Chapter 3: Tax expenditures

3.6 Income tax benchmark

Business income

Tax expenditures for general public services

B1 Denial of deductions by businesses for political donations

General public services - Legislative and executive affairs ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	*	*	*	*	*	*
Tax expenditure type:		Denial of deduction				2009 TES code:	B103
Estimate Reliability:		Not Applicable				* Category	1-
Commencement date:		1 July 2008				Expiry date:
Legislative reference:		Section 26-22 of the Income Tax Assessment Act 1997

Business taxpayers are prevented from claiming general deductions for gifts or contributions to political parties, independent members and independent candidates.

B2 Exemption for certain payments made out of the National Guarantee Fund

General public services - Financial and fiscal affairs ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	-	-	-	-	-	-
Tax expenditure type:		Exemption				2009 TES code:	B1
Estimate Reliability:		Low
Commencement date:		2003				Expiry date:
Legislative reference:		Taxation Laws (Clearing and Settlement Facility Support) Act 2004

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

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

B3 Income tax exemption for Commonwealth, State and Territory public authorities, and State and Territory entities

Other purposes - General purpose inter-governmental transactions ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2009 TES code:	B110
Estimate Reliability:		Not Applicable				* Category	4+
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Part III Division 1AB of the Income Tax Assessment Act 1936 Items 5.2 and 5.3 in the table in section 50-25 of the Income Tax Assessment Act 1997

Generally, Government bodies that perform a Governmental or regulatory function are exempted from income tax, including public authorities of the Commonwealth, States and Territories, and State and Territory bodies. Companies wholly owned by States and Territories and constitutionally protected funds of States and Territories are also exempted from income tax.

While companies owned wholly by States and Territories are not subject to Commonwealth income tax, the operation of the National Tax Equivalent Regime (NTER), which is an administrative arrangement between the Commonwealth and the States and Territories, ensures that these entities do not gain a competitive advantage over non-Government providers.

B4 Income tax exemption for local government bodies

Other purposes - General purpose inter-governmental transactions ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
710	700	700	760	820	880	950	1,000
Tax expenditure type:		Exemption				2009 TES code:	B109
Estimate Reliability:		Medium
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Item 5.1 in the table in section 50-25 Income Tax Assessment Act 1997

Local government bodies and municipal corporations are exempt from income tax. This exemption includes the local governing bodies in Norfolk, Cocos (Keeling) and Christmas Islands.

International tax expenditures

B5 Exemptions for prescribed international organisations

General public services - Foreign affairs and economic aid ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2009 TES code:	B2
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1963				Expiry date:
Legislative reference:		Section 6 of the International Organisations (Privileges and Immunities) Act 1963

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

B6 Interest withholding tax and dividend withholding tax exemptions for overseas charitable institutions

General public services - Foreign affairs and economic aid ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2009 TES code:	B3
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1936				Expiry date:
Legislative reference:		Paragraph 128B(3)(aa) of the Income Tax Assessment Act 1936

Interest and dividends received by certain overseas charitable institutions are exempt from the interest and dividend withholding tax, respectively. This exemption only applies where the institutions are exempt from tax in their home country.

B7 Reduced withholding tax under international tax treaties

General public services - Foreign affairs and economic aid ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
390	360	300	410	430	450	470	500
Tax expenditure type:		Exemption, Concessional rate				2009 TES code:	B4
Estimate Reliability:		Low
Commencement date:		2008				Expiry date:
Legislative reference:		International Tax Agreements Act 1953

Tax treaties reduce or eliminate double taxation caused by the exercise of source and residence country taxing rights on cross border income flows. Under some of Australia's tax treaties, certain dividends, interest and royalties attract reduced withholding tax rates. These include interest withholding tax exemptions for financial institutions and Governments and reduced dividend withholding tax rates where dividends are paid to companies with controlling interests in the companies paying the dividends, provided that certain integrity measures are satisfied.

The reductions are bilateral, thereby ensuring that withholding taxes will not result in unrelieved double taxation either for those foreign enterprises investing in Australia from treaty partner countries, or for Australian enterprises investing abroad in treaty partner countries.

B8 Income tax exemption for persons connected with certain US Government projects in Australia

Defence ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2009 TES code:	B5
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Section 23AA of the Income Tax Assessment Act 1936

The profit and remuneration of United States contractors, United States armed forces members and their associated employees, or other United States residents or foreign employees and their dependents in connection with certain approved United States Government projects in Australia are exempt from Australian income tax. The United States Government projects to which the exemption applies include the North West Cape Naval Communication Station, the Joint Defence Space Research Facility, the Sparta Project and the Joint Defence Space Communications Station programme. This exemption only applies where the income is subject to tax in the United States.

B9 Concessional tax treatment for foreign authorised deposit-taking institutions

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	-	-	-	-	-	-	-
Tax expenditure type:		Concessional rate				2009 TES code:	B6
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1993				Expiry date:	2006
Legislative reference:		Financial Corporations (Transfer of Assets and Liabilities) Act 1993

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

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

B10 Concessional tax treatment of offshore banking units

Other economic affairs - Other economic a
ffairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
160	320	305	270	270	270	270	270
Tax expenditure type:		Concessional rate				2009 TES code:	B7
Estimate Reliability:		Medium
Commencement date:		1992				Expiry date:
Legislative reference:		Part III, Division 9A, and section 128GB of the Income Tax Assessment Act 1936

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

B11 Deductibility of costs of setting up a regional headquarters

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
..	..	..	..	..	..	..	..
Tax expenditure type:		Deduction				2009 TES code:	B8
Estimate Reliability:		Very Low
Commencement date:		1994				Expiry date:
Legislative reference:		Sections 82C to CE of the Income Tax Assessment Act 1936

Regional headquarter companies (RHQs), as determined by the Treasurer, are entitled to deductions in respect of specified set-up 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'.

B12 Deemed tax credits under tax sparing provisions in Australia's tax treaties

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
17	10	15	10	..	..	..	..
Tax expenditure type:		Exemption				2009 TES code:	B9
Estimate Reliability:		Medium
Commencement date:		Date of effect depends on the date of effect of the tax treaty				Expiry date:
Legislative reference:		Provided for in Australia's tax treaties

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

B13 Exemption for foreign branch profits from income tax

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2009 TES code:	B10
Estimate Reliability:		Not Applicable				* Category	3+
Commencement date:		1990				Expiry date:
Legislative reference:		Section 23AH of the Income Tax Assessment Act 1936

In general, income from a business carried on by an Australian company through a permanent establishment (branch) in a foreign country is exempt from income tax. 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.

B14 Exemption from accrual taxation for certain transferor trusts

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2009 TES code:	B11
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1990				Expiry date:
Legislative reference:		Sub subparagraph 102AAT(1)(a)(i)(F) and paragraph 102AAT(1)(c) of the Income Tax Assessment Act 1936

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

B15 Exemption from accrual taxation for controlled for
eign companies

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2009 TES code:	B12
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1990				Expiry date:
Legislative reference:		Section 384-5 of the Income Tax Assessment Act 1936

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

B16 Exemption from interest withholding tax on certain securities

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
1,640	1,360	1,540	1,770	2,040	2,310	2,610	2,940
Tax expenditure type:		Exemption				2009 TES code:	B13
Estimate Reliability:		Low
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Section 128F and 128FA of the Income Tax Assessment Act 1936

Certain publicly offered debentures and debt interests are eligible for exemption from interest withholding tax, where those debentures and debt interests are issued in Australia by a State or Territory, the Commonwealth, a resident Australian company or a non-resident company operating through a permanent establishment. The exemption is not available where it involves certain dealings between associated entities.

B17 Exemption of inbound non-portfolio dividends from income tax

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
390	300	280	300	350	370	390	360
Tax expenditure type:		Exemption				2009 TES code:	B14
Estimate Reliability:		Medium
Commencement date:		1990				Expiry date:
Legislative reference:		Section 23AJ of the Income Tax Assessment Act 1936

Non-portfolio dividends are exempt from income tax where they are paid to an Australian resident company by a company resident in a foreign country. For dividends paid on or before 30 June 2004, the exemption applied only to non-portfolio dividends from a restricted list of countries or if paid out of profits that had been subject to comparable foreign tax.

B18 Interest withholding tax concession on interest payments by financial institutions

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
30	30	30	30	30	30	30	100
Tax expenditure type:		Concessional rate				2009 TES code:	B15
Estimate Reliability:		Low
Commencement date:		1994				Expiry date:
Legislative reference:		Section 160ZZZJ of the Income Tax Assessment Act 1936

The notional interest paid by an Australian branch of a foreign bank or of certain other financial entities attracts a reduced rate of withholding tax. As the tax is only paid on half of the taxable amount, the effective rate is 5 per cent. This effective rate will be reduced to 2.5 per cent (in 2013-14) and zero (in 2014-15). For other financial institutions the rate applicable to interest paid on certain other borrowings will be reduced to 7.5 per cent (in 2013-14) and 5 per cent (in 2014-15).

B19 Threshold exemption for thin capitalisation

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2009 TES code:	B16
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		2001				Expiry date:
Legislative reference:		Sections 820-35 and 820-37 of the Income Tax Assessment Act 1997

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

B20 Unfranked dividends paid by Pooled Development Funds

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
1	2	2	2	3	3	3	3
Tax expenditure type:		Exemption				2009 TES code:	B17
Estimate Reliability:		Medium
Commencement date:		1992				Expiry date:
Legislative reference:		Sections 128B(3)(ba) and 124ZM of the Income Tax Assessment Act 1936

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

Tax expenditures for defence

B21 Exemption for certain transactions involving security agencies

Defence ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2009 TES code:	New
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		1 July 2005				Expiry date:
Legislative reference:		Division 850 of Schedule 1 to the Taxation Administration Act 1953

The heads of the Australian Security Intelligence Organisation and the Australian Secret Intelligence Service have the power to declare that Commonwealth tax laws do not apply to a specified entity in relation to a specified transaction. This ensures that the tax authorities do not need to obtain information that should remain secret in the interests of national security.

Tax expenditures for health

B22 Income tax exemption for not-for-profit private health insurers

Health ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
240	320	110	60	60	60	60	60
Tax expenditure type:		Exemption				2009 TES code:	B18
Estimate Reliability:		Low
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Item 6.3 of the table in section 50-30 of the Income Tax Assessment Act 1997

The income of private health insurers covered by the Private Health Insurance Act 2007 is exempt from income tax if the insurer is not operated for the gain or profit of its individual members.

B23 Income tax exemption for public hospitals and not-for-profit hospitals

Health ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2009 TES code:	B19
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Items 6.1 and 6.2 in the table in secton 50-30 of the Income Tax Assessment Act 1997

The income of public hospitals and hospitals operated by a society or association that is not operated for the gain or profit of its individual members is exempt from income tax.

For these hospitals to be eligible for the tax exemption they must incur their expenditure principally in Australia.

Tax expenditures for social security and welfare

B24 Concessional taxation of life insurance investment income

Social security and welfare ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption, Offset, Concessional rate				2009 TES code:	B20
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		2000				Expiry date:
Legislative reference:		Sections 26AH and 160AAB of the Income Tax Assessment Act 1936

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

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

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

B25 Concessional taxation treatment of mining payments made in respect of mining and exploration activities
on Aboriginal land

Social security and welfare ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2009 TES code:	B21
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		2000				Expiry date:
Legislative reference:		Section 59-15 of the Income Tax Assessment Act 1997

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

B26 Deductibility for entertainment provided without charge to those in need

Social security and welfare ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2009 TES code:	B22
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		1985				Expiry date:
Legislative reference:		Section 32-50 of the Income Tax Assessment Act 1997

Generally, the cost of entertainment, such as food and drink, provided in the course of carrying on a business is denied as a deduction. However, the cost of entertainment provided without charge to members of the public who are sick, disabled, poor or otherwise disadvantaged is exempted from the rules that generally deny deductions for entertainment expenses.

Tax concessions for certain taxpayers

B27 Exemption of foreign currency gains and losses from certain low balance accounts

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2009 TES code:	B24
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1 July 2003				Expiry date:
Legislative reference:		Subdivision 775-D of the Income Tax Assessment Act 1997

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

B28 Off-market share buy-backs

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
760	90	40	..	*	*	*	*
Tax expenditure type:		Offset				2009 TES code:	B26
Estimate Reliability:		Low				* Category	na
Commencement date:		1990				Expiry date:
Legislative reference:		Division 16K of Part III and 177EA of the Income Tax Assessment Act 1936

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

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

Projections beyond 2009-10 are not reported because of the likely volatility of this item.

B29 Taxation assistance for victims of Australian natural disasters

Other purposes - Natural disaster relief ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
11	11	8	8	6	3	1	..
Tax expenditure type:		Exemption				2009 TES code:	B27
Estimate Reliability:		Low
Commencement date:		22 March 2006				Expiry date:	30 June 2011
Legislative reference:		Sections 11-55 and 59-50 of the Income Tax Assessment Act 1997 Schedule 2 to the Tax Laws Amendment (2006 Measures No. 3) Act 2006 Schedule 5 to the Tax Laws Amendment (2008 Measures No. 6) Act 2009 Schedule 8 to the Tax Laws Amendment (2009 Measures No. 2) Act 2009

Certain payments to victims of Australian natural disasters are exempt from income tax.

Without a specific definition, such grants would generally be treated as assessable income. Expenses related to the carrying on of a business (that is, those funded by using the grant) would generally be deductible.

Tax exemptions for certain government income support payments

B30 Exemption of Tobacco Growers Adjustment Assistance grants

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	2	1	-	-	-	-	-
Tax expenditure type:		Exemption				2009 TES code:	B28
Estimate Reliability:		Medium
Commencement date:		1 July 2006				Expiry date:
Legislative reference:		Paragraph 118-37(1)(g) of the Income Tax Assessment Act 1997

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

Tax expenditures for housing and community amenities

B31 Tax exemption for incentives provided by governments under the National Rental Affordability Scheme

Housing and community amenities ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	-	-	9	29	40	60
Tax expenditure type:		Exemption				2009 TES code:	B105
Estimate Reliability:		Very Low
Commencement date:		1 July 2008				Expiry date:
Legislative reference:		Division 380 of the Income Tax Assessment Act 1997

The National Rental Affordability Scheme provides tax and cash incentives to providers of new dwellings on the condition that they are rented to low and moderate income households at 20 per cent below market rates. In 2009-10, the incentives were $6,504 from the Commonwealth Government and at least $2,168 from State and Territory governments. The (minimum) $2,168 contribution from the State and Territory governments may be paid as either a cash grant or in-kind assistance. The incentives are indexed over the life of the scheme.

The $6,504 contribution from the Commonwealth Government is paid as a refundable tax offset to taxable entities, and as a grant to charities endorsed by the Australian Taxation Office.

This tax expenditure relates to the revenue forgone from exempting both parts of the incentive from income tax.

Tax expenditures for recreation and culture

B32 Exemption of Refundable Film Tax Offset payments

Recreation and culture ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
10	3	18	40	35	40	35	35
Tax expenditure type:		Exemption				2009 TES code:	B29
Estimate Reliability:		Medium - Low
Commencement date:		2001				Expiry date:
Legislative reference:		Division 376 of the Income Tax Assessment Act 1997

Film production companies incurring expenditure on certain productions in Australia may be eligible for refundable tax offsets. The tax offsets are the location offset, the producer offset and the post, digital and visual effects (PDV) offset. The refundable tax offsets are paid directly to the producers through the tax system and are exempt from tax. A production company can claim no more than one of the film tax offsets for each film.

Under the location offset, producers of qualifying large scale films which commenced principal photography prior to 8 May 2007 are eligible to receive a refundable tax offset of 12.5 per cent of qualifying Australian production expenditure (QAPE). Producers of qualifying large scale films which commenced principal photography on or after 8 May 2007 are eligible to receive a refundable tax offset of 15 per cent of QAPE.

The producer offset enables producers of qualifying Australian films to receive a refundable tax offset of 40 per cent of QAPE incurred on a feature film, or 20 per cent of QAPE incurred on films that are not feature films, for QAPE incurred on or after 1 July 2007.

The PDV offset is equal to 15 per cent of QAPE and is available for post, digital and visual effects production that commences on or after 1 July 2007.

B33 Income tax exemption for the Australian Film Finance Corporation

Recreation and culture ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
..	..	-	-	-	-	-	-
Tax expenditure type:		Exemption				2009 TES code:	B32
Estimate Reliability:		Medium - Low
Commencement date:		1988				Expiry date:	2008
Legislative reference:		Section 50-45 of the Income Tax Assessment Act 1997

The former Australian Film Finance Corporation was exem
pt from income tax.

The Australian Film Finance Corporation was wound up as of 1 July 2008 and its functions are now performed by Screen Australia.

B34 Philanthropy - Income tax exemption for recreation-type not-for-profit societies

Recreation and culture ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
20	20	20	20	20	20	20	20
Tax expenditure type:		Exemption				2009 TES code:	B31
Estimate Reliability:		Medium
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Sections 50-10 and 50-45 of the Income Tax Assessment Act 1997

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

For those not-for-profit societies, associations or clubs to which the 'mutuality principle' applies, this tax expenditure exempts from income tax those amounts that are not already excluded by the 'mutuality principle'. (For a brief explanation of the mutuality principle, refer to section A.2 of Appendix A.)

Tax expenditures relating to prepayments and advance expenditures

B35 Exemption from the tax shelter prepayments measure for certain passive investments

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Accelerated write-off				2009 TES code:	B33
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1988				Expiry date:
Legislative reference:		Section 82 KZME of the Income Tax Assessment Act 1936

A prepayment in relation to investments in infrastructure bonds, shares, units, rental property and arrangements entered into before 1 July 2000, to which product rulings apply, continues to be immediately deductible. This is conditional upon the prepayment expenditure meeting the requirements described in the tax expenditure B37 Prepayment rule for small business taxpayers and non-business expenditure by individuals. The benchmark treatment of prepayments is that they are deductible over the period of the expenditure. The tax expenditure allows deductions to be spread over a shorter period and consequently it allows greater deductions than the benchmark treatment.

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

B36 Forestry managed investments - prepayment rule

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-5	5	-95	-	-	-	-	-
Tax expenditure type:		Accelerated write-off				2009 TES code:	B34
Estimate Reliability:		Medium
Commencement date:		2001				Expiry date:	30 June 2008
Legislative reference:		Section 82KZMG of the Income Tax Assessment Act 1936

Prior to 1 July 2008, prepayments on seasonally dependent agronomic operations in the establishment of a forestry plantation were immediately deductible. This was conditional upon the prepayment expenditure meeting certain requirements, including that the activities in question are completed within 12 months of the prepayment being made or the activities commencing and by the end of the following financial year. This tax expenditure was available for investors in forestry managed investment schemes. The benchmark treatment of prepayments was that they are deductible over the period of the expenditure. The tax expenditure allowed deductions to be spread over a shorter period and consequently allowed greater deductions in the year of investment than the benchmark treatment.

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

B37 Prepayment rule for Simplified Tax System taxpayers and non-business expenditure by individuals

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Accelerated write-off				2009 TES code:	B35
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		2001				Expiry date:
Legislative reference:		Section 82 KZM of the Income Tax Assessment Act 1936

Prepayments by small businesses (including Simplified Tax System taxpayers prior to 1 July 2007) 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.

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

B38 The 10-year rule for prepayments

Other economi
c affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Accelerated write-off				2009 TES code:	B36
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		1988				Expiry date:
Legislative reference:		Subsection 82 KZL(1) of the Income Tax Assessment Act 1936

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

Tax expenditures for agriculture, forestry and fishing

B39 Deferral of income from double wool-clips

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deferral				2009 TES code:	B38
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		1966				Expiry date:
Legislative reference:		Section 385-135 of the Income Tax Assessment Act 1997

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

B40 Deferral or spreading of income from the forced disposal or death of livestock

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deferral				2009 TES code:	B39
Estimate Reliability:		Not Applicable				* Category	2+/-
Commencement date:		1961				Expiry date:
Legislative reference:		Sections 385-90 to 385-125 of the Income Tax Assessment Act 1997

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

• the compulsory acquisition of land;
• destruction of pasture by drought, flood or fire;
• compulsory destruction of livestock for disease control; or
• notification of contamination of property or a cattle tick eradication campaign.

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

B41 Exemption of Sugar Industry Exit grants

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
6	3	-	-	-	-	-	-
Tax expenditure type:		Exemption				2009 TES code:	B40
Estimate Reliability:		Medium
Commencement date:		1 February 2003				Expiry date:	The Sugar Industry Reform Program ended on 30 June 2007
Legislative reference:		Sections 15-65 and 118-37(1)(f) of the Income Tax Assessment Act 1997

Grants to individuals who exit the sugar industry under the Sugar Industry Reform Program are exempt from tax if the recipient remains out of the agricultural industry for at least five years. The grant amount is deemed as assessable income if the recipient returns to the agricultural industry within five years.

B42 Farm Management Deposit scheme

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
75	105	135	25	65	*	*	*
Tax expenditure type:		Deferral				2009 TES code:	B41
Estimate Reliability:		Medium				* Category	3+
Commencement date:		1999				Expiry date:
Legislative reference:		Division 393 of the Income Tax Assessment Act 1997

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 withd
rawals being subject to assessment in the year of withdrawal. The FMD has a maximum limit on deposits of $400,000. Primary producers in exceptional circumstance areas are able to withdraw their deposits within 12 months while maintaining the concessional tax treatment of the scheme. The FMD scheme replaced the Income Equalisation Deposits and Farm Management Bonds schemes on 2 January 1999.

Projections beyond 2010-11 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.

B43 Income tax averaging for primary producers

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
70	110	100	75	*	*	*	*
Tax expenditure type:		Concessional rate				2009 TES code:	B42
Estimate Reliability:		Medium - Low				* Category	2+
Commencement date:		1938				Expiry date:
Legislative reference:		Division 392 of the Income Tax Assessment Act 1997

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

Projections beyond 2009-10 are not reported as the tax expenditure is very sensitive to variations in primary production income, which depends on a number of external factors.

B44 Spreading of income from insurance recoveries for loss of timber or livestock

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deferral				2009 TES code:	B43
Estimate Reliability:		Not Applicable				* Category	2+/-
Commencement date:		1956				Expiry date:
Legislative reference:		Section 385-130 of the Income Tax Assessment Act 1997

Insurance recoveries may be received in relation to timber lost because of 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.

B45 Tax exemption for Farm Help re-establishment grants

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
1	..	..	..	..	..	..	..
Tax expenditure type:		Exemption				2009 TES code:	B44
Estimate Reliability:		Medium - High
Commencement date:		1 December 1997				Expiry date:
Legislative reference:		Paragraph 118-37(1)(d) of the Income Tax Assessment Act 1997

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

B46 Valuation of livestock from natural increase

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deferral				2009 TES code:	B45
Estimate Reliability:		Low				* Category	2+
Commencement date:		1951				Expiry date:
Legislative reference:		Section 70-55 of the Income Tax Assessment Act 1997

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

Tax expenditures for manufacturing and mining

B47 Infrastructure Bonds Scheme

Mining, manufacturing and construction ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
15	5	5	..	..	..	-	-
Tax expenditure type:		Exemption, Offset				2009 TES code:	B46
Estimate Reliability:		Medium - High
Commencement date:		1992				Expiry date:	1997
Legislative reference:		Division 16L of the Income Tax Assessment Act 1936

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

B48 Land Transport Infrastructure Borrowings Tax Offset Scheme

Mining, manufacturing and construction ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
5	5	..	-	-	-	-	-
Tax expenditure type:		Offset				2009 TES code:	B47
Estimate Reliability:		Medium
Commencement date:		1998				Expiry date:
Legislative reference:		Division 396 of the Income Tax Assessment Act 1997

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

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

Tax expenditures for transport and communications

B49 Exemptions to radiocommunications taxes for not-for-profit community or government entities

General public services - General services ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
5	5	5	5	5	5	5	5
Tax expenditure type:		Exemption				2009 TES code:	B48
Estimate Reliability:		Medium
Commencement date:		1992				Expiry date:
Legislative reference:		Section 294, Part 5.7 of the Radiocommunications Act 1992

The apparatus licence fee is an annual tax applicable to broadcasting licence holders to recover the indirect costs of spectrum management and provide incentives for efficient spectrum use.

Exemption of the apparatus licence fee is available to organisations or individuals who are: diplomatic and consular missions; surf life saving and remote area ambulance services; emergency services or services for the safe-guarding of human life - including rural fire fighting; search and rescue and coast guard services. These must be staffed principally by volunteers and be exempt from paying income tax.

B50 Rebate for broadcasting licence fees

Recreation and culture ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	-	-	40	106	67	2
Tax expenditure type:		Rebate				2009 TES code:	New
Estimate Reliability:		Medium
Commencement date:		2010				Expiry date:	2011
Legislative reference:		Television Licence Fees Amendment Regulations 2010 (No. 1)

Television broadcasters receive one-off licence fee rebates of 33 per cent in 2010 and 50 per cent in 2011.

B51 Denial of depreciation deduction for car value above the luxury car tax threshold

Transport and communication ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-90	-110	-150	-150	-150	-160	-160	-160
Tax expenditure type:		Denial of deduction				2009 TES code:	B49
Estimate Reliability:		Low
Commencement date:		1 July 2001				Expiry date:
Legislative reference:		Section 40-230 of the Income Tax Assessment Act 1997

If the value of a car used for income-producing purposes exceeds a certain amount ('car limit'), the amount of depreciation deductions that can be claimed is capped at the 'car limit'. This represents a negative tax expenditure as the full value of the car should be depreciated under the benchmark.

The 'car limit' for 2009-10 is $57,180. This amount is indexed annually to movements in the motor vehicle purchase sub-group of the Consumer Price Index. The 'car limit' is not changed if the index has fallen for a particular year.

B52 Regional Equalisation Plan rebates

Transport and communication ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
23	9	5	3	3	2	2	1
Tax expenditure type:		Rebate				2009 TES code:	New
Estimate Reliability:		Medium
Commencement date:		1 July 2000				Expiry date:
Legislative reference:		Television Licence Fees Act 1964

Regional and remote commercial television broadcasters receive a licence fee rebate to assist with the change
over to digital broadcasting.

Tax expenditures for other economic affairs

B53 Deductions for boat expenditure

Other economic affairs - Tourism and area promotion ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-6	-6	..	..	..	..	..	..
Tax expenditure type:		Deduction				2009 TES code:	B50
Estimate Reliability:		Low
Commencement date:		1974				Expiry date:
Legislative reference:		Former section 26-50 of the Income Tax Assessment Act 1997 Section 26-47 of the Income Tax Assessment Act 1997

For income years commencing on or after 1 July 2007, taxpayers can claim deductions for expenses incurred in boating activities that are not carried on as a business. However, these deductions can only offset income from the boating activities, and if the deductions are greater than the income for that income year, the excess is carried forward, for offset against future income from boating activities.

For income years commencing prior to 1 July 2007, deductions are allowable only where the taxpayer can demonstrate that they were carrying on an active business using a boat.

B54 Income tax exemption for employee and employer organisations

Other economic affairs - Total labour and employment affairs ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
10	10	10	10	10	10	10	10
Tax expenditure type:		Exemption				2009 TES code:	B51
Estimate Reliability:		Medium - Low
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Section 50-15 of the Income Tax Assessment Act 1997

Subject to certain conditions, the income of trade unions and registered associations of employers and employees is exempt from income tax. 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 A.2 in Appendix A.)

B55 25 per cent entrepreneurs' tax offset

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
140	175	190	200	175	180	175	180
Tax expenditure type:		Offset				2009 TES code:	B52
Estimate Reliability:		Medium
Commencement date:		2005				Expiry date:
Legislative reference:		Subdivision 61-J of the Income Tax Assessment Act 1997

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

From 1 July 2009, eligibility for the offset is subject to a means test. The offset phases out for singles with incomes over $70,000 and families with incomes over $120,000.

B56 Capital gains tax concession for carried interests paid to venture capital managers

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
10	10	11	11	11	11	11	11
Tax expenditure type:		Denial of deduction, Deferral of deduction				2009 TES code:	B53
Estimate Reliability:		Low
Commencement date:		2002				Expiry date:
Legislative reference:		Sections 104-255 and 118-21 of the Income Tax Assessment Act 1997

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

B57 Capital protected borrowings

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
15	15	35	30	15	-	-15	-20
Tax expenditure type:		Deduction, Discounted valuation				2009 TES code:	B54
Estimate Reliability:		Medium - Low
Commencement date:		16 April 2003				Expiry date:	30 June 2013
Legislative reference:		Division 247 of the Income Tax Assessment Act 1997

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

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

The concessional treatment will not apply to capital protected borrowings arrangements entered into after 13 May 2008. Arrangements entered into before that date will continue to receive the concessional treatment until 30 June 2013.

B58 Certain term subordinated notes

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2009 TES code:	B55
Estimate Reliability:		Not Applicable				* Category	3+
Commencement date:		1 July 2001				Expiry date:
Legislative reference:		Division 974 of the Income Tax Assessment Act 1997

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

B59 Company tax rate cut - early start for small business

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	-	-	-	50	100	50
Tax expenditure type:		Concessional rate				2009 TES code:	New
Estimate Reliability:		Medium - High
Commencement date:		1 July 2012				Expiry date:
Legislative reference:		Not yet legislated

From the 2012-13 income year the tax rate for small business companies with a turnover of less than $2 million will be reduced from 30 per cent to 29 per cent, a year earlier than the company tax rate cut from 30 per cent to 29 per cent.

B60 Concessional tax treatment for Pooled Development Funds

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
9	12	11	10	9	8	7	7
Tax expenditure type:		Exemption, Concessional rate				2009 TES code:	B56
Estimate Reliability:		Medium - Low
Commencement date:		1992				Expiry date:
Legislative reference:		Section 118-13 of the Income Tax Assessment Act 1997 Division 10E of Part III of the Income Tax Asessment Act 1936 Subsections 23(4C) and (4D) of the Income Tax Rates Act 1986

Note: estimates include tax expenditures B60 and B65.

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

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

Information on the concessional treatment of unfranked dividends paid by PDFs can be found at tax expenditure B20 Unfranked dividends paid by Pooled Development Funds.

B61 Concessions resulting from the clarification of the debt or equity treatment of perpetual subordinated debt

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2009 TES code:	B57
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1 July 2001				Expiry date:
Legislative reference:		Division 974 of the Income Tax Assessment Act 1997 Division 974 of the Income Tax Assessment Regulations 1997

Perpetual subordinated debt issued by financial institutions to raise capital would typically be classified as equity under the benchmark debt-equity rules. Under certain circumstances, 'profitability, insolvency or negative earnings conditions' do not preclude Upper Tier 2 perpetual subordinated debt and similar instruments from being classified as debt for tax purposes.

B62 Deduction for borrowing expenses

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2009 TES code:	New
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1 July 1997				Expiry date:
Legislative reference:		Section 25-25 of the Income Tax Assessment Act 1997

A taxpayer is able to claim a deduction (spread over the shorter of the term of the loan or five years) for borrowing expenses incurred for borrowing money to purchase a capital asset that is used for the purpose of producing assessable income. Borrowing expenses incurred in these circumstances would otherwise be capital in nature and be included the cost base of the asset.

B63 Deduction for certain co-operativ e companies

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2009 TES code:	B106
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1973				Expiry date:
Legislative reference:		Sections 117 and 120 of the Income Tax Assessment Act 1936

Co-operative companies whose primary object is the acquisition from their shareholders of commodities or animals for disposal or distribution can deduct amounts paid to repay Australian and State Government loans which are provided for the purchase of assets required for the purpose of carrying on their business. However, the deduction is allowed only if 90 per cent or more of the value of the company is held by shareholders who supply the company with the commodities or animals.

B64 Exemption for early stage venture capital limited partnerships

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	1	5	9	15	18	21
Tax expenditure type:		Exemption				2009 TES code:	B58
Estimate Reliability:		Low
Commencement date:		1 July 2006				Expiry date:
Legislative reference:		Sections 26-68, 51-52, 51-54 and Subdivision 118-F of the Income Tax Assessment Act 1997

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

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

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

B65 Exemption for superannuation funds that invest through Pooled Development Funds in venture capital

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
Included in B60
Tax expenditure type:	Exemption				2009 TES code:	B59
Estimate Reliability:
Commencement date:		1992				Expiry date:
Legislative reference:		Section 118-13 and Division 210 Income tax Assessment Act 1997 and Division 10E of Part III Income tax Assessment Act 1936

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

B66 Income tax exemption for industry-specific not-for-profit societies and associations

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2009 TES code:	B30
Estimate Reliability:		Medium				* Category	3+
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Section 50-40 of the Income Tax Assessment Act 1997

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

For those not-for-profit societies, associations or clubs to which the 'mutuality principle' applies, this tax expenditure exempts from income tax those amounts that are not already excluded by the 'mutuality principle'.

B67 Income tax exemptions for foreign superannuation funds

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2009 TES code:	B63
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		1981				Expiry date:
Legislative reference:		Section 128D and paragraph 128B(jb) of the Income Tax Assessment Act 1936

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

B68 Managed investment trusts - de minimis rule for unders and overs

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	-	-	-	-	*	*
Tax expenditure type:		Deferral				2009 TES code:	New
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1 July 2011				Expiry date:
Legislative reference:		Not yet legislated

From 1 July 2011, managed investment trusts (MITs) will be able to carry forward unders and overs (up to a 5 per cent cap) into the next income year without adverse taxation consequences. This is part of the Government's response to the Board of Taxation's Report on its review of the tax arrangements applying to MITs.

B69 Managed investment trusts - election to allow capital gains tax to be the primary code for disposals of shares, units and real property

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	*	*	*	*	*	*
Tax expenditure type:		Concessional rate				2009 TES code:	New
Estimate Reliability:		Not Applicable				* Category	na
Commencement date:		1 July 2008				Expiry date:
Legislative reference:		Division 275 of the Income Tax Assessment Act 1997

From the 2008-09 income year eligible managed investment trusts (MITs) can make an irrevocable election to apply the capital gains tax regime to gains and losses on disposals of certain assets (primarily shares, units and real property). If an eligible MIT does not make an irrevocable election to have capital account treatment, then gains and losses on disposals of shares and units will be treated on revenue account.

B70 Philanthropy - Income tax exemption for certain non-charitable funds

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
Included in B71
Tax expenditure type:		Exemption				2009 TES code:	B61
Estimate Reliability:
Commencement date:		1 July 2005				Expiry date:
Legislative reference:		Section 50-20 of the Income Tax Assessment Act 1997

Endorsed non-charitable public ancillary funds and Private Ancillary Funds are exempt from income tax.

Public Ancillary Funds and Private Ancillary Funds must provide money, property and benefits solely to income tax exempt deductible gift recipients (DGRs).

B71 Philanthropy - Income tax exemption for charitable funds

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2009 TES code:	B62
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1 July 2005				Expiry date:
Legislative reference:		Sections 50-5, 50-52 and 50-60 Income Tax Assessment Act 1997

Note: estimates include tax expenditures B71, B70 and B74.

Endorsed charitable funds, including Public Ancillary Funds and Private Ancillary Funds, can claim an income tax exemption where they provide money, property and benefits solely to charities based in Australia, or solely to charitable Deductible Gift Recipients (DGRs), or to a combination of these.

These funds are prevented from undertaking charitable act
ivities with their funds. They must distribute their funds to other entities that undertake charitable activities.

B72 Philanthropy - Income tax exemption for charitable, religious, scientific, and community service entities

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2009 TES code:	B23
Estimate Reliability:		Not Applicable				* Category	4+
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Sections 50-5 and 50-10 of the Income Tax Assessment Act 1997

The following entities are exempt from income tax:

• religious, scientific, charitable and public educational institutions and funds;
• funds established to enable scientific research to be conducted by or in conjunction with a public university or public hospital;
• not-for-profit societies, associations or clubs established for the encouragement of science; and
• societies, associations or clubs established for community service purposes.

Entities must satisfy various conditions to qualify for these exemptions.

B73 Philanthropy - Income tax exemption for small not-for-profit companies

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
..	..	..	..	..	..	..	..
Tax expenditure type:		Exemption				2009 TES code:	B25
Estimate Reliability:		Very Low
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Subsection 23(6) of the Income Tax Rates Act 1986

The rate of income tax payable by a not-for-profit company that has a taxable income not exceeding $416 in a given income year is nil. Income tax is payable at a rate of 55 per cent on all income of not-for-profit companies that have a taxable income between $416 and $915.

This arrangement has the effect of providing an exemption from income tax for not-for-profit companies for the first $416 of income, and then phasing in the ordinary corporate income tax rate of 30 per cent on all income, including the first $416, when the company has income between $416 and $915. When a not-for-profit company has an income over $915, the company tax rate is applied from the first dollar.

B74 Philanthropy - Refund of franking credits for certain income tax exempt philanthropic entities

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
Included in B71
Tax expenditure type:		Rebate				2009 TES code:	B64
Estimate Reliability:
Commencement date:		1 July 2000				Expiry date:
Legislative reference:		Subdivision 207-E of the Income Tax Assessment Act 1997

Generally, entities that are not subject to Australian tax cannot benefit from franking credits on distributions from Australian companies. However, entities that are endorsed as income tax exempt charities or income tax exempt deductible gift recipients (DGRs) are able to claim a refund of franking credits on distributions from Australian companies.

B75 Tax exemption for small and medium sized credit unions

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
..	..	..	..	..	..	..	..
Tax expenditure type:		Exemption				2009 TES code:	B68
Estimate Reliability:		Medium
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Sections 6H and 23G of the Income Tax Assessment Act 1936 Section 23(7) of the Income Tax Rates Act 1986

Interest income derived from loans to members by recognised 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.

Recognised medium credit unions have a notional taxable income of less than $150,000. For recognised medium credit unions, the rate of tax payable on the first $49,999 is reduced to zero. The rate of taxation payable on income between $50,000 and $150,000 is 45 per cent. When the income of a credit union exceeds $150,000, it ceases to be a small or medium credit union and the corporate tax rate applies to income from the first dollar.

B76 Treatment of finance leases

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2009 TES code:	New
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1936				Expiry date:
Legislative reference:		Divisions 240 and 250 of the Income Tax Assessment Act 1997 and Division 42A of the Income Tax Assessment Act 1936

A finance lease is, in substance, equivalent to a loan from the lessor to the lessee to finance the purchase of the leased asset. The lessor (financier) acquires the leased asset at the request of the lessee (borrower) and leases the asset to the lessee. On expiry of the lease, legal ownership of the asset is transferred to the lessee at minimal or no cost. During the term of the lease, while the lessor is the legal owner of the leased asset, the lessee has effective economic ownership through having control, use and enjoyment of the asset. Given its substance, finance leases should be taxed as a loan from the lessor to the lessee to acquire the leased asset under the benchmark. That is, the interest payments are deductible to the lessee and assessable to the lessor, and lessee can claim depreciation deduction for the user cost of the leased asset.

Except where specific provisions apply, for example, Divisions 240 and 250 of the Income Tax Assessment Act 1997, finance leases are taxed as leases rather than as loans. That is, lease payments (which comprise, in substance, interest and principal repayments) are deductible to the lessee and assessable to the lessor, and the lessor can claim depreciation deductions for the user cost of the leased asset. To the extent the lease period is shorter than the effective life of the leased asset and the lease payments do not reflect the changing value of the leased asset, parties to finance leases are able to bring forward deductions for the cost of the leased asset. Additionally, if the lessor's effective marginal tax rate is greater than the lessee's, treating finance leases as leases rather than as loans allows the transfer of tax benefits between the lessor and the lessee.

B77 Trust loss rules - family trusts

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2009 TES code:	B69
Estimate Reliability:		Not Applicable				* Category	3+
Commencement date:		9 May 1995				Expiry date:
Legislative reference:		Subdivision 272-D of Schedule 2F to the Income Tax Assessment Act 1936

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

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

Elements of the family trust rules are also used in the franking credit trading rules to facilitate the passing through of franking credits to beneficiaries of discretionary trusts and in the company loss recoupment rules as part of the alternative conditions for the continuity of ownership test.

Tax expenditures relating to capital expenditure, effective life and depreciation

B78 Film Licensed Investment Company Scheme

Recreation and culture ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
4	4	-	-	-	-	-	-
Tax expenditure type:		Deduction				2009 TES code:	B70
Estimate Reliability:		Medium - High
Commencement date:		1 July 2005				Expiry date:	30 June 2007
Legislative reference:		Sections 375-850 to 375-880 of the Income Tax Assessment Act 1997

Amounts paid by investors in 2005-06 and 2006-07 for shares in a film licensed investment company are immediately deductible. The deduction does not apply to shares issued after 30 June 2007.

B79 Tax incentives for film investment

Recreation and culture ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-13	-13	-16	-22	-18	-17	-14	-11
Tax expenditure type:		Deduction, Accelerated write-off				2009 TES code:	B71
Estimate Reliability:		Medium
Commencement date:		15 November 1956				Expiry date:	1 July 2010
Legislative reference:		Former Divisions 10B and 10BA of the Income Tax Assessment Act 1936

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

The initial deduction under Division 10B must be made in relation to the 2008-09 year of income or an earlier year of income. A deduction under Division 10BA is not allowable in relation to the 2009-10 year of income or later year of income.

B80 Accelerated depreciation for grapevine plantings

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008- 09	2009-10	2010-11	2011-12	2012-13	2013-14
3	-1	-4	-6	-6	-6	-6	-6
Tax expenditure type:		Accelerated write-off				2009 TES code:	B72
Estimate Reliability:		Medium
Commencement date:		1993				Expiry date:	Not available for grapevines planted after 1 October 2004
Legislative reference:		Subdivision 40-F of the Income Tax Assessment Act 1997

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

B81 Deduction for horse breeding stock

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Accelerated write-off				2009 TES code:	B73
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1992				Expiry date:
Legislative reference:		Sections 70-60 and 70-65 of the Income Tax Assessment Act 1997

Taxpayers can elect to write off horse breeding stock, acquired on or after 19 August 1992, at up to 25 per cent of the cost of sires per annum and up to 33⅓ per cent of the cost of mares per annum, on a prime cost basis.

B82 Deduction of the capital cost of telephone lines and electricity connections

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
15	15	15	17	17	17	17	17
Tax expenditure type:		Accelerated write-off				2009 TES code:	B74
Estimate Reliability:		Low
Commencement date:		24 June 1981				Expiry date:
Legislative reference:		Subdivision 40-G of the Income Tax Assessment Act 1997

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

B83 Landcare and water facility offset

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
..	..	..	..	..	..	..	..
Tax expenditure type:		Offset				2009 TES code:	B75
Estimate Reliability:		Medium - High
Commencement date:		1998				Expiry date:	2001
Legislative reference:		Former Subdivision 388 of the Income Tax Assessment Act 1997

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

However, the offset will continue to apply after the 2000-01 income year to expenditure incurred in that or an earlier income year where the offset is apportioned over three years, or where taxpayers had insufficient tax payable to claim the entire offset in earlier income years.

B84 Landcare deduction for primary producers

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
Included in B86
Tax expenditure type:		Deduction				2009 TES code:	B76
Estimate Reliability:
Commencement date:		11 December 1973				Expiry date:
Legislative reference:		Subdivision 40-G of the Income Tax Assessment Act 1997

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

B85 Tax write-off for horticultural plants

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
4	4	5	5	6	7	8	10
Tax expenditure type:		Accelerated write-off				2009 TES code:	B77
Estimate Reliability:		Medium - Low
Commencement date:		1995				Expiry date:
Legislative reference:		Subdivision 40-F of the Income Tax Assessment Act 1997

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

B86 Three year write-off for expenditure on water facilities for primary producers

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
30	30	30	25	25	25	25	25
Tax expenditure type:		Accelerated write-off				2009 TES code:	B78
Estimate Reliability:		Medium
Commencement date:		23 May 1980				Expiry date:
Legislative reference:		Subdivision 40-F of the Income Tax Assessment Act 1997

Note: estimates include tax expenditures B86, B84 and B87.

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.

B87 Water facilities and land care concession for irrigation water providers

Agriculture, forestry and fishing ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
Included in B86
Tax expenditure type:		Deduction				2009 TES code:	B79
Estimate Reliability:
Commencement date:		1 July 2004				Expiry date:
Legislative reference:		Subdivisions 40-F and 40-G of the Income Tax Assessment Act 1997

Certain irrigation water providers can claim an immediate deduction for capital expenditure on landcare activities and can 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.

B88 Absence of depreciation recapture for certain assets

Mining, manufacturing and construction ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2009 TES code:	B80
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1982				Expiry date:
Legislative reference:		Division 43 and Section 110-45 of the Income Tax Assessment Act 1997

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

B89 Accelerated depreciation for mining buildings

Mining, manufacturing and construction ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
220	170	90	..	..	..	..	..
Tax expenditure type:		Accelerated write-off				2009 TES code:	B81
Estimate Reliability:		Medium
Commencement date:		1982				Expiry date:	2001
Legislative reference:		Former Subdivision 330-C and subdivision 40-B of the Income Tax Assessment Act 1997 as adjusted by Section 40-35 of the Income Tax (Transitional Provisions) Act 1997

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

B90 Capital expenditure deduction for mining, quarrying and petroleum operations

Mining, manufacturing and construction ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
25	20	15	10	7	2	2	2
Tax expenditure type:		Accelerated write-off				2009 TES code:	B82
Estimate Reliability:		Medium - Low
Commencement date:		1921				Expiry date:	2001
Legislative reference:		Subdivision 40-B of the Income Tax Assessment Act 1997 as adjusted by sections 40-35, 40-40 and 40-75 of the Income Tax (Transitional Provisions) Act 1997

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

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

B91 Deduction for environmental protection activities

Mining, manufacturing and construction ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
10	15	30	30	30	30	30	30
Tax expenditure type:		Deduction				2009 TES code:	B83
Estimate Reliability:		Medium
Commencement date:		1992				Expiry date:
Legislative reference:		Sections 40-755 and 40-760 of the Income Tax Assessment Act 1997

Note: estimates include tax expenditures B91 and B92.

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.

B92 Deduction for expenditure on environmental impact studies

Mining, manufacturing and construction ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
Included in B91
Tax expenditure type:		Accelerated write-off				2009 TES code:	B84
Estimate Reliability:
Commencement date:		1991				Expiry date:	2001
Legislative reference:		Subdivision 40-I of the Income Tax Assessment Act 1997 as adjusted by Section 40-55 of the Income Tax (Transitional Provisions) Act 1997

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

B93 Development allowance

Mining, manufacturing and construction ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
10	..	-	-	-	-	-	-
Tax expenditure type:		Deduction				2009 TES code:	B85
Estimate Reliability:		Medium - Low
Commencement date:		1 January 1992				Expiry date:	1996
Legislative reference:		Former sections 82AAAA to 82AQ of the Income Tax Assessment Act 1936 Former sections 15, 27 and 40 Development Allowance Authority Act 1992

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

B94 Exploration and prospecting deduction

Mining, manufacturing and construction ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
60	80	120	130	150	160	180	200
Tax expenditure type:		Deduction				2009 TES code:	B86
Estimate Reliability:		Medium
Commencement date:		1968				Expiry date:
Legislative reference:		Section 40-25, subsection 40-80(1) and section 40-730 of the Income Tax Assessment Act 1997

Expenditure on exploration or prospecting for the purpose of mining and quarrying is immediately deductible. In addition, the decline in value of a depreciating asset is the asset's cost if the taxpayer first uses the asset for exploration or prospecting for minerals or quarry materials obtainable by mining operations, the asset is not used for petroleum development drilling or for operations in the course of working a mining or quarrying operation, and when the taxpayer starts to use the asset, the taxpayer either carries on mining operations, or proposes to carry on such operations or carry on a business including exploration and prospecting for which the cost of the asset was necessarily incurred.

B95 Statutory effective life caps

Transport and communication ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
375	530	680	805	915	1,000	1,030	1,055
Tax expenditure type:		Accelerated write-off				2009 TES code:	B87
Estimate Reliability:		Medium - Low
Commencement date:		2002				Expiry date:
Legislative reference:		Section 40-102 of the Income Tax Assessment Act 1997

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

Statutory caps exist for a range of assets, including:

• aircraft and certain assets used in the oil and gas industries (effective from 1 July 2002);
• trucks, truck trailers, buses and light commercial vehicles (effective from 1 January 2005); and
• tractors and harvesters (effective from 1 July 2007).

B96 Accelerated depreciation for software

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
20	25	20	-25	-60	-160	-120	-15
Tax expenditure type:		Accelerated write-off				2009 TES code:	B88
Estimate Reliability:		Low
Commencement date:		1998				Expiry date:
Legislative reference:		Subdivision 40-E of the Income Tax Assessment Act 1997

In-house software is essentially software that is used in-house, rather than as trading stock, and that is a capital asset, rather than fully deductible in the year of purchase. It includes software, or a right to use software, that the taxpayer has acquired, developed or has had another entity develop.

Expenditure on in-house software is depreciated over a statutory effective life, rather than an effective life that is self-assessed by the taxpayer or that is determined by the Commissioner of Taxation. Prior to 13 May 2008, the statutory effective life was 2.5 years, which gave rise to a tax expenditure in relation to software which has an effective life greater than 2.5 years. For expenditure in relation to software assets newly held after 13 May 2008 the statutory effective life is four years.

B97 Deduction for capital works expenditure

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
620	485	535	595	660	735	695	660
Tax expenditure type:		Deduction				2009 TES code:	B89
Estimate Reliability:		Low
Commencement date:		21 August 1979				Expiry date:
Legislative reference:		Division 43 of the Income Tax Assessment Act 1997

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

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

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

B98 Depreciation balancing adjustment roll-over relief

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deferral				2009 TES code:	B90
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		1952				Expiry date:
Legislative reference:		Section 40-340 of the Income Tax Assessment Act 1997

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

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

B99 Depreciation pooling for low value assets

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
80	60	40	20	10	10	10	10
Tax expenditure type:		Accelerated write-off				2009 TES code:	B91
Estimate Reliability:		Medium
Commencement date:		2000				Expiry date:
Legislative reference:		Subdivision 40-E of the Income Tax Assessment Act 1997

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

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

B100 Depreciation to nil value rather than estimated scrap value

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deferral				2009 TES code:	B92
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		1936				Expiry date:
Legislative reference:		Division 40 of the Income Tax Assessment Act 1997

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

B101 Establishment costs for carbon sink forests

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	..	2	4	4	5	..
Tax expenditure type:		Deduction, Accelerated write-off				2009 TES code:	B93
Estimate Reliability:		Medium
Commencement date:		1 July 2007				Expiry date:
Legislative reference:		Subdivision 40-J of the Income Tax Assessment Act 1997

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

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

B102 Research and development - exemption of Refundable Research and Development Tax Offset

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	-	-	-	-60	-80	-200
Tax expenditure type:		Exemption				2009 TES code:	B65
Estimate Reliability:		Medium - Low
Commencement date:		2010				Expiry date:
Legislative reference:		Not yet legislated

The Refundable Research and Development (R&D) Tax Credit will be available to companies with a turnover of less than $20 million at a rate of 45 per cent of expenditure on eligible R&D activities.

It will take the form of a 'refundable' tax offset, similar to the treatment of the former R&D Tax Offset. If a taxpayer's income tax liability is reduced to zero, the unused refundable tax offset amount can be applied to reduce other tax liabilities (such as GST). Any residual unused amounts can be refunded as cash to the company.

As the Refundable R&D Tax Offset is an expense item it does not appear as a tax expenditure in its own right. However, a tax expenditure arises because payments made under the Refundable R&D Tax 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. The absence of these deductions constitutes a negative tax expenditure and explains why the estimates are negative.

B103 Research and development - exemption of refundable research and development tax offset payments

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-30	-55	-70	-55	-65	-265	-380	-315
Tax expenditure type:		Exemption				2009 TES code:	B66
Estimate Reliability:		Medium - Low
Commencement date:		2001				Expiry date:	2010
Legislative reference:		Section 73I of the Income Tax Assessment Act 1936

In the 2009-10 Budget the Government announced that it will replace the existing R&D Tax Concessions with a new R&D Tax Offset with effect from 1 July 2010. Prior to 1 July 2010 companies with an annual turnover of less than $5 million that undertake up to $1 million of R&D were eligible to receive a refundable tax offset equivalent to the value of the R&D tax concession (which allows a t
ax deduction on eligible expenditure at the rate of either 125 per cent or 175 per cent).

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

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

Since the new R&D tax incentive was not to start until 1 July 2010, as an interim measure the cap on eligible R&D was lifted from $1 million to $2 million with effect from 1 July 2009.

B104 Research and development - immediate deduction for expenditure on core technology

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2009 TES code:	B60
Estimate Reliability:		Not Applicable				* Category	na
Commencement date:		1996				Expiry date:
Legislative reference:		Sections 73B(12) to 73B(12C) of the Income Tax Assessment Act 1936

Expenditure on core technology, except where incurred by companies in partnerships, is deductible at a rate of 100 per cent over the period of related research and development activities. This deduction is capped at one third of the firm's expenditure on related research and development for the income year in question, until the core technology amount has been fully deducted. 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.

B105 Research and development - premium tax concession for additional expenditure

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
225	290	300	370	470	130	60	-
Tax expenditure type:		Deduction, Accelerated write-off				2009 TES code:	B95
Estimate Reliability:		Medium - Low
Commencement date:		2001				Expiry date:	1 July 2010
Legislative reference:		Section 73Q to 73Z of the Income Tax Assessment Act 1936

In the 2009-10 Budget the Government announced that it would replace the existing R&D Tax Concessions with a new R&D Tax Offset with effect from 1 July 2010. Prior to 1 July 2010 companies that increased expenditure on labour related components of research and development (R&D) which are Australian-owned were eligible to receive a 175 per cent tax concession for increases above the average of the previous three years' R&D expenditure. The 175 per cent premium covers all additional R&D expenditure excluding plant, pilot plant, contracted plant, plant leases, core technology, R&D related interest and items excluded from the 125 per cent R&D tax concession.

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

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

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

B106 Research and development - research and development tax concession

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
430	490	660	780	700	190	90	-
Tax expenditure type:		Deduction, Accelerated write-off				2009 TES code:	B96
Estimate Reliability:		Medium - Low
Commencement date:		1985				Expiry date:	1 July 2010
Legislative reference:		Sections 73B and 73BA of the Income Tax Assessment Act 1936

In the 2009-10 Budget the Government announced that it would replace the existing R&D Tax Concessions with a new R&D Tax Offset with effect from 1 July 2010. Prior to 1 July 2010, certain taxpayers were 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.

B107 Research and development - standard tax incentive

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	20 13-14
-	-	-	-	-	750	790	830
Tax expenditure type:		Offset				2009 TES code:	B67
Estimate Reliability:		Medium
Commencement date:		2010				Expiry date:
Legislative reference:		Not yet legislated

The Standard Research and Development (R&D) Tax Offset will be available at a rate of 40 per cent for eligible R&D expenditure and can be carried forward where a company's income tax liability is zero.

The Standard R&D Tax Offset will take the form of a tax offset that can be carried forward to be applied against future income tax liabilities. Carried forward amounts will result in a similar outcome to a carry forward loss arising from a tax deduction under the former R&D tax concession. If a company's income tax liability is zero, unused offset amounts cannot be applied to reduce other tax liabilities (such as GST).

B108 Small business - simplified depreciation rules

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	145	120	100	50	55	1,220
Tax expenditure type:		Accelerated write-off				2009 TES code:	B97
Estimate Reliability:		Medium
Commencement date:		2007				Expiry date:
Legislative reference:		Subdivision 328-D of the Income Tax Assessment Act 1997

From the 2012-13 income year small businesses with an annual turnover of less than $2 million may immediately write off (deduct) in the year of purchase assets costing less than $5,000. Most other assets will be depreciated in a single pool at a 30 per cent rate.

Prior to the 2012-13 income year, small businesses may immediately write off assets costing less than $1,000 and depreciate assets costing $1,000 or more at accelerated rates under two pools. Assets with an effective life of less than 25 years are depreciated in a general pool at a rate of 30 per cent, and assets with an effective life of 25 years or more are depreciated in a long life pool at a rate of 5 per cent.

B109 Small business - Simplified trading stock rules

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	*	*	*	*	*	*	*
Tax expenditure type:		Deferral				2009 TES code:	B98
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		2007				Expiry date:
Legislative reference:		Division 328 of the Income Tax Assessment Act 1997

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

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

B110 Small business and general business tax break

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	-	1,470	2,350	660	220	20
Tax expenditure type:		Deduction				2009 TES code:	B99
Estimate Reliability:		Low
Commencement date:		13 December 2008				Expiry date:
Legislative reference:		Division 41 of the Income Tax Assessment Act 1997

Businesses that acquire new tangible depreciating assets, for which a deduction is available under Subdivision 40 B of the Income Tax Assessment Act 1997, between 13 December 2008 and 31 December 2009 and start to use or have installed ready for use by 31 December 2010 can claim a bonus tax deduction in the income year that they use or install the asset.

Small businesses can claim a bonus deduction of 50 per cent of the cost of an eligible asset. Other businesses can claim a 30 per cent deduction for assets acquired between 13 December 2008 and 30 June 2009 and installed by 30 June 2010. For assets acquired by other businesses between 1 July 2009 and 31 December 2009 and installed by 31 December 2010 the rate of bonus deduction is 10 per cent.

The bonus deduction does not affect the capital allowance deductions that would normally be claimed in relation to the asset.

B111 Tax Breaks for Green Buildings

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	-	-	-	-	15	105
Tax expenditure type:		Deduction				2009 TES code:	New
Estimate Reliability:		Low
Commencement date:		1 July 2011				Expiry dat e:	30 June 2015
Legislative reference:		Not yet legislated

Businesses that significantly improve the energy efficiency of certain existing commercial buildings, between 1 July 2011 and 30 June 2015, will be able to apply for a one-off bonus tax deduction.

Eligibility for the bonus tax deduction will be determined by a competitive approval process, as well as a requirement to demonstrate following the completion of the project that the desired improvement in energy efficiency has been achieved.

The bonus tax deduction will be available in the income year it is confirmed that the project has achieved the required level of energy efficiency. The bonus deduction will not affect other deductions that would normally be claimed in relation to the expenditure on the project.

B112 The Simplified Tax System

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
170	-	-	-	-	-	-	-
Tax expenditure type:		Deduction, Deferral, Accelerated write-off				2009 TES code:	B100
Estimate Reliability:		Low
Commencement date:		2001				Expiry date:	2007
Legislative reference:		Division 328 of the Income Tax Assessment Act 1997

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

General consumption tax expenditures

B113 Exemption of tax offsets paid under the National Urban Water and Desalination Plan

General public services - General services ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	-	-	-	-	-	-
Tax expenditure type:		Exemption				2009 TES code:	B102
Estimate Reliability:		High
Commencement date:		1 July 2009				Expiry date:	30 June 2014
Legislative reference:		Section 67-23 and Subdivision 402-W of the Income Tax Assessment Act 1997.

The National Urban Water and Desalination Plan provides financial assistance to approved projects, such as desalination, water recycling and stormwater harvesting projects, which improve the security of water supplies to Australia's major cities. The financial assistance is provided as refundable tax offsets, unless the applicant receiving the assistance is outside the tax system, in which case they receive a grant. Payments made as refundable tax offsets under the plan are exempt from tax.

Miscellaneous tax expenditures

B114 International tax - a final withholding tax on certain distributions by Australian managed investment trusts to foreign residents

General public services - General services ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	*	*	*	*	*	*
Tax expenditure type:		Concessional rate				2009 TES code:	B104
Estimate Reliability:		Low				* Category	2+
Commencement date:		1 July 2008				Expiry date:
Legislative reference:		Subdivision 12-H of Schedule 1 to the Taxation Administration Act 1953 Division 7 of the Taxation Administration Regulations 1976

Distributions of Australian source net income (other than dividends, interest and royalties) by Australian managed investment trusts to foreign residents are subject to a final withholding tax. The general rate of 30 per cent is reduced for residents of countries specified in the regulations as 'information exchange countries'.

B115 Forestry managed investment schemes - tax deductibility

Other economic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
-	-	40	70	30	35	35	20
Tax expenditure type:		Accelerated write-off				2009 TES code:	B107
Estimate Reliability:		Medium
Commencement date:		2007				Expiry date:
Legislative reference:		Division 394 of the Income Tax Assessment Act 1997

Investors in forestry managed investment schemes (MIS) are able to claim immediate upfront deductions for their expenditure on such schemes, provided that, amongst other requirements, at least 70 per cent of the expenditure is directly related to developing forestry. The statutory deduction available to investors in forestry MIS allows investors to bring forward their deductions relative to the benchmark.

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

B116 Small business related party at call loans taken to be debt interests

Other econom
ic affairs - Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction			2009 TES code:		B108
Estimate Reliability:		Not Applicable			* Category		2+
Commencement date:		1 July 2005			Expiry date:
Legislative reference:		Division 974 of the Income Tax Assessment Act 1997

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

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