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This Digest was prepared for debate. It reflects the legislation as
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CONTENTS
Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer and Copyright Details
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:
-
- 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
-
- Treasurer, Tax Reform: not a new tax a new tax system, 13
August 1998.
- Review of Business Taxation, A Tax System Redesigned,
July 1999.
- 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].
Chris Field
1 March 2000
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
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