BILLS DIGEST NO. 156, 2011–12, 18 June 2012

Pay As You Go Withholding Non-compliance Tax Bill 2012

Christos Kyrgios
Law and Bills Digest Section

Date introduced:  24 May 2012

House:  House of Representatives

Portfolio:  Treasury

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/.

Purpose

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[1] and

•       Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012.[2]

In particular, this Bill is a conjunct to Schedule 1 of the Tax Laws Amendment (2012 Measures No. 2) Bill 2012. 

Background

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.

Committee consideration

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.[3]

The Economics Committee published its final report on 18 June 2012.[4]  The majority recommended that the House of Representatives pass the Bills.[5] 

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.[6]

Financial implications

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.[7]

Key provisions

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.

© Commonwealth of Australia

Creative Commons

With the exception of the Commonwealth Coat of Arms, and to the extent that copyright subsists in a third party, this publication, its logo and front page design are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia licence.

In essence, you are free to copy and communicate this work in its current form for all non-commercial purposes, as long as you attribute the work to the author and abide by the other licence terms. The work cannot be adapted or modified in any way. Content from this publication should be attributed in the following way: Author(s), Title of publication, Series Name and No, Publisher, Date.

To the extent that copyright subsists in third party quotes it remains with the original owner and permission may be required to reuse the material.

Inquiries regarding the licence and any use of the publication are welcome to webmanager@aph.gov.au.

Disclaimer: Bills Digests are prepared to support the work of the Australian Parliament. They are produced under time and resource constraints and aim to be available in time for debate in the Chambers. The views expressed in Bills Digests do not reflect an official position of the Australian Parliamentary Library, nor do they constitute professional legal opinion. Bills Digests reflect the relevant legislation as introduced and do not canvass subsequent amendments or developments. Other sources should be consulted to determine the official status of the Bill.

Feedback is welcome and may be provided to: web.library@aph.gov.au. Any concerns or complaints should be directed to the Parliamentary Librarian. Parliamentary Library staff are available to discuss the contents of publications with Senators and Members and their staff. To access this service, clients may contact the author or the Library‘s Central Entry Point for referral.

ISSN 1328-8091

[1].               C Kyrgios, Tax Laws Amendment (2012 Measures No. 2) Bill 2012, Bills Digest, no. 155, 2011–12, Parliamentary Library, Canberra, 2012, viewed 18 June 2012, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillsdgs%2F1720391%22

[2].               C Kyrgios, Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012, Bills Digest, no. 157, 2011–2012, Parliamentary Library, Canberra, 2012.

[3].               Details of the terms of reference, submissions to the inquiry and the final report can be viewed at: http://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=economics/7billsreferred/index.htm

[4].               Standing Committee on Economics, Advisory report on the Tax Laws Amendment (2012 Measures No. 2) Bill 2012, Pay As You Go Withholding Non-compliance Tax Bill 2012, Income  Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012 and Passenger Movement Charge Amendment Bill 2012, House of Representatives, Canberra, 18 June 2012, viewed 18 June 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=economics/7billsreferred/index.htm

[5].               Ibid., recommendation 1.

[6].               Ibid., p. 61.

[7].               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.