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Bills Digest No. 183 1999-2000A New Tax System (Tax Administration) Bill (No 2) 2000

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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 & Copyright Details

Passage History

A New Tax System (Tax Administration) Bill (No 2) 2000

Date Introduced: 11 May 2000

House: House of Representatives

Portfolio: Treasury

Commencement: The majority of amendments commence on 1 July 2000 when the A New Tax System (Goods and Services Tax) Act 1999 commences, with the following exceptions:

amendments applicable to fringe benefits tax (Schedule 2 Part 4) commence on 1 April 2001;
amendments to the Diesel and Alternative Fuels Grants Scheme Act 1999 (items 2-7 of Schedule 2 Part 1) commence on 1 July 2000 or such later date on which motor vehicle emission standards are determined under the Diesel and Alternative Fuels Grants Scheme Act 1999; and
amendments to the Pay As You Go withholding system in the Taxation Administration Act 1953 (Schedule 3) are taken to have commenced on 22 December 1999, the date on which the A New Tax System (Pay As You Go) Act 1999 commenced.

Purpose

The main purpose of the Bill is to introduce a uniform administrative penalty regime for all taxation laws. The Bill also streamlines the criminal penalties payable for comparable taxation offences contained in a number of separate taxation laws (such as failure to keep records, or failure to lodge a return). It makes a large number of minor amendments to various taxation laws.

Background

Uniform administrative penalty regime

The Bill is part of a series of measures designed to implement the Government's commitment, announced in A New Tax System, to 'a more cohesive approach to compliance and administration'.⁽¹⁾ The Bill introduces a uniform administrative penalty regime for all taxation laws. This is the second phase of a uniform penalties regime. The first phase was the introduction of a uniform general interest charge for all late payments of tax.⁽²⁾ The third phase, planned for 2000-2001, will be the amendment of penalties in line with the recommendations contained in A Tax System Redesigned.⁽³⁾

The regime is modelled on the provisions currently contained in the Income Tax Assessment Act 1936. The new regime will be contained in the Taxation Administration Act 1953 and will apply to all taxation laws. Consequently, provisions in a number of taxation laws which currently provide for administrative penalties, are repealed by the Bill.

Administrative penalties are payable for:

certain conduct relating to statements and schemes (proposed Division 284),
late lodgment of returns and other documents (proposed Division 286), and
failing to comply with other taxation obligations (proposed Division 288).

The circumstances in which an administrative penalty is payable, and the amount of the penalty, are substantially the same as under Part VII of the Income Tax Assessment Act 1936, although the penalties will not only apply to income tax laws. The details are set out below in the Main Provisions section.

Provision of tax advice

The Bill also alters the position as to who may prepare and lodge tax returns and provide taxation advice. These amendments were designed to allay concern about the capacity of tax agents to handle the demand for advice about, and the preparation and lodgment of, business activity statements on behalf of taxpayers.⁽⁴⁾ The Bill allows the following persons to provide services related to business activity statements:

professional accountants and tax practitioners,
bookkeepers working under the direction of registered tax agents, and
persons who provide payroll bureau services to employers.

However, the Bill also expands the range of taxation services which may only be provided by a registered tax agent. These amendments have given rise to concern among accountants and lawyers that they will severely limit the ability of lawyers and accountants who are not registered tax agents to provide tax advice and prepare tax returns.⁽⁵⁾

Main Provisions

Uniform administrative penalty regime

Proposed Divisions 284, 286 and 288 of the Taxation Administration Act 1953 contain the new administrative penalty regime. The penalties deal with conduct relating to statements and schemes, late lodgment of documents, and miscellaneous matters. These administrative penalties are in the nature of additional tax, and may be imposed in addition to or instead of criminal liability for the same events.

Penalties relating to statements and schemes

Administrative penalties apply to statements made by a taxpayer, but also by the taxpayer's agent or partner (proposed sections 284-25 and 284-35). If a taxpayer is a trustee of a trust, the administrative penalty applies to the trustee personally, not to the beneficiary of the trust (proposed section 284-30).

Proposed section 284-75 provides that a person is liable to an administrative penalty for:

making a false or misleading statement about a tax-related matter,
taking a position that is not reasonably arguable about a tax-related matter (what is 'reasonably arguable' is defined in proposed section 284-15),
failure to provide documents which the Commission requires to determine a tax-related liability, and
failure to follow a private tax ruling.

For the majority of these matters, the penalty is 25% of the taxation shortfall, in addition to repaying the taxation shortfall. However, the percentage is increased to 50% or 75% respectively if there is evidence of recklessness or intentional disregard of a taxation law (proposed section 284-90).

A person is also liable to an administrative penalty for attempting to reduce his or her tax liability through a scheme (proposed section 284-145). The rate of the penalty varies, depending whether the dominant or sole purpose of the scheme was tax avoidance (proposed section 284-160).

The amount of the penalty payable for conduct relating to both statements and schemes is increased by 20% if the taxpayer:

attempts to obstruct the Commissioner finding out about a shortfall,
fails to tell the Commissioner of a shortfall after becoming aware of it, or
has paid an administrative penalty before (proposed section 284-220).

Conversely, the amount of the penalty may be reduced (in some cases to nil or by 80%) for voluntary disclosure to the Commissioner (proposed section 284-225). If a taxpayer makes voluntary disclosure of a taxation shortfall before the Commissioner makes a public statement requesting voluntary disclosure about a particular type of scheme or transaction, the amount of the penalty payable is reduced significantly (proposed section 226Z(b)(ii) of the Income Tax Assessment Act 1936,⁽⁶⁾ and proposed section 284-225(2)(b) of the Taxation Administration Act 1953). This is a new feature of the Bill and is not part of the current administrative penalty regime.

No administrative penalty is payable if a taxpayer:

followed advice given by the Commissioner, or a statement in a publication approved by the Commissioner, or general administrative practice, or
took reasonable care in making a statement which turned out to be false or misleading, or
did not follow a private taxation ruling, but a decision of a court or the Administrative Appeals Tribunal supports his or her interpretation of the law in question (proposed section 284-215).

Penalties for late lodgment of documents

Proposed Division 286 of the Taxation Administration Act 1953 provides for uniform administrative penalties for failure to lodge returns, notices, statements and other documents on time, as required under a taxation law.

The penalty is one penalty unit (currently, $110⁽⁷⁾) for each period of 28 days the document is late, up to a maximum of five penalty units (proposed section 286-80). Higher penalties are payable by taxpayers with medium or large annual turnover or assessable income (proposed subsections 286-80(3) and (4)).

Miscellaneous administrative penalties

Proposed Division 288 of the Taxation Administration Act 1953 provides for uniform administrative penalties of 20 penalty units (currently, $2200) for:

failure to keep records as required under any taxation law (proposed section 288-25),
failure to retain or produce a tax declaration made (proposed section 288-30), and
preventing an authorised officer obtaining access to premises to search for and inspect documents or property (proposed section 288-35).

Consequential amendments

The uniform administrative penalty system necessitates a series of minor consequential amendments. First, provisions in various taxation laws which impose administrative penalties or penalty tax are repealed or will cease to apply after the commencement of the Bill.⁽⁸⁾

Further, criminal offence provisions in a number of taxation laws have been standardised so that uniform penalties apply to similar conduct under different laws. Currently, committing an offence under certain taxation laws can lead to the imposition of penalties of up to three times the amount which may be imposed for identical offences under other taxation laws. The Bill imposes uniform criminal penalties of 30 penalty units (currently $3300) for:

failing to provide an officer searching premises and books with all reasonable facilities and assistance,⁽⁹⁾ and

failing to keep records.⁽¹⁰⁾

The Commissioner is given discretion to remit all or part of the general interest charge if he or she is satisfied that it is 'appropriate' to do so (proposed subsection 8AAG(5) of the Taxation Administration Act 1953). This is in addition to the Commissioner's power to remit the general interest charge in special circumstances.

The Bill makes other minor amendments of a non-contentious nature.

Provision of tax advice

The Bill replaces section 251L of the Income Tax Assessment Act 1936 and section 119 of the Fringe Benefits Tax Assessment Act 1986.⁽¹¹⁾ Those provisions currently provide that only a registered tax agent may charge fees to prepare an income tax return or objection, or transact business on behalf of a taxpayer in income tax matters. However, a solicitor or barrister may provide income tax advice, prepare an objection or act for a taxpayer in litigation or other proceedings.

The Bill allows (proposed subsection 251L(6)) the following persons who are not registered tax agents to provide legal advice, deal with the Commissioner on behalf of taxpayers, and prepare and lodge GST business activity statements:

accountants and lawyers who are members of a recognised professional association,
bookkeepers working under the direction of registered tax agents, and
payroll bureau employees.

However, this only applies to business activity statements. The Bill restricts the activities which can be conducted in relation to all other taxation matters. Currently a person is only required to be a registered tax agent to prepare an income tax return or objection, or act on a taxpayer's behalf in income tax matters. Proposed section 251L extends this requirement to lodging tax returns or other documents under all taxation laws, not just income tax laws. Further, only a registered tax agent may deal with the Commissioner on behalf of a taxpayer in relation to matters arising under any taxation law. It will be an offence to knowingly or recklessly charge a fee for the provision of services which can only be provided by a registered tax agent. The maximum fine will be 200 penalty units (currently $2200).

In addition to registered tax agents, a barrister or solicitor may:

give legal advice about taxation law,
prepare or lodge an objection to a tax assessment, and
apply for review or institute an appeal against a decision on an objection (proposed subsection 251L(8)).

While this may seem like it gives lawyers broad powers in tax-related matters, it in fact curtails the powers they are currently able to exercise. The powers of accounting professionals who are not registered as tax agents are also curtailed. Currently, lawyers and accountants who are not registered as tax agents are able to lodge documents and deal with the Commissioner on all taxation matters except income tax. Under the changes proposed in the Bill, lawyers⁽¹²⁾ or tax specialists who are not registered tax agents will not be able to lodge documents, deal with the Commissioner, apply for private tax rulings or prepare an objection to a ruling on behalf of clients. Lawyers will still be able to give legal advice on taxation laws, prepare objections to tax assessments and institute and conduct proceedings and litigation.

Miscellaneous amendments

Approved forms, declarations, signatures

Proposed Division 388 of the Taxation Administration Act 1953⁽¹³⁾ consolidates existing requirements about declarations, signatures (including electronic and telephone signatures) and truncating amounts. It also consolidates the current approved form requirements for taxation returns, applications and notices, and extends those requirements to other taxation documents, such as income tax and fringe benefits tax returns.⁽¹⁴⁾

Proposed section 388-55 gives the Commissioner discretion to allow taxpayers further time to lodge any approved form. As there is currently a discretion to defer the time of lodgment of an income tax return, fringe benefits tax return or GST return, the main significance of this discretion is to permit late notification of business activity statement amounts.

An entity which is required to pay GST electronically must also pay all other tax debts electronically (proposed section 8AAZMA of the Taxation Administration Act 1953⁽¹⁵⁾). Additionally, an entity which is required to lodge GST returns electronically must also notify all other business activity statement amounts electronically (proposed section 388-80 of the Taxation Administration Act 1953).

Date tax debts are due

Currently, income tax becomes payable on a date specified in the notice of assessment, which must be at least 30 days after the date of the notice. Proposed subsection 204(1) of the Income Tax Assessment Act 1936 provides that income tax becomes payable 21 days after the due date for lodgment of the tax return. However, if the taxpayer lodges a tax return on or before the due date for lodgment, tax may be payable 21 days after the notice of assessment is given to the taxpayer, if that is later than the due date for lodgment. The time tax becomes payable by a full self-assessment taxpayer is not altered.

This amendment is an advantage for taxpayers who lodge tax returns prior to the due date, as they are guaranteed not to be liable to pay their tax until 21 days after the lodgment date. However, taxpayers who fail to lodge their tax returns on time are liable to pay tax 21 days after the tax return is due, whether they have lodged their tax return or received an assessment or not. They will then become liable to the general interest charge⁽¹⁶⁾ and possibly other penalties for late payment of tax.

Pay As You Go withholding system

Schedule 3 of the Bill makes a number of minor amendments to the Pay As You Go (PAYG) withholding system.⁽¹⁷⁾ It ensures that the obligation to withhold an amount from a payment applies not only to a person who performs work or services directly for a client, but also to a person who performs work for a client of another entity (item 1 of Schedule 3). The object of this provision is to catch payments made to a worker hired under an arrangement involving a chain of labour hire firms (that is, where an employer engages a labour hire firm to provide workers, and the labour hire firm engages another labour hire firm to provide some of those workers).

The Bill broadens slightly the exceptions to the withholding requirements where a supplier of goods or services does not quote its ABN so that where supply is made through an agent, quoting the agent's ABN will be sufficient (items 2-9 of Schedule 3). It also gives the Commissioner the power to relieve certain taxpayers or groups of taxpayers from issuing payment summaries for certain payments covered by the PAYG withholding rules (items 11 and 12 of Schedule 3).

Terminology

Schedule 4 makes a number of consequential amendments to the Corporations Law to update references to be consistent with the new PAYG withholding arrangements. Schedule 5 amends the Dictionary in Chapter 6 of the Income Tax Assessment Tax 1997.

Concluding Comments

The introduction of uniform administrative penalties and standardised criminal penalties for breach of all taxation laws is to be welcomed as leading to greater simplicity in the complex field of tax administration.

The only concern of substance raised in the Bill is that lawyers and accounting professionals who are not registered as tax agents will not be able to prepare and lodge documents or deal with the Commissioner on behalf of clients (although they will be able to do these things in relation to business activity statements). These restrictions already apply and are accepted in the field of income tax. Lawyers will still be able to give legal advice on taxation laws, prepare objections to tax assessments and institute and act for a taxpayer in litigation or other proceedings. It is questionable whether preparing and lodging taxation documents are services commonly provided by lawyers. In any event, lawyers and accountants desiring to provide these services can always apply for registration as tax agents, providing they have the necessary experience in tax matters.⁽¹⁸⁾

One further minor matter should be mentioned. Item 71 of Part 1 of Schedule 2 of the Bill purports to insert item 18 into the table in subsection 8AAB(5) of the Taxation Administration Act 1953. There is currently an item 18 in subsection 8AAB(5) which, as far as can be ascertained, has not been repealed by any Act which has passed but not yet commenced. Nor does it appear to be repealed by any Bill presently before Parliament. This should be verified, and if correct, the proposed item 18 to be inserted could be renumbered 17I and inserted after item 17H.⁽¹⁹⁾

Endnotes

The Hon. Peter Costello, MP, Tax Reform: Not a New Tax, A New Tax System (August 1998) p. 149.
Introduced by Taxation Laws Amendment Act (No 3) 1999.
Explanatory Memorandum to the A New Tax System (Tax Administration) Bill (No 2) 2000, p. 7.
Explanatory Memorandum to the A New Tax System (Tax Administration) Bill (No 2) 2000, p. 49.
Fiona Buffini, 'New bill cuts tax advisers out of loop' The Australian Financial Review 26 May 2000, p. 5.
Inserted by item 30 of Part 1 of Schedule 2 of the Bill.
Section 4AA of the Crimes Act 1914.
These include sections 28-33 of the Diesel and Alternative Fuels Grants Scheme Act 1999; Part VIII of the Fringe Benefits Tax Assessment Act 1986; Division 11 of Part IIIA, sections 163A and 163B, and Part VII of the Income Tax Assessment Act 1936; Part IX of the Petroleum Resource Rent Tax Assessment Act 1987; sections 60 and 61 of the Superannuation Guarantee (Administration) Act 1992; Div 2 and 3 of Pt IIA, sections 16-150(2), 16-153(4), 16-175, 16-200 of the Taxation Administration Act 1953; Part VI of the Tobacco Charges Assessment Act 1955; Part X of the Wool Tax (Administration) Act 1964.
See section 47(5) of the Diesel and Alternative Fuels Grants Scheme Act 1999; section 127(3) of the Fringe Benefits Tax Assessment Act 1986; section 263 of the Income Tax Assessment Act 1936; section 107(3) of the Petroleum Resource Rent Tax Assessment Act 1987; section 35A(4) of the Superannuation Contributions Tax (Assessment and Collection) Act 1997; section 76(3) of the Superannuation Guarantee (Administration) Act 1992; section 41(3) of the Tobacco Charges Assessment Act 1955; section 26(3) of the Termination Payments Tax (Assessment and Collection) Act 1997; section 90(3) of the Wool Tax (Administration) Act 1964.
See section 132(5) of the Fringe Benefits Tax Assessment Act 1986, sections 102AAZG(2), 222(1B), 262A, 465, 621 of the Income Tax Assessment Act 1936; section 121-20 of the Income Tax Assessment Act 1997; section 112 of the Petroleum Resource Rent Tax Assessment Act 1987; section 79(6) of the Superannuation Guarantee (Administration) Act 1992; section 89(1) of the Wool Tax (Administration) Act 1964.
Item 34 of Part 1 of Schedule 2 of the Bill.
However, a barrister or solicitor may perform these reserved functions if he or she is the trustee of a trust or legal personal representative of a deceased estate (proposed paragraph 251L(8)(d)).
Inserted by item 143 of Part 2 of Schedule 2 of the Bill.
These changes replace the existing provisions in sections 161A to 161E of the Income Tax Assessment Act 1936 for returns from the 2000-2001 year, and sections 70A, 70B, 71, 124B and 124C of the Fringe Benefits Tax Assessment Act 1986, for returns from the tax year starting on 1 April 2001.
Inserted by item 78 of Part 1 of Schedule 2 of the Bill.
Sections 8AAA to 8AAH of the Taxation Administration Act 1953.
Which is contained in Parts 2-5 of Schedule 1 of the Taxation Administration Act 1953.
Professional qualifications in accounting, law and tax are all acceptable to become a registered tax agent: regulation 156 of the Income Tax Regulations.
This item is to be inserted if the New Business Taxation System (Miscellaneous) Bill (No 2) 2000, Bill No 63 of 2000, is passed.

Contact Officer and Copyright Details

Katrine Del Villar
8 June 2000
Bills Digest Service
Information and Research Services

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Published by the Department of the Parliamentary Library, 2000.