Bills Digest no. 74 2009–10
Income Tax (TFN Withholding Tax (ESS)) Bill
2009 Note: This Digest is an historical Digest,
published after the Bill was read a third time in the Senate on 2
December 2009. The Bill was passed by both Houses unamended
but is yet to receive Royal Assent.
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
Contact officer & copyright details
introduced: 21 October
House: House of Representatives
The formal parts commence
on Royal Assent. Sections 3 and 4 commence at the same time as
Schedule 1 to the Tax Laws Amendment (2009 Budget Measures No.
2) Act 2009 (which is the later of the days when the current
Bill or that Act receives Royal Assent).
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
This Bill imposes income tax on
certain amounts relating to employee share schemes (ESSs).
Specifically, it imposes a withholding tax on employees who have
received amounts from a company under an ESS but have not quoted a
Tax File Number (TFN) or Australian Business Number (ABN) to the
company by the end of the income year.
Section 55 of the Australian Constitution provides that laws
imposing taxation shall only deal with the imposition of taxation.
Any provision of a law that imposes taxation that deals with any
other matter shall be of no effect. Thus, even though the Tax Laws
Amendment (2009 Budget Measures No. 2) Bill 2009 (which was
introduced at the same time as the current Bill) also deals with
the issue of ESSs, and it would seem to make sense to include all
aspects of ESSs in the one Bill, a separate Bill is required to
impose taxation on certain amounts related to ESSs.
In short, an ESS is a scheme under which interests (in the form
of shares or rights etc) in a company are provided by the company
to its employees or their associates. The reader is referred to the Bills
Digest for the Tax Laws Amendment (2009 Budget Measures No. 2) Bill
2009 for further information about ESSs, particularly proposed
changes to the tax treatment of the shares or rights received by
employees under the schemes.
Clause 3 imposes income tax on amounts
mentioned in paragraph 14 155(1)(b) of Schedule 1 to the
Taxation Administration Act 1953. That paragraph is
inserted by item 2 of Schedule 1 to the Tax Laws Amendment (2009
Budget Measures No. 2) Bill 2009. Essentially proposed
section 14 155 deals with liability for TFN withholding
tax. It provides that TFN withholding tax is payable (under the
current Bill) if a company provides one or more interests to an
individual under an ESS, and as a result an amount is included in
the individual s assessable income under proposed Division 83A of
the Income Tax Assessment Act 1997 (ITAA 1997), and the
individual has not quoted his or her ABN or TFN to the company by
the end of the income year.
Clause 4 imposes tax at the rate worked out by
applying the formula:
Schedule 7 to the Income Tax Rates Act 1986 sets out
general rates of tax, and Part I deals specifically with resident
taxpayers. Currently the highest rate in the table in Part I of
Schedule 7 is 45 per cent (in the context that both resident and
non-resident taxpayers pay income tax at the rate of 45 per cent on
the part of their ordinary taxable income that exceeds
Thus under clauses 3 and 4, a taxpayer who
receives interests under an ESS and includes the amount in his or
her assessable income, but who fails to provide his or her TFN or
ABN to the company, will pay income tax on the amount at the rate
of 46.5 per cent.
Members, Senators and Parliamentary staff can
obtain further information from the Parliamentary Library on (02)
14 December 2009
Bills Digest Service
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