for trucks, truck trailers, buses and light commercial vehicles (effective from January 2005). The caps address the broader national interest in the light of large increases in the Commissioner’s safe harbour effective lives that would have significant national economic implications.

 

B48 Depreciation to nil value rather than estimated scrap value

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Deferral
2003 TES code
B57
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Division 40 ITAA97

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.

 

B49 Depreciation balancing adjustment roll-over relief

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Deferral
2003 TES code
B58
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Section 40-340 ITAA97

‘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 within a wholly-owned group or 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, roll-over relief was also available when replacement items of plant and equipment were acquired. This treatment continued to be available to businesses with turnover of less than $1 million until 1 July 2001 (see B52).

 

B50 Depreciation pooling for low-value assets

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
20 50 80 100 110 110 110 110
Tax expenditure type:
Accelerated write-off
2003 TES code
B59
Commencement date:
2000
Expiry date:
 
Legislative reference:
Subdivision 40-E ITAA97

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.

 

B51 The Simplified Tax System

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- 10 430 410 250 230 180 180
Tax expenditure type:
Deduction, deferral, accelerated write-off
2003 TES code
B60
Commencement date:
2001
Expiry date:
 
Legislative reference:
Division 328 ITAA97
The removal of the requirement for STS taxpayers to use cash accounting has not yet been legislated

The Simplified Tax System (STS) provides eligible taxpayers with a simpler means of managing their bookkeeping and income tax compliance requirements. It also allows small business access to a simplified trading stock regime, where, 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. Additionally, the simplified capital allowances system within the STS allows small businesses to immediately write-off purchases costing less than $1,000 and depreciate assets that cost $1,000 or more at accelerated rates under a pooled arrangement. Finally, fuel retailers can exclude sales of petrol, diesel and liquefied petroleum gas from the calculation of turnover.

To enter the STS, businesses must have an average annual turnover of less than $1 million and depreciating assets with a written down value of less than $3 million.

 

B52 Transitional exemption of small business from abolition of accelerated depreciation, balancing charge offset and low-value pooling

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
220 470 -260 -90 -60 -40 * *
Tax expenditure type:
Accelerated write-off
2003 TES code
B61
Commencement date:
1999
Expiry date:
2001
Legislative reference:
Subdivision 42-K ITAA97

For eligible businesses, a range of accelerated depreciation measures that were terminated as of 21 September 1999 were retained until the commencement of the Simplified Tax System on 1 July 2001 (see B51). Eligible businesses were those with three year average annual turnovers of less than $1 million. The measures that continued to apply to these eligible businesses were accelerated depreciation, the balancing charge offset, the pooling of low-value depreciating assets, and the immediate deductibility of plant items costing up to $300.

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 eligible assets acquired between September 1999 and July 2001, by eligible businesses, have been fully depreciated.

 

B53 Research and development tax concession

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
430 460 270 290 310 350 380 400
Tax expenditure type:
Deduction, accelerated write-off
2003 TES code
B62
Commencement date:
1985
Expiry date:
 
Legislative reference:
Sections 73B and 73BA ITAA36

Note: estimates include tax expenditures B22 and B53.


Taxpayers are generally 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.

 

B54 Premium tax concession for additional research and development (R&D) expenditure

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- 20 55 90 90 100 105 115
Tax expenditure type:
Deduction
2003 TES code
B63
Commencement date:
2001
Expiry date:
 
Legislative reference:
Sections 73Q to 73Y ITAA36

Companies that increase certain labour-related components of R&D expenditure are eligible to receive a 175 per cent concession. 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. This deduction has been available since the first income year starting after 30 June 2001.

This tax expenditure was introduced to provide an incentive for those companies that increase their level of expenditure on R&D labour in order to increase the benefits of R&D expenditure flowing to the whole economy.

Further information can be found in Backing Australia’s Ability or at www.innovation.gov.au.

 

B55 Accelerated depreciation for software

Not allocated to function ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
380 405 360 265 95 15 25 70
Tax expenditure type:
Accelerated write-off
2003 TES code
B64
Commencement date:
1998
Expiry date:
 
Legislative reference:
Subdivision 40-E ITAA97

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.

 

B56 Immediate deduction relating to year 2000 upgrades

Not allocated to function ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
130 -70 -65 -65 -40 - - -
Tax expenditure type:
Accelerated write-off
2003 TES code
B65
Commencement date:
1998
Expiry date:
1999
Legislative reference:
Sections 46-1 to 46-110 ITAA97

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 will have a transitional impact until all eligible software acquired between 11 May 1998 and 1 July 1999 is fully depreciated.

 

B57 Immediate deductibility for GST-related plant and software

Not allocated to function ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
185 -50 -40 -35 -10 .. .. ..
Tax expenditure type:
Accelerated write-off
2003 TES code
B66
Commencement date:
2000
Expiry date:
2000
Legislative reference:
Sections 25-80, 42-168 ITAA97

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 will have a transitional impact until all eligible GST-related plant and software is fully depreciated.

 

Tax expenditures relating to prepayments and advance expenditures

B58 Prepayment rule for Simplified Tax System taxpayers and non-business expenditure by individuals

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Deferral
2003 TES code
B67
Commencement date:
2001
Expiry date:
 
Legislative reference:
Section 82 KZM ITAA36

Prepayments by Simplified Tax System (STS) 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 B59), which was previously removed on 21 September 1999 for businesses with a turnover of $1 million or more per annum.

 

B59 Transitional arrangements for prepayments

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
-160 -80 -180 -140 -40 -15 - -
Tax expenditure type:
Deferral
2003 TES code
B68
Commencement date:
1999
Expiry date:
 
Legislative reference:
Division 3 Part III Sections 82 KZMB, KZMC, 82 KZL(1) ITAA36

Prior to 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 5-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. This transitional arrangement allows greater deductions than the benchmark, resulting in a tax expenditure.

 

B60 The 10-year rule for prepayments

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Deferral
2003 TES code
B69
Commencement date:
1988
Expiry date:
 
Legislative reference:
Subsection 82 KZL(1) ITAA36

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 ten years of that period. The benchmark treatment of prepayments is that they are deductible over the period of the expenditure. This allows deductions to be spread over a shorter period and consequently it allows greater deductions than the benchmark treatment.

 

B61 Exemption from the tax shelter prepayments measure for passive investments

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Deferral
2003 TES code
B70
Commencement date:
1988
Expiry date:
 
Legislative reference:
Subsection 82 KZME ITAA36

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, continue to be immediately deductible. This is conditional upon the prepayment expenditure meeting the requirements described in B59. The benchmark treatment of prepayments is that they are deductible over the period of the expenditure. This allows deductions to be spread over a shorter period and consequently it allows greater deductions than the benchmark treatment.

 

B62 Prepayment rule for forestry managed investments

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- - 25 5 - 25 25 30
Tax expenditure type:
Deferral
2003 TES code
B71
Commencement date:
Announced in 2001
Expiry date:
 
Legislative reference:
Subsection 82 KZMG ITAA36

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 requirement described in B59. 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. This allows deductions to be spread over a shorter period and consequently it allows greater deductions than the benchmark treatment.

More information on this concession can be found on the Australian Tax Office website www.ato.gov.au.

 

International tax expenditures

B63 Exemptions for prescribed international organisations

General public services (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Exemption
2003 TES code
B72
Commencement date:
1963
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.

 

B64 Interest withholding tax and dividend withholding tax exemptions for overseas charitable institutions

General public services (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Exemption
2003 TES code
B73
Commencement date:
1936
Expiry date:
 
Legislative reference:
Paragraph 128B(3)(aa) ITAA36

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.

 

B65 Deemed tax credits under tax sparing provisions in Australia's double tax agreements

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
5 5 5 5 .. .. .. ..
Tax expenditure type:
Exemption
2003 TES code
B74
Commencement date:
Date of effect depends on the date of effect of the double tax agreement
Expiry date:
 
Legislative reference:
Provided for in Australia's double tax agreements

The tax sparing provisions in Australia’s double tax agreements 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. The Australian Government has announced that tax sparing will generally not be provided or renewed in future agreements.

 

B66 Exemption for branch profits from income tax

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Exemption
2003 TES code
B75
Commencement date:
1990
Expiry date:
 
Legislative reference:
Section 23AH ITAA36

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. 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. This is similar to the treatment for controlled foreign companies which reduces compliance costs. The exemption for foreign branch profits increases Australia's attractiveness as a base for regional holding companies.

 

B67 Income tax exemption for certain US projects in Australia

Defence ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Exemption
2003 TES code
B76
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Section 23AA ITAA36

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.

 

B68 Interest withholding tax concession on interest payments by Australian branches to foreign banks

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Included in B77
Tax expenditure type:
Concessional rate
2003 TES code
B77
Commencement date:
1994
Expiry date:
 
Legislative reference:
Section 160ZZZJ ITAA36

The notional interest paid to a foreign bank from its Australian branch attracts a reduced interest withholding tax rate. Tax is only paid on half of the taxable amount. The concessional tax rate was introduced as part of policy changes to promote competition in the banking sector by allowing foreign bank branch operations.

 

B69 Deductibility of costs of setting up a regional headquarters

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
.. .. .. .. .. .. .. ..
Tax expenditure type:
Deduction
2003 TES code
B78
Commencement date:
1994
Expiry date:
 
Legislative reference:
Section 82C to CE ITAA36

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’. This deduction is designed to encourage multinational corporations to locate their RHQs in Australia.

B70 Concessional tax treatment of income of offshore banking units

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
85 45 45 50 50 50 50 50
Tax expenditure type:
Concessional rate
2003 TES code
B79
Commencement date:
1992
Expiry date:
 
Legislative reference:
Division 9A ITAA36

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.

B71 Dividend withholding tax exemption for Pooled Development Funds

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
1 1 .. .. .. .. .. ..
Tax expenditure type:
Exemption
2003 TES code
B80
Commencement date:
1992
Expiry date:
 
Legislative reference:
Sections 128B(3)(ba), 124ZM ITAA36

Any unfranked portion (if there is any) of dividends paid by pooled development funds to a shareholder are exempt from tax. In part, this is designed to encourage venture capital investment through Pooled Development Funds.

B72 Threshold exemption for thin capitalisation

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- - 1 1 1 1 2 2
Tax expenditure type:
Deduction
2003 TES code
B81
Commencement date:
2001
Expiry date:
 
Legislative reference:
Sections 820-35 ITAA 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. This tax expenditure alleviates compliance costs by removing the need for smaller taxpayers and those with predominantly Australian assets to comply with the thin capitalisation regime.

The thin capitalisation rules aim to prevent multinational taxpayers allocating a disproportionate amount of debt to their Australian operations. The rules do this by disallowing deductions in relation to excessive debt financing.

 

B73 Concessional tax treatment for foreign authorised deposit-taking institutions (ADIs)

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Concessional rate
2003 TES code
B82
Commencement date:
1993
Expiry date:
2006
Legislative reference:
Sections 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

Banks with ADI authority can transfer a tax loss or a net capital loss from locally incorporated subsidiaries of foreign banks to newly established branches of the foreign parent bank. As a result, such banks can benefit from a reduced tax rate. The deadline to effect any subsequent transfer of assets and liabilities was extended from 30 June 2004 to 30 June 2006.

 

B74 Exemption of non-portfolio dividends from income tax

Not allocated to function ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
140 90 70 80 90 90 100 110
Tax expenditure type:
Exemption
2003 TES code
B83
Commencement date:
1990
Expiry date:
 
Legislative reference:
Section 23AJ ITAA36

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. This exemption forms part of a systemic solution to the treatment of conduit income for Australian companies which have foreign shareholders. The non-portfolio dividend exemption enables Australian companies and their controlled foreign companies to obtain more attractive rates of return from their operations in foreign markets, improving their ability to attract capital. This exemption removes the taxation disincentives for Australian companies wishing to repatriate profits.

B75 Exemption from accrual taxation for controlled foreign companies (CFCs)

Not allocated to function ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Exemption
2003 TES code
B84
Commencement date:
1990
Expiry date:
 
Legislative reference:
Sections 384-5 ITAA36

Most tainted income derived by controlled foreign companies 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 controlled foreign companies that derive more than 95 per cent of their income from genuine business activities. Such exemptions reduce compliance costs for businesses without compromising the purpose of the controlled foreign companies rules.

B76 Exemption from accrual taxation for transferor trusts

Not allocated to function ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Exemption
2003 TES code
B85
Commencement date:
1990
Expiry date:
 
Legislative reference:
Paragraph 102AAU(1)(b) ITAA36

The transferor trust rules are intended to prevent Australian residents from deferring tax on income earned in offshore trusts. 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. Accruals taxation would normally be applied to the transferor.

B77 Exemption from interest withholding tax on widely held debentures

Not allocated to function ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
670 740 810 650 550 600 660 730
Tax expenditure type:
Exemption
2003 TES code
B86
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Section 128F and 128FA ITAA36

Note: estimates include tax expenditures B68 and B77.


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.

 

B78 Exempt distributions of capital gains to non-resident beneficiaries by Australian fixed trusts

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- - - - * * * *
Tax expenditure type:
Exemption
2003 TES code
New
Commencement date:
Date of Royal Assent
Expiry date:
 
Legislative reference:
Not yet legislated

Distributions of capital gains to foreign resident beneficiaries of Australian fixed trusts are exempt from tax. Such gains are disregarded if the gain relates to an asset without the necessary connection to Australia.

This ensures a comparable tax outcome irrespective of whether the foreign resident held the underlying assets directly or through an Australian fixed trust.

 

B79 Capital gains treatment of trust distributions of non-assessable income to non-resident beneficiaries

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- - - - * * * *
Tax expenditure type:
Exemption
2003 TES code
New
Commencement date:
Date of Royal Assent
Expiry date:
 
Legislative reference:
Not yet legislated

Foreign source income distributed to a foreign resident beneficiary of a trust is exempt from tax.

This ensures a comparable tax outcome irrespective of whether the foreign resident invests directly in assets generating foreign source income or via an Australian trust.

 

B80 Exemption for foreign source income of funds management trusts to which non-residents are beneficially entitled

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- - - - * * * *
Tax expenditure type:
Exemption
2003 TES code
New
Commencement date:
Date of Royal Assent
Expiry date:
 
Legislative reference:
Not yet legislated

Normally the foreign income of a non-resident is not taxable in Australia. This exemption ensures that the non-resident beneficiaries of a funds management trust with a permanent establishment in Australia are not taxable in Australia on their share of the foreign source income of the trust.

Under Australia's tax treaties, income attributable to a permanent establishment can be taxed in Australia. In the case of trusts, where a non-resident beneficiary of a trust is entitled to the income of the trust then the beneficiary is deemed to have a permanent establishment in Australia if the trustee has a permanent establishment in Australia.

To assert the right to tax this income under the treaty would deter non-residents from investing in Australian based managed funds with offshore activities.

 

Tax expenditures for agriculture, forestry and fishing

B81 Income tax averaging for primary producers

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
175 280 220 190 190 * * *
Tax expenditure type:
Concessional rate
2003 TES code
B11
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Division 392 ITAA97

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 2004-05 are not reported as the tax expenditure is very sensitive to variations in primary production income, which depends on a number of external factors.

More information on this concession can be found on the Australian Taxation Office website, www.ato.gov.au.

 

B82 Farm Management Deposit scheme

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
50 150 410 250 70(p) * * *
Tax expenditure type:
Deferral
2003 TES code
B19
Commencement date:
1999
Expiry date:
 
Legislative reference:
Schedule 2G, Division 393 ITAA36

(p) Preliminary estimate only for 2004-05 due to data limitations.


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 $300,000. 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.

The growth in the estimates to 2002-03 reflects increased investments by primary producers. The decline in 2003-04 and 2004-05 reflects falling deposits and an increase in withdrawals relative to 2002-03. Projections beyond 2004-05 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.

More information on this concession can be found on the Australian Tax Office website www.ato.gov.au

 

B83 Deferral of income from double wool-clips

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Deferral
2003 TES code
B12
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Section 385-130 ITAA97

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.

 

B84 Spreading of income from insurance recoveries for loss of timber or livestock

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Deferral
2003 TES code
B13
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Section 385-130 ITAA97

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.

B85 Deferral or spreading of income from the forced disposal or death of livestock

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Deferral
2003 TES code
B14
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Section 385-90 to 385-125 ITAA97

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 to 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).

 

B86 Valuation of livestock from natural increase

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
290 190 85 105 140 * * *
Tax expenditure type:
Concessional rate
2003 TES code
B15
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Section 70-55 ITAA97

Animals acquired by natural increase (that is, newborn animals) as 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.

More information can be found on the Australian Taxation Office website www.ato.gov.au.

 

B87 Transitional trading stock rules for oyster farmers

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- .. - - - - - -
Tax expenditure type:
Concessional rate
2003 TES code
B16
Commencement date:
2001
Expiry date:
2002
Legislative reference:
Section 70-41 of the Income Tax (Transitional Provisions) Act 1997

Oyster farmers are required to account for oysters on hand as trading stock. This includes oysters held on sticks or in trays, or harvested and held ready for sale. A transitional arrangement in 2001-02 allowed such farmers to apply an opening stock valuation based on the ‘per stick’ designated value. This provided a concession relative to the benchmark valuation — the closing stock value of the previous year. Normal trading stock rules applied after the 2001-02 income year.

More information is available on the Australian Taxation Office website www.ato.gov.au.

 

B88 Income tax exemption for Dairy Exit Program payments

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- 1 1 .. - - - -
Tax expenditure type:
Exemption
2003 TES code
B17
Commencement date:
2000
Expiry date:
2002
Legislative reference:
Paragraph 118-37(1)(e) ITAA97

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. The DEP is part of the Dairy Industry Adjustment Package which aims to help dairy farmers in the transition to a deregulated market from 1 July 2000.

Further information may be found on the Centrelink website www.centrelink.gov.au.

 

B89 Exemption of Sugar Industry Exit grants

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- - - 1 3 25 9 4
Tax expenditure type:
Exemption
2003 TES code
B20
Commencement date:
Announced in 2003
Expiry date:
 
Legislative reference:
Not yet legislated

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. This expenditure aims to provide assistance to cane growers whose business is no longer viable and who need additional help in making the transition to new employment.

 

Tax expenditures for manufacturing and mining

B90 Infrastructure Bonds Scheme

Manufacturing and mining ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
60 25 20 20 20 20 15 5
Tax expenditure type:
Exemption, offset
2003 TES code
B21
Commencement date:
1992
Expiry date:
1997
Legislative reference:
Division 16L ITAA36

Interest income from loans to eligible infrastructure facilities is exempt from income tax but 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.

B91 Land Transport Infrastructure Borrowings Tax Offset Scheme

Manufacturing and mining ($m)

Agriculture, forestry and fishing ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
15 20 20 25 15 10 5 5
Tax expenditure type:
Offset
2003 TES code
B22
Commencement date:
1998
Expiry date:
 
Legislative reference:
Section 396-5 to 396-110 ITAA97

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. The objective of the offset is to encourage genuine private sector investment in public land transport infrastructure by reducing financing costs associated with infrastructure projects.

In the 2004-05 Budget the Australian Government announced that the scheme would be phased down. All projects that currently receive assistance, or are subject to an ongoing approval process, will continue to receive assistance. However no new projects will be considered.

 

B92 Increased deduction for petroleum exploration expenditure in designated offshore frontier areas

Fuel and energy ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- - - - - 2 6 9
Tax expenditure type:
Deduction
2003 TES code
New
Commencement date:
29 March 2004
Expiry date:
2008
Legislative reference:
Schedule to the Petroleum Resource Rent Tax Assessment Act 1987

Petroleum exploration companies receive a 150 per cent uplift on pre-appraisal exploration expenditure conducted in the first term of an exploration permit in a Designated Frontier Area. This is designed to encourage petroleum exploration in Australia’s remote offshore areas in order to increase the chances of a new petroleum province being discovered.

 

Miscellaneous tax expenditures

B93 Exemption from non-commercial losses provisions (primary producers and artists)

Not allocated to function ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
- 150 85 90 90 90 95 95
Tax expenditure type:
Exemption
2003 TES code
B87
Commencement date:
2000
Expiry date:
 
Legislative reference:
Subsections 35-10(4) and (5) ITAA97

Primary producers and artists with other assessable income of less than $40,000 are exempt from the non-commercial losses provisions. These provisions allow a loss to be claimed where a business activity, by its nature, has particular lead time characteristics and is in its start-up phase. This exemption allows an immediate deduction for losses from primary production and art businesses that are of a non-commercial nature.

 

B94 Deduction for certain co-operative companies

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
*

*

* * * * * *
Tax expenditure type:
Deduction
2003 TES code
B88
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Sections 117, 120 ITAA36


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.

 

B95 Transitional tax exemption for certain life insurance management fees

Not allocated to function ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
180

270

240 240 240 - - -
Tax expenditure type:
Exemption
2003 TES code
B90
Commencement date:
2000
Expiry date:
2005
Legislative reference:
Section 320-40 ITAA97


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 will cease to apply to amounts that become specified management fees after 30 June 2005.

The rationale for the exemption is that a full tax deduction is not allowed for policy acquisition expenses to the extent that associated management fees are not taxed at the company tax rate. These acquisition expenses are recovered from fees charged on the policy in its initial years – fees that will now be taxed at the company tax rate.

 

B96 Income tax exemption for State and Territory bodies

Not allocated to function ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
*

*

* * * * * *
Tax expenditure type:
Exemption
2003 TES code
B91
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Part III Division 1AB ITAA36


The income of all non-excluded State and Territory bodies is exempt from income tax. Excluded State and Territory bodies include, but are not limited to, State Government insurance organisations and superannuation funds.

 

B97 Income tax exemption for municipal authorities and other local governing bodies

Not allocated to function ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
*

*

* * * * * *
Tax expenditure type:
Exemption
2003 TES code
B92
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Section 50-25 ITAA97


The income of municipal corporations or authorities and local governing bodies is exempt from income tax. This exemption includes the local governing bodies in Norfolk, Cocos (Keeling) and Christmas Islands.

 

B98 Transitional arrangements and small business exemption from the debt/equity tax rules for related party 'at call' loans

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
-

-

- - * * * *
Tax expenditure type:
Deduction
2003 TES code
New
Commencement date:
2001
Expiry date:
 
Legislative reference:
Sebsection 974-75(4) ITAA97


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 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).

Under a transitional provision in the debt/equity rules, related party at call loans entered into on or after 21 February 2001 are taken to be debt interests until 30 December 2002. An extension of this transitional provision (not yet legislated) prolongs the exception until 30 June 2005. The Australian Government has also announced that related party at call loans of certain small businesses will continue to be treated as debt interests after 30 June 2005 (not yet legislated).


7 Personal income tax expenditures are generally grouped according to their functional group. However, tax expenditures that relate to employment-related expenses are grouped separately.

8 Business income tax expenditures are generally grouped according to their functional group. However, tax expenditures that relate to capital expenditures, prepayments and international taxation have been grouped separately. In addition, business income tax expenditures for agriculture, forestry and fishing are also reported under ‘Tax expenditures relating to capital expenditure, effective life and depreciation’.

9 RIMGROUP is the model used by Treasury’s Retirement and Income Modelling Unit to project superannuation fund contributions, earnings and payouts as well as related retirement income, social security and taxation aggregates.

10 Income is defined as assessable income plus reportable fringe benefits.

 

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