Chapter 5: New, Modified and Deleted Tax Expenditures

Date

29 January 2004

This chapter provides an outline of the major changes to the list of tax expenditures since the 2002Tax Expenditures Statement. Since the 2002 Statement, 20new tax expenditures were added, largely reflecting policy changes and amendments to the tax benchmarks. In addition 67tax expenditures have been modified. These modifications largely reflect the revised presentation of tax expenditures in this year’s statement, which has resulted in a number of tax expenditures being separated or amalgamated.

5.1 New tax expenditures

Table5.1 reports new tax expenditure items arising from measures that have been announced or legislated since the 2002Tax Expenditures Statement up to the date of publication of the 2003-04Mid-Year Economic and Fiscal Outlook. In addition, the table reports existing measures that were not previously reported as tax expenditures, but which have been recently identified as tax expenditures.

Table 5.1: New tax expenditures


TES code	Tax expenditure description	Reason for new tax expenditure
INCOME Personal
A33	A taxpayer can be released from a tax liability where payment of the liability would cause serious hardship.	Existing measure not previously recognised as a tax expenditure
A34	A tax deduction will be available for tax agent fees for family tax benefit claims relating to the 2001-02 income year lodged through Centrelink between 1July2003 and 30June2004.	New policy measure included in the 2003-04Mid-Year Economic and Fiscal Outlook
A45	Payments made under the First Home Owners Grant Scheme are exempt from tax.	Existing measure not previously recognised as a tax expenditure
A50	Higher rates of taxation apply to the ‘unearned income’ of certain minors.	Existing measure not previously recognised as a negative tax expenditure
A51	A part-year tax-free threshold applies to students who first cease full-time studies, new Australian residents and taxpayers who cease Australian residence.	Existing measure not previously recognised as a negative tax expenditure

Table 5.1: New tax expenditures (continued)


TES code	Tax expenditure description	Reason for new tax expenditure
Business
B10, B32	Payments made under the refundable film tax offset and the refundable research and development (R&D) tax offset are exempt from tax. In addition, recipients of the R&D tax offset are denied deductions for carry-forward losses because the value of those deductions is contained with the offset.	The film tax offset and refundable research and development tax offset are now recorded as expense items. These reporting changes give rise to new tax expenditures.
B20	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.	Existing measure not previously recognised as a tax expenditure
B31	Perpetual subordinated debt instruments may be treated as debt for tax purposes under certain circumstances, thereby allowing the issuer of the perpetual subordinated debt to claim a deduction.	New policy measure reported in the 2003-04 Budget
Capital gains tax
E5	A capital gains tax roll-over is available for a fund that amends or replaces its trust deed in order to become an approved worker entitlement fund for fringe benefits tax purposes.	New policy measure reported in the 2003-04 Budget
E7	An automatic capital gains tax roll-over applies for eligible financial service providers on transition to the Financial Services Reform regime.	New policy measure reported in the 2003-04 Budget
E8	An exemption applies to capital gains or losses on assets acquired before 20September1985.	Modification to the capital gains tax benchmark
E9	An automatic roll-over applies where a capital gains tax asset is transferred to a spouse or former spouse because of a marriage breakdown.	Modification to the capital gains tax benchmark
E10	There is no capital gains tax taxing point when a taxpayer dies.	Modification to the capital gains tax benchmark
E11	Capital gains realised by Australian companies and controlled foreign companies on disposal of non-portfolio interests in foreign companies with active businesses are exempt from capital gains tax.	New policy measure reported arising from the Review of International Tax Arrangements reported in the 2003-04 Budget

Table 5.1: New tax expenditures (continued)


TES code	Tax expenditure description	Reason for new tax expenditure
CONSUMPTION Fuel
F7	Excise rates on all petrol and diesel will be increased for two years to fund payments for the production or import of low sulphur variants of these fuels.	New policy measure reported in the 2003-04 Budget
Alcohol
F14	A concessional rate of excise applies to low strength packaged beer.	Modification to the alcohol consumption tax benchmark
Motor vehicles
F15	Luxury cars are subject to luxury car tax.	The consumption benchmark now includes a benchmark tax treatment for motor vehicles. Under the benchmark motor vehicles are tax-exempt and as such the luxury car tax is identified as a negative tax expenditure.
General consumption tax expenditures
F16	Diplomatic missions and foreign diplomats are eligible for certain exemptions on excise, wine equalisation tax and luxury car tax.	Existing measure not previously recognised as a tax expenditure
F17	Consumption of tobacco and alcohol on board Australian military sea-going vessels is exempt from excise.	Existing measure not previously recognised as a tax expenditure

5.2 Modified tax expenditures

Table5.2 reports tax expenditures that have been modified since they were last reported in the 2002Tax Expenditures Statement (the respective tax expenditure reference codes from this Statement and the 2002Tax Expenditures Statement are shown in the first two columns of the table). Modified tax expenditures refer to tax expenditures that have changed materially, for example because of: a change to the benchmark; a decision to remove a tax expenditure in a certain year; an amalgamation of tax expenditures; or the inclusion of a new element to an existing tax expenditure. A number of items have been modified as a result of a review of tax expenditures. Items that have been modified as a result of a change to the applicable tax rate are not listed.

Table 5.2: Modified tax expenditures


TES code
2003 code	2002 code	Modification to the tax expenditure	Nature of modification
INCOME Personal
A2	A2, A3	All deductions for candidates’ election expenses are now reported as one tax expenditure.	Reporting modification
A4	A5, A7, A8, A20, A25	All exemptions for foreign visitors to Australia are now reported as one tax expenditure.	Reporting modification
A5, A6	A6	The exemption for Australians working on approved overseas projects and the exemption for Australians working in a foreign country are now reported as separate tax expenditures	Reporting modification
A7	A9, A29	The exemption from Medicare levy and the exemption of income of residents of Norfolk Island are now reported as one tax expenditure	Reporting modification
A9	A11, A12, A21, A22	Certain exemptions for Australian Defence Force personnel are now reported as one tax expenditure.	Reporting modification
A13	A16, A18	The exemptions for pay and allowances for Australian Defence Force personnel in operational areas are now reported as one tax expenditure. Furthermore, Australian Defence Force members certified as serving overseas on the following operations are eligible for an income tax exemption in respect of their Australian Defence Force pay and allowances: Operation Paladin (Middle East), Operation Anode (Solomon Island), Operation Palate (Afghanistan), Operation Catalyst (Middle East) and Operation Falconer (Iraq)	Reporting modification. Extension to an existing tax expenditure as a result of a new policy measures reported in the 2003-04 Budget and 2003-04Mid-Year Economic and Fiscal Outlook
A17	A23, A24, A26	The exemptions for educational scholarships and grants are now reported as one tax expenditure.	Reporting modification
A18	A27	Payments for the maintenance of properly trained dogs for guiding or assisting the hearing impaired or other disabled individuals are included as eligible medical expenses under the medical expenses tax offset.	Extension to an existing tax expenditure as a result of a new policy measure reported in the 2003-04 Budget

Table 5.2: Modified tax expenditures (continued)


TES code
2003 code	2002 code	Modification to the tax expenditure	Nature of modification
A19	A28	The Medicare levy low-income thresholds have increased to $15,062 for individuals and $25,417 for families. The additional amount of threshold for each dependent child or student has also increased to $2,334. The threshold for pensioners below pension age has increased to $17,164	Modifications to an existing tax expenditure as a result of a new policy measure reported in the 2003-04 Budget
A21	A30, A31	The tax exependitures for tax offsets for private health insurance are now reported as one tax expenditure.	Reporting modification
A22	A30, A31	The income tax exemption for the private health insurance offset is now reported as a separate tax expenditure.	Reporting modification
A26	A34, A37, A38	Certain tax of fsets for taxpayers who care for a dependant are now reported as a single tax expenditure.	Reporting modification
A27	A35, A44	The tax offset for Community Development Employment Project (CDEP) participants is now included with other tax offsets for social security benefits, pensions or allowances.	Reporting modification
A36	A45	The exemption of the Family Tax Benefit, Parts A and B is now reported as a separate tax expenditure.	Reporting modification
A39	A47, A52	The exemptions for one-off payments made to senior Australians are now reported as one tax expenditure.	Reporting modification
A41	A49, A50	The exemptions for certain war-related payments and pensions paid under a foreign law as compensation for persecution arising during the Second World War are now reported as one tax expenditure. Furthermore, from 1July2002 the exemption will be extended to payments relating to persecution suffered or property lost during the Second World War.	Reporting modification. Extension to the existing tax expenditures (A49 and A50) as a result of a new policy measure reported in the 2003-04 Budget.
A56	A65, A66	The deductions for gifts to approved donees are now reported as one tax expenditure.	Reporting modification
A60	A70	Certain annuities and deferred lump sums ordered by a court as compensation for catastrophic injuries (known as structured orders) are exempt from tax.	Extension to an existing tax expenditure as a result of a new policy measure reported in the 2003-04Mid-Year Economic and Fiscal Outlook

Table 5.2: Modified tax expenditures (continued)


TES code
2003 code	2002 code	Modification to the tax expenditure	Nature of modification
Business
B3	D3, D19	The income tax exemption for funds established for scientific research and the income tax exemption for religious, scientific, charitable or public educational institutions are now reported as one tax expenditure.	Reporting modification
B13, B14	D11	The forced disposal or death of livestock resulting from certain events are subject to tax concessions and these are now identified in a separate tax expenditure.	Reporting modification
B19	D92	Primary producers in Exceptional Circumstance declared areas who make a withdrawal from their Farm Management Deposit Scheme account within 12months are able to maintain the concessional tax treatment.	Extension to an existing tax expenditure as a result of a new policy measure reported in the 2003-04 Budget
B28, B29	D25	The concessional tax treatment for pooled development funds and the concessional tax treatment for superannuation funds that invest through pooled development funds in venture capital are now reported as separate tax expenditures.	Reporting modification
B33	D78	An immediate deduction is available for expenditure on core technology related to research and development activities.	Reporting modification
B60	D75	Eligibility to enter the Simplified Tax System was extended to most fuel retailers.	Extension to an existing tax expenditure as a result of a new policy measure reported in the 2003-04 Budget
B72	D94, D97	All exemptions (income, dividend and interest withholding tax) for prescribed international organisations are now reported as one tax expenditure.	Reporting modification
B73	D95, D96	The dividend and interest withholding tax exemptions for certain overseas organisations are now reported as one tax expenditure.	Reporting modification
B75	D99	The exemption for branch profits from the foreign tax credit system has been extended to branches in all countries.	Extension to an existing tax expenditure arising from the Review of International Tax Arrangements reported in the 2003-04 Budget
B83	D107	The exemption of non-portfolio dividends from the foreign tax credit system has been extended to non-portfolio dividends paid by all foreign companies.	Extension to an existing tax expenditure arising from the Review of International Tax Arrangements reported in the 2003-04 Budget
B86	D110	The exemption from interest withholding tax has been extended to qualifying debentures issued by certain widely held unit trusts.	Extension to an existing tax expenditure arising from the Review of International Tax Arrangements reported in the 2003-04 Budget

Table 5.2: Modified tax expenditures (continued)


TES code		&nbs p;
2003 code	2002 code	Modification to the tax expenditure	Nature of modification
Retirement savings
C1, C2	B1, B6	The tax expenditure for the concessional treatment of superannuation has been amended. The concessional taxation of unfunded lump sums is now reported separately and the capital gains tax discount for superannuation funds is now included with the concessional treatment of funded superannuation. The 2002 TES was based on a planned reduction in the superannuation contributions and termination payments surcharge rates. The reduction in these rates will now be smaller than originally planned. The government superannuation co-contribution for low-income earners has also been extended and modified.	Reporting modifications Modification to an existing tax expenditure as a result of policy measures reported in the 2003-04 Mid-Year Economic and Fiscal Outlook
C1	D23	The income tax exemption for current pension liabilities is now included in the concessional treatment of funded superannuation	Reporting modification
C1	D45	The treatment of capital gains that relate to segregated pension assets is now included in the concessional treatment of funded superannuation.	Reporting modification
Fringe benefits tax
D13	C16, C19	The exemption for remote area housing benefits and residential fuels and the reduction in taxable value for remote area housing assistance are reported as one tax expenditure.	Reporting modification
D25	C30, C52	The exemption for certain loan benefits and the exemption for certain loans to employees to meet employment-related expenses are reported as one tax expenditure.	Reporting modification
Capital gains tax
E8	D40	The exemption resulting from reducing the cost base of trusts for capital gains tax purposes related to assets purchased prior to 20September 1985 was previously reported as a separate tax expenditure. It is now included in a new tax expenditure that relates to all assets purchased prior to 20September 1985	Reporting modification and benchmark change

Table 5.2: Modified tax expenditures (continued)


TES code
2003 code	2002 code	Modification to the tax expenditure	Nature of modification
E13	D37, D39	The partial capital gains tax exemption for goodwill is now included in the tax expenditure for the sale of active assets of small businesses.	Reporting modification
CONSUMPTION Fuel
F3	E2	Introduction of the onecent perlitre penalty rate of excise on High Sulphur Diesel was deferred from 1January2003 to 1July2003	Change in the timing of a previously reported tax expenditure reported in the 2003-04 Budget
F5	E6	The concessional excise rates on aviation turbine fuel and aviation gasoline have been slightly increased for 12months, from 1July2003, to provide supplementary funding to the Civil Aviation Safety Authority. In addition, the excise arrangements on aviation turbine fuel for funding the Location Specific Pricing Subsidy have been extended until 31August2004.	Modifications to an existing tax expenditure item reported in the 2003-04 Budget
F6	E4	The removal of the excise-free arrangements for biodiesel from 18September2003 has resulted in the removal of the biodiesel component from the excise exemption for the 'alternative fuels' tax expenditure.	Modification to an existing tax expenditure item reported in the 2003-04 Budget
Alcohol
F11	E10	Increase in the value of the tax expenditure for the concessional rate of excise levied on draught beer, as the low strength component of the draught beer concession has increased.	A result of changes to the alcohol consumption tax benchmark

5.3 Deleted tax expenditures

Table5.3 reports tax expenditures that have been deleted since the 2002Tax Expenditures Statement. Deleted tax expenditures do not include tax expenditures that have been abolished but are still reported because they have an impact over the reported time horizon, which extends back to 1999-2000. (Instead, tax expenditures that have been abolished but which still have an impact within the reporting period are generally reported as being modified.)

Table 5.3: Deleted tax expenditures

2002 TES code	Tax expenditure description	Reason for deletion
A62	Substantiation provisions for employment-related expenses which do not exceed the amount of certain award transport allowances	This is no longer identified as a tax expenditure because this does not provide for a concessional valuation of this employment-related expense.
C3	Exclusion from the fringe benefits reporting requirement for certain benefits provided to Australian Defence Force Personnel	This is no longer identified as a tax expenditure because although this exclusion is taken into account to dete rmine entitlement to income-tested government benefits, liability to tax surcharges and income-tested obligations, it does not affect an employer’s fringe benefits tax liability.
C4	Exclusion from the fringe benefits reporting requirement for certain elements of the Overseas Living Allowance	(See C3 above)
C5	Exclusion from the fringe benefits reporting requirement for benefits associated with Australian Defence Force removals	(See C3 above)
C18	Exclusion from the fringe benefits reporting requirement for regional housing benefits provided by certain employers in regional areas	(See C3 above)
C31	Discounted valuation of certain loan benefits	Benchmark revision. These discounted valuations accord with the benchmark treatment of the relevant loan benefits
C53	Exclusion from the fringe benefits reporting requirement for certain travel in marked emergency vehicles	(See C3 above)
C55	Exclusion from the fringe benefits reporting requirement for benefits associated with police force removals	(See C3 above)
C56	Exclusion from the fringe benefits reporting requirement for benefits associated with home-to-work travel in unmarked police vehicles	(See C3 above)
D27	Income tax exemption for business assistance grants from the Katherine District Business Re-Establishment Fund	This no longer has an impact over the reported time horizon.
D50	Refundable tax offset for large scale film production	Reclassified as an expense
D77	Research and development refundable tax offset for small companies	Reclassified as an expense.
D88	Capitalisation of ownership costs of assets held partly for private use	Benchmark revision. This item relates to cost base adjustments that are more appropriately included within the benchmark.

Chapter 5: New, Modified and Deleted Tax Expenditures

5.1 New tax expenditures

5.2 Modified tax expenditures

5.3 Deleted tax expenditures

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