TAX LAWS AMENDMENT (2007 MEASURES NO. 2) BILL 2007
Mr CADMAN (Mitchell) (10.16 a.m.)—The Tax Laws Amendment (2007 Measures No. 2) Bill 2007 contains multiple changes to the tax act. There are seven or eight effective ones. Some are technical, but most of them deal with specific areas that the government has given attention to, either to simplify or to extend current provisions and concessions.
Mr CADMAN (Mitchell) (10.16 a.m.)—The Tax Laws Amendment (2007 Measures No. 2) Bill 2007 contains multiple changes to the tax act. There are seven or eight effective ones. Some are technical, but most of them deal with specific areas that the government has given attention to, either to simplify or to extend current provisions and concessions. They include the effective life provisions, the taxation of boating activities, certain expenditure on research and development activities, donations of listed shares to deductible gift recipients, deductible gift recipients, deductions of contributions related to fundraising events, technical amendments, and provision relating to venture capital, which were dealt with by the previous speaker. I will run through them briefly, spending some time on the taxation of boating activities and more time on the donations and deductions for deductible gift recipients.
The boating provisions are very sensible. This area has been a problem for the boating industry for some time. I have examined the changes carefully. I am concerned that there is a temptation for boat owners to mix business with pleasure. It is very difficult for the tax office to determine where the line between the two should be. Under these provisions, there are changes to deductions and there are two exceptions. There is a general rule relating to the capping of deductions for income earned. Amounts attributable to a specific type of boating business or amounts incurred in providing fringe benefits are not quarantined. The quarantined amount is modified for taxpayers who have boating capital gains, have profits from a boating business in an income year, derive exempt income and become exempt.
For anybody involved in the boating industry, I believe that the examples in the explanatory memorandum are essential reading, because it is only by looking at those specific examples that it is possible to delve behind the intention of the act. I want to compliment the tax office for providing clear examples in this case. These include proposals for using or holding a boat and what it can be used for. For instance, the advertising by a boat owner of his business on the side of the boat may or may not be deductible. It depends on the methods used by the boat owner for gaining income. If his income is derived solely from a business separate from the boat, of course the advertising itself on the boat may be deductible. But if the boat itself is used to raise funds and not just as a form of advertising but as a form of earning income, then of course a different arrangement applies to taxation.
The apportionment of the deductions that partly relate to using or holding a boat are outlined in further examples. There are exceptions to the quarantining rule and there are modifications to the quarantining rule contained in the bill before the House. Part of the legislation covers the way in which profits can be dealt with or the way in which profits and losses can be carried forward. Another section of the legislation deals with owners who own multiple numbers of boats. Some may be solely related to fishing or business; others may be for pleasure. The bill clearly sets out the conditions that apply. Interestingly, the cost to revenue of these measures is approximately $5 million or $6 million per annum, and I believe they will be greatly beneficial to the boating industry.
There is provision in the legislation for expenditure on research and development activities. The new law is interesting and it provides a number of corrections. They are small changes to the existing concessions for research and development of any type, but the legislation also provides some additional benefits, such as the offset in the year in which entitlement is made. Currently, there is no provision for a company to choose the R&D tax offset by amending their original tax return. That has now changed in this bill. Currently the R&D concession has a general exemption to the $20,000 minimum spend rule for contracted expenditure to a registered research agency on behalf of a company. This exception does not apply if the R&D tax offset is claimed. So that is a further change in this current legislation.
The main area of particular interest to me—and, I believe, the public at large—is the encouragement that this bill offers for philanthropy. I think this is an area that government needs to pay attention to. I know that there have been considerable efforts made by the government to have The Prime Minister’s Community Business Partnership group examine in particular the way in which philanthropy can be encouraged. I believe it is an avenue that needs careful attention. I think it can be easily extended to schools in general and to church and charity groups, which perform functions which are of a charitable nature. There should be an extension of the provisions of deductibility for gifts to charitable organisations of all types; I do not think the range is broad enough and I believe the community would benefit greatly. Indeed, the social welfare bill would be reduced if we were to do this. I think charitable organisations generally are much more effective at providing support and services to those in need than government mechanisms. This proposal does extend philanthropy. I believe that it needs further examination and that philanthropy needs to be greatly encouraged.
The context of these amendments is that the income tax law encourages philanthropy through a range of taxation measures covering the donation to deductible recipients of money or property valued at $2 or more. Those gifts are deductible. Currently, gifts of property to DGRs, the tax deductible gift recipient group, which can include shares, are tax deductible if the property is purchased during the 12 months before making the gift or is valued by the Commissioner of Taxation at more than $5,000. Gifts of property, including shares, acquired at least 12 months before making the donation and valued at $5,000 or less are currently not tax deductible. The new measure was announced in the 2006-07 budget and applies to gifts and contributions made in an income year commencing on or after royal assent. So it brings forward the capacity to make deductions in the current income year.
The new law provides that taxpayers gifting shares deduct the market value of the shares on the day they make the gift, provided that the shares were acquired at least 12 months before before making the gift, have a share value of $5,000 or less, were acquired in a listed public company and are listed for quotation on the official list of the Australian Stock Exchange. So there is the protection for revenue: making sure the shares are acquired in a listed public company and making sure a full quotation is available. The capital gains provisions are something that sneak in here, because it is obvious that the tax office would not like to see somebody make a capital gain and then avoid their responsibility for paying by making a donation or a gift to a charitable organisation. Again, we have examples. I will read one briefly. This is example 4.2 in the explanatory memorandum:
Mark wishes to gift $3,000 of shares in Red Ltd and $4,000 of shares in Blue Ltd, both listed public companies, to a DGR. Both of these parcels of shares were purchased more than 12 months ago. Mark signs and submits two share ownership transfer forms.
Although their combined value exceeds $5,000, Mark can still deduct the gifts of shares as they are treated as separate gifts each valued at $5,000 or less.
There is a whole series of examples about the way in which this law may apply to gifts of shares. I think it is an excellent provision and one that needs to be promoted by charitable institutions and organisations. I think this is a ready source of income for these groups that they should be seeking out. I would encourage donors to actively consider whether or not a gift of shares is an appropriate way in which to make their support for an organisation known and recognised. There is no need to cash things out. There is no need to go into all the problems of finding out what shares are worth and going through the sale process with its costs. A simple transfer is what is proposed by this legislation.
The other interesting provision is the provision for tax deductibility for contributions relating to fundraising events. This tax deductibility provision is an interesting one. I will read schedule 6.1 here:
The deduction is available where the value of the contribution is more than $150 (the current threshold is more than $250), and the minor benefit received in return is no more than $150 (currently $100) and 20 per cent (currently 10 per cent) of the value of the contribution, whichever is the less.
This means that, for fundraising events, all sorts of things can be done to support a charity. Again, there is an example which illustrates this. Example 6.1 says:
Anthony pays $260 to attend a charity golf day, hosted by a DGR. The market value of an 18-hole golf game is $50. As the market value of the golf game is less than $150 and less than 20 per cent of the value of his contribution ($260), Anthony can deduct $210 ($260 less $50).
Without the amendments to the thresholds, Anthony would not be entitled to a deduction as the market value of the minor benefit, the golf game ($50), is more than 10 per cent of the value of his contribution ($260 × 10 per cent = $26).
This is a great encouragement for charities of all sorts, for schools, for the Scouts and Guides, for people holding art shows and all sorts of activities. It is a wonderful way of encouraging people to make minor contributions, whether they be football jumpers or whatever—a host of things can be contributed to a charity. There is even the contribution of attending a charity golf day, as illustrated by the explanatory memorandum. Clearly there are advantages to the taxpayer but particularly to the organisation, the DGR. I commend this legislation to the House. It covers a wide range of important issues. I think they are good measures.
Author: Alan Cadman MP
Source: House Hansard - 9th May 2007
Release Date: 9 May 2007