Commonwealth Numbered Acts

TAXATION LAWS AMENDMENT ACT (No. 2) 1996No. 76, 1996 - SCHEDULE 1

Schedule 1-Amendment of the Income Tax Assessment Act 1936:
various measures
Part 1-Offshore banking units 1 Section 121C (definition of assessable OB
income) Omit "subsection 121EE(2)", substitute "subsections 121EE(2) and
(3A)". 2 Section 121C Insert:
Australian thing has the meaning given by subsection 121DA(5). 3 Section 121C
Insert:
average Australian asset percentage has the meaning given by subsection
121DA(2). 4 Section 121C Insert:
monthly Australian asset percentage has the meaning given by subsection
121DA(3). 5 Section 121C Insert:
portfolio investment has the meaning given by subsection 121DA(1). 6 Paragraph
121D(1)(e) After "subsection (6)", insert "or (6A)". 7 Paragraphs 121D(2)(a)
and (b) After "applies", insert "and is not an OBU". 8 Subsection 121D(6)
After "making", insert "(but not managing)". 9 Subsection 121D(6) Omit ", or
so making and managing such an investment". 10 After subsection 121D(6)
Insert: Investment activity-portfolio investment

(6A) For the purposes of paragraph (1)(e), an investment activity is also the
managing by an OBU of a portfolio investment (see subsection 121DA(1)) for the
whole or part (the investment management period) of a year of income, where:

   (a)  the portfolio investment is managed as broker or agent for, or trustee
        for the benefit of, a non-resident; and

   (b)  the portfolio investment was made by the OBU; and

   (c)  the portfolio investment was made with a non-resident (except to the
        extent that making the investment consisted of making a loan or
        purchasing an Australian thing); and

   (d)  the currency in which the portfolio investment was made was not
        Australian currency; and

   (e)  if the portfolio investment consists of only a single thing-the thing
        is not an Australian thing (see subsection 121DA(5)); and

   (f)  if paragraph (e) does not apply-the average Australian asset
        percentage (see subsection 121DA(2)) of the portfolio investment is
        not more than 10%. 11 After section 121D Insert: 121DA Meaning of
        expressions relevant to investment activity Portfolio investment

(1) If, under a contract or trust instrument, an OBU manages one or more
investments as broker or agent for, or trustee for the benefit of, a
non-resident, the investment, or all of the investments, constitute a
portfolio investment. Average Australian asset percentage

(2) The average Australian asset percentage of a portfolio investment is the
average, for all months that wholly or partly fall within the investment
management period (see subsection 121D(6A)), of the monthly Australian asset
percentages (see subsection (3)) of all of the things comprising the portfolio
investment. Monthly Australian asset percentage

(3) For the purposes of subsection (2), the monthly Australian asset
percentage of the things for a month is the percentage of the total value of
all of the things comprising the portfolio investment, for the month, that is
represented by the value of Australian things. Basis for working out
percentage

(4) The percentage in subsection (3) must be worked out according to
reasonable accounting practice that applies on the same basis for all months
falling wholly or partly within the investment management period. Australian
thing

(5) A thing is an Australian thing at a particular time if:

   (a)  where the thing is a share in a company-the company is a resident
        company at the time; or

   (b)  where the thing is a unit in a unit trust-the unit trust is a resident
        trust (within the meaning of section 102Q) in relation to the year of
        income in which the time occurs; or

   (c)  where the thing is land or a building-the land or building is in
        Australia; or

   (d)  where the thing is a loan-the loan was made to an Australian resident;
        or

   (e)  in any other case-the thing is located in Australia at the time. 12
        Subsection 121EE(2) Omit "The", substitute "Subject to subsection
        (3A), the". 13 After subsection 121EE(3) Insert: Reduction of
        assessable OB income because of certain investment activities

(3A) If OB activities of the OBU or the part of the OBU to which paragraph
121EB(1)(c) applies include an investment activity within the meaning of
subsection 121D(6A), any assessable income derived from the investment
activity that would otherwise be taken into account under subsection (2) is
reduced by the average Australian asset percentage (within the meaning of
subsection 121DA(2)) of the portfolio investment concerned. 14 At the end of
section 121EI Add: No deduction if foreign tax credit is available

(2) However, foreign tax paid by the OBU on those amounts is not an allowable
deduction if the OBU is entitled to a credit under Division 18 in respect of
the foreign tax. Note: The following heading to subsection 121EI(1) is
inserted: "Deduction for foreign tax". 15 Paragraph 121EL(c) Omit "of a kind
to which subsection 121D(6) applies", substitute "covered by subsection
121D(6) or (6A)". 16 Paragraphs 121EL(d) and (e) Omit "such investment
activities", substitute "an investment activity covered by subsection
121D(6)". 17 At the end of section 121EL Add:
; and (f) any income of the trust estate derived from an investment activity
covered by subsection 121D(6A) is exempt from income tax, in so far as the
income exceeds the average Australian asset percentage (within the meaning of
subsection 121DA(2)) for the portfolio investment concerned; and

   (g)  if, apart from this section, a capital gain would accrue to, or a
        capital loss would be incurred by, the trust estate under Part IIIA in
        respect of the disposal of any asset in the course of, or in
        connection with, an investment activity covered by subsection
        121D(6A)-only the average Australian asset percentage (for the
        portfolio investment concerned) of the gain so accrues, or of the loss
        is so incurred. 18 Subsection 128AE(1) Insert:
offshore gold borrowing means borrowing gold from an offshore person within
the meaning of section 121E. 19 Subsection 128AE(1) Insert:
tax exempt gold means gold that is tax exempt gold under this section. 20
Subsection 128AE(4) After "offshore borrowing" (wherever occurring), insert
"or offshore gold borrowing". 21 Subsections 128AE(4), (5), (7), (8), (9) and
(11) After "tax exempt loan money" (wherever occurring), insert "or tax exempt
gold". 22 Subsection 128AE(8) After "an amount", insert "of money or gold". 23
Subsections 128AE(9) and (11) After "offshore borrowing" (wherever occurring),
insert "or an offshore gold borrowing". 24 Subsection 128GB(1) Repeal the
subsection, substitute:

(1) This section applies to:

   (a)  interest paid by a person in respect of an offshore borrowing of the
        person; or

   (b)  interest consisting of gold paid by a person in respect of an offshore
        gold borrowing of the person; if, when the borrowing took place, the
        person was an offshore banking unit (whether or not the person is
        still an offshore banking unit when the interest is paid). 25
        Subsection 128GB(3) After "offshore borrowing" (wherever occurring),
        insert "or offshore gold borrowing". 26 Subsection 128GB(4)
        (definition of offshore loan) After "a loan", insert "of money or
        gold". 27 Section 128NB After "tax exempt loan money" (wherever
        occurring), insert "or tax exempt gold". 28 Paragraph 128NB(1)(b)
        After "offshore borrowing", insert "or offshore gold borrowing". 29
        Application

(1) The amendments made by items 1 to 17 apply to assessments of income of the
1996-97 year of income and of all later years of income.

(2) The amendments made by the other items in this Part apply to interest paid
by an OBU during the 1996-97 year of income and all later years of income.
Part 2-Complying funds: expenses of investing in pooled
superannuation trusts or life assurance policies 30 After section 279D Insert:
279E Expenses of investing in pooled superannuation trusts or life assurance
policies

(1) This section applies if a complying superannuation fund incurs expenditure
in acquiring, holding or disposing of, or otherwise in relation to, an
investment consisting of:

   (a)  units in a PST; or

   (b)  life assurance policies issued by a life assurance company or a
        registered organisation; or

   (c)  an interest in a trust whose assets consist wholly of life assurance
        policies issued by a life assurance company or a registered
        organisation.

(2) In determining whether a deduction is allowable from the assessable income
for the expenditure, it is to be assumed that:

   (a)  any profit or gain of a capital nature that the fund would derive in
        respect of the investment would instead be of an income nature; and

   (b)  paragraph 26AH(7)(b) and section 282A (which deal with excluding
        bonuses from assessable income) had not been enacted. 31 After section
        289 Insert: 289A Expenses of investing in pooled superannuation trusts
        or life assurance policies

(1) This section applies if a complying ADF incurs expenditure in acquiring,
holding or disposing of, or otherwise in relation to, an investment consisting
of:

   (a)  units in a PST; or

   (b)  life assurance policies issued by a life assurance company or a
        registered organisation; or

   (c)  an interest in a trust whose assets consist wholly of life assurance
        policies issued by a life assurance company or a registered
        organisation.

(2) In determining whether a deduction is allowable from the assessable income
for the expenditure, it is to be assumed that:

   (a)  any profit or gain of a capital nature that the fund would derive in
        respect of the investment would instead be of an income nature; and

   (b)  paragraph 26AH(7)(b) and section 291A (which deal with excluding
        bonuses from assessable income) had not been enacted. 32 Application
        The amendments made by this Part apply to assessments for the year of
        income in which 1 July 1988 occurred and all later years of income.
Part 3-Deductions for gifts 33 Subsection 78(3) (after the entry relating to
Australian Sports Foundation) Insert:
    Borneo Memorials Trust Fund        (4) - Table 5, item 5.2.9
34 Subsection 78(3) (after the entry relating to Brisbane RAAF Memorial Fund)
Insert:
Central Synagogue Restoration Fund

(4) - Table 5, item 5.2.8 35 Subsection 78(4) (at the end of Table 5) Add:
    5.2.8    The Central Synagogue Restoration Fund

the gift must be made after 22 December 1995 and
before 23 December 1997
    5.2.9    The Borneo Memorials Trust Fund

the gift must be made after 22 December 1995 and
before 23 December 1997
Part 4-Repeal of section 261 36 Section 261 Repeal the section. 37 Application
The repeal applies to mortgages entered into after 27 June 1996.
Part 5-Taxation of income derived from sources outside Australia 38 After
subsection 160AFB(5) Insert:

(5A) Despite paragraph (4)(b) and subsection (5), in determining for the
purposes of this section:

   (a)  whether a company has a voting interest in another company; and

   (b)  the extent of that interest; any appointment of a liquidator in
        respect of the other company is to be disregarded. 39 Subparagraph
        160ZZO(2D)(b)(ii) Omit "taxable Australian roll-over asset",
        substitute "taxable Australian asset". 40 Section 419 (subparagraph
        (i) of the paragraph (1)(a) substituted by that section for paragraph
        160ZZO(1)(a)) Omit all the words before sub-subparagraph (A),
        substitute:

        (i)    a company (the transferor) that is a CFC, and a resident of a
               listed country, at a particular time disposed of an asset (a
               roll-over asset) at that time to another company (the
               transferee), where any of the following sub-subparagraphs
               apply: 41 Section 419 (sub-subparagraph (C) of subparagraph (i)
               of the paragraph (1)(a) substituted by that section for
               paragraph 160ZZO(1)(a)) Before "asset", insert "roll-over". 42
               Section 419 (subparagraph (ii) of the paragraph (1)(a)
               substituted by that section for paragraph 160ZZO(1)(a)) Omit
               "an asset", substitute "a roll-over asset". 43 Subsection
               529(2) Repeal the subsection, substitute:

(2) If foreign investment fund income accrued to a taxpayer to whom this
section applies from a FIF or a FLP in respect of a notional accounting period
of the FIF or FLP, the taxpayer's assessable income of the year of income in
which the notional accounting period ended includes:

   (a)  if the taxpayer was a resident throughout the whole of the notional
        accounting period-the foreign investment fund income; or

   (b)  if the taxpayer was a resident throughout a part or parts of the
        notional accounting period-so much of the foreign investment fund
        income as is worked out using the formula:
Foreign investment fund income x Number of days of residence
Total number of days In the formula in paragraph (b):
foreign investment fund income means the amount of the foreign investment fund
income that accrued to the taxpayer from the FIF or FLP in respect of the
notional accounting period.
number of days of residence means the number of days in the notional
accounting period throughout which the taxpayer was a resident.
total number of days means the number of days in the notional accounting
period. 44 Paragraph 530(1)(a) Repeal the paragraph, substitute:

   (a)  a FIF attribution account payment is made by a FIF or a FLP to a
        taxpayer during a notional accounting period of the FIF or FLP, as the
        case may be; and 45 Paragraph 530(1)(b) After "FIF", insert "or FLP".
        46 After paragraph 530(1)(c) Insert:

   (ca) was included in the taxpayer's assessable income of the year of income
        that immediately preceded the year of income referred to in paragraph
        (b); or 47 Application

(1) The amendment made by item 38 is taken to have applied to assessments in
respect of income of the 1987-88 year of income and later years of income.

(2) The amendments made by items 39, 40, 41 and 42 apply to disposals of
assets that occurred or occur after 2 April 1992.

(3) The amendment made by item 43 applies to assessments in respect of income
of the 1996-97 year of income and later years of income.