Bills Digest No. 122  1999-2000A New Tax System (Tax Administration) Amendment Bill (No. 2) 1999


Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer and Copyright Details

Passage History

A New Tax System (Tax Administration) Amendment Bill (No. 2) 1999

Date Introduced: 9 December 1999

House: House of Representatives

Portfolio: Treasury

Commencement: Amendments relating to the Pay As You Go tax system will commence at the same time as the legislation implementing that system commences and will apply from the commencement of that system. Amendments relating to fringe benefits tax will commence from 1 April 2001.

Purpose

The Bill makes a number of largely technical changes relating to:

  • The calculation of instalment payments under the Pay As You Go tax collection system for certain trustees who are liable to pay tax on behalf on multiple beneficiaries who may be subject to different tax rates
  • The collection of fringe benefits tax by instalments to:
  • take account of allowances for credits where instalment payments have been greater than required, and
  • to alter the calculation of the instalments payable based on prior assesments.

Background

While the term 'A New Tax System' (ANTS) is now most closely associated with the goods and services tax (GST), possibly through the use of that term in the name of the legislation introducing the GST, the New Tax System announced by the Treasurer on 13 August 1998(1) dealt with a much wider range of subjects, including:

  • increases in certain government benefits
  • foreshadowing changes in business taxation (the New Business Tax System which is in the process of being introduced following the Ralph Report(2)), and
  • changes to the administration of the tax collection system, principally through the replacement of the Pay As You Earn (PAYE) and a number of other tax collection methods, with the Pay As You Go (PAYG) system.

PAYG, with which this Bill is principally concerned, replaced a number of instalments payable at differing times with a single quarterly payment, which should result in lower compliance costs compared to the current systems. The main collection methods to be replaced are:

  • PAYE
  • Prescribed Payments System
  • Reportable Payments System
  • Company tax instalments, and
  • Provisional tax.

The PAYG system is scheduled to apply to the 2000-01 and later financial years and was introduced by the A New Tax System (Pay As You Go) Act 1999 and, to a lesser extent, the A New Tax System (Tax Administration) Act 1999.(3) The Bill supplements provisions to be introduced by these Acts.

Main Provisions

Schedule 1 of the Bill will introduce a new subdivision 45-N into the Taxation Administration Act 1953 (TAA) which will deal principally with the calculation of income, tax rates and instalment payments for 'multi-rate trustees'. These concepts may be used in determining the amount of instalments payable by such a trustee under the PAYG system.

Multi-rate trustees are those who satisfy the criteria contained in proposed section 45-455:

  • the trustee is assessed on a share of the income of the trust for a previous year of income if:
  • the beneficiary is presently entitled to a share of the income of the trust but is under a legal disability (however, the proposed section will not apply if it can reasonably be expected that for the current year of income the beneficiary will not be under a legal disability), or
  • the beneficiary has a vested interest in the income of the trust but is not presently entitled to it except for the purposes of tax law, or
  • the trustee is assessed on all or part of the income of the trust as it is not assessed under other provisions.

In these cases, the trustee will be separately assessed in regard to each beneficiary or trustee liability, so that they may be subject to multiple rates of tax.

Such trustees may choose whether to comply with the remainder of this proposed subdivision or opt to have their liability calculated under subdivision 45-D which provides for quarterly instalments to be calculated on a GDP adjusted basis (ie the previous years instalments are adjusted for changes in GDP)) (proposed section 45-468).

Proposed section 45-475 deals with the calculation of notional tax. A taxpayer's notional tax is their adjusted tax from the base year (adjusted tax is based on the amount of tax paid on the adjusted income less certain reductions, such as tax offsets, Medicare levy and higher education contribution charge). Adjusted taxable income is to be calculated in accordance with the formula contained in proposed section 45-480 and is based on the adjusted net income of the trust, reduced net income (these terms are explained in proposed section 45-480 and take account of variables such as capital gains and tax losses) and the share of the trust s net income relating to each beneficiary.

Once the notional tax has been determined, the instalment rate can be calculated in accordance with proposed section 45-470. The instalment rate will be the percentage calculated by dividing the notional tax by the base assessment instalment income (this will be the amount of the base income of the trust determined by the Commissioner to be instalment income), multiplied by 100. The base year will be either the year in which the trustee was assessed to pay tax on behalf of a beneficiary as described above or, if the Commissioner is satisfied that such an amount was included in assessable income but no tax was payable in a later year, that later year.

The Commissioner is to calculate the instalment rate and, at the same time as notifying the taxpayer of their instalment rate, also notify them of the notional tax payable (proposed section 45-473).

If a taxpayer choses to vary their instalment rate, proposed sections 45-525, 45-530 and 45-535 clarify the amounts to be used in determining the variation having regard to their current instalments.

Fringe Benefits Tax (FBT)

FBT is assessed annually and may be payable quarterly based on the base year s liability unless the instalment amount is varied. (If annual FBT liability is less than $3 000 it is payable annually.) From 1 April 2000 (the FBT year runs from 1 April to 31 March) the instalments will be payable on the same dates as payments based on the same year under the PAYG system are due.

Two minor changes to the assessment and collection of FBT announced in the ANTS package are to be implemented by this Bill:

  • where FBT liability is varied downwards during a tax year, instalments already paid in the year will be able to be credited against remaining liability to the degree that they exceed the required instalment payments, and
  • the notional amount of tax used to calculate liability will be varied to allow the most recent figures to be used.

The changes will have effect from 1 April 2001.

Item 1 of Schedule 2 will substitute a new section 105 into the Fringe Benefits Tax Assessment Act 1986 (FBTAA) dealing with the availability of credits. The amount of credit available will be the amount of an instalment paid less the amount due at that instalment time and any amount claimed under proposed section 112A (see below).

Item 3 will amend section 111 to insert a new formula for the calculation of the amount of an instalment. The new formula will insert a reference to credits which the taxpayer may have claimed, so that any credits claimed are deducted from the previous instalments paid in calculating the amount of the next instalment.

Proposed section 112A, which will be inserted into the FBTA by item 8, allows taxpayers to claim credits for any amount of previous instalments paid that exceed the amount due.

Section 112 of the FBTA provides that if an employer has made an estimate of the amount of FBT payable in an instalment and this amount is less than 90% of the due amount, the general interest charge (GIC) will be payable on the shortfall. Proposed subsection 112B will extend the GIC to situations where instalments are based on the employer's estimate and credits are claimed and as a result the amount payable in an instalment has fallen below the 90% mark.

Section 110 of the FBTA deals with the calculation of the notional amount which is used to calculate FBT instalment payments and currently provides for the notional amount of tax to be calculated by multiplying the preceding year s tax by a multiple greater than 1. Item 2 proposes that the notional amount of tax will instead be calculated in accordance with the Table contained in the item which provides that:

  • generally, the notional amount will be the tax for the most recent year that an assessment was made
  • if the last assessment was zero or no assessment has been made, the notional amount will be nil, or
  • if the general rule applies and the rate of FBT has been changed, the notional amount will be either the general amount or, if the test time is after the time that regulations have been made allowing for the varying of the notional amount, the amount calculated according to the regulations.

However, if the Commissioner estimates that the amount of FBT payable in the year will be greater than the amount calculated under the general rule, the notional amount will be the amount estimated by the Commissioner.

Application: For the tax year commencing on 1 April 2001 and later years (item 10).

The remainder of the Bill deals with consequential and relatively minor amendments principally relating to the PAYG system.

Endnotes

  1. Treasurer, Tax Reform: not a new tax a new tax system, 13 August 1998.

  2. Review of Business Taxation, A Tax System Redesigned, July 1999.

  3. For further information on the operation of the PAYG system, refer to the Tax Reform Website http://www.taxreform.ato.gov.au/ [28/02/00].

Contact Officer and Copyright Details

Chris Field
1 March 2000
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 2000

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Published by the Department of the Parliamentary Library, 2000.

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