EXPLANATORY STATEMENT
Tax Laws Amendment (2009 Measures No. 4) Act 2009
Prescribed Private Fund Declaration 2009
Authority
Item 26 in Schedule 2 to the Tax Laws Amendment (2009 Measures No. 4) Act 2009 gives the Minister the power to make a declaration, by way of legislative instrument, after 1 October 2009 that those funds that have been approved by a Treasury minister, but have not yet been prescribed, are taken to be prescribed private funds (PPFs).
Commencement
The Declaration commences the day after it is registered on the Federal Register of Legislative Instruments.
Purpose
PPFs are private philanthropic trust funds. This declaration deals with ten funds that: were approved by a Treasury minister for recommendation to the Governor-General that the trust fund be prescribed as a PPF; but had not been prescribed in the Income Tax Assessment Regulations 1997 as a PPF before reforms to the PPF approval process commenced on 1 October 2009. This declaration is machinery in nature.
Context
Up to 1 October 2009, the Governor-General was responsible for prescribing trust funds as PPFs. The date a fund is prescribed was usually backdated to the day that a Treasury minister agreed to recommend prescription to the Governor-General. The Governor-General’s prescription was subject to disallowance by either House of Parliament.
However, responsibility for the administration of PPFs has been moved to the Commissioner of Taxation. From 1 October 2009, PPFs (now called private ancillary funds, or PAFs) are no longer be prescribed by regulation in the Income Tax Assessment Regulations 1997. Rather, the Commissioner is responsible for determining whether a trust fund is a PAF (according to a legislative definition) and determining whether that fund is entitled to be endorsed as a deductible gift recipient (DGR). This brings the treatment of PAFs into line with other DGRs.
On 1 October 2009 there was a limited number of funds that: were approved by a Treasury minister for recommendation to the Governor-General that the trust fund be prescribed as a PPF; but had not been prescribed in the Income Tax Assessment Regulations 1997 as a PPF.
The transitional arrangements in Tax Laws Amendment (2009 Measures No. 4) Act 2009 (the reform act) included a method of dealing with this group of funds. The Treasurer was given the power to make a declaration, by way of legislative instrument, that those funds that have been approved by a Treasury minister, but have not yet been prescribed, are taken to be PPFs.
This treatment is consistent with the movement of responsibility for the administration of PPFs to the Commissioner of Taxation.
The declaration is disallowable by either house of Parliament.
Consultation
Treasury has consulted with the organisations concerned, in conjunction with the Australian Taxation Office. Further consultation was not required as the declaration is minor and machinery in nature.
Overview
The Tax Laws Amendment (2009 Measures No. 4) Act 2009, enacted by the Australian Parliament, was introduced to address the transition in the administration of prescribed private funds (PPFs) from the Governor-General to the Commissioner of Taxation. This legislative shift was necessitated by reforms that aligned the treatment of PPFs with other deductible gift recipients (DGRs). Specifically, the Act aimed to manage the transition of ten funds that were approved by a Treasury minister for prescription as PPFs but had not yet been formally prescribed in the Income Tax Assessment Regulations 1997 before the commencement of the new process on 1 October 2009. The explanatory statement of the Act outlines that the Minister was granted the authority to make a declaration via legislative instrument, post 1 October 2009, to retroactively classify these approved funds as PPFs. This mechanism ensures continuity and compliance with the new administrative framework for private ancillary funds (PAFs), maintaining the integrity of the tax system during the transition period.
Scope and Application
The Tax Laws Amendment (2009 Measures No. 4) Act 2009 grants the Minister the authority to issue a legislative instrument declaring certain funds as prescribed private funds (PPFs). This applies specifically to ten funds that were approved by a Treasury minister for recommendation to the Governor-General as PPFs but had not been prescribed in the Income Tax Assessment Regulations 1997 before the reforms took effect on 1 October 2009. These funds are now regarded as PPFs under the declaration, which serves a transitional purpose following the shift in responsibility for the administration of PPFs from the Governor-General to the Commissioner of Taxation. The declaration, which is machinery in nature and disallowable by either House of Parliament, ensures that the treatment of these funds aligns with the new legislative framework where the Commissioner determines their status as private ancillary funds (PAFs) and their entitlement to be endorsed as deductible gift recipients (DGRs).
Key Provisions
The Tax Laws Amendment (2009 Measures No. 4) Act 2009 contains provisions that allow the Minister to make a declaration, by legislative instrument, regarding funds approved by a Treasury minister but not yet prescribed as prescribed private funds (PPFs) (section 26 of Schedule 2). This declaration, effective from the day after its registration on the Federal Register of Legislative Instruments, treats these funds as PPFs. These funds are private trust funds approved by a Treasury minister for recommendation to the Governor-General to be prescribed as PPFs but had not been prescribed in the Income Tax Assessment Regulations 1997 before the reforms to the PPF approval process that commenced on 1 October 2009.
The Act imposes certain obligations on the parties involved. The Minister, under section 26, has the authority to make this declaration, thereby ensuring that these funds are recognised as PPFs despite the transitional changes in the administration of these funds. The declaration is subject to disallowance by either House of Parliament, which means that the Parliament retains a check on the Minister's power to make such declarations.
There are potential consequences for non-compliance with the provisions of this Act. While the Act itself does not specify particular offences or penalties, any breach of the declaration or misinterpretation of the funds' status could lead to administrative or legal challenges. This could involve disputes regarding tax obligations and the eligibility of funds to be recognised as deductible gift recipients. The broader tax implications for entities involved could include audits, reassessments, or penalties under the existing tax laws if the funds' status is misapplied or if the declaration's provisions are not adhered to.