Bills Digest no. 156 2011–12
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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.
Law and Bills Digest Section
18 June 2012
24 May 2012
House of Representatives
Commencement: Sections 1 and 2 on Royal Assent; sections 3 and 4 commence at the same time as Part 2 of Schedule 1 of the Tax Laws Amendment (2012 Measures No. 2) Act 2012.
Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.
The purpose of the Pay As You Go Withholding Non-compliance Tax Bill 2012 (the Bill) is to impose a tax on directors and associates of directors of companies that do not comply with the Pay As You Go withholding obligations. It is one in a suite of Bills that also includes:
- Tax Laws Amendment (2012 Measures No. 2) Bill 2012 and
- Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012.
In particular, this Bill is a conjunct to Schedule 1 of the Tax Laws Amendment (2012 Measures No. 2) Bill 2012.
The Pay As You Go (PAYG) tax system was introduced through the A New Tax System (Pay As You Go) Act 1999 (PAYG Act). Section 10-1 of the PAYG Act specifies that:
Under PAYG withholding, amounts are collected in respect of particular kinds of payments or transactions. Usually, someone who makes a payment to you is required to withhold an amount from the payment, and then to pay the amount to the Commissioner.
In the event that a company goes into liquidation, the amount which is to be paid by the company to the Commissioner for Taxation (the Commissioner) to satisfy its PAYG obligations by a will be a debt of the company that is dissolved if there are no assets to satisfy the debt. This leaves a liability to the Commissioner unpaid.
This Bill will impose a tax on directors and associates of directors where PAYG amounts have not been paid.
All three of the Bills in the suite of Bills were referred to the House of Representatives Standing Committee on Economics (the Economics Committee) for inquiry and report.
The Economics Committee published its final report on 18 June 2012. The majority recommended that the House of Representatives pass the Bills.
However, in a dissenting opinion, the members of the Economics Committee representing the Liberal Party were not convinced that the Bill appropriately targeted ‘phoenix’ activity, and expressed concerns that liability would apply indiscriminately to all directors, including those of charities and not-for-profits that are limited by guarantee. In addition, the Liberal Party members of the Economics Committee did not consider that questions which they had raised about whether directors of a company may be liable to pay these measures if they join a board after the fact had been adequately answered.
The combined application of this Bill and the relevant companion amendments in Schedule 1 to the Tax Laws Amendment (2012 Measures No. 2) Bill will form a portion of $10 million revenue savings for the 2011–12 period (this is the estimated revenue impact of Schedule 1 of the Tax Amendment Bill). It is also estimated that it will provide a segment of the forecasted revenue impact of
$290 million between 2012–16.
Item 14 of Part 2 to Schedule 1 of the Tax Laws Amendment (2012 Measures No. 2) Bill inserts new Subdivision 18-D into Division 18 into Schedule 1 of the Taxation Administration Act 1953 (TAA). The object of new Subdivision 18-D is the reversal of any economic benefit gained through tax credits for recipients of withholding payments if the company does not comply with its obligation to pay withheld amounts of PAYG to the Commissioner. The director will generally be eligible to a credit in the personal tax realm if the company has withheld an amount. Proposed section 18-125 provides that any individual is liable to pay PAYG withholding non-compliance tax if:
- they were a director of a company within the meaning of the Corporations Act 2001
- the company was required to pay the Commissioner and
- the company failed to pay these amounts to the commissioner before the last day (or the day of non-compliance).
Item 3 of this Bill imposes the withholding non-compliance tax proposed in Subdivision 18D as set out above. Item 4 specifies that the amount of tax payable under this Bill is the amount calculated in accordance with Subdivision 18-D (when enacted).
Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2795.
. C Kyrgios, Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012, Bills Digest, no. 157, 2011–2012, Parliamentary Library, Canberra, 2012.
. Ibid., recommendation 1.
. Explanatory Memorandum, Tax Laws Amendment (2012 Measures No. 2) Bill 2012, Pay As You Go Withholding Non-compliance Tax Bill 2012 and income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012, p. 3.
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