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Background - Tax
Background - A
New Tax System (Closely Held Trusts) Bill 1999
Contact Officer and Copyright Details
A New Tax System (Ultimate Beneficiary Non-disclosure
Tax) Bill (No.2) 1999
Date Introduced: 13 May 1999
House: House of Representatives
Commencement: On the day on which the A New Tax System
(Closely Held Trusts) Act 1999 receives Royal Assent
The purpose of
the A New Tax System (Ultimate beneficiary Non-disclosure Tax) Bill
(No.2) 1999 is to impose the tax liabilities arising under the A
New Tax System (Closely Held Trusts) Bill 1999 where there is no
ultimate beneficiary 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
- 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
- Simplify the imputation system and introduce refunds for excess
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
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
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
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
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 102UM(2)(a) of the Income Tax Assessment Act
That is, it imposes tax in the situation where
there is no ultimate beneficiary of the net income of a closely
Item 4 sets the rate of tax at
48.5 per cent.
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
- 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
- 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
In this context, the High Court is prepared to give some deference
to Parliament's decision to include taxation measures in a single
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.'
2 June 1999
Bills Digest Service
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