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 - Tax
Reform Package
Background - A New Tax
System (Closely Held Trusts) Bill 1999
Main Provisions
Concluding Comments
Endnotes
Contact Officer and Copyright Details
A New Tax System (Ultimate Beneficiary Non-disclosure
Tax) Bill (No.1) 1999
Date Introduced: 13 May 1999
House: House of Representatives
Portfolio: Treasury
Commencement: On the day on which the A New
Tax System (Closely Held Trusts) Bill 1999 receives Royal
Assent
The purpose of the A New Tax System (Ultimate
beneficiary Non-disclosure Tax) Bill (No.1) 1999 is to impose the
tax liabilities arising under the A New Tax System (Closely Held
Trusts) Bill 1999 where the trustee fails to identify the ultimate
beneficiaries of the whole or the part of a share of the net income
of a trust.
On 13 August 1998 the Federal Government
released proposals for reform of the Australian tax system(1) of
which, a goods and services tax (GST) was the centrepiece.
The tax reform plan proposes to:
-
- Introduce a GST which eliminates sales tax and a range of nine
other indirect taxes
-
- Change Commonwealth-State financial relations by providing
States and Territories with an independent revenue base
-
- Implement significant changes to individual marginal tax
rates
-
- Implement a major rationalisation of family assistance
-
- Replace the various existing taxation payment and reporting
systems of company tax, provisional tax, PAYE,(2) PPS(3) and RPS(4)
by one quarterly tax payment system, PAYG(5)
-
- Introduce a new universal business number system
-
- Move toward an entity taxation system which is directed toward
the elimination of tax advantages between different business
structures, and
-
- Simplify the imputation system and introduce refunds for excess
franking credits.
Included in the proposal to reform the taxation
of business entities, the issue of tax minimisation through complex
trust structures is addressed by the introduction of a special
anti-avoidance rule.
On 25 November 1998, the Senate referred issues
relating to the GST and the new tax system to a Select Committee
and three of its Reference Committees.(6) In February 1999 the
Senate Select Committee produced its First Report.(7) The three
Reference Committees produced their reports in March 1999.(8) In
April 1999 the Senate Select Committee released its second
report(9) and shortly thereafter, its report on Commonwealth-State
financial arrangements, luxury car tax and wine equalisation
tax.(10)
The A New Tax System (Closely Held Trusts) Bill
1999 (the Bill) and the two associated imposition Bills(11):
-
- impose an obligation on the trustees of closely held trusts
(including all discretionary trusts) to disclose the identity and
tax file numbers (TFN) of the ultimate beneficiaries of net income
and tax preferred amounts, and
-
- if the trustee fails to do so, or there is no ultimate
beneficiary, provide for taxation at a penalty rate (in the case of
net income) or offences under the Taxation Administration Act
1953 (in the case of tax-preferred amounts).
This will allow the Commissioner of Taxation to
check whether the assessable income of the ultimate beneficiaries
correctly includes any required share of net income and whether the
net assets of the ultimate beneficiaries reflect the receipt of the
tax-preferred amounts.
The amendments apply to present entitlements to
net income or tax-preferred amounts arising after 4-00 pm on 13
August 1998 AEST.
Please refer to the Bills Digest for the A New
Tax System (Closely Held Trusts) Bill 1999 for additional
information.
1. Imposition
Item 3 imposes ultimate
beneficiary non-disclosure tax to the extent that is payable on the
whole or the part of the share of the net income of a trust under
paragraph 102UK(2)(a) of the Income Tax Assessment Act
1936.
That is, it imposes tax in the case of failure
by the trustee to disclose the identity of ultimate beneficiaries
to the net income of a closely held trust.
2. Rate
Item 4 sets the rate of tax at
48.5 per cent.
1. Reason for separate imposition
Acts
The Explanatory Memorandum indicates that the
government has chosen to impose the tax liabilities arising under
subsections 102UK(2) (where the trustee fails to disclose the
identities of the ultimate beneficiaries) and 102UM(2) (where there
are no ultimate beneficiaries) separately.(12)
This is for reasons of caution to avoid
contravening section 55 of the Constitution. If the two
types of liability were considered to be separate subjects of
taxation to income tax generally and to each other, it would
contravene section 55 if they were not separately imposed.(13)
- Treasurer, Tax Reform: not a new tax - a new tax
system; Tax Reform Plan, 13 August 1998, Commonwealth of
Australia.
- Pay As You Earn
- Prescribed Payments System
- Reportable Payments System
- Pay As You Go
- Senate Select Committee on A New Tax System; Senate Community
Affairs References Committee; Senate Employment, Workplace
Relations, Small Business and Education References Committee and
Senate Environment, Communications, Information Technology and the
Arts References Committee.
- Senate Select Committee on A New Tax System, First
Report, February 1999.
- Senate Community Affairs References Committee, The Lucky
Country Goes Begging, Report on the GST and a New Tax System, March
1999; Senate Employment, Workplace Relations, Small Business and
Education References Committee, Report of the Inquiry into the GST
and A New Tax System, March 1999 and Senate Environment,
Communications, Information Technology and the Arts References
Committee, Inquiry into the GST and a New Tax System, March
1999.
- Senate Select Committee on A New Tax System, Main
Report, April 1999.
- Senate Select Committee on A New Tax System, Report on
Commonwealth-State Financial Arrangements Bills, Luxury Car Tax
Bills and Wine Equalisation Tax Bills, April 1999.
- The A New Tax System (Ultimate Beneficiary Non-disclosure Tax)
Bill (No.1) 1999 and the A New Tax System (Ultimate Beneficiary
Non-disclosure Tax) Bill (No.2) 1999.
- Explanatory Memorandum to the A New Tax System (Closely
Held Trusts) package, p 18.
- Hanks P, Constitutional Law in Australia, Second
Edition, Butterworths, p 110.
The fact that the first clause of the second paragraph of section
55, which requires that '[l]aws imposing taxation ... shall deal
with one subject of taxation only', has had rather limited impact
can be ascribed to the High Court's refusal 'to give the words "one
subject of taxation" any narrow or inflexible application', as
Dixon J expressed it in Resch v Federal Commissioner of
Taxation, (1942) 66 CLR 198, 222.
Because section 55 'is concerned with political relations, [it]
must be taken as contemplating broad distinctions between possible
subjects of taxation based on common understanding and general
conceptions, rather than on any analytical or logical
classification' (id,223)
In this context, the High Court is prepared to give some deference
to Parliament's decision to include taxation measures in a single
Act.
The fact that section 55 is concerned with political relations and
that is for the legislature to choose its own subject matter, a
choice fettered neither by existing nomenclature nor by categories
that have been adopted for other purposes, is the reason perhaps
that the government is of the view that ultimate beneficiary
non-disclosure tax does not need to be separately imposed.
As stated in the Explanatory Memorandum at page 18 'The scope of
the income tax as a single subject of taxation is wide and not
technical, but for the avoidance of doubt in any future judicial
proceedings they have been separately imposed.'
Lesley Lang
2 June 1999
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution to
Senators and Members of the Australian Parliament. While great care
is taken to ensure that the paper is accurate and balanced, the
paper is written using information publicly available at the time
of production. The views expressed are those of the author and
should not be attributed to the Information and Research Services
(IRS). Advice on legislation or legal policy issues contained in
this paper is provided for use in parliamentary debate and for
related parliamentary purposes. This paper is not professional
legal opinion. Readers are reminded that the paper is not an
official parliamentary or Australian government document.
IRS staff are available to discuss the paper's contents with
Senators and Members
and their staff but not with members of the public.
ISSN 1328-8091
© Commonwealth of Australia 1999
Except to the extent of the uses permitted under the
Copyright Act 1968, no part of this publication may be
reproduced or transmitted in any form or by any means, including
information storage and retrieval systems, without the prior
written consent of the Parliamentary Library, other than by Members
of the Australian Parliament in the course of their official
duties.
Published by the Department of the Parliamentary Library,
1999.
Back to top