Bills Digest No. 110  1998-99 Taxation Laws Amendment Bill (No. 5) 1998


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 and Main Provisions
Concluding Comments
Endnotes
Contact Officer and Copyright Details

Passage History

Taxation Laws Amendment Bill (No. 5) 1998

Date Introduced: 10 December 1998

House: House of Representatives

Portfolio: Treasury

Commencement: The Act commences on the day on which it receives the Royal Assent. The date of commencement of the amendments in the various Schedules is indicated under Main Provisions in this Digest.

Purpose

The Bill has three Schedules and the purpose of the amendments proposed in each Schedule is as indicated below. The following are some abbreviations used throughout this Digest.

Australian Taxation Office

ATO

Commissioner of Taxation

Commissioner

Failure to notify penalty

FTN penalty

Fringe Benefits Tax Assessment Act 1986

FBTAA86

General interest charge

GIC

Income Tax Assessment Act 1936

ITAA36

Income Tax Assessment Act 1997

ITAA97

Late reconciliation statement penalty

LRS penalty

Pay as you earn

PAYE

Pay as you go

PAYG

Prescribed payments system

PPS

Reportable payments system

RPS

Running balance account

RBA

Taxation Administration Act 1953

TAA53

Amendments in Schedule 1

The amendments in Schedule 1 to the Bill will provide for the following three measures.

Alignment of remittance dates

The remittance dates for medium and small tax payers will be aligned from the 7th to the 21st day of the month by amendments to the Income Tax Assessment Act 1936.

Charges and penalties for failing to meet obligations

The following amendments are proposed to various Acts for which the Commissioner of Taxation (the Commissioner) has general administration.

  • A tax deductible general interest charge (GIC) on outstanding debt is to replace the existing late payment penalty provisions.
  • A penalty is to be introduced for failing to notify (FTN) the Commissioner of an obligation to remit a source deduction (eg. PAYE, PPS, etc.) or sales tax.
  • A penalty for failing to give the Commissioner an annual reconciliation statement of source deductions is to be introduced. It will be called the late reconciliation statement (LRS) penalty.
  • Consequential amendments are proposed to support the above measures.

The Taxation Laws Amendment Bill (No.5) 1998 which was introduced into the House of Representatives on 2 July 1998 included the above measures. That Bill lapsed with the calling of the October 1998 election.

Running balance accounts.

The proposed amendments provide the legislative framework for a taxpayer accounting system to establish a Running Balance Account (RBA) to account for debts due to the Commissioner by a taxpayer under various Acts administered by him or her. It will initially apply to debts under the sales tax, PAYE, PPS and RPS for the year commencing 1 July 1999 by establishing four separate RBAs. Eventually, a single RBA is to be the accounting platform for the Government's tax reform package.

Amendments in Schedule 2

Schedule 2 will amend:

  • the anti-avoidance provisions contained in Part IVA of the Income Tax Assessment Act 1936 (the ITAA36) to enable those provisions to apply to schemes designed to acquire or generate foreign tax credits, and
  • the penalty provisions contained in Part VII of the ITAA36 to ensure that penalties which currently apply to Part IVA schemes will also apply to foreign tax credit schemes.

Amendments in Schedule 3

Schedule 3 to the Bill amends various Acts to correct earlier drafting errors. The amendments do not involve changes of policy significance.

Background and Main Provisions

As this Bill proposes disparate amendments in the three Schedules, for the convenience of the reader the background to the significant amendments is considered together with Main Provisions in this Digest.

Amendments in Schedule 1 - Running balance accounts, general interest charge and related matters

Alignment of Remittance Dates

Background

Implementing the A New Tax System

In December 1998 a package of 17 Bills(1) was introduced into the House of Representatives to give effect to Government's proposals on 13 August 1998 for a new tax system, which included the introduction of a GST. The outline of Government's proposals was contained in the policy document Tax Reform: not a new tax, a new tax system: The Howard Government's Plan for a New Tax System,(2) which will be referred to as the A New Tax System (ANTS) in this Digest.

ANTS indicated that the Government will replace the following five existing payment and reporting systems:

  • PAYE
  • PPS
  • RPS
  • Provisional tax, and
  • Company instalments.

with one new, comprehensive pay as you go (PAYG) system.

ANTS also indicated that to make it possible for business to make one net quarterly payment, or to claim one net quarterly refund, the quarterly obligations will be due on 21 October, January, April and July. (3)

Current payment requirements

Division 1AAA of Part VI of the ITAA36 sets out when and how amounts deducted as PAYE, PPS and RPS must be paid to the Commissioner. Medium and small remitters are at present required to pay deductions on a monthly or quarterly basis respectively under the provisions of sections 220AAM and 220AAR of Division 1AAA of Part VI.

The ITAA36 at present distinguishes between large, medium and small remitters in regard to the timing of remittances.

  • A large remitter is generally a person whose deductions under PAYE, PPS and RPS for any financial year ending on or after 30 June 1998 exceed $1m. A large remitter is required under section 220AAE to pay to the Commissioner any deductions that the person makes in any month on the dates specified in that month as set out in the Table in subsection 220AAE

Table of payments by large remitters

--------------------------------------------------

Item Day on which amount Payment day

deducted

--------------------------------------------------

1 Saturday or Sunday The second Monday

after that day

..................................................

2 Monday or Tuesday The first Monday

after that day

..................................................

3 Wednesday The second Thursday

after that day

..................................................

4 Thursday or Friday The first Thursday

after that day

--------------------------------------------------

Note:

The payments covered by items 1 and 2 would normally be paid together, as would the payments covered by items 3 and 4.

  • A medium remitter is required under section 220AAM to pay to the Commissioner any deductions made in a particular month not later than the 7th day after the end of that month. A person will be a medium remitter under section 220AAJ if:
  • the total deductions made under RPS, PAYE and PPS exceeded $18,750 for the period between 1 July 1997 and 31 March 1998
  • the total deductions exceeded $25,000 for any financial year ending on or after 30 June 1998
  • the Commissioner has served a notice on the person requiring the person to be a medium remitter, or
  • the Commissioner has determined that the person is not a large remitter and has not determined that the person is not a medium remitter.
  • A small remitter is required under section 220AAR to pay to the Commissioner the amount of any deductions made in a particular month not later than the 7th day after the end of the quarter in which that month occurs. The quarters end at the end of 31 March, 30 June, 30 September and 31 December. A person is a small remitter in relation to any month if the person is neither a large remitter nor a medium remitter.

Main Provisions

Item 105 of Schedule 1 amends subsection 220AAM(1) so that a medium remitter is required to make the remittance by the end of the 21st day after the end of the month when the deduction is made.

Item 109 of Schedule 1 amends subsection 220AAR(1) so that a small remitter is required to make the remittance by the end of the 21st day after the end of the relevant quarter.

Commencement

The amendments will apply from 1 July 1999 under proposed subclause 2(3) of the Bill.

Financial Impact

It is estimated that there will be a cost to the revenue of approximately $60 million per year in lost public debt interest as a result of the alignment measure.(4)

Compliance cost impact

The amendments are not expected to impose any significant compliance costs on taxpayers.

Charges and penalties for failing to meet obligations

Background

Recommendation of the Small Business Task Force

The Small Business Deregulation Task Force in its report(5) in November 1996 highlighted taxpayer concerns about the imposition and calculation of penalties under the various taxation laws. The Prime Minister responded in his statement More Time For Business in March 1997 by requesting the Commissioner of Taxation (the Commissioner) to review the current penalty regime with a view to rationalising and simplifying the system. The proposals in the 1998-99 Budget referred to in the following paragraphs reflect the recommendations of the Commissioner in consequence of this review.

 

1998-99 Budget Proposal

GIC Charge

The proposal to replace the current late payment penalty arrangements with a simpler ''Interest on Outstanding Balance'' (IOB) charge was announced by the Government in the 1998-99 Budget Measures.(6) The Bill refers to it as the general interest charge (GIC).

The GIC charge will apply to any amount owing under a law for which the Commissioner of Taxation has general administration responsibility. The charge will be calculated on a compounding basis with the interest rate being set at the weighted average yield of the 13-Week Treasury Note plus an uplift factor of eight percentage points. The GIC rate will be adjusted quarterly to reflect movements in the 13-Week Treasury Note rate.

The uplift factor reflects the need for the GIC charge to be set at a rate that is above commercial interest rates in order to discourage the use of taxation debts as a form of business finance. Based on the relevant 13-Week Treasury Note yield, the current GIC charge would be in the order of 13%(7) (calculated on a daily compounding basis). Most of the existing penalties have simple interest rates between 16% and 20%, depending on the type of tax.

The GIC charge was to apply from 1 January 1999. As a transitional measure, the Commissioner will use his discretion under the various taxation Acts to reduce existing late payment penalty rates across all taxes to a simple effective rate of 13.5% from 1 July 1998. Over a 12-month period, this rate achieves close parity with the compounding rate of the proposed GIC charge.

Failure to notify (FTN) Penalty

The 1998-99 Budget Measures(8) also indicated that the Government proposed to amend the Income Tax Assessment Act 1936 and the Sales Tax Assessment Act 1992 to introduce a ''Failure to Notify'' penalty which would apply to source deduction withholders and sales tax payers who fail to correctly notify the Commissioner when an amount is due. This penalty was to be calculated at a rate of 8% per annum and will replace the current flat rate culpability penalties (ranging from 20% to 200%) for failure to remit deductions by the due date.

The current prosecution provisions for failure to remit source deduction remittances by the due date will be removed. The Commissioner will rely on existing offence provisions in the Taxation Administration Act 1953 to prosecute withholders for failure to notify the correct liability by the due date.

Late reconciliation statement (LRS) penalty

The 1998-99 Budget Measures(9) also indicated that a new penalty will be introduced into the Income Tax Assessment Act 1936 for withholders of source deductions who fail to lodge annual source deduction reconciliations. The penalty will be calculated at the rate of $10 per week for each week that reconciliation documents are not lodged. The maximum penalty will be $200 and will apply where documents are 20 weeks or more late.

Main Provisions

The General Interest Charge (GIC)

Part 1 of Schedule 1 to the Bill contains the amendments to introduce the GIC, the FTN and LRS penalties. Part 1 of Schedule 1 also contains the amendments to introduce the running balance accounts (RBAs). The various features of the GIC, FTN and LRS penalties are contained in proposed Part IIA of the Taxation Administration Act 1953 (TAA53), to be inserted by Item 350 of Schedule 1, in proposed Divisions 1 to 3.

How is the general interest charge (GIC) worked out?

Division 1 of proposed Part IIA of the TAA53 explains how to work out the GIC . Proposed section 8AAC states that the GIC is payable on the RBA deficit at the end of a day by multiplying the GIC rate for that day by the RBA deficit at the end of that day. Proposed section 8AAE states that the GIC for a day is due and payable to the Commissioner at the end of that day. The GIC is therefore worked out daily on a compounding basis.

Proposed subsection 8AAD(1) provides that the GIC rate for a day is the rate worked out by adding 8 percentage points to the Treasury Note yield rate for that day, and dividing that total by the number of days in the calendar year. The daily effective rate will be adjusted each quarter to reflect quarterly movements in the 13 Week Treasury Note yield under proposed subsection 8AAD(1) in accordance with the following table set out in proposed subsection 8AAD(2).

Treasury Note yield rate

Item

For days in this quarter...

the last weekly tender before the end of this month applies...

1

1 January to 31 March

the preceding November

2

1 April to 30 June

the preceding February

3

1 July to 30 September

the preceding May

4

1 October to 31 December

the preceding August

The reader is referred to the Explanatory Memorandum which gives a number of examples of how the GIC will be calculated.(10)

When will the GIC apply?

Proposed section 8AAB lists out the circumstances when the GIC will apply. Proposed subsection 8AAB(1) states that a person is liable to the GIC on an amount if a provision specifies that there is liability to the GIC. Proposed subsection 8AAB(4) sets out in a table, which is reproduced below, the 30 sections of the ITAA36 where there will be liability to the GIC. This table is included in Attachment A.

Proposed subsection 8AAB(5) shows the liability under sections of other Acts in a table which is included in Attachment B.

The GIC does not apply to the Commonwealth or an authority of the Commonwealth under proposed subsection 8AAB(3).

Proposed section 8AAG provides that the Commissioner may remit the whole or part of the GIC under certain circumstances.

GIC is tax deductible

Currently, the interest for underpayment of income tax under section 170AA or late payment of income tax under section 207A of the ITAA36 is tax deductible under paragraph 25-5(1))(c) of the ITAA97. Item 278 of Schedule 1 repeals paragraph 25-5(1)(c) and substitutes proposed paragraph 25-5(1))(c) to allow the GIC under proposed Division 1 of Part IIA as a tax deduction.

Currently, any late payment penalties on outstanding sales tax, PAYE, PPS and RPS are not tax deductible. For income tax only, as indicated above, the interest component of the late payment penalties is tax deductible (currently 8.8%). The extension of tax deductibilty on all late payment penalties in the form of the GIC will be equitable to all taxpayers.

Commencement

Proposed Part IIA of the TAA53 which includes the provisions relating to the GIC commence on 1 July 1999 under proposed subclause 2(3) of the Bill.

The failure to notify (FTN) penalty

Summary of amendments

Proposed Division 2 of Part IIA of the TAA53 contains the amendments to introduce an FTN penalty which will apply to source deduction withholders and sales tax payers who fail to notify the Commissioner when an amount is due. Proposed subsection 8AAJ(4) of the TAA53 gives the following index of the provisions of the ITAA36 that deal with liability to the FTN.

Liability to the penalty under the Income Tax Assessment Act 1936

Item

Section

Topic

1

220AAGA

payment of RPS, PAYE and PPS deductions (large remitter)

2

220AAOA

payment of RPS, PAYE and PPS deductions (medium remitter)

3

220AATA

payment of RPS, PAYE and PPS deductions (small remitter)

4

221YHZCA

deductions from certain payments

5

221YN

withholding tax

6

221ZC

mining withholding tax

7

221ZNA

Australian Film Industry Trust Fund accounts

The areas involved are those which currently require taxpayers to provide certain information to the Commissioner and the proposed amendments are in Items 13, 104, 108, 112, 197, 198, 199, 210, 222, 232, 233, 235, 303, 307, 308 and 347.

Proposed subsection 8AAJ(4) also states that sections 91Z and 95A of the Sales Tax Assessment Act 1992 deal with liability to the penalty.

How is the FTN penalty calculated?

Proposed section 8AAK(2) states that the FTN penalty is calculated at the rate of 8% per annum of the amount not notified to the Commissioner.

The amendments in proposed sections 8AAL and 8AAN of the TAA53 will allow the GIC to be applied to an unpaid FTN penalty from a time which is at least 30 days after a notice of the FTN penalty is given. The reader is referred to the Explanatory Memorandum for an example of the calculation of the FTN.(11)

Proposed section 8AAM of the TAA53 allows the Commissioner to remit the whole or any part of the FTN penalty imposed on a taxpayer in certain circumstances.

 

Commencement

Proposed Part IIA of the TAA53 which includes the provisions relating to the FTN commence on 1 July 1999 under proposed subclause 2(3) of the Bill.

The late reconciliation statement (LRS) penalty

Summary of amendments

Proposed Division 3 of Part IIA of the TAA53 contains the amendments to the tax laws to introduce an LRS penalty which will apply when source deduction withholders fail to provide the Commissioner with an annual reconciliation statement in respect of amounts withheld and forwarded to the Commissioner. Proposed subsection 8AAP(4) of the TAA53 gives an index of the provisions of the ITAA36 that deal with liability to the LRS penalty which is set out below.

Liability to the penalty under the Income Tax Assessment Act 1936

Item

Subsection

Topic

1

220AJ(5)

RPS payment report

2

221F(6)

PAYE deductions reconciliation statement

3

221YHDC(9A)

PPS payment summary

4

221YHZC(1AAA)

statement of deductions from certain payments

5

221YN(2C)

statement of withholding tax deductions

6

221ZC(2C)

statement of mining withholding tax deductions

7

221ZXD(4)

farm management deposits report

The amendments proposed in Items 15, 117, 142, 143, 180, 193, 194, 213, 224, 246 and 349 of Schedule 1 create a liability for the LRS penalty where an obligation to send a reconciliation statement to the Commissioner is not met.

How is the LRS penalty calculated?

Proposed section 8AAQ provides that the LRS penalty will be calculated at a flat rate of $10 for each week, or part of a week up to a maximum of $200 for each statement. The amendments proposed section 8AAT will allow the GIC to be applied to an unpaid LRS penalty from the time the penalty is due to be paid.

The Commissioner will be able to remit the whole or any part of the LRS penalty imposed on a taxpayer in certain circumstances under proposed section 8AAS.

Commencement

Proposed Part IIA of the TAA53 which includes the provisions relating to LRS commence on 1 July 1999 under proposed subclause 2(3) of the Bill.

Running balance accounts

Background

Recommendation of the Small Business Task Force and the Auditor General

It was mentioned earlier that the Small Business Deregulation Task Force in its report(12) in November 1996 highlighted taxpayer concerns about the imposition and calculation of penalties under the various taxation laws. In consequence the Commissioner of Taxation was requested by the Prime Minister in his statement More Time For Business in March 1997 to review the current penalty regime with a view to rationalising and simplifying the system..

At present the Commissioner administers up to fourteen different revenues products, each of which can give rise to tax debts. Superannuation debts are in addition to these revenue debts. The majority of tax debts within each revenue product can fall due at various times giving rise to periodic or primary debts. Thus under current arrangements the obligation to pay sales tax and remit PAYE, PPS and RPS deductions could be represented by up to 48 separate primary debts.

The Auditor General had in Report No. 13 in 1996-97 recommended that the account management practices of major financial institutions be adopted by the Australian Taxation Office in the handling of disparate taxes and penalties due from taxpayers.

The four separate running balance accounts (RBAs) for the year ending 30 June 2000

The amendments in Schedule 1 introduce the first steps in establishing a single running balance account (RBA) which will record all amounts due from a taxpayer in respect of taxation laws administered by the Commissioner. The first phase involves the establishment of four separate RBAs for the year ending 30 June 2000 for tax debts in respect of sales tax, the PAYE arrangements, the PPS and the RPS.

The Explanatory Memorandum(13) states:

1.82 These amendments represent the first phase in the establishment of an RBA account for the majority of a taxpayer's outstanding tax debts after 1 July 2000. The first phase involves the establishment of four separate RBAs for the year ending 30 June 2000 for tax debts in respect of sales tax, the PAYE arrangements, the PPS and the RPS. The main outcomes sought from the four RBAs are:

  • the production of regular account statements showing the total of all outstanding tax debts for indebted taxpayers. The statements will be similar to commercial credit card and cheque account statements; and
  • the application of a single daily interest rate in the form of a GIC to the outstanding account balance.

1.83 The next phase from 1 July 2000 will aim to produce the above outcomes from an RBA covering most tax debts (eg. income tax, fringe benefits and the current PAYE withholding amounts). Other tax obligations such as TFN withholding taxes and superannuation debts are expected to come onto the RBA in subsequent phases.

Main Provisions

The RBA legislative framework will be contained in proposed Part IIB of the TAA53 to be inserted by Item 350 of Schedule 1 of the Bill. Proposed Part IIB will have the following Divisions:

Division 1 Preliminary

Division 2 Running balance accounts

Division 3 Application of payments and credits against tax debts

Division 4 Miscellaneous provisions about tax debts.

Establishment of RBAs

Proposed section 8AAZC provides that the Commissioner may establish a system of accounts for 4 classes of primary tax debts. Primary debt is defined in proposed section 8AAZA to mean any amount due to the Commonwealth directly under a taxation law, including any such amount that is not yet payable. Proposed subsection 8AAZC(2) states that each account is to be known as the Running Balance Account (RBA). These separate RBAs will be established for debts which arise under the sales tax legislation (proposed paragraph 8AAZC(1)(a)), the RPS (proposed paragraph 8AAZC(1)(b)), the PAYE arrangements (proposed paragraph 8AAZC(1)(c)) and the PPS (proposed paragraph 8AAZC(1)(d)).

Proposed subsection 8AAZC(3) provides that an RBA may be established for any entity which is defined in proposed section 8AAZA to mean a company, a partnership, a person in a particular capacity of trustee, a body politic, a corporation sole and any other person.

Further, proposed subsection 8AAZC(5) enables the Commissioner to establish separate RBAs for:

  • different businesses or undertakings conducted by the same entity; or
  • different parts of the same business or undertaking; or
  • different periods.

Operation of RBAs

The following are significant features of the operation of RBAs.

Allocation of tax debts to RBAs

The allocation of tax debts to RBAs is dealt with in proposed section 8AAZD. It provides that where a tax debtor has only one RBA for a particular RBA class (eg. sales tax), each primary tax debt in that class must be allocated to that RBA. Where a tax debtor has several RBAs to account for that RBA class, the primary tax debt is to be allocated between those RBAs as determined by the Commissioner. The Explanatory Memorandum states that in exercising this discretion, the Commissioner may have regard to information provided by the tax debtor.(14)

Allocation of payments and credits to RBAs

Proposed section 8AAZL gives the Commissioner the discretion to determine the particular tax debt or debts against which any payment in respect of a tax debt or credit under a tax law is applied. This provision will allow the application of payments and credits against all tax debts within the 4 RBA classes and all other tax debts from 1 July 1999. Proposed section 8AAZE provides that if a payment or credit is applied under proposed section 8AAZL against a tax debt or debts in the manner determined by the Commissioner, the amount so applied must be allocated accordingly to the respective RBA or RBAs relating to that tax debt or debts.

General interest charge (GIC) on RBA deficit

If there is a deficit on an RBA at the end of a day, proposed section 8AAZF provides that the GIC is payable by the tax debtor on that deficit for that day.

Commencement

Proposed Part IIB of the TAA53 which includes the provisions relating to RBAs commence on 1 July 1999 under proposed subclause 2(3) of the Bill.

Amendments in Schedule 2 - Measures to deal with abuse of foreign tax credits

Background

On 13 August 1998 at 4 pm, the Treasurer announced that the Government would introduce measures to amend the general anti-avoidance provisions in Part IVA of the ITAA36 to counter schemes designed to acquire or generate foreign tax credits with the sole or dominant purpose of obtaining a tax benefit. Part IVA of the ITAA36 contains the general anti-avoidance provisions which confer on the Commissioner the power to cancel tax benefits when certain criteria set out in that Part are met. It must be noted that this announcement took place at the same time as the Treasurer released ANTS.(15)

Under the Australian income tax regime, Australian taxpayers with assessable foreign sourced income may claim a tax credit for tax imposed by foreign jurisdictions against Australian income tax liability on that foreign sourced income.

If the source of foreign income is located in a low-taxed jurisdiction in comparison with Australia, the Australian taxpayer will probably have to pay a net amount of Australian tax on that foreign income after the credit for tax paid in that low-tax jurisdiction.

The Explanatory Memorandum states that the ATO has become aware of schemes which are structured to acquire or generate foreign tax credits in one foreign jurisdiction to be offset against tax payable on other foreign sourced income of the Australian taxpayer.(16)

Generally, a foreign tax credit is allowable where the taxpayer satisfies the criteria for entitlement to a foreign tax credit under section 160AF of the ITAA36. Section 160AI provides that the Commissioner shall determine whether a credit is allowable and if so, the amount of the credit. The amendments proposed by Schedule 2 are intended to deny the tax benefits of foreign tax credits resulting from such schemes.

Main Provisions

Schedule 2 to the Bill amends Part IVA in the following respects so that it applies to schemes designed to obtain tax benefits from foreign tax credits.

Extending the definition of tax benefit to include a foreign tax credit

Items 2 and 3 provide for the insertion of proposed paragraph 177C(1)(bb) to extend the definition of tax benefit to include a foreign tax credit where it might reasonably be expected that, but for the scheme, the whole or part of the foreign tax credit would not have been allowable. Proposed paragraph 177C(1)(f) to be inserted by Item 4 provides that the amount of the tax benefit in such a case is so much of the foreign tax credit as would not have been allowable if the scheme had not been entered into.

Cancellation of tax benefits

Proposed paragraph 177F(1)(d) to be inserted by Items 10 and 11 will enable the Commissioner to cancel a tax benefit which is referable in whole or in part , to a foreign tax credit.

Application

The amendments in Schedule 2 apply in relation to schemes that were entered into after 4 pm, by legal time in the Australian Capital territory, on 13 August 1998 as provided by Item 19.

Commencement

Proposed subclause 2(2) provides that:

  • if Part 2 of Schedule 1 to the Taxation Laws Amendment Act (No. 2) 1998 does not commence before the day on which this Act receives the Royal Assent, then Schedule 2 commences immediately after the commencement of that Part, and
  • otherwise, Schedule 2 commences on the date of the Royal Assent of this Act.

It must be noted that Schedule 1 to the Taxation Laws Amendment Act (No. 2) 1998 will apply Part IVA to schemes relating to the creation of capital losses, and in consequence bring about a change in the numbering of certain sections in Part IVA. The amendments to Part IVA proposed by this Bill assume that the renumbering of those provisions have taken effect and this explains the terms of proposed subclause 2(2) in relation to the timing of the commencement of Schedule 2.

Concluding Comments

Steps towards Tax Reform and the GST

It is clear from the nature of the amendments proposed in this Bill that they are in fact part of Government's wider tax reform agenda which anticipates the implementation of the goods and services tax (GST) and the Australian Business Number (ABN). Due to the disparate measures in the Bill the concluding comments are best set out in relation to the significant measures in Bill.

Alignment of Remittance Dates

The new Tax Reform arrangements will align most remittances with the new quarterly GST and PAYG payment dates of 21 October, 21 January, 21 April and 21 July. The alignment to the 21st of the month for monthly and quarterly PAYE, PPS and RPS remitters in this Bill is in anticipation of the new Tax Reform arrangements which will apply from 1 July 2000. Under those arrangements most businesses will complete a single compliance statement once a quarter and make one quarterly payment. There has been some comment that 21 January in particular will not be a convenient date given the holiday period in December/January. However, it is possible to argue that as at present small remitters are required to make remittances on 7 January in respect of the quarter ended 31 December they would be better off to meet the closure of business during the holiday period by being required to make remittances on 21 January.

Running balance accounts and charges and penalties

Impact of the GIC as well as the FTN and LRS penalty regime

The measures on RBAs and the GIC charge, as well as the FTN and LRS penalties are far reaching reforms. As the Regulation Impact Statement (RIS) states, the GIC, FTN and LRS penalties replace the existing disparate late payment penalties with a new regime that is transparent, consistent, commercially based and easy to administer.(17)

The Explanatory Memorandum sets out a comparison of the GIC and the existing penalty rates. It states that in almost all of the cases where GIC is imposed there will be a reduction of between 3 and 23 percentage points in the existing penalty rates.(18) However, there will be a small number of cases where an amended assessment increases the amount of tax payable, there will be an increase in the penalty. These instances are indicated in the Explanatory Memorandum.(19) In these cases the penalty rates will increase by 4 percentage points except in the case of penalties under proposed section 93 of the FBTAA86 where in certain instances there will be an increase of 8 percentage points.

Impact of FTN penalty

As was seen above the FTN penalty will apply to source deduction withholders and sales tax payers who fail to notify the Commissioner when a payment is due. Failure to notify the correct amount will result in the imposition of an 8% per annum penalty. The FTN will replace the current penalties which range across the various types of taxes from 20% to 200% of the unremitted amount.(20) The introduction of the FTN regime is accompanied by the repeal of administrative penalties and offence provisions, if any, which apply when taxpayers fail to remit amounts of source deductions and sales tax. The approach of the FTN penalty regime is to encourage taxpayers to notify the Commissioner of liabilities where the taxpayer is experiencing difficulties and to assist the taxpayers in managing the growth and payment of taxation debts.

Impact of the LRS penalty

The LRS penalty is a flat rate administrative penalty of $10 per week, up to a maximum of $200 per statement for withholders who fail to lodge annual reconciliation statements on time. This administrative penalty replaces the current liability for penalties upon prosecution where people fail to furnish these reconciliation statements.

Overall impact of the RBA, the GIC, the FTN and LRS penalty regimes

Under the measures in the Bill during the year ended 2000, four separate taxpayer RBAs will be available with summaries of all sales tax, PAYE, PPS and RPS debts. Interest will be charged on a daily basis at the GIC rate on any balance outstanding and payments will serve to reduce the balance of the account and not extinguish a particular liability. The Regulation Impact Statement (RIS) (21)draws a useful analogy between the RBA and credit card statement in that the RBA statement will show a summary of debts and payments (or credits) made for a particular period.

The RBA and the proposed interest and penalty regimes have been the outcome of a review following recommendations of the Auditor General and the Small Business Deregulation Task Force review. It is the groundwork required to modernise tax debt collection and tax debt tracking procedure in preparation for the introduction of the GST and the PAYG system proposed in Governments Tax Reform: not a new tax, a new tax system: The Howard Government's Plan for a New Tax System.

The RBA when it is fully developed to be a single account of the debts due to the Commissioner will enhance the integrity of the tax system. In this it will be assisted by the Australian Business Number (ABN) and the Australian Business Register which is to be established under two Bills now before the Parliament(22) as part of the tax reform package. At present there are 950,000 withholders and sales tax payers(23) and Government expects that there will be 2,000,000 applicants for ABNs in connection with the implementation of the GST where the ABN will be required to be quoted in each tax invoice. It is clear that the administrative arrangements which this Bill will put in place with the RBA, GIC, FTN and LRS will ease the implementation of the GST. In addition, all these reform measures must make some contribution towards making inroads into the cash economy as the ability of the ATO to monitor transactions will be enhanced.

 

 

Attachment A

Sections of the Income Tax Assessment Act 1936 under which there will be liability to the GIC

 

Liability to the charge under the Income Tax Assessment Act 1936

Item

Section

Topic

1

128C

payment of withholding tax

2

160ARU

payment of franking deficit tax

3

160ARUA

payment of deficit deferral tax

4

160ARV

payment of franking additional tax

5

160ARW

payment of franking deficit tax-amended assessments

6

163AA

returns by instalment taxpayers

7

163B

returns by persons other than instalment taxpayers

8

170AA

amended assessments

9

204

payment of tax assessed

10

220AAE

payment of RPS, PAYE and PPS deductions (large remitters)

11

220AAM

payment of RPS, PAYE and PPS deductions (medium remitters)

12

220AAR

payment of RPS, PAYE and PPS deductions (small remitters)

13

220AAW

non-electronic payment of RPS, PAYE and PPS deductions (large remitters)

14

220AS

deductions from reportable payments (RPS)

15

221AZMAA

payment of instalments by companies etc.

16

221AZP

underestimation of instalments by companies etc.

17

221EAA

deductions from salary or wages (PAYE)

18

221YD

payment of provisional tax or instalments of provisional tax

19

221YDB

provisional tax-income under-estimated or PAYE deductions over-estimated

20

221YHH

deductions from prescribed payments (PPS)

21

221YHZC

deductions from certain payments

22

221YHZD

payment of certain payments

23

221YN

payment of withholding tax

24

221ZC

payment of mining withholding tax

25

221ZD

deductions of mining withholding tax

26

221ZO

deductions-Australian Film Industry Trust Fund accounts

27

221ZP

payments-Australian Film Industry Trust Fund accounts

28

221ZXC

payments of farm management deposits

29

221ZXG

understated farm management deposits

30

222AJA

payments of estimates of certain amounts

Note: The items in this table have no connection with the Items in Schedule 1 in the Bill.

 

Attachment B

Liability to the GIC under provisions of Acts other than the Income Tax assessment Act 1936

Liability to the charge under other Acts

Item

Section

Act

1

93

Fringe Benefits Tax Assessment Act 1986

2

112

Fringe Benefits Tax Assessment Act 1986

3

65

Petroleum Resource Rent Tax Assessment Act 1987

4

85

Petroleum Resource Rent Tax Assessment Act 1987

5

68

Sales Tax Assessment Act 1992

6

91ZB

Sales Tax Assessment Act 1992

7

91ZC

Sales Tax Assessment Act 1992

8

21

Superannuation Contributions Tax (Assessment and Collection) Act 1997

9

22

Superannuation Contributions Tax (Assessment and Collection) Act 1997

10

25

Superannuation Contributions Tax (Assessment and Collection) Act 1997

11

18

Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997

12

21

Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997

13

49

Superannuation Guarantee (Administration) Act 1992

14

8AAN

Taxation Administration Act 1953

15

8AAT

Taxation Administration Act 1953

16

8AAZF

Taxation Administration Act 1953

17

8AAZN

Taxation Administration Act 1953

18

13

Taxation (Unpaid Company Tax) Assessment Act 1982

19

13

Termination Payments Tax (Assessment and Collection) Act 1997

20

16

Termination Payments Tax (Assessment and Collection) Act 1997

21

18

Tobacco Charges Assessment Act 1955

22

38

Wool Tax (Administration) Act 1964

 

Note: The items in this table have no connection with the Items in Schedule 1 in the Bill.

 

Endnotes

  1. A list of the Bills is set out below:
  • A New Tax System (Aged Care Compensation Measures Legislation Amendment) Bill 1998,
  • A New Tax System (Australian Business Number Consequential Amendments) Bill 1998,
  • A New Tax System (Australian Business Number) Bill 1998,
  • A New Tax System (Bonuses for Older Australians) Bill 1998,
  • A New Tax System (Compensation Measures Legislation Amendment) Bill 1998,
  • A New Tax System (End of Sales Tax) Bill 1998,
  • A New Tax System (Fringe Benefits Reporting) Bill 1998,
  • A New Tax System (Goods and Services Tax Administration) Bill 1998,
  • A New Tax System (Goods and Services Tax Imposition-Customs) Bill 1998,
  • A New Tax System (Goods and Services Tax Imposition-Excise) Bill 1998,
  • A New Tax System (Goods and Services Tax Imposition-General) Bill 1998,
  • A New Tax System (Goods and Services Tax Transition) Bill 1998,
  • A New Tax System (Goods and Services Tax) Bill 1998,
  • A New Tax System (Income Tax Laws Amendment) Bill 1998,
  • A New Tax System (Medicare Levy Surcharge-Fringe Benefits) Bill 1998,
  • A New Tax System (Personal Income Tax Cuts) Bill 1998, First Reading,
  • A New Tax System (Trade Practices Amendment) Bill 1998, First Reading,

The first 16 of these Bills were introduced on 2 December 1998 and the 17th Bill was introduced on 10 December 1998.

  1. Circulated by the Hon. Peter Costello MP, Treasurer of the Commonwealth of Australia (AGPS) August 1998.

  2. Ibid., pp. 134 to 136.

  3. The Explanatory Memorandum to the Bill, p. 1.

  4. The Report of the Small Business Deregulation Task Force, whose Chairman was Mr Charlie Bell, was published in November 1996. This report is generally referred to as the Bell Report.

  5. Budget Measures 1998-99; Budget Paper No. 2; pp. 2-9 to 2-10.

  6. The 13 week Treasury Note rate as at 11 February 1999 was 4.68 percentage points and hence the GIC charge with an uplift factor of 8 percentage points was 12.68 percentage points.

  7. Budget Measures 1998-99, Budget Paper No. 2, pp. 2-9 to 2-10.

  8. Ibid.,

  9. The Explanatory Memorandum to the Bill, paragraphs 1.37 to 1.47, pp. 17 to 19.

  10. Ibid., paragraphs 1.64 and 1.65, pp. 22 to 23.

  11. The Report of the Small Business Deregulation Task Force, whose Chairman was Mr Charlie Bell, was published in November 1996. This report is generally referred to as the Bell Report.

  12. The Explanatory Memorandum to the Bill, paragraphs 1.82 and 1.83, p. 27.

  13. Ibid., paragraph 1.99, pp. 30 to 31.

  14. Tax Reform: not a new tax, a new tax system: The Howard Government's Plan for a New Tax System.

  15. The Explanatory Memorandum to the Bill; paragraph2.5 to 2.6, p. 50.

  16. Ibid., paragraph 1.127, p. 36.

  17. Ibid., paragraph 1.45, pp. 18 to 19.

  18. Ibid., paragraphs 1.46 and 1.47; p. 19.

  19. Ibid., paragraph 1.136, p. 38.

  20. Ibid., paragraph 1.140, pp. 38 to 39.

  21. A New Tax System (Australian Business Number ) Bill 1998, and the

    A New Tax System (Australian Business Number Consequential Amendments) Bill 1998.

  22. The Explanatory Memorandum to the Bill, paragraph 1.143, p. 40.

Contact Officer and Copyright Details

Bernard Pulle
15 February 1999
Bills Digest Service
Information and Research Services

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ISSN 1328-8091
© Commonwealth of Australia 1999

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Published by the Department of the Parliamentary Library, 1999.

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