House of Representatives

Taxation Laws Amendment Bill (No. 4) 1986

Taxation Laws Amendment Act (No. 4) 1986

Australian Capital Territory Stamp Duty Amendment Bill 1986

Australian Capital Territory Stamp Duty Amendment Act 1986

Australian Capital Territory Tax (Transfers of Marketable Securities) Bill 1986

Australian Capital Territory Tax (Transfers of Marketable Securities) Act 1986

Sales Tax (Exemptions and Classifications) Amendment Bill (No.2) 1986

Sales Tax (Exemptions and Classifications) Amendment Act 1986

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. P.J. Keating, M.P.)

NOTES ON CLAUSES

TAXATION LAWS AMENDMENT BILL (No. 4) 1986.

PART I - PRELIMINARY

Clause 1: Short title

This clause provides for the amending Act to be cited as the Taxation Laws Amendment Act (No. 4) 1986.

Clause 2: Commencement

In terms of sub-clause (1) of clause 2, the amending Act is, subject to the other sub-clauses of clause 2 (see the following notes), to come into operation on the day on which it receives the Royal Assent. But for clause 2, the amending Act would, by reason of sub-section 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after the date of Assent.

By sub-clause 2(2), paragraph 8(c) of the amending Act is to be deemed to have come into operation on 10 June 1986. This will ensure that the interpretative provision (see later notes) to be added to section 4 of the Australian Capital Territory Taxation (Administration) Act 1969 by paragraph 8(c) for the purposes of the accompanying Australian Capital Territory Tax (Transfers of Marketable Securities) Bill 1986 will commence on the same date as the date on which that Bill is to commence.

Sub-clause 2(3) provides that Part II, paragraph 8(a) and sections 9, 10 and 11 of the amending Act are to come into operation on the first day of the month that follows the month in which the amending Act receives the Royal Assent. That Part, that paragraph and those sections complement amendments of the Australian Capital Territory Stamp Duty Act 1969 proposed by the accompanying Australian Capital Territory Stamp Duty Amendment Bill 1986, which will come into operation on the first day of the month after that in which it receives the Royal Assent.

By sub-clause 2(4), paragraphs 26(b) and (c), clauses 28 and 40 and sub-clauses 49(3) and (7) will come into operation on the day proclaimed for the coming into operation of the Student Assistance Amendment Act 1986, as authorised by section 2 of that Act. Clauses 26, 28 and 40 of this Bill will amend the Income Tax Assessment Act 1936 to insert references to a new Commonwealth educational assistance scheme (the AUSTUDY scheme), under which assistance is to be paid by authority of the Student Assistance Act 1973, as amended by the Student Assistance Amendment Act 1986.

PART II - AMENDMENT OF THE AUSTRALIAN CAPITAL TERRITORY STAMP DUTY REGULATIONS

Clause 3: Australian Capital Territory Stamp Duty Regulations

This clause facilitates references to the Australian Capital Territory Stamp Duty Regulations, which in Part II are referred to as "the Regulations".

Clause 4: Amendment of First Schedule

The First Schedule to the Regulations sets out classes of instruments which, by virtue of sub-section 6(3) of the Australian Capital Territory Stamp Duty Act 1969, are exempt from Australian Capital Territory stamp duty. Clause 4 proposes the amendment of item 3 of the First Schedule to exclude Crown leases from the exemption of conveyances to a Commonwealth or Territory authority specified in the Second Schedule to the Regulations. The accompanying Australian Capital Territory Stamp Duty Amendment Bill 1986 proposes the introduction of ACT stamp duty on Crown lease instruments and an exemption from that duty for certain authorities is to be provided by proposed new item 18C of Schedule 2 to the Australian Capital Territory Stamp Duty Act 1969 - see the later notes on the Australian Capital Territory Stamp Duty Amendment Bill 1986.

Clause 5: Application

This clause will ensure that the exclusion, by clause 4, of instruments of Crown lease from the classes of exempt instruments specified in the Regulations applies in relation to every Crown lease to which the proposed new ACT stamp duty on Crown leases applies. The clause provides that the amendment of the Regulations made by Part II is to apply to a Crown lease the date of commencement of which specified in the lease is on or after the date of commencement of the clause - i.e., by sub-clause 2(3) of the Bill, the first day of the month following the month in which the Bill receives the Royal Assent.

Clause 6: Amendment or repeal of Regulations

Clause 6 is a formal provision that makes it clear that the amendment of the Regulations by Part II of the Bill in no way prevents those amended Regulations from being further amended or repealed by way of regulations.

PART III - AMENDMENTS OF THE AUSTRALIAN CAPITAL TERRITORY TAXATION (ADMINISTRATION) ACT 1969

Clause 7: Principal Act

This clause facilitates references to the Australian Capital Territory Taxation (Administration) Act 1969 in Part III of the Bill - that Act is referred to as "the Principal Act".

Clause 8: Interpretation

Section 4 of the Principal Act contains definitions of terms used in that Act and other interpretative provisions.

Paragraph (a) of clause 8 proposes the insertion, in sub-section 4(1) of the Principal Act, of a definition of the term "non-commercial Commonwealth authority". That term is used in proposed new item 18C of Schedule 2 to the Australian Capital Territory Stamp Duty Act 1969, to be inserted by the accompanying Australian Capital Territory Stamp Duty Amendment Bill 1986 (see the later notes on that Bill). The term is defined as meaning a body corporate (but not an incorporated company, society or association) that is incorporated for a public purpose by or under a Commonwealth or ACT law (paragraph (a)) and that does not have as its sole or principal function the carrying on of a business-type activity, whether or not for profit (paragraph (b)).

Consequent on the proposed introduction, by the accompanying Australian Capital Territory Tax (Transfers of Marketable Securities) Bill 1986, of a new tax on registrations of transfers of marketable securities (see later notes on that Bill), paragraph (b) of clause 8 proposes the amendment of the present definition, in sub-section 4(1) of the Principal Act, of the term "tax" to include the tax to be imposed by that Bill. This will ensure that references to "tax" in the Principal Act include references to that new tax.

Paragraph (c) will add a new sub-section 4(14) to the Principal Act to explain that, in the Principal Act - and in an Act with which the Principal Act is incorporated, such as the proposed new Australian Capital Territory Tax (Transfers of Marketable Securities) Act 1986, the Bill for which accompanies this Bill - a reference to the registration of a transfer of a marketable security includes a reference to the recording or entry of the transfer.

Clause 9: instrument of conveyance to be stamped or lodged for assessment

Section 47 of the Principal Act sets out the requirements for stamping or lodging for assessment the different types of conveyancing instruments that are subject to Australian Capital Territory stamp duty. As a complement to the inclusion of the value of any chattels conveyed in the value of conveyances of residential property that are liable to duty (as proposed by clause 3 of the accompanying Australian Capital Territory Stamp Duty Amendment Bill 1986 - see later notes on that Bill), clause 9 will add a new sub-section (8) to section 47. The sub-section operates to ensure that lodgment requirements will not be satisfied in respect of a conveyancing instrument that is to be lodged for assessment, unless the instrument is accompanied by any information or documents that the Commissioner of Taxation requires in relation to the imposition of duty in respect of the conveyance of chattels.

Clause 10: Refund of duty where agreement not completed

Section 50A of the Principal Act authorises the refund of Australian Capital Territory stamp duty paid on an agreement to transfer an interest in land where the agreement is void, unenforceable or rescinded, or comes to an end. By clause 10, section 50A is to be amended to complement the proposal by clause 3 of the accompanying Australian Capital Territory Stamp Duty Amendment Bill 1986 to include the value of any chattels conveyed where a conveyance of residential property is liable to duty (see later notes).

By paragraph (a) of clause 10, a new sub-section 50A(1A) is to be inserted to allow a refund to be made of so much of the duty paid on an agreement for the transfer of an interest in land as, in the opinion of the Commissioner of Taxation, is attributable to the inclusion of the value of chattels when the amount of the duty payable was calculated. Subject to the other provisions of section 50A, a refund will be available where -

·
the value of chattels was taken into account in calculating the amount of duty on an instrument (paragraph 50A(1A)(a));
·
duty on the instrument has been paid and, in addition, a refund is not available under existing sub-section 50A(1) (paragraph (b)) - this could occur, for example, where paragraph 50A(1)(c) is not satisfied because the Commissioner considers the interest in land subject to an agreement to transfer will be transferred, even though chattels subject to that agreement will not;
·
the agreement that relates to the chattels is void, unenforceable or rescinded, or comes to an end (paragraph (c)); and
·
the Commissioner is satisfied that the agreement relating to the chattels has not been, or cannot reasonably be expected to be, completed (paragraph (d)).

Paragraph (b) of clause 10 proposes the amendment of sub-sections 50A(2) and (3), which deny a refund where a scheme to avoid or reduce stamp duty is involved and specify the requirements for applying for a refund, to reflect the insertion of new sub-section 50(1A). Sub-sections (2) and (3) will apply to sub-section (1A) refunds as well as sub-section (1) refunds.

Clause 11: Refund or remission of duty where Crown lease surrendered

By this clause, a new section 50AA is to be inserted in the Principal Act to allow refunds and remissions of Australian Capital Territory stamp duty on certain Crown lease instruments.

New sub-section 50AA(1) provides that a refund will be available where -

·
duty has been paid on a Crown lease instrument (paragraph (a));
·
the lease is surrendered or determined (paragraph (b)); and
·
some or all of the money paid in respect of the grant of the lease is refunded under section 37A of the City Area Leases Ordinance 1936 of the ACT (paragraph (c)).

The amount of the stamp duty that is to be refunded is the amount that bears to the amount of duty paid the same proportion as the amount that the refund on the surrender or determination of the lease (disregarding any deduction for administrative expenses) bears to the amount paid in respect of the grant of the lease. By way of example, if on surrender of a lease a person is refunded one-half of the amount that person paid for the grant of the lease, the stamp duty refund will be one-half of the amount of duty paid.

For a person to be entitled to a refund, sub-section 50AA(2) requires an application in accordance with an approved form, as well as any information required to enable the Commissioner of Taxation to determine the amount of the refund, to be given to the Commissioner within 12 months after the refund under the City Area Leases Ordinance is made.

Sub-section 50AA(3) provides for the remission of duty that is payable but has not yet been paid, in the same circumstances in which a refund would be available if the duty had been paid.

Clause 12: Division 9A - Transfers of marketable securities registered in registers outside the Territory

By this clause, it is proposed to insert in Part III of the Principal Act a new Division - Division 9A. The new Division will set out the rules governing the liability to pay the tax to be imposed, by the accompanying Australian Capital Territory Tax (Transfers of Marketable Securities) Bill 1986 (see later notes), on transfers of certain marketable securities.

A detailed explanation of each provision in new Division 9A follows.

Section 58AB: Liability to pay tax

By new section 58AB, the tax imposed on the registration of a transfer of a marketable security is payable by the company that registers the transfer (paragraph (a)) and is due and payable 21 days after the close of the month in which the transfer is registered (paragraph (b)).

Section 58AC: Returns by companies

New section 58AC requires a company liable to pay tax on the registration of a transfer of a marketable security, or of transfers of 2 or more marketable securities, to lodge a return with the Commissioner of Taxation on or before the day the tax becomes due and payable. The return must be in a form approved by the Commissioner and must show particulars of each relevant transfer.

Section 58AD: Credits in respect of non-Territory stamp duty paid in respect of transfers

In recognition of the fact that a transfer of a marketable security subject to the new ACT tax may also be liable to stamp duty or similar tax in another jurisdiction, new section 58AD provides for credits of tax to be given. The section will, however, have no application where the other jurisdiction's duty or similar tax is broadly equivalent to the ACT tax otherwise payable or where a broker is liable for stamp duty on the sale and purchase of the marketable security. In those circumstances, the transfer registration will be exempt from the new ACT tax (see later notes on the accompanying Australian Capital Territory Tax (Transfers of Marketable Securities) Bill 1986).

By sub-section 58AD(1), a company is entitled to a credit against the ACT tax payable on the registration of a transfer of a marketable security where the transfer is also subject to stamp duty or similar tax in the place (State, Territory or other country) where the register - being the register in which the security was registered immediately before the transfer - was kept. The amount of the credit is, subject to sub-section (2), the amount of stamp duty or similar tax paid or payable in respect of the transfer under the law of the State, Territory or other country concerned. Sub-section 58AD(2) provides that the maximum credit allowable is the amount of the ACT tax that would otherwise be payable on the registration of the transfer.

Sub-section 58AD(3) provides that, for a credit to be allowable, the company liable to pay the ACT tax must give to the Commissioner of Taxation, within 12 months after the time when the tax became due and payable, an application in accordance with an approved form, as well as any information the Commissioner requires to enable the amount of the credit to be determined.

Where a credit is allowable under section 58AD, sub-section 58AD(4) requires the credit to be first applied against the tax payable on the registration, if it has not been paid (paragraph (a)). Next, any remaining credit is to be applied against any other liability, of the company entitled to the credit, to the Commonwealth under a taxation law administered by the Commissioner of Taxation (paragraph (b)). Any credit then remaining is to be refunded (paragraph (c)).

Section 58AE: Company may recover tax from transferee

New section 58AE authorises a company liable to pay tax on the registration of a transfer of a marketable security to recover from the transferee an amount equal to the tax payable less any credit available to the company under section 58AD.

Section 58AF: Partition of marketable securities

Consistent with existing section 58AA of the Principal Act (applicable in respect of ACT stamp duty on marketable security transfers), new section 58AF requires that, in determining the amount of tax payable on the registration of a transfer executed to give effect to a partition or division of a parcel of marketable securities, the value of the beneficial interest of the transferee in the parcel prior to the transfer is to be deducted from the unencumbered value of the marketable securities transferred.

Clause 13: Registration of transfer of marketable securities

Sub-clause (1) of this clause will repeal existing section 58G of the Principal Act and substitute a new section 58G as a consequence of the introduction of the new ACT tax on transfers of certain marketable securities. The existing section provides that a marketable security transfer is not to be registered on a company's or a unit trust's books unless the transfer instrument evidences either that ACT stamp duty, or stamp duty of a State or another Territory, if payable, has been paid or will be paid or that no such duty or tax is payable.

Paragraph (a) of new section 58G restates the existing section, while paragraphs (b) and (c) provide that a marketable security transfer is not to be registered unless the new ACT tax on marketable security transfers either is imposed on the transfer registration or would be imposed but for the exemptions provided by sub-section 6(1) of the proposed Australian Capital Territory Tax (Transfers of Marketable Securities) Act 1986 (see later notes on the Bill for that Act).

Sub-clause (2) of clause 13 provides that the new section 58G of the Principal Act applies, and is deemed to have applied, to a transfer registration made after commencement of the proposed Australian Capital Territory Tax (Transfers of Marketable Securities) Act 1986 - that is, after 5pm in the ACT on 10 June 1986.

Clause 14: Transitional

This clause, which will not amend the Principal Act, contains transitional provisions applicable to taxable registrations during the period commencing immediately after the time and date of first application of the new ACT tax on transfers of certain marketable securities (5pm in the ACT on 10 June 1986) and ending on the last day of the calendar month in which this Act receives the Royal Assent. By sub-clause (1), any tax imposed for that period will be due and payable 21 days after the end of the period, while sub-clause (2) requires that particulars of any taxable registrations made in this period be included in the one return due within 21 days after the end of the period.

PART IV - AMENDMENT OF THE BANKRUPTCY ACT 1966

Clause 15: Principal Act

This clause facilitates the reference to the Bankruptcy Act 1966 which, in Part IV, is referred to as "the Principal Act".

Clause 16: Priority payments

This clause will amend section 109 of the Principal Act by inserting a reference to proposed new section 221YHZD of the Income Tax Assessment Act 1936 (the Assessment Act) (see notes on clause 46 of this Bill). New section 221YHZD imposes a duty on a person who deducts an amount in respect of tax from a payment of natural resource income or royalty to a non-resident, to pay that deducted amount to the Commissioner within 14 days after the end of the month in which the person makes the payment to the non-resident.

Briefly stated, section 109 of the Principal Act provides, subject to sections 221P, 221YU and 221YHJ of the Assessment Act (which, respectively, relate to pay-as-you-earn (PAYE) instalment deductions, withholding tax on dividends and interest paid to non-residents and deductions from prescribed payments for work (PPS)), a specific order of priority for the making of payments from the proceeds of the property of the bankrupt.

The effect of the amendment contained in this Part of the Bill, when read in conjunction with proposed section 221YHZD of the Assessment Act, is to ensure that any claim by the Commissioner on the trustee of a trust estate in respect of unremitted tax amounts deducted from payments of natural resource income or royalty to a non-resident, will have the same priority as that currently applying to PAYE deductions under section 221P of the Assessment Act and PPS deductions under section 221YHJ of the Assessment Act.

PART V - AMENDMENT OF THE CRIMES (TAXATION OFFENCES) ACT 1980

Clause 17: Principal Act

This clause facilitates the reference to the Crimes (Taxation Offences) Act 1980 which, in Part V, is referred to as "the Principal Act".

Clause 18: Interpretation

The Principal Act came into operation on 4 December 1980 and provides criminal sanctions against persons who engage in schemes designed to ensure that a company or trust is rendered incapable of paying income tax, sales tax or fringe benefits tax.

Clause 18 will amend section 3 of the Principal Act to include within the meaning of income tax the amounts payable to the Commissioner under the proposed new sub-sections 221YHZC(3) and 221YHZD(1), and sub-paragraph 221YHZD(2)(b)(ii) of the Assessment Act (see notes on clause 46). These are -

·
an amount that a person is liable to pay to the Commissioner, by way of penalty, for failure to deduct a "tax" amount from natural resource or royalty payments to a non-resident (sub-section 221YHZC(3));
·
an amount that a person deducts from a natural resource or royalty payment to a non-resident - to be paid by the person to the Commissioner within 14 days after the end of the month in which the person makes the payment to the non-resident (sub-section 221YHZD(1)); and
·
an amount that a person is liable to pay to the Commissioner, by way of penalty, for failure to pay a deducted "tax" amount to the Commissioner within the period specified above (sub-paragraph 221YHZD(2)(b)(ii)).

PART VI - AMENDMENT OF THE CROWN DEBTS (PRIORITY) ACT 1981

Clause 19: Principal Act

This clause facilitates the reference to the Crown Debts (Priority) Act 1981, which, in Part VI, is referred to as "the Principal Act".

Clause 20: Certain rights of the Crown not affected

This clause will amend section 4 of the Principal Act by inserting a reference to proposed new section 221YHZD of the Assessment Act (see notes on clause 46).

Existing section 4 of the Principal Act ensures that nothing in that Act relating to the priority of Crown debts affects the operation of sections 221P, 221YU and 221YHJ of the Assessment Act.

The effect of the amendment of section 4 of the Principal Act, when read in conjunction with section 221YHZD of the Assessment Act, will be to ensure that any claim by the Commissioner on the trustee of a trust estate or the liquidator of a company, in respect of unremitted tax amounts deducted from payments of natural resource income or royalty to a non-resident, will have the same priority as that currently applying to PAYE instalment deductions under section 221P of the Assessment Act and PPS deductions under section 221YHJ of the Assessment Act.

PART VII - AMENDMENT OF THE ESTATE DUTY ASSESSMENT ACT 1914

Clause 21: Principal Act

This clause facilitates references to the Estate Duty Assessment Act 1914 which, in Part VII, is referred to as "the Principal Act".

Clause 22: Duty first charge on estate

This clause, which will not affect the operation of the Principal Act, will make a minor drafting change in sub-section 34(1) of that Act. The amendment is necessary to reflect the fact that since 1959 there has been more than one Second Commissioner of Taxation. See notes on clause 54 regarding the creation of a third statutory office of Second Commissioner of Taxation.

PART VIII - AMENDMENTS OF THE INCOME TAX ASSESSMENT ACT 1936

Clause 23: Principal Act

This clause facilitates references to the income Tax Assessment Act 1936 which, in Part VIII, is referred to as "the Principal Act".

Clause 24: Interpretation

Clause 24 will amend sub-section 6(1) of the Principal Act by including within the general definitions in the Principal Act the definition of "natural resource". By that definition -

"natural resource" means minerals or any other non-living resource of the land, sea-bed or sea. The term is used in proposed new section 6CA (see notes on clause 25) and new Division 3B of Part VI of the Principal Act (see notes on clause 46).

Clause 25: Source of natural resource income derived by a non-resident

Clause 25 proposes the insertion in the Principal Act of a new section - section 6CA - that will confer an Australian source on certain income that is directly related to the exploitation of Australia's natural resources (see notes on clause 24 for the meaning of natural resource).

New section 6CA, in conjunction with proposed new Division 3B of Part VI, will give effect to the measures announced on 7 April 1986 to ensure that certain income, referred to in the new provisions as "natural resource income", derived by non-residents of Australia is subject to Australian income tax. The new measures will apply in respect of payments of natural resource income made after 7 April 1986 and which are based on the level of production, recovery, or production and recovery of natural resources after that date.

In accordance with the announcement, the new measures will not apply to certain payments that are the subject of an informal agreement of some years standing between the Commissioner and the revenue authorities of a double taxation treaty partner. In effect, this means that payments in the nature of natural resource income made to a person who, at 7 April 1986 had a continuing entitlement to receive that income and, at that date, was a resident of a foreign country in respect of which a double tax agreement with Australia was in force, will continue to be taxed in Australia on the basis that 50 per cent of the income has a source in Australia.

Sub-section 6CA(1) defines the terms that are used in the section. They are -

"double tax agreement" means an agreement within the meaning of the Income Tax (International Agreements) Act 1953; and
"natural resource income" means, generally, income derived by a non-resident after 7 April 1986 and that is calculated, in full or in part, by reference to the value or quantity of natural resources produced, recovered, or produced and recovered in Australia after that date. Income that consists of royalty - a term defined in sub-section 6(1) of the Principal Act - is excluded from the meaning of natural resource income. Also excluded from the meaning of natural resource income is income derived by a non-resident where all of the following criteria are satisfied -

(i)
the non-resident had, on 7 April 1986, a continuing entitlement to receive the income ;
(ii)
the income was derived pursuant to that continuing entitlement;
(iii)
the non-resident was, at 5 pm standard time in the ACT on 7 April 1986, a resident of a country with which Australia had in force on that date a double tax agreement (the provisions of the particular double tax agreement determine whether the person was a resident of the foreign country);
(iv)
prior to 8 April 1986 the Commissioner had given a statement in writing to the effect that income tax would be levied on 50 per cent of a specified class of income; and
(v)
the income is included in that class of income.

Where all of criteria (i) to (v) are satisfied, income that would otherwise be treated as natural resource income will continue to be taxed on the basis that 50 per cent of the income has a source in Australia and will not come within the scope of sub-sections (2) and (3) (see notes on those sub-sections below).

Sub-section (2) provides that natural resource income shall be deemed to be attributable to sources in Australia for the purposes of Divisions 5 (taxation of partnership income) and 6 (taxation of trust income) of Part III of the Principal Act.

Sub-section (3) provides that, for the purposes of paragraph 23(r) (foreign source income of non-residents), section 25 (gross income from certain sources) and section 255 (person in receipt or control of money from non-resident), natural resource income shall be deemed to have been derived from a source in Australia.

This provision will make it clear that natural resource income is not to be treated as exempt foreign source income of a non-resident recipient and is to be included in the assessable income of the non-resident. It will also ensure that, where any person has the receipt, control or disposal of money belonging to a non-resident who derives natural resource income or is a shareholder, debenture holder or depositor in a company that derives such income, that person is subject to those requirements of section 255 of the Principal Act to the extent that similar requirements in relation to payments of income are not imposed on that person by new Division 3B of Part VI of the Principal Act (see notes on clauses 46 and 47).

Clause 26: Exemptions

This clause will amend paragraphs (z) and (zaa) of section 23 of the Principal Act which provides an income tax exemption for a range of income receipts.

Subject to certain exceptions, paragraph 23(z) of the Principal Act exempts from tax income derived by way of scholarship, bursary or other educational assistance by students receiving full-time education at a school, college or university other than assistance for secondary education and assistance in connection with the education of isolated children.

Paragraph 23(zaa) of the Principal Act, on the other hand, exempts from tax income derived by way of payments made to or in respect of students under a scheme for the provision of Commonwealth secondary educational assistance and payments made by way of Commonwealth assistance in connection with the education of isolated children but does not extend to payments under the Adult Secondary Education Assistance Scheme (ASEAS).

Paragraph (a) of clause 26 will amend paragraph 23(z) to correct a drafting error arising from an amendment of the paragraph by paragraph 21(a) of the Taxation Laws Amendment Act (No. 3) 1985. The amendment to paragraph 23(z) was consequential on the amendment of paragraph 23(zaa) to take account of the present schemes of secondary educational assistance provided by the Commonwealth and unintentionally terminated the exemption for secondary assistance provided other than by the Commonwealth. The amendment of paragraph 23(z) by paragraph 26(a) will insert two references to "provided by the Commonwealth" to ensure that the exclusion from paragraph 23(z) of secondary educational assistance and assistance in connection with the education of isolated children operates to exclude only Commonwealth assistance, the type of assistance now exempted by paragraph 23(zaa).

The amendment of paragraph 23(z) by paragraph (a) of clause 26 will apply, by sub-clause 49(2) of the Bill in relation to income derived in respect of a period commencing on or after 1 January 1986 and thus restore with effect from that date and without interruption, the exemption for income derived under schemes other than those operated by the Commonwealth.

The amendments of paragraphs 23(z) and (zaa), by paragraphs (b) and (c) respectively of clause 26, are necessary as a consequence on the proposed replacement of the existing Commonwealth Tertiary Education Assistance Scheme (TEAS), the Adult Secondary Education Assistance Scheme (ASEAS), and the Secondary Allowances Scheme (SAS) by assistance for tertiary or secondary education under a new scheme called AUSTUDY. Like TEAS payments and ASEAS payments, all payments under the new scheme, including those akin to allowances paid under SAS which are at present exempt, will be taxable except for any component for a dependent child. The new assistance scheme will be authorised by Part III of the Student Assistance Act 1973, as proposed to be amended by the Student Assistance Amendment Bill 1986, and is to apply from January 1987.

Sub-paragraphs 23(z)(v) and (vi) presently exclude TEAS payments (other than a child allowance) from the scope of the paragraph 23(z) exemption that applies in relation to certain income derived by way of a scholarship, bursary or other educational assistance. Paragraph (b) of clause 26 will omit sub-paragraphs 23(z)(v) and (vi) and substitute new sub-paragraphs 23(z)(v) and (vi) to reflect the replacement of the payments under TEAS by the new grant of tertiary education assistance under Part III of the Student Assistance Act 1973 (the AUSTUDY scheme). The exemption from tax of any child component included in the new Education Assistance is maintained.

Similarly, paragraph (c) of clause 26 will omit existing sub-paragraphs 23(zaa)(i) and (ii) and substitute new sub-paragraphs 23(zaa)(i) and (ii) to reflect the replacement of ASEAS by the new grant of secondary education assistance under Part III of the Student Assistance Act 1973 (the AUSTUDY scheme). The proposed new sub-paragraph 23(zaa)(i) will, in addition, remove the present exemption from income tax of payments received by students under SAS, as those students will be entitled, from January 1987, to payments under AUSTUDY - payments that will be taxed except to the extent they include a component for a child or children dependent on the recipient.

By sub-clause 2(4) of the Bill, the amendments by paragraphs 26(b) and (c) will come into operation on the day fixed by Proclamation for the coming into operation of the Student Assistance Amendment Act 1986. That is, the day on which the law authorising payments under the AUSTUDY scheme comes into operation.

As a consequence of sub-clause 49(3), where after the commencement of paragraphs 26(b) and (c), a TEAS or ASEAS payment is received, the Principal Act will continue to apply as if the amendments made by those paragraphs (b) or (c) and clauses 28 and 40 had not been made. This will preserve the existing operation of the income tax law in respect of any payments, such as arrears of an entitlement, that are paid after the amendments of the Student Assistance Act 1973 come into operation to give effect to the AUSTUDY scheme.

Clause 27: Exemption of certain pensions

Section 23AD of the Principal Act sets out the circumstances in which pensions, benefits and allowances paid under social security, repatriation or other welfare legislation are subject to, or exempt from, income tax.

Clause 27 will amend the definition of "wife's pension" in sub-section 23AD(1) to correct a technical deficiency in paragraphs (a) and (c) of that definition, where reference is made to the payment of a pension, benefit or allowance, as the case may be, to a woman by reason that she is the "wife", as defined by Part III of the Social Security Act 1947, of a particular man. Following an amendment by the Social Security and Repatriation (Budget Measures and Assets Test) Act 1984, the definition of "wife" was omitted from Part III and inserted in sub-section 6(1) of the Social Security Act 1947. That amendment applied to an instalment or payment of pension, benefit or allowance that fell due on or after 21 March 1985. No consequential amendment was made at the time to the Principal Act and the proposed amendments will now reflect the change.

By paragraph (a), the reference to "Part III" in paragraph (a) of the definition of "wife's pension" in sub-section 23AD(1) is omitted and "sub-section 6(1)" substituted.

By sub-clause 49(4) the amendment made by paragraph (a) will apply in relation to an instalment or payment of a pension or benefit falling due on or after 21 March 1985.

By paragraph (b), paragraph (c) of the definition of "wife's pension" in sub-section 23AD(1) is omitted and a new paragraph (c) substituted. The proposed new paragraph (c) will ensure that where an allowance is payable to or in respect of a woman under section 9 of the Tuberculosis Act 1948, the payment will come within the definition of "wife's pension" in sub-section 23AD(1) whether the payment of the allowance fell due on or before or after 21 September 1984. That is, the date on which the amendment of the definition of "wife" in the Social Security Act 1987 by the Social Security and Repatriation (Budget Measures and Assets Test) Act 1984 came into operation.

Clause 28: Rebate in respect of certain pensions

Where the assessable income of a taxpayer includes a benefit that is paid under Part VII of the Social Security Act 1947 (unemployment, sickness or special benefits) or an educational allowance paid under the Tertiary Education Assistance Scheme (TEAS) or the Adult Secondary Education Assistance Scheme (ASEAS), the taxpayer may be entitled to a rebate of tax under sub-section 160AAA(2) of the Principal Act. For the 1986-87 income year, the maximum rebate allowable under that sub-section is $280 for a married taxpayer (including a taxpayer with a de facto spouse) and $190 for any other taxpayer. The rebates shade-out at the rate of 12.5 cents for each dollar by which the taxpayer's taxable income exceeds a specified level - $9,436 for married persons and $5,669 for others. (The extension of the rebates to recipients of TEAS or ASEAS, and the rebate levels and shade-out points for the 1986-87 and subsequent years, was proposed by the Taxation Laws (Miscellaneous Provisions) Bill 1986).

Clause 28 proposes to amend sub-section 160AAA(2) by omitting paragraphs (b) and (c) and substituting a new paragraph (b) to reflect the replacement of TEAS and ASEAS by a grant of Education Assistance under Part III of the Student Assistance Act 1973 (the AUSTUDY scheme).

The amendments will apply, by the operation of sub-clause 2(4) of this Bill, on and from the day fixed by Proclamation for the coming into operation of the Student Assistance Amendment Act 1986.

By sub-clause 49(7) of the Bill, the rebates of tax under sub-section 160AAA(2) of the Principal Act will not apply in relation to an assessment for the 1986-87 year of income of a person who receives a grant of Education Assistance under Part III of the Student Assistance Act 1973 (as amended) during the year in respect of a secondary course of study, unless the person would have been eligible for a payment under ASEAS in respect of that course if ASEAS had been in operation throughout the whole of the year. As a consequence, persons receiving assistance for a secondary course of study under the AUSTUDY scheme who, but for that scheme, would have been eligible for payments under the Secondary Allowances Scheme (SAS), and not under ASEAS, during the 1986-87 year of income are not to be eligible for the beneficiary rebates in assessments of income for that year.

Clause 29: Rebate in respect of amounts assessable under section 26AH

Section 160AAB of the Principal Act authorises a rebate of tax in respect of bonuses, and other amounts in the nature of bonuses, received under life assurance policies and included in assessable income by virtue of section 26AH of the Principal Act. Section 26AH includes in assessable income bonuses and similar amounts paid on certain life assurance policies issued by a life assurance company or friendly society after 27 August 1982 and, depending on the date of commencement of a policy, applies to such amounts received either during the first 4 years or during the first 10 years of the policy. The section 160AAB rebate is intended to compensate for income tax that has been paid to the Commonwealth by the life assurance company in respect of its investment income or by the friendly society in respect of its life assurance business. Accordingly, the rebate is generally only available where the policy is issued by a life assurance company the investment income of which is subject to income tax or by a friendly society.

However, the rebate is also available in respect of policies issued by certain State government insurance offices that pay to their respective State Treasuries an amount equal to the Commonwealth income tax that would be payable if they were not exempt. In return for extending the rebate in respect of these policies, the relevant State Governments have agreed to reimburse the Commonwealth for the estimated revenue forgone by allowing the rebate.

By existing paragraph 160AAB(1)(d) of the Principal Act, the rebate is available in respect of policies issued by the State Government Insurance Office (Queensland), which is specifically referred to in that paragraph. Paragraph (a) of clause 29 of the Bill will substitute a new paragraph 160AAB(1)(d) to instead specify "Suncorp Insurance and Finance", by which name the State Government Insurance Office (Queensland) is, under the Queensland Suncorp Insurance and Finance Act 1985, now known. In terms of sub-clause 49(5) of the Bill, this amendment will apply in relation to taxable bonuses received on or after 1 January 1986 - the date of commencement of the Suncorp Insurance and Finance Act 1985. Under sub-section 4(5) of that Act, policies issued by the State Government Insurance Office (Queensland) prior to 1 January 1986 are effectively deemed to have been issued by Suncorp Insurance and Finance.

Paragraph (b) of clause 29 will insert new paragraph 160AAB(1)(f) in the Principal Act to extend the section 160AAB rebate to life assurance policies issued by the State Insurance Office of Victoria, established under the Victorian State Insurance Office Act 1984 which came into operation on 18 September 1984. In return for extending the operation of section 160AAB as proposed, the Victorian Government has agreed to reimburse the Commonwealth for the estimated revenue forgone by allowing the rebate. By sub-clause 49(6) of the Bill, this amendment will apply to assessments in respect of income of the year of income in which 18 September 1984 occurred and of all subsequent years of income.

Clause 30: What constitutes a disposal or acquisition

Clause 30 proposes an amendment of section 160M of the Principal Act, which contains rules as to what constitutes a disposal and an acquisition of an asset for the purposes of the capital gains and capital losses provisions in Part IIIA of the Principal Act. The clause will insert new paragraph 160M(5)(aa) to clarify the treatment, for those purposes, of an issue by a trustee of units in a unit trust. Paragraph 160M(5)(aa), like existing paragraph 160M(5)(a) which applies to the issue or allotment of shares in a company, will specify that the issue of units in a unit trust constitutes an acquisition of those units by the person to whom they were issued, but does not constitute a disposal of the units by the trustee.

Clause 31: Capital gains and capital losses

Clause 31 will amend the rule in section 160Z of the Principal Act that, in broad terms, any capital gain on the disposal of an asset is calculated by reference to the asset's cost base, where the asset is disposed of within 12 months after the date of its acquisition, or by reference to its indexed cost base where the asset is disposed of more than 12 months after acquisition.

Sub-section 160Z(4) modifies this rule where a taxpayer acquired an asset that formed part of the estate of a deceased person and passed to the taxpayer, as the legal personal representative of the deceased person or as a beneficiary. The date of acquisition of the asset for the purpose of determining whether or not indexation is to apply is, under sub-section (4), taken as the day on which the asset was acquired by the deceased person.

The amendment to sub-section 160Z(4) proposed by paragraph (a) of clause 31 will extend similar treatment to the interest of a deceased joint tenant in an asset deemed to have been acquired by the surviving joint tenant or joint tenants on the date of the person's death by virtue of section 160ZN. (See also notes on clause 34 concerning amendments to that section). Accordingly, the date of acquisition of the interest by the deceased person will be used in determining whether the cost base or indexed cost base is to be the basis for calculating a capital gain on the disposal of such an interest.

Paragraphs (b) and (c) of clause 31 propose amendments to sub-section 160Z(5) - which also modifies the rule referred to above - in circumstances where a taxpayer has disposed of part of a unit of industrial property and, by section 160ZZD, is deemed at the time of the part disposal to have disposed of and immediately reacquired the retained part of the unit.

Sub-section 160Z(5) is to the effect that, in these circumstances, references in sub-section (3) to the day on which an asset was acquired by a taxpayer shall, if the asset was deemed to have been so disposed of and reacquired by virtue of section 160ZZD, be read as a reference to the day on which the asset was actually acquired by the taxpayer, and not the day on which it was deemed to have been reacquired.

The amendment proposed by paragraph (b) of clause 31 will extend the operation of sub-section 160Z(5) to an asset that is deemed to have been disposed of and immediately reacquired by a taxpayer by virtue of section 160ZL or section 160ZM.

Section 160ZL applies where a company pays to a taxpayer an amount in respect of shares in the company that is not a dividend, and is not in respect of the disposal of the shares. For example, the payment may be as a partial return of capital. Section 160ZM applies where a trustee of a trust pays an amount to a taxpayer that is not assessable income of the taxpayer, in respect of an interest or units in the trust, other than as proceeds of disposal of the interest or unit. Broadly, where section 160ZL or 160ZM applies, the cost bases of the shares or interest or units in the trust are reduced by deeming the shares, interest or units to have been disposed of and immediately reacquired for an amount reduced by the amount of the payment by the company or trustee. The amendment proposed by paragraph (b) will ensure that, in determining whether the cost base or indexed cost base is to be used for the purpose of calculating a capital gain on disposal of the shares, interest or units, the deemed disposal and reacquisition will not affect the date of acquisition.

Paragraph (c) of clause 31 will effect a drafting amendment to sub-section 160Z(5), substituting for a reference to the day on which the relevant asset was "actually" acquired, a reference to the day on which, but for the deemed disposal and reacquisition, the asset was acquired. This amendment is to ensure that, where bonus shares or bonus units are deemed to have been acquired when the original shares or units were acquired, that deemed date of acquisition will not be affected by the deemed disposal and reacquisition provisions referred to in sub-section 160Z(5).

Clause 32: Return of capital on shares

This clause amends section 160ZL of the Principal Act the operation of which has been explained. The amendment made by clause 32 will make it clear that section 160ZL applies only in relation to shares acquired by a taxpayer after 19 September 1985. This will ensure that shares acquired before 20 September 1985 will not be brought within the capital gains provisions by the deeming provisions of the section if the company makes a relevant payment in respect of those shares after 19 September 1985.

Clause 33: Return of capital on investment in trust

Clause 33 proposes an amendment of section 160ZM of the Principal Act, also explained above, comparable to that proposed by clause 32 to section 160ZL. The proposed amendment will make it clear that section 160ZM applies only where an interest in, or units in, a trust were acquired by the taxpayer after 19 September 1985.

Clause 34: Application to joint owners

Clause 34 proposes to amend section 160ZN of the Principal Act which applies where an asset is owned by persons as joint tenants.

Paragraph (a) of clause 34 will substitute new paragraph (b) in sub-section 160ZN(1) which deems the interest in the asset of the deceased person to be acquired by the surviving joint tenant or tenants at the date of that person's death. New paragraph 160ZN(1)(b) will apply where the interest of the deceased in the asset was acquired by the deceased before 20 September 1985. In these circumstances, the interest is to be deemed to have been acquired by the surviving joint tenant or tenants on the date of death for a consideration equal to the market value of the interest at that date. Thus, the capital gains provisions will not apply to any gain accrued up to the date of death. This amendment will ensure consistency with the operation of paragraph 160X(5)(a) of the Principal Act which applies where the legal personal representative or a beneficiary in the estate of a deceased person acquires an asset that formed part of the deceased estate and the deceased acquired that asset before 20 September 1985.

Paragraph (b) of clause 34 effects a drafting amendment to paragraph 160ZN(1)(c) of the Principal Act so that it will apply only to an interest in an asset that was acquired by the deceased person after 19 September 1985. The paragraph, as proposed to be amended, will continue to have the effect that the surviving joint tenant or tenants will, in these circumstances, be deemed to have acquired the interest of the deceased person as at the date of death. The substantive provisions of the paragraph, which determine the amount of the indexed cost base or reduced cost base of the interest for the purpose of calculating whether a capital gain has accrued to the survivor or a capital loss has been incurred by the survivor on a subsequent disposal of the interest, remain unchanged.

Clause 35: Options

Clause 35 will amend section 160ZZC of the Principal Act as it relates to options granted by a company or by the trustee of a unit trust to acquire new shares in or debentures of the company, or units in or debentures of the unit trust.

By section 160ZZC, the grant of an option is deemed to be a disposal of the option at the time when the grant took effect except that where the option is exercised, the grant of the option and the transaction entered into as a result of the option's exercise are treated as a single transaction. By virtue of section 160M, as proposed to be amended by clause 30, the issue of shares in a company or units in a unit trust does not constitute a disposal of the shares by the company or of the units by the trustee of the unit trust. Accordingly, where a company or the trustee of a unit trust grants options to acquire shares in the company or units in the unit trust and the options are exercised in the same year of income, the tax on capital gains will not apply to the consideration received for the grant of the options or the subsequent issue of the shares or units.

But for the amendment proposed by clause 35, where the options are granted in one income year and exercised in a later income year, the tax on capital gains would apply in the year of the grant but, when the options are exercised, the earlier assessment would be amended to exclude the capital gain, and where the options expire without being exercised, the consideration received for the grant of the options would remain subject to the tax on capital gains in the income year of the grant.

The amendments being made by clause 35 will have the effect that, where a company or the trustee of a unit trust grants, after 19 September 1985, options to acquire shares in or debentures of the company or units in or debentures of the unit trust, the tax on capital gains will apply to the proceeds received for the grant of the option only in the year in which the options expire without being exercised or are cancelled, released or abandoned.

Paragraph (a) of clause 35 will make existing sub-section 160ZZC(3) subject to the new sub-section 160ZZC(3A) proposed to be inserted by paragraph (b) of clause 35.

Paragraph (b) of clause 35 proposes to insert new sub-sections 160ZZC(3A) and (3B).

Sub-section 160ZZC(3A) will apply where, on or after 20 September 1985, a company grants an option to acquire shares in the company or to acquire debentures of the company (paragraph (a)) or where the trustee of a unit trust grants an option to acquire units in the unit trust or debentures of the unit trust (paragraph (b)).

By paragraph (c), the grant of such an option will not constitute a disposal of the option at the time when the grant takes effect. Paragraph (d) applies where the option is exercised and, in such circumstances, deems the grant of the option not to have constituted a disposal of the option at any time.

However, if the option expires without being exercised, or is cancelled, released or abandoned, the grant of the option is, by paragraph (e), to be taken to have constituted a disposal of the option at the time when the option expires or is cancelled, released or abandoned (sub-paragraph (i)), and the option is to be deemed to have been owned by the grantor (that is, the company or trustee of the unit trust) immediately before the disposal (sub-paragraph (ii)).

The effect of new sub-section 160ZZC(3A) is that the grant by a company or trustee of a unit trust of an option to which the sub-section applies will be considered to have been a disposal of an asset to which the provisions of Part IIIA of the Principal Act apply, only where that option expires without being exercised or is cancelled, released or abandoned.

New sub-section 160ZZC(3B) is to the effect that a reference in sub-section 160ZZC(3A) to a debenture of a unit trust is a reference to anything issued by the trustee of the unit trust that, if the unit trust were a company, would be a debenture of the company. Debenture is defined in sub-section 6(1) of the Principal. Act and, broadly, includes debenture stock, bonds, notes and any other securities of a company.

Clause 36: Involuntary disposal

Division 17 of Part IIIA of the Principal Act sets out the legislative conditions that have to be met before a deferral of tax liability on a capital gain (referred to as a "roll-over") is granted to a taxpayer. Section 160ZZK deals with situations where there is an involuntary disposal of an asset. Generally, an "involuntary disposal" is one where money is received by way of compensation, including insurance proceeds, for the compulsory acquisition of an asset, or for loss or destruction of, or damage to, an asset. The purpose of a roll-over in this context is to defer a liability to tax on capital gains until the original asset as repaired, or the asset acquired to replace the original asset is disposed of. The granting of a roll-over is subject to a number of requirements. One of these is that the taxpayer acquire a replacement asset (defined in sub-section 160ZZK(7)) or incur expenditure of a capital nature in repairing or restoring the original asset, as the case may be, within a stipulated period. This period commences not earlier than one year before the disposal of the asset took place and ends not later than one year after the end of the year of income in which the disposal took place. The period may be extended where the Commissioner of Taxation is satisfied that special circumstances exist.

It may be the case, however, that by the time for lodgment of the return of income for the year in which the involuntary disposal occurred the taxpayer may not be able to satisfy all the conditions for roll-over relief. In particular he or she may not have acquired a replacement asset by that time. Clause 36 therefore proposes to insert new sub-section 160ZZK(8) in the Principal Act to permit an assessment to be amended at any time in order to give effect to roll-over relief where all the roll-over conditions are subsequently satisfied. The Commissioner will thus be able to amend an earlier assessment to exclude any capital gain that may have accrued on the involuntary disposal.

Clause 37: Exemption of principal residence

This clause will effect several amendments to section 160ZZQ of the Principal Act which, broadly, excludes from the capital gains and capital losses provisions gains or losses on the disposal of a dwelling attributable to the period during which it was owned by the taxpayer and was the sole or principal residence of the taxpayer. The section also applies where the dwelling was acquired by the taxpayer as a beneficiary in, or as trustee of, the estate of a deceased person so as to exclude gains or losses attributable to periods during which the dwelling was the sole or principal residence of the deceased or, following the death of the deceased, the sole or principal residence of the spouse of the deceased. Gains or losses may also be excluded if the dwelling is disposed of by the beneficiary within twelve months of the death of the deceased, regardless of whether the dwelling was occupied in that time by the beneficiary or the spouse of the deceased as his or her sole or principal residence.

Where, however, a dwelling which has been the sole or principal residence of the beneficiary, is disposed of by the beneficiary more than twelve months after the death of the deceased, the principal residence exemption rules technically do not apply if the dwelling has not been occupied by the spouse of the deceased person at any time from the time of the deceased's death until the beneficiary became the legal owner of it. The amendment proposed by clause 37 will correct this technical deficiency by inserting two new sub-sections - sub-sections 160ZZQ(13A) and 160ZZQ(17A) - in the Principal Act, which will apply in circumstances where the dwelling was not the principal residence of the spouse of the deceased person at any time after the death of the deceased person. The sub-sections will complement sub-sections (13) and (17), which apply where the dwelling was the sole or principal residence of the spouse of the deceased person after the date of death.

Sub-section 160ZZQ(13A) to be inserted by paragraph (a) of clause 37, will apply in relation to the disposal of a dwelling owned by a taxpayer, being a natural person, who acquired the dwelling as a beneficiary in the estate of a deceased person (paragraph (13A)(a)). If in such a case:

(a)
the dwelling was the taxpayer's sole or principal residence throughout the period from the date of death of the deceased person to the disposal of the dwelling (paragraph (13A)(b)); and
(b)
if the dwelling was acquired by the deceased person after 19 September 1985, it was his or her sole or principal residence for the whole of the period during which he or she owned the dwelling (paragraph (13A)(c)),

then unless the dwelling was used during either of the periods referred to to produce assessable income - in which case sub-section 160ZZQ(21) would apply - any real capital gain that is made on the disposal will not be liable for the tax on capital gains. Correspondingly, if a loss is incurred on the disposal of the dwelling, that loss will not be allowable for purposes of the provisions.

Paragraph (b) of clause 37 proposes to insert new sub-section 160ZZQ(17A). The sub-section will apply to the disposal of a dwelling by a person who acquired the dwelling as a beneficiary in the estate of a deceased person where the disposal is made more than twelve months after the date of death of the deceased person (paragraph (17A)(a)), and where either or both of the following situations exist:

-
the dwelling was the taxpayer's sole or principal residence for only part of the period from the date of death of the deceased person to the disposal of the dwelling (sub-paragraph (17A)(b)(i));
-
if the dwelling was acquired by the deceased person after 19 September 1985, the dwelling was the sole or principal residence of the deceased person for part only of the period of his or her ownership of it (sub-paragraph (17A)(b)(ii)).

Where either or both of these situations exist, a proportion of any real capital gain will be liable for the tax on capital gains or a proportion of the capital loss will be allowable. The proportion is to be calculated in accordance with the formula

(AB)/(C)

.

Component A is the amount of the capital gain or capital loss accrued or incurred on the disposal of the dwelling;
Component B is the total number of days where, in the respective situations outlined above (if applicable), the dwelling was not the sole or principal residence of the taxpayer or the deceased person; and
Component C is -

·
where the deceased person acquired the dwelling before 20 September 1985 - the number of days from the date of death of that person to the date of disposal; or
·
where the dwelling was acquired by the deceased person on or after 20 September 1985 - the number of days from the date of acquisition by that person to the date of disposal.

This sub-section is modified by sub-section 160ZZQ(21) if the dwelling was used at any time to produce assessable income.

Paragraphs (c) and (d) of clause 37 propose consequential amendments to sub-section 160ZZQ(21) to include references in that sub-section to the new sub-sections 160ZZQ(13A) and 160ZZQ(17A).

Clause 38: Disposal of shares or interest in partnership or trust

Section 160ZZT is one of two anti-avoidance sections contained in the capital gains and capital losses provisions of the Principal Act aimed at preventing circumvention of the limitation of the tax on capital gains to assets acquired after 19 September 1985. It brings to account as a capital gain that part of the disposal proceeds of shares in a private company or an interest in a partnership or a private trust estate acquired before 20 September 1985, that is attributable to an increase in the value of underlying property acquired after 19 September 1985.

For the section to apply, the value of, or of the interest in, the underlying property acquired after 19 September 1985 must be not less than 75 per cent of the net worth of the company, partnership or trust estate the shares or interests in which are disposed of. Where section 160ZZT applies a capital gain is taken to have accrued to the taxpayer in the year of income in which the taxpayer disposed of the shares or interest. The gain is to be determined by reference to so much of the consideration received or receivable in respect of the disposal as may reasonably be attributed to the amount (if any) by which the value of the underlying property, immediately before the disposal, exceeds what would have been the indexed cost bases to the company, partnership or trustee of the underlying property if that property had been disposed of by the company, partnership or trustee immediately before the disposal.

The amendment proposed by clause 38 is of a drafting nature to remove any possible ambiguity that could have arisen from the reference to the indexed cost base to the taxpayer of the underlying property. By this clause, that reference will be replaced by a reference to the indexed cost base to the relevant company, partnership or trustee.

Clause 39: Modified application of Division for early balancing companies

Introductory note

Clause 39 will give effect to the 1986-87 Budget Decision to advance the due dates for payment of instalments of company tax payable by companies with accounting periods ending one month or more before 30 June, referred to in these measures as "early balancing companies".

Under the existing law companies are required to pay during a financial year three instalments of company tax in respect of the income of the preceding financial year, "the income year", or the accounting period adopted in lieu thereof and the balance of the tax payable in respect of the income year following the receipt of a notice of assessment. The instalments generally are equal to one quarter of the tax payable in respect of the income of the year preceding the income year. This means that under the present law companies would be required to pay in 1987-88 three instalments of tax in respect of 1986-87 income each equal in amount to one quarter of the tax payable in respect of 1985-86 income.

Notices of instalments of company tax may specify dates not earlier than 15 August, 15 November and 15 February in the financial year next succeeding the year of income irrespective of a company's accounting period. Under this arrangement a company that has, with the leave of the Commissioner, adopted an accounting period ending on 31 December in lieu of the financial year ending on the succeeding 30 June is not called upon to pay any tax in respect of the income of that accounting period until 7 1/2 months after its balancing date.

Under the arrangements proposed by clause 39, companies that have a substituted accounting period that ends in May or earlier in lieu of the succeeding 30 June will be required, like other companies, to pay instalments 1 1/2 4 1/2 and 7 1/2 months after the end of the substituted accounting period. Where, however, the substituted accounting period ends other than on the last day of a month those periods will run from the first day of the month after the month in which the accounting period ends. Hence a company, balancing in June but on a date other than 30 June, will not be called on to pay an instalment until 15 August and is not to be included within the scope of the definition of "early balancing company".

Special arrangements are being made to lessen the impact of the new arrangements by providing for instalments that would otherwise be payable before 30 June 1987 to be spread over three years and payable in three amounts not earlier than 15 June 1987, 15 June 1988 and 15 June 1989.

As explained in the notes on clause 39, the three amounts will not always be equal as in the general case the amount payable in June 1987 will be related to the 1985-86 tax while the amounts payable in June 1988 and June 1989 will be calculated by reference to the lesser of the 1985-86 tax and the 1986-87 tax.

Sub-clause (1) of clause 39 will insert a new section - section 221AB - into Division 1A of the Principal Act that will modify the operation of the Division in relation to "early balancing companies" as defined in proposed sub-section 221AB(2) (see notes below).

Section 221AB: Modified application of Division for early balancing companies

The effect of new section 221AB will be to advance the due dates for payment of instalments by an early balancing company, which in terms of sub-section 221AB(2) is one that balances on or before 31 May, by as many complete months as there are between the end of the company's accounting period and 30 June. The dates from which additional tax is payable in the circumstances specified in sub-section 221AG(7A) of the Principal Act are to be advanced correspondingly.

Sub-section (1) of section 221AB will provide for the modification of the application of Division 1A in relation to an early balancing company and is to have effect in relation to instalments of company tax in respect of income of the year of income commencing on 1 July 1986 and subsequent years. By virtue of sub-section 6(2) of the Principal Act this means, in relation to an early balancing company, the accounting period adopted in lieu of the regular year of income ending on 30 June 1987 - the 1986-87 income year - and subsequent years.

Paragraph (a) of sub-section (1) will provide the basis for advancing the due dates for payment of instalments payable by early balancing companies. This is done by modifying the operation of sections 221AC and 221AF of the Principal Act. Taken together those sections at present fix the earliest due dates for payment of instalments by all companies by specifying dates occurring in the year of tax in relation to the year of income. Sub-section 6(1) of the Principal Act defines the year of tax as the financial year for which income tax is levied and for a company this is the financial year next succeeding the year of income. Thus the year of tax in relation to all companies for the 1986-87 income year is the period 1 July 1987 to 30 June 1988 irrespective of the accounting period adopted by a company.

Paragraph (1)(a) will require references in sections 221AC and 221AF to the year of tax to be read, in relation to an early balancing company, as a reference to the period of one year commencing on the first day of the month following the end of the company's accounting period or on 1 January in the financial year next preceding the year of tax, whichever is the later (sub-paragraphs 221AB(1)(a)(i) and (ii)). That period is described as the "substituted instalment period" and in the case of a company balancing on, for example, 15 April 1987 in lieu of 30 June 1987, the substituted instalment period will be the period 1 May 1987 to 30 April 1988. For a company that balances on, say, 15 November 1986 (or any date prior to 1 January 1987) in lieu of 30 June 1987, the substituted instalment period will be the period 1 January 1987 to 31 December 1987.

Paragraph (1)(b) is the provision that will advance the due dates specified in paragraph 221AF(2)(b) for payment of instalments of company tax and the dates specified in sub-section 221AG(7A) from which additional tax may be charged in the circumstances specified in that sub-section (see below). Paragraph (1)(b) requires a date specified in section 221AF or 221AG to be read as a reference to a date that precedes the specified date by the number of months in the period commencing on the first day of the substituted instalment period and ending immediately before the beginning of the year of tax - in effect, the number of complete months between the balancing date and 30 June.

Insofar as paragraph 221AF(2)(b) is concerned this means that the references to 15 August, 15 November and 15 February in the year of tax are, in the case of an early balancing company, to be read as references to dates 1 1/2, 4 1/2 and 7 1/2 months respectively from the commencement of the first month after the balancing date (or from 1 January in the case of a company balancing earlier than 1 December).

In effect, instalment dates for an early balancing company will be advanced by 1 to 6 months as follows:

Balancing date Instalment date advanced by
Prior to 1 January 6 months
In January 5 months
In February 4 months
In March 3 months
In April 2 months
In May 1 month

The dates from which additional taxes are calculated for the purposes of sub-section 221AG(7A) will be advanced by the same period. That sub-section charges additional tax by way of penalty where the payment of one or two instalments is avoided because of a variation that wrongly eliminates the liability to pay an earlier instalment.

Sub-section (2) of section 221AB formally defines an "early balancing company" as a company the year of income of which ends more than one month before the beginning of the year of tax. In relation to the 1986-87 income year this means a company that balances on or before 31 May 1987, in lieu of 30 June 1987 for which the year of tax is the 1987-88 financial year commencing on 1 July 1987.

Special arrangements for the 1986-87 income year

Sub-clause (2) of clause 39, which does not amend the Principal Act, makes provision for special arrangements in relation to instalments, referred to as "advanced instalments", in respect of the income of the "transitional year", i.e., the 1986-87 income year that would, in accordance with Division 1A of Part VI of the Principal Act as modified by new section 221AB, be due for payment before 30 June 1987. The broad effect of sub-clause (2) will be that no payment of instalments of company tax in respect of the income of the 1986-87 income year will be required before 15 June 1987. The amount payable in any instalment that falls due for payment or could fall due for payment, on or before 30 June 1987 will be limited to one third of the amount that would otherwise be payable in that instalment. This is done by providing, in effect, that the first instalment of 1986-87 company tax payable by a company that balances on or after 1 February 1987, and the first and second instalments payable by a company that balances before 1 February 1987, will be one-twelfth of the amount of the "notional tax" at the relevant time rather than one-quarter of that amount. The notional tax is generally an amount equal to the tax on the company's income of the preceding year (sub-section 221AD(1)).

When an assessment is made of the tax payable for 1986-87 the special arrangements provide that there will be a deferment of the date for payment of an amount referred to as the "original deferred amount" (see notes in sub-clause (3) for the definition of this term). This amount will correspond broadly to the amount by which the first instalment, or first and second instalments, are reduced by virtue of being calculated as one-twelfth rather than one-quarter of the notional tax. In the normal case the original deferred amount will be payable in two equal instalments on 15 June 1988 and 15 June 1989 respectively.

Paragraph (a) of sub-clause (2) provides that the earliest date that may be specified in a notice of an advanced instalment (an "advanced instalment notice") is to be 15 June 1987.

Paragraph (b) of sub-clause (2) provides for certain provisions of the amended Act, i.e., the income Tax Assessment Act 1936, as proposed to be amended by this Bill, to be applied for the purposes of determining the amount of an advanced instalment as if the references in those provisions to one-quarter were references to one-twelfth. The relevant provisions are sub-sections 221AE(1) and 221AG(4), (5), (6) and (7). Sub-section 221AE(1) is the provision that, in general, fixes the amount of an instalment of company tax as one-quarter of the notional tax at the date of issue of the instalment notice. The calculation of the amount of an advanced instalment as one-twelfth of the notional tax will enable the calculation of the original deferred amount to be left until an assessment is made. It will then be calculated having regard to various factors (see notes on definition of "original deferred amount" in sub-clause (3)) and as a single amount rather than a combination of amounts which would otherwise be the case where a company is liable for two advanced instalments in respect of the 1986-87 income year. Moreover, the original deferred amount, once ascertained, will not vary except following an amendment of the 1986-87 assessment. It will not, for example, be affected by a variation of an instalment before the issue of the 1986-87 assessment as it would be if it were related directly to the amount of an advanced instalment.

The application of sub-sections 221AG(4) and (5) as if the references in those sub-sections to one-quarter were references to one-twelfth will mean that, where the notional tax in relation to an advanced instalment is varied on the basis of an estimate by a company (sub-section 221AG(4)) or by the Commissioner (sub-section 221AG(5)) of the company's 1986-87 tax, the adjusted instalment of tax will be one-twelfth of the estimated income tax in like manner to the calculation of the original instalment under sub-section 221AE(1) as one-twelfth of the notional tax at the time of issue of the original instalment notice.

The application of sub-sections 221AG(6) and (7) as if the references in those sub-sections to one-quarter were references to one-twelfth will mean that where a penalty is incurred for underestimating the 1986-87 income tax payable for the purposes of the variation of an advanced instalment of tax, the comparisons required to be made in those sub-sections are made by reference to one-twelfth of the tax payable on assessment rather than one-quarter where, as is normally the case, the instalment is calculated by reference to one-quarter of the notional tax.

Paragraph (c) of sub-clause (2) requires that sub-section 221AE(1A) of the Principal Act be applied as if the amount of $250 referred to therein, were a reference to $84 for the purposes of an advanced instalment. Under sub-section 221AE(1A) an instalment is not ordinarily payable if the amount otherwise payable would be less than $250. That is to say an instalment would not, in the general case, be payable if the notional tax (normally the preceding year's tax) was less than $1000. This will also be the case in relation to advanced instalments of tax in respect of income of the 1986-87 income year.

Paragraph (d) of sub-clause (2) provides that sub-sections 221AE(5), (6) and (7) are to apply for the "transitional year", 1986-87, as if the references in those provisions to the income tax in respect of the transitional year were references to that income tax less the "original deferred amount". The practical effect of sub-sections 221AE(5), (6) and (7) is to ensure that, when the assessment for a year of income becomes due for payment, any instalments then unpaid cease to be payable to the extent to which they exceed the amount of the tax payable on assessment as reduced by any payment made prior to the due date.

Paragraph (d) will ensure that for the purposes of sub-sections 221AE(5), (6) and (7) the amount of an assessment is reduced by the original deferred amount before the comparison is made that is necessary to determine the amount, if any, of instalments that cease to be payable. In this way an instalment of tax will not continue to be payable by reason only of the fact that the original deferred amount remains unpaid on the date for payment of the balance of an assessment.

Paragraph (e) of sub-clause (2) will modify the application of section 204 of the Principal Act in relation to income tax payable by an early balancing company that has to pay an advanced instalment of tax or two advanced instalments of tax in respect of the 1986-87 income year. That section provides, generally, that the due date for payment of income tax may be as early as 30 days after service of a notice of assessment. Under paragraph (e), section 204 is not to apply to the part of the 1986-87 tax that is not to become payable before 15 June 1988 or 15 June 1989, i.e., the "original deferred amount" as defined in sub-clause 39(3).

By paragraph (f) of sub-clause (2) the original deferred amount is to be payable by a company in two equal instalments, the first of which is not to be due for payment before 15 June 1988 (sub-paragraph (f)(i) and the other, not before 15 June 1989 (sub-paragraph (f)(ii)). The actual due date for payment of each instalment of deferred tax, which is to be specified in a notice issued to the company, is not to be less than 30 days after service of the notice and will be capable of being extended in accordance with the provisions of section 206 of the Principal Act.

Paragraphs (g) and (h) of sub-clause (2) deal with the situation where an assessment is amended and the application of the definition of original deferred amount to the amended assessment produces an amount, defined in sub-clause (3) as the "revised deferred amount", that is greater or less than the original deferred amount.

Where the revised deferred amount is greater than the original deferred amount paragraph (g) will apply to increase the amount deferred under paragraph (e), and the amount of any instalment of deferred tax, notice of which has not been given prior to the issue of the amended assessment.

Where the revised deferred amount is less than the original deferred amount paragraph (h) will apply to reduce the amount deferred under paragraph (e), and the amount of any instalment of deferred tax, notice of which has not been given, prior to the issue of the amended assessment.

Sub-paragraph (g)(i) will apply where the revised deferred amount is greater than the original deferred amount and a notice of an instalment of deferred tax has not been issued under sub-paragraph (f)(i) before the issue of the amended assessment. Sub-paragraph (g)(i) will not be applicable after about May 1988, by which time it is likely that most, if not all, notices calling for payment of the first instalment of deferred tax by 15 June 1988 will have been issued. Where sub-paragraph (g)(i) applies the amount deferred under paragraph (e) will, in terms of sub-sub-paragraph (g)(i)(A), be effectively increased to an amount equal to the revised deferred amount. This is achieved by providing that section 204 does not apply to the excess of the revised deferred amount over the original deferred amount. When, in the situation covered by sub-paragraph (g)(i), notices of instalments of deferred tax are issued under sub-paragraphs (f)(i) and (f)(ii) the amounts of those instalments will be calculated by reference to the revised deferred amount in accordance with sub-sub-paragraph (g)(i)(B).

Sub-paragraph (g)(ii) will apply where the revised deferred amount is greater than the original deferred amount and a notice of an instalment of deferred tax has been issued under sub-paragraph (f)(i) before the issue of the amended assessment. This could be the situation where the assessment is amended between, say, June 1988 and May 1989. In this situation sub-sub-paragraph (g)(ii)(A) will have the effect of increasing the amount deferred under paragraph (e) by an amount equal to one-half of the excess of the revised deferred amount over the original deferred amount. The other half of the excess will be due for payment in accordance with section 204 of the Principal Act on the due date for payment of the remainder of any increase in liability resulting from the amendment of the assessment. The second instalment of deferred tax will then be equal to one-half of the revised deferred amount which will equate with the balance of the deferred tax not covered by the first instalment, i.e., one-half of the original deferred amount plus one-half of the excess of the revised deferred amount over the original deferred amount.

Sub-paragraph (h)(i) will apply where the original deferred amount is greater than the revised deferred amount and a notice of an instalment of deferred tax has not been issued under sub-paragraph (f)(i) before the issue of the amended assessment. Sub-paragraph (h)(i) will not be applicable after about May 1988 by which time it is likely that most, if not all, notices calling for payment of the first instalment of deferred tax by 15 June 1988 will have been issued. Where sub-paragraph (h)(i) applies the amount deferred under paragraph (e), will, in terms of sub-sub-paragraph (h)(i)(A), be effectively reduced to an amount equal to the revised deferred amount. This is achieved by providing that any refund or credit to which the company would be entitled by virtue of the amended assessment is to be reduced by the amount of the excess of the original deferred amount over the revised deferred amount. As a corollary the amount originally deferred under paragraph (e) will also be reduced by the amount of the excess thus reducing the company's liability for deferred tax in June 1988 and June 1989.

When, in the situation covered by sub-paragraph (h)(i), notices of instalments of deferred tax are issued under sub-paragraphs (f)(i) and (f)(ii), the amounts of those instalments will be calculated by reference to the revised deferred amount in accordance with sub-sub-paragraph (h)(i)(B).

Sub-paragraph (h)(ii) will apply where the original deferred amount is greater than the revised deferred amount and a notice of an instalment of deferred tax has been issued under sub-paragraph (f)(i) before the issue of the amended assessment. This could be the situation where the assessment is amended between say June 1988 and May 1989. In this situation, sub-sub-paragraph (h)(ii)(A) will have the effect of decreasing the amount originally deferred under paragraph (e) by an amount equal to one-half of the excess of the original deferred amount over the revised deferred amount. As a corollary, the part of the amount originally deferred under paragraph (e), that has not been included in the notice under sub-paragraph (f)(i), will also be reduced by one-half of the excess, thus reducing the company's residual liability for deferred tax that may become due for payment on 15 June 1989.

When, in the situation covered by sub-paragraph (h)(ii) the notice of the second instalment of deferred tax is issued under sub-paragraph (f)(ii), the amount of the instalment will be calculated by reference to the revised deferred amount in accordance with sub-sub-paragraph (h)(ii)(B) and will equate with the balance of deferred tax not included in the first instalment, i.e., one-half of the original deferred amount less one-half of the excess of the original deferred amount over the revised deferred amount.

Paragraph (j) of sub-clause (2) provides that no credit or other amount to which a company is entitled under the Principal Act or any other Act is to be applied in reduction of any part of the deferred amount before it becomes due for payment in terms of a notice served in accordance with paragraph (f). This means, for example, that a credit in respect of excess deductions under the Prescribed Payments System or from the amendment of an assessment will not be capable of being applied in reduction of the deferred amount except at the direction of the company or in the case of a credit arising from the amendment of the 1986-87 assessment, to the extent permitted by paragraph (h).

Sub-clause (3) defines a number of terms for the purposes of sub-clauses (2) and (3). By this sub-clause -

"amended Act" is defined to mean the Principal Act, i.e., the Income Tax Assessment Act 1936 as proposed to be amended by this Bill. The definition facilitates references in sub-clauses (2) and (3) to the Principal Act as amended.
"income tax payable" is defined as the amount payable in an assessment after deducting credits under sub-section 98A(2), Division 18 of Part III or Division 3A of Part VI of the amended Act or under the Income Tax (International Agreements) Act 1953. The definition is relevant, in particular, for the purposes of the calculation of the original deferred amount and the revised deferred amount.
"original assessment" means an assessment other than an amended assessment. The definition is relevant for the purposes of the definitions of "original deferred amount" and "revised deferred amount".
"original deferred amount" is defined to quantify the amount that in terms of paragraph 39(2)(f) is to be payable in two instalments on dates not earlier than 15 June 1988 and 15 June 1989 respectively. The original deferred amount is to be calculated by reference to circumstances existing immediately before the issue of an original assessment of tax payable by a company for the 1986-87 income year. It will however vary according to whether the company was one that balanced sufficiently early to have a liability (or potential liability) for two advanced instalments or for only one such instalment.
Paragraph (a) of the definition deals with the case of a company with a "substituted instalment period" (proposed paragraph 221AB(1)(a)) that commences not later than 1 February 1987, i.e., one that could be called upon to pay two advanced instalments of tax.
Sub-paragraphs (i), (ii) and (iii) of paragraph (a) identify three amounts the least of which is to be the original deferred amount.
The amount specified by sub-paragraph (i) is an amount equal to one-third of the income tax payable (see definition above) in respect of the taxable income for 1986-87.
The amount specified by sub-paragraph (ii) is an amount equal to one-third of the notional tax in relation to the 1986-87 year immediately before the issue of the 1986-87 original assessment. This will be the 1985-86 tax except where a 1986-87 instalment has been varied on the basis of estimated 1986-87 tax.
The amount specified by sub-paragraph (iii) is the amount by which the income tax payable for 1986-87 exceeds the sum of the instalments of company tax payable in respect of the 1986-87 income. Sub-paragraph (iii) will operate to ensure that refunds are not made only to enable a company to obtain the benefit of deferment of the amount indicated by sub-paragraph (i) or (ii). In practice, sub-paragraph (iii) may apply only infrequently - for example, when the instalments exceed two-thirds of the 1986-87 tax. This may occur where there is a substantial reduction of income in 1986-87 and the company neglects to have its instalments varied on the basis of an estimate of 1986-87 tax.
In the generality of cases therefore, the original deferred amount will be the lesser of the amounts identified under sub-paragraphs (i) and (ii). Sub-paragraph (i) would normally apply where income had declined but the company had not had its instalments varied, while sub-paragraph (ii) would normally apply where income has increased.
Paragraph (b) of the definition deals with the case of a company with a "substituted instalment period" (paragraph 221AB(1)(a)) that commences later than 1 February 1987, i.e., a company that could be called upon to pay only one advanced instalment of tax. The original deferred amount for such a company will be calculated in the same way as for a company liable for two advanced instalments subject only to the substitution in sub-paragraphs (i) and (ii) of one-sixth in lieu of one-third of the tax payable, or the notional tax, as the case requires.
"revised deferred amount" is defined in relation to an amended assessment, or, if there has been more than one amended assessment for 1986-87, the latest amended assessment. The revised deferred amount will be the amount that would be the "original deferred amount" if -

·
the latest amended assessment and any previous amended assessment had formed part of the original assessment, i.e., if the adjustment made in the latest and any previous amended assessments had been reflected in the original assessment (paragraph (a)); and
·
notice of the original assessment had been issued at the time when the latest amended assessment was issued (paragraph (b)).

By virtue of paragraph (b) of this definition the amount of the notional tax taken into account for the purposes of sub-paragraph (a)(ii) of the definition of "original deferred amount" in its application for the purposes of calculating the "revised deferred amount" will be the same as that immediately before the issue of the original assessment - normally the tax for 1985-86.
The definition of "revised deferred amount" is relevant for the purposes of paragraphs 39(2)(g) and (h).
"transitional year" means the year of income commencing on 1 July 1986 and is defined to facilitate references to that year of income in sub-clauses (2) and (3).

Clause 40: Interpretation

As part of the pay-as-you-earn system, section 221C of the Principal Act requires an employer to deduct tax instalments from "salary or wages", a term given an extended meaning by the definition contained in sub-section 221A(1).

Clause 40 will amend the definition of "salary or wages" in sub-section 221A(1) by omitting paragraphs (m) and (n) of the definition and substituting a new paragraph (m). The proposed amendment will reflect the replacement of the living allowance under the Tertiary Education Assistance Scheme (TEAS) and under the Adult Secondary Education Assistance Scheme (ASEAS) by a payment of living allowance under a grant of Education Assistance authorised by paragraph ll(a) of the Student Assistance Act 1973 (the AUSTUDY scheme), as proposed to be amended by the Student Assistance Amendment Act 1986, and will operate to make the new living allowance subject to tax instalment deductions.

By sub-clause 2(4) of the Bill the amendments proposed by this clause will come into operation on the day fixed by Proclamation for the coming into operation of the Student Assistance Amendment Act 1986.

Clause 41: Employer not accounting for deductions

This clause proposes a technical amendment of sub-section 221P(2) of the Principal Act under which, in cases of bankruptcy or liquidation, unremitted tax instalment deductions from salaries and wages (PAYE) and deductions of tax in respect of prescribed payments for work and services (PPS) are to have priority over all other debts of the person. The amendment is consequential on the enactment of proposed sub-section 221YHZD(4) by clause 46 of the Bill.

Deductions of tax under proposed new Division 3B of Part VI of the Principal Act, in respect of payments of natural resource income and royalties, are of a similar character to PAYE and PPS deductions and, as they also are to be available as a credit against tax assessed to the non-resident recipient (see notes under clause 46 on proposed new section 221YHZK), it is proposed that they be accorded a priority over a taxpayer's other debts, similar to that which applies under existing sub-section 221P(2).

Proposed revised sub-section 221P(2), in conjunction with sub-section 221YHJ(4) (as proposed to be amended by this Bill - see notes on clause 45) and the corresponding provisions in new Division 3B of Part VI of the Principal Act (see notes under clause 46 on proposed new sub-section 221YHZD(4)) will provide that debts in respect of deductions made under sub-sections 221P(1) (PAYE provisions), 221YHJ(3) (PPS provisions) and proposed new 221YHZD(3) (see notes under clause 46 on that provision) will rank equally with each other.

Clauses 42-44: Provisional tax avoidance schemes

Introductory note

Clause 44 will introduce a new Subdivision, Subdivision B, containing sections 221YHAAA - 221YHAAE, into Division 3 of Part VI of the Principal Act, designed to overcome arrangements involving family partnerships and family trusts by which partners and beneficiaries are able to avoid or reduce liability for provisional tax. Those arrangements rely on the right of a person, available under section 221YDA of the Principal Act, to estimate his or her own taxable income in respect of the year of income and to have the provisional tax liability determined on the basis of the estimate.

As a consequence of sub-clause 49(9) of the Bill the amendments made by clauses 43 and 44 are to apply in relation to the ascertainment of provisional tax in respect of the 1986-87 and all subsequent years of income.

The new measures will operate to overcome an arrangement where, on an objective view of the arrangement and related matters, it would be concluded that it was entered into for the sole or dominant purpose of obtaining a reduction of provisional tax liability. They will need to be considered in any case in which an application is made to vary provisional tax in respect of a year of income and the application, in whole or in part, is based on an estimated share of the net income of a "closely held" partnership or trust estate (defined as a "family partnership" or a "family trust") for that year that is less than the income from that source in the preceding year of income.

Where the Commissioner forms an opinion that a taxpayer has obtained, or would otherwise have obtained, a reduction of his or her provisional tax liability as a consequence of an arrangement, the taxpayer's estimated taxable income disclosed in the variation application provided to the Commissioner, and required to be furnished when a taxpayer is seeking to self-assess his or her provisional tax liability, will be increased by an amount referred to as the "provisional tax benefit". The adjusted provisional tax liability of a taxpayer, calculated as a consequence of the change to his or her estimated taxable income, will not exceed the liability in respect of which the self-assessment application is made.

The Commissioner will be required to give the taxpayer a notice in writing stating that he has formed that opinion and indicating the amount of the provisional tax benefit. The taxpayer will have the usual right of objection and of review or appeal against the Commissioner's decision on the objection.

A reference to the obtaining of a "provisional tax benefit" in connection with an arrangement in respect of a family partnership or family trust of a person in relation to a year of income is, broadly, a reference to -

(a)
the person's assessable income of the year of income (the "current year") being less than it would otherwise have been, because of a reduction in the share of income in the family partnership or the family trust, as a consequence of the arrangement;
(b)
the person's assessable income in a year of income other than the current year being greater than it would otherwise have been because of an increased share in the income of any family partnership or family trust of the person, as a consequence of the arrangement;
(c)
provisional tax not being payable by the taxpayer in respect of the current year, or being less than it would otherwise have been, if the arrangement had not been entered into.

Where the family partnership or family trust, the subject of an arrangement, was in existence in the year of income before the year to which the application to self-assess relates and the partner or beneficiary shared in the net income of the partnership or trust estate of that year, the amount of the provisional tax benefit will be the greater of the following amounts -

(a)
the amount by which 111 per cent of the share of the partner or beneficiary in the net income of the family partnership or trust, as the case may be, in the preceding year exceeds the share of income for the current year from that source included in the estimated taxable income;
(b)
the amount by which the expected taxable income for the current year is less than it would have been, but for the arrangement.

In other cases, including one in which a family partnership or trust came into existence only in the current year, the amount of the provisional tax benefit will be the amount in paragraph (b). There is provision also for calculating the provisional tax benefit where a partnership has incurred a loss.

The new measures will also apply to a trustee liable to be assessed under section 98 of the Principal Act in respect of a share of a beneficiary in the net income of a trust estate that is a family trust in relation to the beneficiary.

Notes on the individual provisions of the new measures follow.

Clause 42: Insertion of new heading

Clause 42 will insert a heading in Division 3 of Part VI of the Principal Act before section 221YA. Division 3 sets out the existing provisions for the calculation, variation and collection of provisional tax, sections 221YA - 221YH. Those sections will now be grouped under a heading "Subdivision A - General Provisions" while the new measures will be contained in a Subdivision -Subdivision B (see clause 44).

Clause 43: Provisional tax on estimated income

Section 221YDA of the Principal Act provides the mechanism by which a taxpayer may make application to the Commissioner to have the provisional tax liability for a year of income calculated on the basis of his or her own estimate of the taxable income for the year.

Sub-section 221YDA(4) allows the Commissioner to override an estimate of taxable income by a taxpayer for a year of income where he has reason to believe that the taxable income derived by the taxpayer will be greater than that estimate. The Commissioner may substitute his own estimate for that of the taxpayer for the purposes of the recalculation of the taxpayer's provisional tax for that year of income.

Clause 43 will amend sub-section (4) and paragraph (4)(b) of section 221YDA so that any amount by which the estimated taxable income of a taxpayer is deemed to be increased as a consequence of the operation of new section 221YHAAC or 221YHAAD, proposed to be inserted in the Principal Act by clause 44 of the Bill, will be taken into account in the recalculation of provisional tax in addition to any adjustment made by the Commissioner as a consequence of the application of sub-section (4).

Clause 44: Subdivision B - Provisional tax avoidance schemes

Clause 44 of the Bill will insert a new Subdivision - Subdivision B - containing sections 221YHAAA to 221YHAAE, in Division 3 of Part VI of the Principal Act after section 221YH.

Section 221YHAAA: Interpretation

Sub-section 221YHAAA(1) defines certain terms used throughout new Subdivision B -

"arrangement" is defined to mean -

(a)
any agreement, arrangement, understanding, promise or undertaking whether the agreement, arrangement, etc. is express or implied and whether or not enforceable by legal proceedings, irrespective of whether it was intended to be so enforceable (paragraph (a)); and
(b)
any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise (paragraph (b));

"associate" is defined to mean, in relation to a person who is referred to in the definition as the "family member" -

(a)
a relative of the family member (paragraph (a));
(b)
a partner of the family member (except for the purposes of the definition of "family partnership" - see hereunder) (paragraph (b));
(c)
a spouse or child of a partner (except for the purposes of the definition of "family partnership") (paragraph (c));
(d)
a partnership in which the family member is a partner or in which another person who is an associate of the family member by virtue of another paragraph of the definition is a partner (paragraph (d));
(e)
a trustee of a trust estate where the family member or a person who is, by reason of this definition, an associate of the family member benefits or is capable of benefiting under the trust, either directly or through any interposed companies, partnerships or trusts (paragraph (e)); or
(f)
a company where -

(i)
the company is effectively controlled by 1 or more of the group comprising the family member, any persons who are by virtue of this definition associates of the family member and any company that is an associate of the family member by virtue of another application of this sub-paragraph; or
(ii)
one or more of the group comprising the family member, and persons who are associates of the family member by reason of this definition, are able to control more than 50% of the voting power at a general meeting of the company (paragraph (f)) .

"family partnership" is defined in relation to a taxpayer, in relation to a year of income, to mean a partnership where the taxpayer and at least one associate are partners in the partnership, and the sum of the interests of the taxpayer and his or her associates in the partnership net income, or the partnership loss, exceeds 50 per cent of the total net income, or partnership loss, as the case may be, for the year;
"family partnership income" in relation to a family partnership of a taxpayer, in relation to a year of income, means the amount included in the assessable income of the taxpayer of the year of income under sub-section 92(1) of the Principal Act in respect of the net income of the partnership;
"family partnership loss" in relation to a family partnership of a taxpayer, in relation to a year of income, means the amount of the deduction allowable to the taxpayer under sub-section 92(2) of the Principal Act in the year of income in respect of the loss incurred by the partnership;
"family trust" is defined under two limbs, in relation to a person (referred to as the "family member"), in relation to a year of income, to mean either -

(a)
a trust estate where the family member and at least one associate benefits or is capable of benefiting under the trust, and in a case where there is a net income of the trust estate of the year of income, the sum of the shares of the net income -

·
assessed to the family member or his or her associates under section 97, 98A or 100 of the Principal Act; or
·
assessed to a trustee under section 98 of the Principal Act in respect of the family member or associates,

exceeds 50 per cent of the net income of the trust estate of the year of income (paragraph (a)); or
(b)
a trust estate where the family member benefits or is capable of benefiting under the trust, and if there is a net income of the trust estate of the year of income, the share of the net income distributed to the family member and assessed under section 97, 98A or 100 of the Principal Act, or assessed to the trustee under section 98 of the Principal Act in relation to the family member, exceeds more than 50 per cent of the total net income to which beneficiaries are presently entitled, and either of the following apply -

(i)
the trustee or trustees are accustomed or under an obligation to act in accordance with the directions, instructions or wishes of one or more of the group comprising the family member and his/her associates;
(ii)
one or more of the group comprising the family member and associates may remove or appoint the trustee or any of the trustees (paragraph (b));

"family trust income" in relation to a family trust of a taxpayer, in relation to a year of income, means the amount included in the assessable income of the taxpayer of the year of income under section 97, 98A or 100 of the Principal Act in respect of the net income of the trust estate.

Sub-section (2) is a drafting measure that will extend the operation of the definition of "associate" in sub-section (1). By sub-section (2), the term "relative" as defined in sub-section 6(1) of the Principal Act, is to apply for the purposes of the definition of "associate" as if a reference to the spouse of a person included a reference to a person who, although not legally married to the person, lives with the person on a bona fide domestic basis as husband and wife. Similarly, a reference to a spouse of a person in the definition of "associate" is to have the same extended meaning.

Sub-section (3) recognises that an arrangement may involve a number of parties. Accordingly, a reference to the carrying out of an arrangement by a person is to be taken as including a reference to the carrying out of an arrangement by a person together with others.

Sub-section (4) is relevant to the operation of proposed sub-sections 221YHAAC(1) and 221YHAAD(1) which refer to an arrangement being for the "purpose" of enabling a person to obtain a provisional tax benefit. Where an arrangement is for more than one purpose it shall be taken to be entered into or carried out for the purpose of enabling a person to obtain a provisional tax benefit if that is the dominant purpose for which it was entered into or carried out.

By sub-section (5) a reference to the net income of a partnership or the net income of a trust estate in new Subdivision B is to be the amount that would have been that net income if any net capital gain by virtue of Part IIIA of the Principal Act had not been included in the assessable income of the partnership or trust estate. Similarly, by sub-section (6) a reference to a partnership loss shall be taken to be the amount that would have been that loss if any net capital gain was not taken into account. This is consistent with sub-section 221YA(1B) of the Principal Act which excludes any net capital gain from the taxable income for the purposes of the provisional tax calculation.

Section 221YHAAB: Additional Estimates and information required to be set out in statement estimating taxable income

Under section 221YDA of the Principal Act, a taxpayer may furnish an estimate of his or her taxable income for the current year of income in order that the person's provisional tax liability may be recalculated on the basis of that estimate.

A taxpayer seeking a variation of provisional tax under sub-section 221YDA(1) must furnish to the Commissioner a statement setting out his or her estimate of certain amounts that are needed for the purposes of the provisional tax recalculation. The taxpayer is required to estimate his or her taxable income, and certain components thereof.

Section 221YHAAB will impose an additional requirement on a taxpayer who furnishes a statement in accordance with sub-section 221YDA(1), where this is necessary for the purposes of the new Subdivision comprising sections 221YHAAA to 221YHAAE in relation to a year of income. Paragraph (a) of section 221YHAAB deals with the case of a taxpayer (other than a taxpayer in the capacity of a trustee) who in the preceding year of income shared in the net income or a loss of a family partnership, or in the net income of a family trust. If the relevant partnership or trust estate is, or might reasonably be expected to be, a family partnership or family trust of the taxpayer in the current year of income, then the taxpayer must also include in the statement in accordance with paragraph (a), an estimate of -

(a)
his or her share in the net income or loss of the family partnership of the current year of income (i.e., "family partnership income" or "family partnership loss" as defined in sub-section 221YHAAA(1)); or
(b)
his or her share in the net income of the family trust estate of the current year of income (i.e., "family trust income" as defined in sub-section 221YHAAA(1)).

In accordance with paragraph (b) of section 221YHAAB which applies in any case, including a case coming within the scope of paragraph (a), a taxpayer will be required to provide such information, estimates and explanations (other than required by sub-section 221YDA(1) or paragraph 221YHAAB(a)) as are specified in the form made available by the Commissioner.

Paragraph (b) will enable the Commissioner to obtain information that will be necessary for the purposes of the application of Subdivision B where, for example, in the current year a taxpayer derives income from a family partnership or family trust that was not in existence in the preceding year of income.

Section 221YHAAC: Provisional tax avoidance schemes relating to taxpayers other than taxpayers in the capacity of trustees

Sections 221YHAAC and 221YHAAD are the operative provisions of the new Subdivision B, the former applying in relation to taxpayers other than in the capacity of trustees and the latter applying in relation to trustees liable to be assessed under section 98 of the Principal Act.

In broad terms, sub-section (1) of each of the sections identifies the arrangements that are to be regarded as having been made for the sole or dominant purpose of obtaining a provisional tax benefit (in the form of an estimated taxable income less than it would be, but for the arrangement) and deems the estimated taxable income to be increased by the amount of the provisional tax benefit.

Sub-section (2) sets out what is to be regarded as the obtaining of a provisional tax benefit and quantifies the benefit while sub-section (3) places a limit on the amount by which the estimated taxable income can be increased by the addition of a provisional tax benefit.

Sub-section (4) will enable the Commissioner to make a dissection of the increase in estimated taxable income where it is necessary, for example, to have regard to the primary production component of estimated taxable income for the purposes of the provisional tax calculation.

Sub-section 221YHAAC(1) provides that 3 conditions must be satisfied before the section can apply. These are specified in paragraphs (a), (b) and (c). If all are satisfied, then the estimated taxable income included by the taxpayer in a statement provided under section 221YDA for the purposes of the recalculation of provisional tax will be deemed to be increased by the amount of the provisional tax benefit determined in accordance with sub-section (2).

Under paragraph (1)(a) the taxpayer must have furnished a statement under sub-section 221YDA(1) in support of an application for variation of provisional tax for a year of income (called the "current year of income"). If a taxpayer does not apply to vary his or her provisional tax, the new Subdivision will have no application, even though in the year of income the taxpayer may have derived an abnormally low share of the income of a family partnership or trust.

Paragraph (1)(b) requires the Commissioner to be satisfied that the taxpayer is, or might reasonably be expected to be, a partner in a family partnership or a beneficiary in a family trust in the current year of income (the terms "family partnership" and "family trust" are defined in sub-section 221YHAAA(1)). This can be a family partnership or trust that was in existence in the preceding year of income or one that came into existence only in the current year of income.

The third condition is set down in paragraph (1)(c) and is that the Commissioner must serve on the taxpayer a notice in writing stating -

(i)
that he is of the opinion that the taxpayer has obtained, or would but for the operation of the sub-section obtain, a provisional tax benefit of the amount specified in the notice, in connection with an arrangement in respect of the family partnership or family trust in relation to the current year (sub-paragraph (1)(c)(i)), (see sub-section 221YHAAA(1) for definition of "arrangement"); and
(ii)
that having regard to the range of matters listed therein, it would be concluded that the person, or one of the persons, who entered into the arrangement did so for the sole or dominant purpose (refer sub-section 221YHAAA(4)) of enabling the taxpayer or the taxpayer and one or more other taxpayers to obtain a provisional tax benefit in connection with the arrangement (sub-paragraph (1)(c)(ii)).

The range of matters to which the Commissioner is to have regard under sub-paragraph (1)(c)(ii) are -

·
the manner in which the arrangement was entered into or carried out;
·
its form and substance;
·
the time at which the arrangement was entered into and the period during which it was carried out;
·
the provisional tax result that would be achieved under Division 3 of Part VI of the Principal Act by the arrangement, but for sub-section (1);
·
any change in the financial position of the taxpayer resulting from the arrangement;
·
any change in the financial position of any person connected with the taxpayer in business, family or other respects;
·
any other consequence for the taxpayer or such connected person resulting from the arrangement;
·
the nature of any connection between the taxpayer and any such connected person whose financial position changes as a result of the arrangement.

Sub-section (2) spells out what is meant by a reference in sub-section (1) to the obtaining of a provisional tax benefit in connection with an arrangement in respect of a family partnership or trust in relation to a year of income (the "current year of income") and quantifies the benefit.

Conditions set out in each of paragraphs (a), (b) and (c) of sub-section (2) must be satisfied before a taxpayer is regarded as having obtained a provisional tax benefit.

Paragraph (2)(a) requires either of two matters to be found to apply as a consequence of the relevant arrangement in respect of the family partnership or the family trust -

(i)
that an amount will not be included under sub-section 92(1) of the Principal Act in respect of the partnership, or under section 97, 98A or 100 of the Principal Act in respect of the trust estate, as the case requires, in the assessable income of the taxpayer of the current year that, but for the arrangement, would have been included, or might reasonably be expected to be included (sub-paragraph (a)(i)); or
(ii)
that an amount of a deduction will be allowable under sub-section 92(2) of the Principal Act to the taxpayer in respect of a loss of the partnership of the current year that, but for the arrangement, would not be allowable, or might reasonably be expected not to be allowable (sub-paragraph (a)(ii)).

In effect, the amount in paragraph (a) will be the additional share of income the taxpayer could be expected to have received in the current year if the arrangement had not been entered into. Similarly, the amount of the loss deduction in paragraph (b) will be the amount of the loss that, but for the arrangement, the taxpayer would be expected not to have had to bear in the current year. Consideration of the effects of the arrangement on the sharing of the income or loss of the taxpayer in more than one year of income will be relevant in determining the respective amounts, if any.

Paragraph (2)(b) requires any one or more of three matters to be found to apply as a consequence of the relevant arrangement in respect of the family partnership or the family trust -

(i)
another amount, or other amounts, have been or will be included, or are reasonably likely to be included, under sub-section 92(1), section 97, 98A or 100 of the Principal Act, in the assessable income of the taxpayer of a year, other than the current year, in respect of the net income of any family partnership or family trust of the taxpayer that, but for the arrangement, would not have been so included (sub-paragraph (b)(i));
(ii)
another amount, or other amounts, have been or will be assessable, or are reasonably likely to be assessable, under section 98 of the Principal Act in respect of a share of the taxpayer in the net income of any family trust of the taxpayer of a year, other than the current year that, but for the arrangement, would not have been so included (sub-paragraph (b)(ii));
(iii)
another amount, or other amounts, have not been or will not be allowable as a deduction to the taxpayer under sub-section 92(2) of the Principal Act in a year, other than the current year, in respect of the partnership loss of any family partnership of the taxpayer that, but for the arrangement, would have been so allowed (sub-paragraph (b)(iii)).

These tests are the converse of the tests in paragraph (2)(a), and require a finding that an amount of income has been, or is reasonably likely to be, included in the assessable income of the taxpayer (or assessed to a trustee in respect of a share of the taxpayer) in a year other than the current year where, but for the arrangement, that would not have been the case. The operation for the deduction of a loss is the same - a finding that a higher deduction for a partnership loss is sought in the current year, whereas in another year a lower deduction is taken as a consequence of the arrangement.

It is not necessary to establish an identity between the family partnership or trust referred to in paragraph (2)(a) and the family partnership or trust referred to in paragraph (2)(b). It will be sufficient, for example, where paragraph (2)(a) applies in relation to a family partnership in the year of income to find that paragraph (2)(b) applies in relation to another family partnership in a prior year, perhaps one that has since been reconstituted.

Paragraph (2)(c) sets out 2 matters, either of which must be applicable as a consequence of the arrangement. The first is that the provisional tax that would be payable, but for the arrangement, will not be payable if the arrangement is effective for the purpose of avoiding the provisional tax (sub-paragraph (c)(i)). The other is that provisional tax payable, if the arrangement is effective, is less than it would have been, but for the arrangement (sub-paragraph (c)(ii)).

Where a provisional tax benefit is identified in respect of an arrangement, paragraphs (2)(d) and (2)(e) quantify the benefit for the purposes of sub-section 221YHAAC(1), i.e., the amount by which the estimated taxable income in the application to self-assess is to be increased, if the Commissioner forms the relevant opinions regarding the arrangement and serves notice as required by paragraph (1)(c).

Paragraph (2)(d) operates to determine the amount of the provisional tax benefit where paragraph (2)(e) does not apply. That is, paragraph (2)(d) will apply if the family partnership or family trust was not a family partnership or family trust in relation to the taxpayer in the preceding year of income. Where paragraph (d) applies the amount of the provisional tax benefit is ascertained by reference to sub-paragraph (2)(a)(i) or (2)(a)(ii).

Sub-paragraph (2)(a)(i) applies where a taxpayer's share in the net income of a family partnership or family trust is less than it would have been or might reasonably have been expected to be, but for the arrangement. In this situation, the amount of the provisional tax benefit for the purposes of paragraph (2)(d) is the amount of the deficiency.

Sub-paragraph (2)(a)(ii) applies where a taxpayer's share in a partnership loss of a family partnership is more than it would have been or might reasonably have been expected to be, but for the arrangement. In this situation the amount of the provisional tax benefit for the purposes of paragraph (2)(d) is the amount of the excess.

Paragraph (2)(e) will operate to determine the amount of the provisional tax benefit where the partnership or trust estate in respect of which the arrangement applies was a family partnership or family trust of the taxpayer, as the case requires, of the year preceding the current year of income.

Sub-paragraph (2)(e)(i) applies where under sub-section 221YHAAC(1) the Commissioner has formed the opinion that a taxpayer has obtained a provisional tax benefit in relation to a family partnership or trust from which he derived income in the preceding year and sub-paragraph (a)(i) applies, i.e., in effect the estimated income from the family partnership or trust for the current year is less than it would have been but for the arrangement. The amount of the benefit is quantified by sub-paragraph (e)(i) as the greater of 2 amounts. The first, sub-sub-paragraph (e)(i)(A), is an amount ascertained by applying to the taxpayer's share of the net income of the partnership or trust in the preceding year an uplift factor of 11% and deducting from that amount the estimate of the income from the partnership or trust in the current year of income. The uplift factor of 11% corresponds with the provisional tax uplift factor that applies generally in the calculation of provisional tax for 1986-87. The other, sub-sub-paragraph (e)(i)(B), is the amount identified by sub-paragraph 221YHAAC(2)(a)(i) (see above).

EXAMPLE

A partnership comprising A and B normally sharing 50/50

  Previous Year Current Year Total   $ $ $
Partnership income 15,000 30,000 45,000
Share A 13,000 9,500 22,500
Share B 2,000 20,500 22,500

In this case, an estimate by A of $9,500 as his share of the net income of the partnership for the current year would, if the Commissioner formed the opinion that the reduction was due to an arrangement for the avoidance of provisional tax, result in the greater of the following 2 amounts being added to his estimated taxable income as a provisional tax benefit -

In this case the amount calculated under sub-sub-paragraph 221YHAAC(e)(i)(A) is -

$13,000 * 1.11 - $9,500 = $4,930

, while the amount calculated under sub-sub-paragraph 221YHAAC(e)(i)(B) is -

1/2 * $30,000 - $9,500 = $5,500

. The provisional tax benefit to be added to the taxpayer's estimate is $5,500 being the greater of the 2 amounts calculated above.

Sub-paragraph (2)(e)(ii) will apply in circumstances similar to sub-paragraph (2)(e)(i) except that it deals only with the partnership situation and only where there was a partnership loss in the preceding year and an estimated loss in the current year and the taxpayer estimates his share of the current year loss to be greater than it would be, but for the arrangement. In this situation, sub-paragraph (e)(ii) will provide that the provisional tax benefit is the greater of 2 amounts quantified by sub-sub-paragraphs (e)(ii)(A) and (B). The amount specified by sub-sub-paragraph (e)(ii)(A) is the taxpayer's estimate of his share of the current year loss less his share of the previous year loss increased by the uplift factor of 11%. The amount specified by sub-sub-paragraph (e)(ii)(B) is the amount by which the taxpayer's estimate of his share of the current year loss exceeds the amount that would be his share of the loss, but for the arrangement - the amount identified by sub-paragraph 221YHAAC(2)(a)(ii).

EXAMPLE

A partnership comprising A and B normally sharing 50/50

  Previous Year Current Year Total   $ $ $
Partnership loss 15,000 13,000 28,000
Share A loss 2,000 12,000 14,000
Share B loss 13,000 1,000 14,000

In this case, an estimate by A of $12,000 as his share of the partnership loss for the current year would, if the Commissioner formed the opinion that the increased share of the loss was due to an arrangement for the avoidance of provisional tax, result in the greater of the following 2 amounts being added to his estimated taxable income as a provisional tax benefit.

In this case the amount calculated under sub-sub-paragraph 221YHAAC(2)(e)(ii)(A) is -

$12,000 - 1.11 * 2,000 = $9,780

, while the amount calculated under sub-sub-paragraph 221YHAAC(2)(e)(ii)(B) is -

$12,000 - 1/2 * 13,000 = $5,500

. The provisional tax benefit, being the greater of the amounts calculated under (A) or (B) will be $9,780 so that the estimated loss of $12,000 will effectively be reduced to $2,220 which is equal to the share of the partnership loss of the previous year uplifted by 11%.

Sub-paragraph (2)(e)(iii) relates also to the partnership situation but in circumstances where a taxpayer who derived income from a partnership in the preceding year estimates a partnership loss for the current year. In this situation, the provisional tax benefit is the greater of 2 amounts quantified by sub-sub-paragraphs (2)(e)(iii)(A) and (B). The amount calculated under sub-sub-paragraph (e)(iii)(A) is last year's share of partnership income increased by the uplift factor of 11% plus the estimated loss for the current year. The amount calculated under sub-sub-paragraph (e)(iii)(B) is the amount by which the estimated loss exceeds the amount that would be the taxpayer's share of the loss, but for the arrangement.

EXAMPLE

A partnership comprising A and B normally sharing 50/50

  Previous Year Current Year Total   $ $ $
Partnership income 15,000 loss 6,000 income 9,000
Share A income 7,500 loss 5,000 income 2,500
Share B income 7,500 loss 1,000 income 6,500

In this case, an estimate by A of a partnership loss of $5,000 for the current year would, if the Commissioner formed the opinion that the change in his distribution from the partnership was due to an arrangement for avoidance of provisional tax, result in the greater of the following 2 amounts being added to his estimated taxable income as a provisional tax benefit.

The amount calculated under sub-sub-paragraph 221YHAAC(2)(e)(iii)(A) is -

$7,500 * 1.11 + $5,000 = $13,325

, while the amount calculated under sub-sub-paragraph 221YHAAC(2)(e)(iii)(B) is -

$5,000 - 1/2 * $6,000 = $2,000

.

The provisional tax benefit being the greater of the amounts calculated under (A) or (B) will be $13,325, so that the partnership loss of $5,000 is effectively replaced by an income amount of $8,325 which is equal to the partnership income of the preceding year uplifted by 11%.

Sub-section 221YHAAC(3) will set a limit on the amount by which the estimated taxable income in an application to self-assess may be increased as a consequence of the operation of sub-section 221YHAAC(1). Sub-section (3) stipulates that the estimated taxable income shall not be increased by the addition of a provisional tax benefit to an amount that would result in the provisional tax liability of the current year exceeding the amount it would have otherwise been if the taxpayer had not furnished an application to self-assess.

Sub-section 221YHAAC(4) will enable the Commissioner to decide, in respect of a provisional tax benefit, the amount that is to be taken as being attributable to income of a particular kind. In particular, it would enable the Commissioner to make a dissection of the provisional tax benefit where this is necessary in order to determine the relevant primary production rebate or complementary tax for the purposes of the provisional tax calculation.

Section 221YHAAD: Provisional tax avoidance schemes relating to trustees liable to be assessed under section 98

Section 221YHAAD has a similar operation to section 221YHAAC, but applies in relation to a taxpayer in the capacity of a trustee of a trust estate who is liable to be assessed under section 98 of the Principal Act in respect of a beneficiary's share in the net income of a trust estate.

It will identify an arrangement entered into by a trustee for the avoidance of provisional tax and, like section 221YHAAC, will operate to increase the estimated taxable income in an application by the trustee to self-assess the provisional tax liability in relation to a beneficiary by the amount of the provisional tax benefit.

As with section 221YHAAC, the Commissioner will be required to serve a notice on the trustee stating that he has formed the necessary opinions regarding the arrangement and stating the amount of the provisional tax benefit.

Sub-section (1) outlines three conditions much the same as the conditions listed in sub-section 221YHAAC(1), that must be considered in respect of a taxpayer in the capacity of a trustee of a trust estate who is liable to be assessed under section 98 of the Principal Act in respect of the share of a beneficiary and who is seeking to self-assess the provisional tax liability for the year of income. Where in accordance with sub-section (1) the Commissioner serves a notice on the taxpayer stating that he formed the necessary opinions regarding the arrangement, the estimated taxable income will be increased by the amount of the provisional tax benefit for the purpose of calculating the new provisional tax liability under section 221YDA of the Principal Act.

Under paragraph (1)(a) the trustee must have furnished a statement under sub-section 221YDA(1) in support of an application for variation of provisional tax in respect of income assessed to him on behalf of the beneficiary. (The new Subdivision has no application where a taxpayer (including a taxpayer in the capacity of a trustee) does not seek to vary provisional tax in accordance with Division 3 of Part VI of the Principal Act).

Paragraph (1)(b) requires the Commissioner to be satisfied that the trust estate is, or might reasonably be expected to be, a family trust in relation to the beneficiary (refer the definition of "family trust" in sub-section 221YHAAA(1)) in relation to the year of income to which the application to self-assess applies (the "current year"). This can be a family trust that was in existence in the preceding year or one that came into existence only in the current year of income.

Paragraph (1)(c), in a similar vein to the operation of paragraph 221YHAAC(1)(c), requires the Commissioner to serve a notice in writing on the trustee stating -

(a)
that he is of the opinion that the trustee has obtained a provisional tax benefit, of the amount specified in the notice, in connection with an arrangement in relation to the current year (sub-paragraph (1)(c)(i); and
(b)
that having regard to the range of matters listed therein, it would be concluded that the arrangement was entered into for the sole or dominant purpose (refer sub-section 221YHAAA(4)) of enabling the taxpayer, or the taxpayer and one or more other taxpayers, to obtain a provisional tax benefit in connection with the arrangement (sub-paragraph (1)(c)(ii).

Basically the range of matters set out in sub-paragraph 221YHAAD(1)(c)(ii) are the same as those listed in sub-paragraph 221YHAAC(1)(c)(ii). In forming his opinion about the purpose of an arrangement the Commissioner is to consider those matters.

Sub-section (2) spells out what is meant by a reference in sub-section (1) to the obtaining of a provisional tax benefit in connection with an arrangement in respect of a family trust estate and quantifies the benefit.

Conditions set out in paragraphs (a), (b) and (c) of sub-section (2) must be satisfied before a taxpayer in the capacity of a trustee is regarded as having obtained a provisional tax benefit.

Paragraph (2)(a) requires that an amount be identified as not being assessable under section 98 of the Principal Act to the trustee in respect of a share of the income of the relevant beneficiary in the family trust for the current year, that would have been so assessable, or might reasonably be expected to have been so assessable, if the arrangement had not been entered into.

Paragraph (2)(b) requires either or both of two matters be found to apply, where, but for the arrangement, such would not have been the case, or might reasonably be expected not to have been the case. They are -

(a)
another amount, or other amounts, have been or will be assessable, or are reasonably likely to be assessable to the trustee, or another trustee, under section 98 of the Principal Act in any year of income, other than the current year of income, in respect of a share of the same beneficiary in respect of any trust estate that is a family trust of that beneficiary that, but for the arrangement, would not have been so assessable (sub-paragraph (2)(b)(i));
(b)
another amount, or other amounts, have been or will be included, or are reasonably likely to be included, under sub-section 92(1), section 97, 98A or 100 of the Principal Act, in the assessable income of the beneficiary of any year of income, other than the current year of income, in respect of the net income of any family partnership or family trust of that beneficiary that, but for the arrangement, would not have been so included (sub-paragraph (2)(b)(ii)).

Paragraph (2)(c) sets out 2 matters, either of which must be applicable as a consequence of the arrangement. The first is, that the provisional tax that would be payable, but for the arrangement, would not be payable if the arrangement is effective for the purpose of avoiding the provisional tax (sub-paragraph (c)(i)). The other is that the provisional tax payable, if the arrangement is effective, is less than it would have been, but for the arrangement (sub-paragraph (c)(ii)).

Where a provisional tax benefit is identified in respect of an arrangement, paragraphs (2)(d) and (2)(e) quantify the benefit for the purposes of sub-section 221YHAAD(1), i.e., the amount by which the estimated taxable income in the application to self-assess is to be increased if the Commissioner forms the relevant opinions regarding the arrangement and serves notice as required by paragraph (1)(c).

Paragraph (2)(d) operates to determine the amount of the provisional tax benefit when paragraph (2)(e) does not apply. Paragraph (2)(d) will apply, for example, if the family trust was not in the preceding year, a family trust in relation to the beneficiary. When paragraph (2)(d) does apply the amount of the provisional tax benefit is the amount, referred to in paragraph (2)(a), and will be the amount by which the amount that is assessable to the trustee under section 98 of the Principal Act in respect of the beneficiary for the current year of income, falls short of the amount that would have been assessable, or might reasonably be expected to have been assessable, to the trustee but for the arrangement.

Paragraph (2)(e) will operate to determine the amount of the provisional tax benefit where the trust estate in respect of which the arrangement applies was a family trust of the beneficiary in relation to the year preceding the current year of income and a taxpayer in the capacity of a trustee was liable to be assessed under section 98 of the Principal Act in respect of the beneficiary's share of the net income for that year. The amount of the provisional tax benefit is the greater of -

(a)
the amount obtained by deducting from 111 per cent of the share of the beneficiary in the trust estate assessed under section 98 of the Principal Act in that preceding year, the amount of the estimate of the share of the beneficiary in the income of the trust estate in the current year to be assessed to the trustee under section 98 (sub-paragraph (2)(e)(iii)) or
(b)
the amount that would apply if paragraph (2)(d) applied - that is, the amount referred to in paragraph (2)(a) (sub-paragraph (2)(e)(iv)).

Sub-section (3) will set a limit on the amount by which the estimated taxable income in an application to self-assess by the trustee in respect of a share of a beneficiary in the net income of a trust estate may be increased as a consequence of the operation of sub-section 221YHAAD(1). Sub-section (3) stipulates that the estimated taxable income shall not be increased by the addition of a provisional tax benefit to an amount that would result in the provisional tax liability exceeding the amount it would have otherwise been if the trustee had not furnished an application to self-assess.

Sub-section (4) will enable the Commissioner to decide, in respect of a provisional tax benefit, the amount that is to be taken as being attributable to income of a particular kind. In particular, it will enable the Commissioner to make a dissection of the provisional tax benefit where this is necessary in order to determine the relevant primary production rebate or complementary tax for the purposes of the provisional tax calculation.

Sub-section (5) is a drafting measure and is to the effect that a reference in section 221YHAAD to the estimated taxable income of a taxpayer who is liable to be assessed under section 98 of the Principal Act in respect of a share of the net income of the trust estate shall be read as a reference to that share.

Section 221YHAAE: Review of Decisions

Section 221YHAAE contains machinery provisions concerning the review of a decision of the Commissioner to serve a notice on a taxpayer under paragraphs 221YHAAC(1)(c) or 221YHAAD(1)(c) in relation to a provisional tax benefit.

Under both paragraphs 221YHAAC(1)(c) or 221YHAAD(1)(c) the Commissioner is required, where he is of the opinion that a taxpayer has obtained a provisional tax benefit in connection with an arrangement and that the arrangement was made for the purpose of obtaining that benefit, to serve on the taxpayer a notice in writing to that effect and stating the amount of the provisional tax benefit.

A taxpayer who is dissatisfied with the notice may, under sub-section (1) of section 221YHAAE, within 60 days after service of the notice, lodge with the Commissioner an objection in writing against the notice stating fully and in detail the grounds upon which he relies.

By sub-section (2) the review and appeal procedures relating to decisions under the Principal Act are extended to objections made under sub-section (1). The effect of this is that a person who complies with the requirements of Division 2 of Part V of the Principal Act may have the Commissioner's decision in relation to the objection lodged under sub-section (1) referred to the Administrative Appeals Tribunal, or to a Supreme Court.

Sub-section (3) stipulates that the requirement to pay provisional tax is not to be suspended pending the outcome of an appeal or review in relation to an objection lodged under sub-section (1).

Sub-section (4) deals with the situation where, as a result of a decision by the Commissioner, the Administrative Appeals Tribunal or a Court, a liability for provisional tax is reduced.

Under paragraph (a) of sub-section (4) the amount of the reduction will be taken for the purposes of calculating any additional tax for late payment under section 207 of the Principal Act never to have been payable.

Paragraph (b) of sub-section (4) will require the Commissioner to refund the amount of any provisional tax overpaid as a result of a reduction of liability or to apply it against any other liability to the Commissioner.

Clause 45: Failure to pay amounts deducted to Commissioner

This clause proposes a technical amendment of sub-section 221YHJ(4) of the Principal Act. Existing sub-section 221YHJ(4) provides that an amount payable to the Commissioner by a trustee as a deduction of tax in respect of prescribed payments for work and services (PPS) has priority over all other debts, except a debt payable by a trustee to the Commissioner under section 221P (PAYE), with which it will rank equally.

The amendment proposed by clause 45 is a complementary measure to the amendment proposed to sub-section 221P(2) (see notes on clause 41) and the proposed insertion of new sub-section 221YHZD(4) (see notes on that provision under clause 46). An explanation of the effect of the new measures is provided in the notes on clause.

Clause 46: Division 3B - Collection of tax in respect of certain natural resource payments and royalty payments

Introductory note

Clause 46 will insert new Division 3B in Part VI of the Principal Act. Together with provisions proposed to be inserted by clause 25, amendments of existing provisions proposed by clauses 24, 41, 45 and 47, the repeal of existing section 256 of the Principal Act proposed by clause 48 and the amendment of other Acts proposed by Parts IV, V and VI of this Bill, new Division 3B will introduce a system for the collection of income tax payable by non-residents in respect of royalty income and certain income derived from the exploitation and development of Australia's natural resources. The new collection measures proposed by this Bill will be effective from the date of Royal Assent.

The principal features of the collection measures are briefly described in the "Main Features" section of this memorandum. A general explanation of the legislative framework adopted for the new measures follows.

General plan of the new measures

Proposed new Division 3B of Part VI, which contains sections 221YHZA to 221YHZN, essentially specifies the duties of persons who are liable to make payments of natural resource income or royalties to non-residents, provides for sanctions against those payers who do not comply with their statutory responsibilities and provides certain necessary administrative rules for the new measures. The new Division will also replace the existing provisions of the income tax law that provide for the collection of tax in respect of royalty payments, other than film and video tape royalties, made to non-residents.

Duties of persons making payments

New Division 3B of Part VI will impose on persons making payments of natural resource income or royalty to non-residents duties similar to those imposed under the existing law, i.e, to notify the Commissioner before making a payment, to ascertain from the Commissioner the amount to be deducted from the payment in respect of tax and to deduct that amount from the payment to the non-resident. In addition to these duties, however, new Division 3B will require a payer to remit the deducted amount to the Commissioner within 14 days after the end of the month in which a payment is made. This will give the force of law to the current administrative practice of requesting regular remittance to the Australian Taxation Office of amounts deducted.

Specifically, the duties under new Division 3B of a payer of natural resource income or royalty to a non-resident will be -

·
before making a payment, to give the Commissioner a written statement, setting out the amount of the natural resource income or royalty payment as the case may be, that is due to the non-resident - a payment may not be made unless the payer has received a notice from the Commissioner that sets out the amount to be deducted from the payment (section 221YHZB);
·
at the time the payment is made to the non-resident, to deduct the amount as notified by the Commissioner (section 221YHZC); and
·
within 14 days after the end of the month in which the payment is made, to send the deducted amount to the Commissioner with a written notice advising the date on which the amount was deducted (section 221YHZD).

To facilitate the administration of a system that would require payers of regular or frequent payments of natural resource income or royalty to non-residents to notify the Commissioner each and every time a payment is to be made, new Division 3B incorporates measures that will permit the Commissioner to issue a certificate to a payer exempting that person from the notification requirements in respect of a specified payment or specified class of payments. Where the Commissioner exercises his discretion in that regard and issues a certificate for such purposes the certificate will be conditional upon -

·
the person deducting an amount, ascertained in accordance with the certificate, from the payment; and
·
any other conditions specified by the Commissioner in the certificate.

The measures will also enable the Commissioner to revoke the certificate at any time, impose further conditions in respect of the certificate, vary the manner in which an amount to be deducted is calculated or vary or revoke any of the existing conditions in the certificate.

Penalty measures

The duties imposed on persons liable to make natural resource income or royalty payments to non-residents are coupled with appropriate sanctions where a person refuses or fails to comply with a statutory requirement. Briefly, the penalties that may be imposed under new Division 3B upon a person for refusing or failing to comply with a particular requirement under the Division are as follows -

Failure to notify Commissioner (section 221YHZB)

·
on conviction, a fine of $2,000 and an amount equal to the amount that, in the opinion of the Court, might reasonably have been expected to be required to be deducted from a payment;

Failure to deduct (section 221YHZC)

·
on conviction, a fine of $1,000 and an amount equal to the amount required to be deducted from the payment; or
·
administrative penalties being -

· .
in the case of a person, other than a government body, an amount equal to the amount required to be deducted plus a late payment penalty (LPP) of 20 per cent per annum of the undeducted amount; and
· .
in the case of a government body other than the Commonwealth, LPP of 20 per cent per annum of the undeducted amount;

Failure to remit (section 221YHZD)

·
on conviction, a fine of $5,000 or 12 months imprisonment, or both; or
·
administrative penalties being -

· .
in the case of a person other than a government body, a flat penalty of 20 per cent of the unpaid deducted amount plus LPP of 20 per cent per annum of the unpaid deducted amount as increased by the flat 20 per cent penalty; and
· .
in the case of a government body, a LPP of 20 per cent per annum of the unpaid deducted amount.

The penalty provisions will also provide the Commissioner with the power to remit the whole or any part of any statutorily imposed penalty (section 221YHZE). A right of appeal, similar to the rights of appeal by a taxpayer against an assessment of income tax, will be available to a person who is dissatisfied with a decision of the Commissioner to refuse to remit the whole or a part of a penalty, other than a LPP calculated on a per annum basis (section 221YHZM).

Administrative provisions

New Division 3B will apply to partnerships liable to make payments of natural resource income or royalty to non-residents as if a partnership were a person (section 221YHZN). Where a person deducts an amount from a payment to a non-resident for the purposes, or purportedly for the purposes, of complying with the duty of a payer to deduct an amount in respect of tax, the person will be discharged from any liability to pay or account for the deducted amount to any person other than the Commissioner (section 221YHZH). An amount that is payable to the Commissioner under new Division 3B will be treated as a debt due to the Commonwealth and appropriate procedures may be followed for the purpose of recovering such an amount (section 221YHZJ).

The new measures provide that, where the Commissioner is satisfied an amount has been deducted from a natural resource income or royalty payment for the purposes, or purportedly for the purposes, of complying with the requirement of the payer to deduct an amount in respect of tax, that amount is, generally, to be allowed as a credit to the non-resident payee (section 221YHZK). A credit to which a person is entitled under the new measures is to be applied by the Commissioner under section 221YHZL as follows -

·
first, in total or partial discharge of the non-resident's liability under an assessment in relation to the year of income in which the deduction or deductions to which the credit relates were made; and
·
secondly, in payment or part payment of any other tax liability of the non-resident.

Any excess that remains will then be available for refund to the non-resident.

A detailed explanation of each of the proposed sections in new Division 3B follows.

Section 221YHZA: Interpretation

This section contains the definitions of several terms used throughout Division 3B and a number of interpretative provisions.

Under sub-section (1) the following terms are defined -

"government body" means the Commonwealth, a State or a Territory, and includes an authority of the Commonwealth, or a State or a Territory. This definition is relevant only for the purpose of the penalty provisions of the Division which, in some instances, do not apply to a government body as defined.
"natural resource payment" means a payment, other than a royalty payment, calculated wholly or in part by reference to the value or quantity of natural resources (see notes on clause 24 for the meaning of the term "natural resource") produced, or recovered, or produced and recovered in Australia after 7 April 1986. A natural resource payment includes a payment of natural resource income (see notes on clause 25 for the meaning of "natural resource income") and includes payments that would otherwise be excluded by paragraph (d) of the definition of that term. Payments of royalty are, however, specifically excluded from the meaning of natural resource payment.
"royalty payment" means a payment of royalty or by way of royalty other than film or video tape royalty income derived by non-residents and to which the provisions of section 136A of the Principal Act apply. The exclusion of film and video tape royalty income from the meaning of royalty payment means that the provisions of section 136A will continue to apply for the purposes of the collection of tax in respect of payments of such income to non-residents.

Sub-section (2) ensures that money which is not actually paid to a non-resident but is dealt with on behalf of the non-resident or as the non-resident directs will come within the scope of the new Division. Money which is reinvested, accumulated, capitalised or otherwise dealt with on behalf of the non-resident or as the non-resident directs is, by this sub-section, deemed to have been paid to the non-resident for the purposes of the Division.

Sub-section (3) deems a partnership to be a non-resident, for the purposes of the Division, where one or more of the partners is a non-resident. This means that relevant payments to a partnership in which there is a non-resident partner will be subject to deduction at source in accordance with the provisions of the new Division.

Section 221YHZB: Person making natural resource payment or royalty payment to non-resident to ascertain amount to be deducted in respect of tax

Proposed section 221YHZB sets out the first of three principal requirements for a person liable to make a natural resource payment or a royalty payment to a non-resident.

Sub-section 221YHZB(1) provides, subject to sub-section (4), that a person who is liable to make a natural resource payment, or royalty payment, to a non-resident shall not make such a payment unless -

·
first, the person has given a written statement to the Commissioner setting out the amount of the natural resource payment, or royalty payment, as the case may be, due to the non-resident - paragraph (a); and
·
secondly, the Commissioner has given the person a written notice setting out the amount the person is required to deduct from the payment, in respect of tax due or which may become due, by the non-resident - paragraph (b).

The sub-section provides for a court imposed maximum penalty of S2,000 for failure to comply with the requirements of the sub-section. Under sub-section (3), a person convicted of an offence against sub-section (1) may also be ordered by the court to pay, in addition to the penalty under sub-section (1), a further amount, by way of penalty, not exceeding the amount that in the opinion of the court might reasonably have been expected to be required to be deducted from the payment to the non-resident.

Under sub-section (2) it is a defence in a prosecution of a person for an offence against sub-section (1) if the person proves that at the time the payment to the non-resident was made, he or she did not know and could not reasonably have been expected to have known that the payment was being made to a non-resident.

Sub-section (3) provides that the court may impose a further penalty upon a person convicted of an offence against sub-section (1). Details of this measure are explained in the notes on sub-section (1).

Sub-sections (4), (5), (6) and (7) deal with arrangements for exempting a person from complying with sub-section (1). As explained in the introductory notes to new Division 3B, these provisions will facilitate the administration of the new collection system, particularly in those cases where a person is liable to make regular or frequent payments of natural resource income or royalty to non-residents. Where a certificate under sub-section (4) is in force in respect of a specified class of payments, the person to whom the certificate was issued is not required to notify the Commissioner before each payment is made and ascertain the amount to be deducted in respect of tax. That person will, however, be required to deduct from the payment the amount, in respect of tax, ascertained in accordance with the certificate and send that deducted amount to the Commissioner in accordance with the requirements of section 221YHZD (see later notes on that section).

Under sub-section (4) the Commissioner may issue a certificate to a person exempting that person from complying with sub-section (1) in respect of a specific payment or a specific class of payments, thus removing the requirement to give a statement to the Commissioner and ascertain the tax due by the non-resident before making a payment.

Sub-section (5) sets out the conditions to which a certificate is subject. The person receiving the certificate will be required to ascertain, in accordance with the certificate, the amount to be deducted from a payment and before making the payment, deduct that amount. The certificate may specify any other conditions. However, a person will not be guilty of an offence against sub-section (1) if the person contravenes a condition specified in the certificate. A certificate under sub-section (4) does not relieve the payer from the liability to deduct and remit moneys in accordance with sections 221YHZC and 221YHZD.

Under sub-section (6) the Commissioner may, by notice in writing revoke a certificate issued under sub-section (4), impose further conditions to which the certificate is subject or vary or revoke any of the existing conditions to which the certificate is subject. Sub-section (7) provides that, where a person contravenes a condition of a certificate the Commissioner may, notwithstanding the general powers provided by sub-section (6), revoke a certificate under that sub-section.

Sub-section (8) provides that an offence against sub-section (1) does not constitute an offence against section 8C of the Taxation Administration Act 1953. This will ensure that a person who fails to comply with the requirements of sub-section (1) may not either alternatively, or additionally, be prosecuted under the general offences provisions of section 8C for failure to comply with a requirement of a taxation law.

Section 221YHZC: Duty of payer to deduct an amount in respect of tax

Proposed section 221YHZC specifies the second of the three principal requirements of persons under new Division 3B.

Sub-section (1) places a duty on the payer of a natural resource payment, or a royalty payment, to deduct from the payment to or on behalf of the non-resident -

·
the amount ascertained from the Commissioner under sub-section 221YHZB(1) - paragraph (a); or
·
the amount required by sub-section 221YHZB(5) to be deducted as a condition of a certificate under sub-section 221YHZB(4) - paragraph (b).

The penalty for failure to comply with sub-section (1) is a court imposed fine of a maximum of $1,000.

By sub-section (2) a person who is convicted of an offence against sub-section (1) may, in addition to being fined under sub-section (1) be ordered by the Court to pay to the Commissioner an amount by way of penalty, not exceeding the amount to be deducted.

Sub-sections (3) and (4) impose statutory penalties on a person who fails to comply with the requirement of sub-section (1). By sub-section (3), a person other than a government body is liable to pay to the Commissioner, by way of penalty -

·
an amount equal to the amount that the person failed to deduct from the payment; (the 'undeducted amount') - paragraph (a); and
·
an amount equal to 20 per cent per annum of so much of the undeducted amount as remains unpaid, calculated from the date when the amount, if it had been deducted, should have been paid to the Commissioner. By virtue of section 221YHZD (see notes on that section) this will mean, in practice, that late payment penalty will commence to accrue on the fifteenth day after the end of the month in which the payment was made - paragraph (b).

Where a person, being a government body other than the Commonwealth, makes a payment without deducting the required amount, that person is liable to pay to the Commissioner by way of penalty under sub-section (4), an amount equal to 20 per cent per annum of the deducted amount calculated as in paragraph (3)(b), on and from the fifteenth day after the end of the month in which the payment was made and ending on the day on which the whole of the amount payable in respect of the undeducted amount is paid.

Section 221YHZD: Duty of payer to pay deducted amount to Commissioner

The third and final requirement of a person liable to make payments of natural resource income or royalty to a non-resident is specified in proposed section 221YHZD.

By sub-section (1) a person who deducts an amount, or purports to deduct an amount, under sub-section 221YHZC(1) from a payment to a non-resident is required within 14 days after the end of the month in which the person makes the payment to the non-resident to -

·
pay the amount deducted from the payment to the Commissioner - paragraph (a); and
·
notify the Commissioner in writing of the date on which the amount was deducted - paragraph (b).

The penalty for failure to comply with sub-section (1) is a court imposed fine of a maximum of $5,000 or imprisonment for up to 12 months, or both.

Sub-section (2) imposes statutory penalties where a person has not complied with the requirements of sub-section (1). In addition to continuing to be liable to pay the amount (known as the 'principal amount') to the Commissioner - paragraph (a), the person is liable to pay to the Commissioner, by way of penalty -

·
where the person is a government body, a late payment penalty of an amount equal to 20 per cent per annum calculated in respect of the principal amount from the expiration of the period within which the amount should have been paid to the Commissioner, that is, from the fifteenth day of the month after the month in which the payment to the non-resident was made, until the amount is paid - sub-paragraph (b)(i); and
·
where the person is not a government body, a flat penalty equal to 20 per cent of the principal amount - sub-sub-paragraph (b)(ii)(A), and a late payment penalty of an amount equal to 20 per cent per annum of the amount remaining unpaid in respect of both the principal amount and the 20 per cent flat penalty, also calculated from the expiration of the period within which the principal amount should have been paid to the Commissioner - sub-sub-paragraph (b)(ii)(B).

Sub-section (3) is a technical measure designed to ensure that where an amount deducted from a payment is payable to the Commissioner by a person whose property subsequently vests in a trustee (e.g. in the case of a deceased estate or a bankruptcy) the trustee is liable to pay the amount to the Commissioner.

Sub-sections (4) and (5) are complementary provisions to sub-section (3). Sub-section (4) provides that an amount payable to the Commissioner by a trustee under sub-section (3) has priority over all other debts, except a debt payable by a trustee to the Commissioner under sub-section 221P(1) (PAYE) or 221YHJ(3) (PPS) with which it will rank equally. In the event that the property held by the trustee is insufficient to extinguish any amounts payable under this section and under sub-section 221P(1) or 221YHJ(3), the effect of sub-section (4) is to ensure that the property will be apportioned in the proportions that amounts payable under each of those sub-sections bear to the total debt under the three sections. As indicated in the notes on clauses 41 and 45, corresponding amendments are proposed to sections 221P and 221YHJ of the Principal Act to mirror the above position in the PAYE and PPS areas.

The priority accorded the Commissioner by sub-section (4) is limited in certain instances where the property vests in a trustee of an estate of a bankrupt or a liquidator of a company. Sub-section (5) ensures that a trustee or liquidator is entitled to recoup any costs, charges or expenses of the administration of the trust estate or the winding up of the company, as the case requires, before any amount payable under this section. This provision corresponds, in effect, with sub-sections 221P(3) and 221YHJ(5) which similarly limit the Commissioner's priority in respect of unremitted PAYE and PPS deductions.

Section 221YHZE: Remission of certain amounts

Section 221YHZE will give the Commissioner powers of remission in relation to the statutory penalties payable by a person under sections 221YHZC and 221YHZD.

Under sub-section (1), the authority of the Commissioner to remit late payment penalty payable by a person under paragraph 221YHZC(3)(b), sub-paragraph 221YHZD(2)(b)(i) or sub-sub-paragraph 221YHZD(2)(b)(ii)(B), is restricted to certain circumstances that parallel those specified in sub-section 207(1A) of the Principal Act which provides for remission of additional tax imposed under that section on unpaid tax.

By paragraph (a) of sub-section (1) the Commissioner may remit the whole or part of the late payment penalty referred to in this sub-section if he is satisfied that the circumstances that led to the delay in payment of another amount, designated the "principal amount" were not caused by an act or omission of the taxpayer. The power to remit the penalty will, however, be available only if the taxpayer has taken any action reasonably available to mitigate the effects of the adverse factors.

Paragraph (b) of sub-section (1) will authorise the Commissioner to remit the whole or part of the late payment penalties referred to in sub-section (1) in appropriate cases, notwithstanding that the circumstances which led to the delay in payment of a principal amount were caused by the taxpayer. Remission of the late payment penalty will be possible if the Commissioner is satisfied that the taxpayer has taken reasonable action to mitigate the effects of those circumstances and that it is fair and reasonable to remit the late payment penalty in view of the nature of those circumstances.

By paragraph (c) of sub-section (1) the Commissioner will be able to remit late payment penalty imposed for late payment of a principal amount where he considers that there are other special circumstances to justify that course.

While sub-section (1) gives the Commissioner restricted authority to remit late payment penalties calculated on a per annum basis, sub-section (2) will permit the Commissioner, for reasons he thinks sufficient, to remit the whole or part of the flat amount of the penalties payable in accordance with paragraph 221YHZC(3)(a) and sub-sub-paragraph 221YHZD(2)(b)(ii)(A) and the per annum penalty imposed by sub-section 221YHZC(4).

By sub-section (3), the Commissioner is required to give notice in writing to a person where he decides under sub-section (2) not to remit any or to remit part only of the penalties referred to in sub-section (2). On receiving a notice under sub-section (3) in relation to the flat amount of a penalty a person may object against the Commissioner's decision (see notes on section 221YHZM).

Section 221YHZF: Reduction of late payment penalty where judgment debt carries interest

Proposed section 221YHZF will ensure that an amount of penalty for late payment under sub-section 221YHZC(3) or section 221YHZD continues to accrue in respect of unpaid principal amounts notwithstanding that judgement for payment of the principal amount has been given or entered in a court. Where, in such a case, the judgment debt itself carries interest, the penalty tax otherwise payable is to be reduced by the amount of judgment interest that relates to the unpaid principal amount.

Section 221YHZG: Penalties to be alternative to prosecution for certain offences

By section 221YHZG, an amount of penalty will not be payable under Division 3B if a prosecution is instituted against a person for the offence to which the penalty relates. Where the person has paid an amount of penalty and a prosecution is instituted against that person for the particular offence, the amount paid is to be refunded or applied by the Commissioner against a tax liability - as defined in section 2 of the Taxation Administration Act 1953 - of the person. If the prosecution is withdrawn, the person would again become liable to pay that penalty amount.

Section 221YHZH: Person discharged from liability in respect of deducted amounts

Proposed section 221YHZH is a measure to afford protection to a person who has made a deduction from a payment for, or purporting to be for, the purposes of sub-section 221YHZC(1). Such a person is, by this section, discharged from any liability to pay or account for the deducted amount to any person other than the Commissioner.

Section 221YHZJ: Recovery of amounts by Commissioner

Proposed section 221YHZJ contains machinery provisions to enable the collection of amounts payable to the Commissioner under this Division.

Under sub-section (1) an amount payable to the Commissioner under this Division, other than by the Commonwealth, is to be a debt due to the Commonwealth and payable to the Commissioner, and may be sued for and recovered in a court of competent jurisdiction by the Commissioner or a Deputy Commissioner - paragraph (a). Alternatively, a court before which proceedings are taken against a person for an offence against a provision of this Division may order the person to pay that amount to the Commissioner - paragraph (b).

Sub-section (2) enables the averment provisions of section 8ZL of the Taxation Administration Act 1953 to apply to proceedings for recovery of amounts payable under this Division.

Sub-section (3) deals with the situation where a person owes two or more separate amounts to the Commissioner and pays an amount in part or full payment of one or more of the debts due, but not sufficient to discharge the total of amounts payable. Notwithstanding any direction given by the person making the payment, or by whom the amounts are payable, as to how the amount should be applied against the amounts payable, sub-section (3) allows the Commissioner to apply payments against the undissected total amount owing, and to sue for the undissected balance of the amounts payable.

Section 221YHZK: Credits in respect of deducted amounts

Proposed section 221YHZK establishes the circumstances under which a non-resident will be entitled to credit in respect of amounts deducted from natural resource payments and royalty payments made to the non-resident.

A person, not being a partnership or the trustee of a trust estate, is entitled under sub-section (1) to a credit of an amount equal to the amounts deducted, or purported to be deducted, under sub-section 221YHZC(1) in a year of income at the time when an assessment has been made by the Commissioner, or when the Commissioner is satisfied that no tax is payable by the person, in relation to the year of income.

Under sub-section (2), where the Commissioner is satisfied that an amount has been deducted, or is purported to have been deducted, for the purposes of sub-section 221YHZC(1), from a payment to a partnership (paragraph (a)), and an assessment has been made of the tax payable or the Commissioner is satisfied that no tax is payable, by a partner whose individual interest in the net income or loss of the partnership is attributable wholly or partially to the payment to the partnership (paragraph (b)), the partner is entitled to a credit for the whole or part of the amount deducted from the payment. The amount of the credit will be so much of the amount deducted from the payment as the Commissioner is satisfied is attributable to the partner's individual interest in the partnership net income or loss that is itself attributable to the payment to the partnership. For example -

·
a payment of $100,000 was due to the partnership of A and B where -

· .
A and B share equally in the net income and losses of the partnership; ..
· .
A is a resident; and
· .
B is a non-resident;

·
an amount of $20,000 was deducted from the payment for the purposes of sub-section 221YHZC(1) having regard to the ultimate receipt by non-resident B of one-half of the payment to be made to the partnership; and
·
assessments are made in respect of the tax payable in respect of the year of income for A and B.

In these circumstances, no part of the $20,000 deducted amount would be considered to be attributable to A's interest in one-half of the partnership net income and, by sub-section (2), a credit of $20,000 would be available in the assessment of non-resident B.

Sub-section (3) operates in much the same way as sub-section (2) to determine the amount of credit that is to be available to the trustee or a beneficiary in a trust estate, as the case requires, in respect of amounts deducted in a year of income from natural resource payments or royalty payments made to the trustee of a trust estate.

Paragraphs (a), (b), and (c) of sub-section (3), provide for the distribution of credit as between trustees and beneficiaries of a trust estate in accordance with the operation of sections 97, 98 and 99 or 99A, of the Principal Act. In essence, these paragraphs provide that where an assessment has been made on the beneficiary or trustee as the case requires, or the Commissioner is satisfied that no tax will be payable by the beneficiary or trustee, credit is to be allowed to the beneficiary or trustee, as the case may be, for so much of the amount deducted from the payment made to the trustee of the trust estate as the Commissioner is satisfied is attributable to the beneficiary's or trustee's, as the case may be, share in the net income of the trust estate that is itself attributable to the natural resource payments or royalty payments.

Paragraph (d) provides that where the trust estate has no net income or sustains a loss, the trustee is entitled to a credit for the amounts deducted.

Section 221YHZL: Application of credits

Proposed section 221YHZL sets out the rules for the application, by the Commissioner, of the credit to which a person is entitled under section 221YHZL.

Under sub-section (1), an amount of credit to which a person is entitled under section 221YHZL is, subject to the operation of this section, a debt due and payable to that person by the Commissioner.

Sub-section (2) applies where none of sub-sections (3), (4) or (5) applies, that is, other than cases where a trustee of a trust estate is entitled to a credit.

Paragraph (a) of sub-section (2) authorises the Commissioner to apply the whole of a credit referred to in sub-section (1) that is available to a person, including a person who as a beneficiary in a trust estate is taxed on a share of the net income of the trust estate, being an individual, a partner in a partnership or a company, in total or partial discharge of that person's liability under an assessment in relation to the year of income in which the deductions to which the credit relates were made.

Paragraph (b), applies where the amount of credit exceeds the tax payable for the year of income. In such cases the Commissioner is, by virtue of sub-paragraph (i), to first apply the credit against that tax and, by virtue of sub-paragraph (ii), to apply the balance up to the amount of any other tax liability of the person in payment or part payment of that other tax liability. Any credit then remaining would be available for refund to the taxpayer.

Sub-sections (3) and (4) are, in relation to a trustee of a trust estate, similar in effect to sub-section (2). They authorise the Commissioner to apply the credit to which the trustee of a trust estate is entitled against the tax liability of that trustee in respect of the share or part of trust income assessed to the trustee in respect of a year of income under section 98, or sections 99 or 99A of the Principal Act, respectively, and to apply any excess in full or part payment of any other tax payable by the trustee in respect of any other year of income. Any excess then remaining would be available for refund to the trustee.

Sub-section 5 authorises the Commissioner to apply credit to which the trustee of a trust estate is entitled by virtue of paragraph 221YHZK(3)(d) in circumstances where the trust estate has no net income or sustains a loss in a year of income. In such cases, the credit is to be first applied in full or part payment of any tax liability of the trustee in respect of the net income or a part of the net income of the trust estate assessed to the trustee for any other year of income under sections 99 or 99A of the Principal Act. Any excess then remaining would be available for refund to the trustee.

Sub-section (6) establishes the time of payment of a liability under the income tax law where the Commissioner has applied an amount of a credit in discharge of a liability in accordance with sub-sections (2), (3), (4) or (5). The person will be deemed to have paid the amount so applied in payment of that liability at the time it was applied, or at such earlier time as the Commissioner determines.

Sub-section (7) ensures that, if circumstances arose where the Commissioner had paid or applied an amount in excess of the credit to which a person was entitled under this Division, the Commissioner may recover the excess as if it were income tax due and payable by that person. Accordingly, recovery will be able to be obtained by the usual avenues available to the Commissioner under Division 1 of Part VI of the Principal Act.

Sub-section (8) is a technical measure to make it clear that references in sub-sections (2), (3), (4) and (5) to tax payable are references to amounts payable to the Commonwealth under the Principal Act. In practice the credit will initially be applied against the tax liability of the person under an assessment raised by the Commissioner in respect of income of a year of income.

Section 221YHZM: Review of decisions

Section 221YHZM contains machinery provisions concerning the review of decisions of the Commissioner in relation to statutorily imposed penalties.

A person who is dissatisfied with the Commissioner's decision in relation to remission of the whole or part of a penalty other than one calculated on a rate per annum basis, as notified under sub-section 221YHZE(3) may, under sub-section (1), lodge with the Commissioner an objection within 60 days of the Commissioner's notification of his decision, explaining in full the grounds upon which the person relies.

By sub-section (2) the review and appeal provisions relating to decisions under the Principal Act are extended to objections made under sub-section (1). The effect of this is that a person, who complies with the requirements of Division 2 of Part V, may have the Commissioner's decision in relation to an objection lodged under sub-section (2) reviewed by the Administrative Appeals Tribunal or appeal to a specified Supreme Court.

Section 221YHZN: Application of Division to partnerships

This section contains rules under which partnerships will be subject to the new Division 3B of Part VI.

As a partnership is not a separate legal entity, special provisions are necessary to ensure that the rights and obligations of a partnership under new Division 3B of Part VI may be exercised or discharged, as the case requires, by one or more of the partners.

By sub-section (1), the Division applies to a partnership as if the partnership were a person.

By virtue of sub-section (2), any one or more of the partners of a partnership may discharge any obligation imposed on the partnership.

Every partner is generally liable for the debts of the partnership. Sub-section (3) ensures that where such a liability exists in relation to a debt arising under new Division 3B, the partners are jointly and severally liable. In other words, the Commissioner may sue one or more of the partners severally, or all the partners jointly in respect of the recovery of any outstanding debt of the partnership under the Division.

If an offence is deemed to have been committed against the Division by a partnership by virtue of the application of sub-section (1), each partner will, by sub-section (4) be deemed to have committed the offence.

However, by sub-section (5) it will be a defence against a prosecution for such an offence deemed to have been committed by a partner if the partner proves that he or she did not aid, abet, counsel or procure the particular act or omission of the partnership and was not in any way directly or indirectly, knowingly concerned in, or party to, that act or omission.

Sub-section (6) makes clear that a reference in section 221YHZN to the Division includes a reference to provisions of the Taxation Administration Act 1953 relating to prosecutions and offences to the extent that those provisions relate to the Division.

Clause 47: Person in receipt or control of money from non-resident

Section 255 of the Principal Act empowers the Commissioner to collect tax due and payable by a non-resident from any person who has the control, receipt or disposal of money belonging to the non-resident. Where money comes to a person on behalf of the non-resident, including any money due by the person to the non-resident, the person is required to retain out of that money so much as is sufficient to pay tax due and payable by the non-resident.

The amendment proposed by this clause to sub-section (2) and the insertion of new sub-section (2A) will place natural resource payments and royalty payments (as defined in proposed Division 3B of Part VI) outside the retention requirements of section 255.

This means that where a person has money payable to a non-resident by way of a natural resource payment or a royalty payment, only Division 3B of Part VI impose obligations on the payer to retain or deduct an amount from the payment.

Clause 48: Repeal of section 256

This clause proposes the repeal of section 256 which imposes certain obligations on persons paying royalties to a non-resident. Proposed Division 3B of Part VI (see notes on clause 46) will, however, incorporate those obligations in a new system for the collection of tax on payments to non-residents of natural resource income and royalty, other than film and video tape royalty. The provisions of section 136A will continue to apply in relation to film and video tape royalty paid to non-residents.

Clause 49: Application

This clause, which will not amend the Principal Act, will specify the years of income in which, or the dates from which, various amendments proposed in Part VIII of the Bill will first apply. The clause also contains interpretative and transitional provisions relating to certain amendments.

In terms of sub-clause 49(1), the term "amended Act" means the Principal Act (that is, the Income Tax Assessment Act 1936), as that Act is being amended by this Bill .

By sub-clause 49(2), the amendment proposed by paragraph 26(a) of the Bill to correct a drafting error in paragraph 23(z) of the Principal Act will apply in relation to income received in respect of a period commencing on or after 1 January 1986.

As explained in the notes on clause 26, sub-clause 49(3) is a transitional measure which ensures that where payments are received under the Tertiary Education Assistance Scheme or the Adult Secondary Education Assistance Scheme before or after the commencement of the Bill, then the Principal Act will continue to tax those payments, as if the amendments made by paragraphs 26(b) and (c) and clauses 28 and 40 of the Bill had not been made.

By sub-clause 49(4), the amendments proposed by clause 27 to correct a technical deficiency in the definition of "wife's pension" in sub-section 23AD(1) of the Principal Act are to apply to an instalment or payment of a pension or benefit falling due on or after 21 March 1985.

The operation of sub-clauses 49(5) and (6) is explained in the notes on clause 29 of the Bill.

Sub-clause 49(7) deals with the application of sub-section 160AAA(2) of the Principal Act as proposed to be amended by that clause. As explained in the notes on clause 28, the rebates of tax under sub-section 160AAA(2) are not available to a person in the 1986-87 year of income as a consequence of the receipt of a grant of Education Assistance under Part III of the Student Assistance Act 1973 (as amended) for a secondary course of study, where a payment would not have been made under the Adult Secondary Education Assistance Scheme to the person, in respect of that course, had that scheme been operative for the whole of the 1986-87 year.

Sub-clause 49(8) provides that the amendments made by clauses 30 to 38 to the capital gains and capital losses provisions apply to assessments in respect of the year of income in which 20 September 1985 occurred and all subsequent years of income.

By sub-clause 49(9), the amendments made by clauses 43 and 44 to overcome arrangements to avoid the payment of provisional tax are to apply in relation to the ascertainment of provisional tax in respect of 1986-87 and all subsequent years of income.

Proposed section 221YHAAB of the amended Act (refer notes on clause 44) will require certain taxpayers making an application to vary provisional tax liability to furnish a statement to the Commissioner of Taxation estimating income from a family partnership or a family trust estate, or a loss from a family partnership, in respect of the year of income to which the application to vary relates.

By sub-clause 49(10) the requirement under new section 221YHAAB does not apply in relation to statements furnished to the Commissioner before this Bill becomes law.

By sub-clause 49(11), the new provisions for the collection at source of tax that is due, or may become due, in respect of payments to non-residents of natural resource income and royalty (see notes on clauses 46 and 47), will apply to such payments made to a non-resident after the date of Royal Assent.

Clause 50: Amendment of assessments

Clause 50 will give the Commissioner of Taxation authority to re-open an income tax assessment made before Part VIII of the Bill becomes law should this be necessary for the purpose of giving effect to the amendments proposed by the Part.

PART IX - AMENDMENT OF THE PAY-ROLL TAX ASSESSMENT ACT 1941

Clause 51: Principal Act

This clause facilitates reference to the Pay-roll Tax Assessment Act 1941 which, in this Part, is referred to as "the Principal Act".

Clause 52: Provision for payment of tax by executors and administrators

Clause 52 amends sub-section 33(6) of the Principal Act, which was recently amended by paragraph 114(c) of the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986. By oversight, the amendment made by paragraph 114(c) duplicated the word "and" in sub-section 33(6) of the Principal Act. This clause remedies that drafting error.

PART X - AMENDMENTS OF THE TAXATION ADMINISTRATION ACT 1953

Clause 53: Principal Act

This clause facilitates references to the Taxation Administration Act 1953 which is the Act being amended by this Part. The Taxation Administration Act is referred to in Part X as "the Principal Act".

Clause 54: Commissioner and Second Commissioners of Taxation

By this clause section 4 of the Principal Act is to be amended to increase from two to three the number of Second Commissioners of Taxation.

The history of the office of Second Commissioner goes back to 1927 when the first Second Commissioner of Taxation was appointed. The second statutory office of Second Commissioner was created in 1959 due to the substantial increase in responsibilities that had occurred since 1927. A further increase in the work of the Australian Taxation Office and responsibilities at the very senior levels has taken place since 1959, thus producing the need for a third Second Commissioner.

Second Commissioners have all the powers and functions of the Commissioner of Taxation except the general administration power, the power of delegation and the function of furnishing an annual report on the operation of the taxation laws.

The offices of Second Commissioner of Taxation are statutory offices. Occupants are appointed by the Governor-General-in-Council for a seven year term and are eligible for reappointment up to age 65. Remuneration and allowances payable to the Second Commissioners of Taxation are subject to determination by the Remuneration Tribunal. Second Commissioners can only be removed from office by the Governor-General on resolution by both Houses of the Parliament. This means that they, like the Commissioner of Taxation, are free from political influence in the application of the taxation laws, thus ensuring an unbiased and impartial application of those laws.

Clause 55: Requests for reference

A new part - Part IVAB - is to be inserted in the Principal Act by this clause. Part IVAB will contain provisions imposing a $200 fee to accompany a request to the Commissioner of Taxation to refer a decision on a taxation objection to the Administrative Appeals Tribunal. The new Part will also impose a fee of the same amount in respect of a request for reference of an objection decision to a court. Generally the taxation laws, as presently enacted, provide for an appeal against an objection decision to a State or Territory Supreme Court as an alternative to review by the Administrative Appeals Tribunal. In the case of promoters recoupment tax, however, an appeal lies to the Federal Court of Australia.

Broadly, the new provisions will require a person, when requesting the Commissioner to refer a decision on an objection against an assessment or other decision by the Commissioner to the Administrative Appeals Tribunal or to a court, will be required to pay a fee when lodging the request with the Commissioner. The fee will be refunded where the Commissioner's decision on the objection is subsequently varied in favour of the taxpayer (either by the Commissioner or as a result of the review or appeal), or the request is withdrawn before it is referred to the Administrative Appeals Tribunal or the relevant court.

These provisions apply only where, in accordance with the requirements of the taxation laws, a person requests the Commissioner to forward an objection decision to the Administrative Appeals Tribunal or to a court. New Part IVAB will not require payment of the fee in relation to certain taxation provisions (such as sub-section 188A(3) of the Income Tax Assessment Act 1936 or Part IVA of the Principal Act) where a taxpayer applies direct to the Administrative Appeals Tribunal or a court for review of a decision. In the case of such applications direct to the Administrative Appeals Tribunal, a filing fee of $200 is to be imposed by regulations made under the Administrative Appeals Tribunal Act 1975.

By sub-clause 2(5) of this Bill, Part IVAB will come into operation on a day to be fixed by Proclamation. Sub-clause 55(2) provides that the fee will first be payable in respect of a request to refer an objection decision to the Administrative Appeals Tribunal where notice of the decision is served on the taxpayer on or after a day to be fixed by Proclamation. A request to refer an objection decision to a court will attract the fee where the relevant notice of decision is served on or after a day to be fixed by Proclamation. This may be the same date proclaimed for requests for review by the Administrative Appeals Tribunal or a later date.

Section 14ZAB: Interpretation

Section 14ZAB contains a number of definitions of terms used in new Part IVAB. Each term is defined to have the given meaning unless the contrary intention appears.

"objection decision" means a decision of the Commissioner on an objection, as that term is defined by section 3 of the Taxation (Interest on Overpayments) Act 1983, as well as objections -

·
against refund decisions under sub-section 40(2) of the Sales Tax Assessment Act (No.1) 1930 or that sub-section as applied for the purpose of any of the Sales Tax Assessment Acts (Nos. 2 to 11);
·
against reviewable decisions under sub-section 40(4) of the Sales Tax Assessment Act (No.1) 1930 or that sub-section as applied for the purpose of any of the other Sales Tax Assessment Acts;
·
under the Pay-roll Tax Assessment Act 1941 and
·
against a decision to refuse to issue a tax clearance certificate under Part IV of the Principal Act.

Broadly, this definition covers decisions on objections, made under a relevant enactment (refer to explanation of next definition) which a person may request the Commissioner to refer to the Administrative Appeals Tribunal or a court, for review by the Tribunal or court.
"relevant enactment" is defined to mean an Act which is referred to in the definition of objection in section 3 of the Taxation (Interest on Overpayments) Act 1983, the Pay-roll Tax Assessment Act 1941 or the Principal Act. The term therefore refers to the various taxation laws under which a decision of the Commissioner on an objection may be referred to the Administrative Appeals Tribunal or a court for review. Acts included under the definition are the:

·
Australian Capital Territory Taxation (Administration) Act 1969;
·
Bank Accounts Debits Tax Administration Act 1982;
·
Estate Duty Assessment Act 1914;
·
Fringe Benefits Tax Assessment Act 1986;
·
Gift Duty Assessment Act 1941;
·
Income Tax Assessment Act 1936;
·
Pay-roll Tax Assessment Act 1941;
·
Pay-roll Tax (Territories) Assessment Act 1971;
·
Acts providing for the assessment of sales tax;
·
Taxation Administration Act 1953 (the Principal Act);
·
Taxation (Unpaid Company Tax) Assessment Act 1982;
·
Trust Recoupment Tax Assessment Act 1985; and
·
Wool Tax (Administration) Act 1964.

"required fee" is defined to be initially $200. However, if at the time the request to refer an objection decision to the Administrative Appeals Tribunal or a court is lodged with the Commissioner, the fee payable under regulations made under the Administrative Appeals Tribunal Act 1975 for applications to the Tribunal under sub-section 188A(3) of the Income Tax Assessment Act 1936, is an amount other than $200, then that different fee applies. Where an out of time request is sent to the Commissioner, together with an application for an extension of time in which to duly lodge the request, the fee will be the amount payable when the extension of time is sought.

Section 14ZAC: Request for reference to be accompanied by required fee

Under new sub-section 14ZAC(1) the required fee must accompany a request for reference to the Administrative Appeals Tribunal or court when it is lodged with the Commissioner. This provision will also ensure that, where a request is sent to the Commissioner after the period of time for lodgment of the request has expired (60 days after notice of the objection is served on the taxpayer), the request must be accompanied by the fee, notwithstanding that the request is not treated as being duly lodged until an extension of time is granted by the Administrative Appeals Tribunal or a court.

New sub-section 14ZAC(2) provides that the request is to be taken not to have been lodged unless accompanied by the required fee. This will mean that a request received without the fee will not be capable of being referred to the Administrative Appeals Tribunal or a court. Sub-section 14ZAC(2) is expressed to apply notwithstanding provisions to the contrary in the enactment under which the request is lodged. As a matter of practice, where a request is lodged without payment of the fee the taxpayer would generally be advised by the Commissioner of Taxation that the request cannot be treated as valid until the fee is paid. Provided the fee is then paid within the time limit for making a valid request, the request would be accepted as having been properly lodged.

Sub-clause 55(2) of this Bill sets out the conditions for the commencement of this section as it applies to requests to refer decisions to the Administrative Appeals Tribunal (paragraph (a)) and to a court (paragraph (b)). See notes on that sub-clause.

Section 14ZAD: Requests for reference may be withdrawn

Section 14ZAD will provide a formal procedure for withdrawal of a request to the Commissioner to refer an objection decision to the Administrative Appeals Tribunal or a court before the Commissioner has complied with the request. If the request is withdrawn the required fee is refunded (see notes on section 14ZAE). A request must be withdrawn by lodging a signed notice in writing to that effect with the Commissioner. Once withdrawn a request will be treated as if it had not been lodged.

Section 14ZAE: Refunds of required fee

Section 14ZAE sets out the circumstances in which the required fee is to be refunded to the taxpayer. The fee will be refunded if -

·
in accordance with section 14ZAD the request for reference is withdrawn before the Commissioner actually refers it to the Administrative Appeals Tribunal or court;
·
the objection decision is varied by the Commissioner in a manner favourable to the person requesting the reference; or
·
the proceedings before the Administrative Appeals Tribunal or the court terminate in a manner favourable to the person.

The variation of a decision or the termination of proceedings in a manner favourable to a person will be taken to have occurred in circumstances where the objection decision is adjusted to any extent in favour of the person.

Where the required fee accompanies an out of time request forwarded with an application for an extension of time, no further fee will be payable should the extension of time be granted and the request treated as having been duly lodged.

Sub-clause 55(2) of this Bill provides the application rules for proposed section 14ZAC of the Principal Act. By paragraph 55(2)(a), section 14ZAC (which requires payment of the fee) applies to requests to refer objection decisions to the Administrative Appeals Tribunal where the notice of decision on the objection is served on or after the date that clause 55 comes into operation. By sub-clause 2(5), clause 55 will come into operation on a day to be fixed by Proclamation.

Paragraph 55(2)(b) provides for the application of proposed section 14ZAC insofar as that section relates to the payment of a fee in connection with a request for reference of an objection decision to a court. By paragraph (b), a request to refer an objection decision to a court will be required to be accompanied by the $200 fee where the notice of decision on the objection was served after a date to be proclaimed. That day may be the same day as mentioned in paragraph (a) or a later day.

Clause 56: Interpretation

Clause 56 will correct a minor drafting oversight in the provisions of the Principal Act relating to the review by the Administrative Appeals Tribunal of a decision by the Commissioner of Taxation to refuse to issue a tax clearance certificate under section 14D of the Principal Act.

A person who has unsuccessfully objected under section 14G of the Principal Act to the Commissioner's refusal to issue a tax clearance certificate has, in accordance with section 14H, a right to request a review of the objection decision by the Administrative Appeals Tribunal. The request for reference to the Tribunal is required to be lodged with the Commissioner and will be required to be accompanied by the fee provided for under clause 55 of this Bill.

Part IVB of the Principal Act modifies the operation and effect of certain provisions of the Administrative Appeals Tribunal Act 1975 as they apply to decisions on taxation objections referred to the Tribunal. By oversight, a decision to refuse to issue a tax clearance certificate under section 14D of the Principal Act was not included in the decisions to which the modified appeals procedures apply. Clause 56 corrects that oversight.

Paragraph (a) will omit "or" from paragraph (b) of the definition of "objection decision" in section 14ZB of the Principal Act to facilitate the insertion by paragraph (b) of new paragraph (d) in the definition. New paragraph (d) of the definition will encompass an objection lodged in accordance with section 14G of the Principal Act.

Paragraph (c) will omit the existing definition of "relevant enactment" in section 14ZB of the Principal Act and will re-enact that definition with the addition of a reference to the Principal Act. This will mean that a review by the Administrative Appeals Tribunal of a decision on an objection lodged under section 14G will, like all other objection decisions, be subject to the modified appeals procedures contained in Part IVB of the Principal Act.

PART XI - AMENDMENT OF THE TAXATION (INTEREST ON OVERPAYMENTS) ACT 1983

Clause 57: Principal Act

This clause facilitates reference to the Taxation (Interest on Overpayments) Act 1983 which, in Part XI, is referred to as "the Principal Act".

Clause 58: Interpretation

Clause 58 proposes the amendment of section 3 of the Principal Act, which defines a number of terms used in the Act.

By paragraph (a) the definition of "objection" will be extended to include an objection under proposed sub-sections 221YHAAE(1) (provisional tax anti-avoidance measures - see notes on clause 44) and 221YHZM(1) (collection of tax at source in respect of certain payments of natural resource income and royalty - see notes on clause 46) of the Assessment Act.

This will bring within the scope of the Principal Act the following objections:

·
an objection against a notice served on a taxpayer by the Commissioner that he is of the opinion that the taxpayer has obtained a provisional tax benefit in connection with an arrangement entered into or carried out for the purpose of enabling the taxpayer to obtain the provisional tax benefit;
·
an objection against a decision of the Commissioner to not remit any, or to remit only part of a penalty, other than a late payment penalty calculated on a rate per annum basis, in relation to deductions from payments of natural resource income or royalty.

By paragraph (b) the meaning of the term "relevant tax" is to be expanded. The term is used in the Principal Act to identify the kinds of tax that, if refunded as a result of a successful objection or appeal, give rise to an entitlement to interest.

The term "relevant tax" is to be expanded by adding new paragraph (bc) to include those penalties under proposed new Division 3B of Part VI of the Assessment Act in respect of which there are objection and appeal rights. Those penalties are for the failure by a person, other than a government body, to -

·
deduct an amount ("a deducted amount"), under proposed sub-section 221YHZC(1), from a payment of natural resource income or royalty to a non-resident (proposed paragraph 221YHZC(3)(a));
·
remit a deducted amount to the Commissioner by the due date (proposed sub-sub-paragraph 221YHZD(2)(b)(ii)(A)).

AUSTRALIAN CAPITAL TERRITORY STAMP DUTY AMENDMENT BILL 1986

Clause 1: Short title, & c.

By sub-clause (1) of this clause, the amending Act is to be cited as the Australian Capital Territory Stamp Duty Amendment Act 1986.

Sub-clause (2) facilitates references to the Australian Capital Territory Stamp Duty Act 1969, which is referred to in this Bill as "the Principal Act".

Clause 2: Commencement

But for this clause, by reason of sub-section 5(1A) of the Acts Interpretation Act 1901, the amending Act would come into operation on the twenty-eighth day after it receives the Royal Assent. By sub-clause 2(1), the provisions of the amending Act, other than paragraphs 4(h) and 5(c) and (d) and sub-section 6(2), will come into operation on the first day of the month that next follows the month in which the Act receives the Royal Assent.

Sub-clause 2(2) provides that paragraphs 4(h) and 5(c) and (d), together with sub-section 6(2), of the amending Act are to be deemed to have come into operation on 10 June 1986. The effect will be that the amendments of the Principal Act consequent upon the enactment of the proposed Australian Capital Territory Tax (Transfers of Marketable Securities) Act 1986 - see later notes on the Bill for that Act - will come into operation on the same date as that Act is to come into operation.

Clause 3: Chattels included in the grant or conveyance of certain Crown leases

Clause 3 proposes the insertion of new section 5A in the Principal Act. The new section provides the basis for calculating the amount of stamp duty on an instrument that falls within the classes of instruments specified in column 2 of Items 5, 6, 6A and 7 of Schedule 1 to the Principal Act, so far as concerns the grant or conveyance of a Crown lease of land that is to be used for residential purposes only. By the term "Crown lease" is meant a lease granted by or in the name of the Commonwealth.

Columns 2 of Items 5, 6 and 7 of Schedule 1 to the Principal Act specify the following classes of instruments -

·
a transfer, or an agreement for a transfer, of a Crown lease, for a term exceeding 5 years, of land situated in the ACT (Item 5);
·
a lease (which includes a sub-lease and an agreement for a lease or sub-lease) of land situated in the ACT (Item 6); and
·
a transfer or assignment, or an agreement for a transfer or assignment, of a lease of land situated in the ACT, with the exception of a Crown lease for a term exceeding 5 years (Item 7).

New Item 6A is to be inserted in the Principal Act by paragraph (e) of clause 4 of this Bill. Column 2 of that Item will specify, by way of a class of instruments, a Crown lease of land situated in the ACT. Paragraph (e) of clause 4 will also exclude a Crown lease from the class of instruments specified in column 2 of Item 6.

By paragraph 5A(1)(a), any reference in Item 5, 6, 6A or 7 to the value of the interest in the land transferred, agreed to be transferred or granted (such a reference is presently made in Item 5 and, by this Bill, is proposed to be made in new Item 6A) is to be taken to include a reference to the value of any chattels that are transferred or agreed to be transferred -

·
by reason of the conveyance of the Crown lease (sub-paragraph (i)); or
·
where the opinion of the Commissioner of Taxation is that the conveyance of the Crown lease and the transfer of, or agreement to transfer, the chattels are reasonably capable of being regarded as one transaction (sub-paragraph (ii)).

In either case, it will be irrelevant whether the chattels are transferred, or agreed to be transferred, to the transferee of the Crown lease or to some other person.

Paragraph 5A(1)(b) deals with references in any of Items 5, 6, 6A and 7 of Schedule 1 to the Principal Act to the total amount or value of any consideration given or agreed to be given in respect of the lease or in respect of the transfer or assignment of the lease (which references are presently made in Items 6 and 7). Such a reference is to be taken as including the total amount or value of any consideration that is given or agreed to be given in respect of the transfer or hiring of any chattels that are transferred or hired, or that are agreed to be transferred or hired -

·
by reason of the conveyance of the Crown lease (sub-paragraph (i)); or
·
where, in the opinion of the Commissioner of Taxation, the conveyance of the Crown lease and either the transfer or hiring of the chattels or the agreement to transfer or hire the chattels are reasonably capable of being regarded as one transaction (sub-paragraph (ii)) .

As with paragraph 5A(1)(a), paragraph 5A(1)(b) will apply whether or not the chattels are transferred or hired, or agreed to be transferred or hired, to the transferee of the Crown lease.

Proposed new sub-section 5A(2) explains or expands on some of the terms used in sub-section (1). Paragraph (a) specifies that a reference to the conveyance of a Crown lease includes a reference to the grant of a Crown lease. Paragraph (b) makes it clear that any reference to the transferee, in relation to the conveyance of a Crown lease, is a reference to the person to whom the Crown lease is conveyed or is to be conveyed. The effect of paragraph (c) is to include in a reference to the hiring of chattels a reference to the grant or assignment of rights to use chattels. A reference to consideration given or agreed to be given in respect of the hiring of chattels is, by paragraph (d), to be taken as a reference to the total consideration given or agreed to be given in respect of the hiring of the chattels, even though the hiring may be expressed to be on a periodical basis.

Clause 4: Amendments of Schedule 1

This clause proposes a number of amendments of Schedule 1 to the Principal Act. This Schedule specifies classes of instruments on which stamp duty is imposed and the amount of duty payable on such instruments.

The amendment of paragraph (c) in columns 3 of Items 4, 5 and 7 of Schedule 1, as proposed by paragraphs (a), (c) and (f) respectively of clause 4, are drafting changes to accommodate the omission of existing paragraphs (d) and the substitution of new paragraphs (d) and (e) in columns 3 of those Items, as proposed by paragraphs (b), (d) and (g) respectively of clause 4.

By paragraph (b) of clause 4, existing paragraph (d) in column 3 of Item 4 of Schedule 1 is to be replaced by two new paragraphs. The result will be that, in respect of a transfer of, or an agreement to transfer, a freehold interest in land situated in the ACT, the stamp duty on that part of the value of the interest in the land between $60,001 and $100,000 will be $2.50 for every $100 (or fractional part of $100) (new paragraph (d)) and the stamp duty on the part in excess of $100,000 will be $3.50 for every $100 (or fractional part of $100) (paragraph (e). Presently, the one rate of duty ($2.50 for every $100 or fractional part of $100) applies where the value of the interest in the land exceeds $60,000. Other rates of duty are to remain unchanged (see the following notes on new Item 6A for a statement of the rates to apply).

The amendment proposed by paragraph (d) of clause 4 is to the same effect as that being made by paragraph (b) except that it relates to Item 5. That Item specifies as a class of instruments on which stamp duty is imposed a transfer, or an agreement for a transfer, of a Crown lease of land situated in the ACT, being a lease for a term greater than 5 years.

Paragraph (e) of clause 4 proposes the replacement of Item 6 of Schedule 1 with a new Item 6 that will align the rate of duty on the non-rent component of consideration for a lease of land with the present rate on the rent component. The duty payable on the non-rent component will accordingly be 35 cents for every $100, and for any fractional part of $100, of the total amount or value of any consideration other than rent given or agreed to be given in respect of the lease. Excluded from the scope of new Item 6 will be Crown leases, which leases will be covered by new Item 6A, also being inserted by paragraph (e) of clause 4.

New Item 6A specifies, as a class of instruments on which stamp duty is imposed, Crown leases of land situated in the ACT. The rates of duty on such leases are to be the same as those that will apply to instruments specified in Items 4, 5 and 7 of Schedule 1, as amended by paragraphs (b), (d) and (g) respectively of clause 4. The rates to apply are:

For every $100, and any fractional part of $100, of the value of the interest in the subject land -
$1.25 up to $14,000;
$1.50 between $14,001 and $30,000;
$2.00 between $30,001 and $60,000;
$2.50 between $60,001 and $100,000; and
$3.50 above $100,000.

Crown leases of land are presently not dutiable under Item 6 by virtue of the exemption from duty effectively provided by Item 10 of Schedule 2 to the Principal Act. Item 10 of Schedule 2 is to be removed consequent upon the insertion of new Item 6A (see the notes on clause 5).

The amendment proposed by paragraph (g) of clause 4 is to the same effect as those being made by paragraphs (b) and (d) of the clause, except that it relates to Item 7. By Item 7, transfers or assignments of, or agreements to transfer or assign, leases of land situated in the ACT other than Crown leases for more than 5 years, are included in the classes of instruments dutiable under the Principal Act.

Item 8 of Schedule 1 specifies, as a class of dutiable instruments, instruments of transfer of certain marketable securities. By paragraph (h) of clause 4, column 2 of Item 8 is to be amended to make it clear that the Item applies to an instrument of transfer of a marketable security, being a marketable security that was registered, immediately before the date on which the transfer instrument was executed, in a register kept in the ACT by a company or unit trust. The amendment will not alter the present application of Item 8 but will ensure that the wording of the Item is consistent with the wording used in imposing the complementary new ACT tax proposed by the Australian Capital Territory Tax (Transfers of Marketable Securities) Bill 1986, which accompanies this Bill.

Clause 5: Amendments of Schedule 2

Schedule 2 to the Principal Act sets out the classes of instruments which, by virtue of sub-section 6(1) of the Principal Act, are exempt from stamp duty.

Paragraph (a) of Clause 5 will omit Item 10 of Schedule 2. That Item includes in the classes of exempt instruments a conveyance by or in the name of the Commonwealth. The removal of the application of the Item to the grant of a Crown lease of land situated in the ACT is necessary consequent upon the addition of new Item 6A to the classes of dutiable instruments specified in Schedule 1 to the Principal Act, as proposed by paragraph (e) of clause 4 of this Bill. To ensure the continued exemption from stamp duty of other conveyances by or in the name of the Commonwealth, a new Item 18F is to be inserted in Schedule 2 by paragraph (b) of clause 5.

As well as inserting new Item 18F, paragraph (b) of clause 5 will, consequent upon the proposed inclusion (by paragraph (e) of clause 4) of new Item 6A in Schedule 1 to the Principal Act, insert new Items 18C, 18D and 18E in Schedule 2. Item 18C will exempt from stamp duty a Crown lease to a non-commercial Commonwealth authority. The term "non- commercial Commonwealth authority" is to be defined in sub-section 4(1) of the Australian Capital Territory Taxation (Administration) Act 1969, as proposed to be amended by paragraph (a) of clause 8 of the accompanying Taxation Laws Amendment Bill (No. 4) 1986 - see earlier notes on that Bill.

By new Item 18D, a Crown lease will be exempt from stamp duty if it is granted to the lessee of a previous Crown lease as a result of the surrender of the previous Crown lease in connection with any one or more of the following -

·
changing the purpose for which the parcel of land may be used (paragraph (a));
·
reducing rent to 5 cents per annum or less - i.e., a "peppercorn" rent (paragraph (b));
·
where more than one Crown lease was surrendered, granting one lease in respect of the parcels of land to which the previous leases related (paragraph (c));
·
granting separate leases for separate parts of the parcel of land to which the previous Crown lease related (paragraph (d));
·
changing a building and development covenant in respect of the parcel of land (paragraph (e));
·
granting a longer-term lease (paragraph (f));
·
correcting any errors or omissions (paragraph (g)).

New Item 18E will exempt Crown leases granted under the ACT Rental Housing Scheme - i.e., fortnightly tenancies of government housing for residential purposes to people with low incomes and for community purposes such as the provision of refuges, half-way houses and community centres.

Item 18F of Schedule 2 to the Principal Act will exempt a transfer or assignment of, or an agreement to transfer or assign, a lease by or in the name of the Commonwealth - i.e., all those conveyances by or in the name of the Commonwealth, other than grants of Crown leases, that are presently exempted by Item 10. Item 10 is being omitted from Schedule 2 by paragraph (a) of clause 5 (see the preceding notes).

By paragraphs (c) and (d) of clause 5, paragraphs (a) and (c) respectively of Item 25 of Schedule 2 to the Principal Act are to be amended as a consequence of the new tax on registrations of marketable security transfers proposed by the accompanying Australian Capital Territory Tax (Transfers of Marketable Securities) Bill 1986 - see the later notes on that Bill. The present effect of Item 25 is to exempt from stamp duty on an instrument of transfer of a marketable security a transfer from a trustee to a person who paid for the transfer by which the trustee obtained the marketable security, provided that the first mentioned transfer is not part of a scheme to avoid or reduce stamp duty and -

·
any stamp duty imposed in Australia on the first transfer has been paid;
·
any stamp duty imposed in Australia on the sale and purchase of the marketable security to which the first transfer relates has been or will be paid;
·
no stamp duty was payable in Australia on the first transfer; or
·
the trustee obtained the marketable security when it was first issued.

By the proposed amendments, the Item 25 exemption will also be available where either the first transfer was subject to the proposed new tax on the registration of marketable security transfers and that tax has been paid or no Australian stamp duty and no tax on the registration of marketable security transfers was payable in respect of the first transfer.

Clause 6: Application of amendments

Sub-clause 6(1) specifies that, in the case of a Crown lease instrument, the amendments proposed by the Bill (other than paragraphs 4(h) and 5(c) and (d)) apply, in relation to duty, to a Crown lease the commencement date of which as specified in the lease is on or after the date of commencement of the sub-clause (paragraph (a)) - i.e., by sub-clause 2(1), the first day of the month after that in which the amending Act receives the Royal Assent. In the case of any other instrument, those amendments apply, in relation to duty, to an instrument that is executed on or after that same date (paragraph (b)).

Sub-clause 6(2) provides that the amendments to be made by paragraphs 4(h) and 5(c) and (d) are to apply in relation to instruments executed on or after the date of commencement of sub-clause 6(2). That date is, by virtue of sub-clause 2(2), 10 June 1986.

AUSTRALIAN CAPITAL TERRITORY TAX (TRANSFERS OF MARKETABLE SECURITIES) BILL 1986

Clause 1: Short title

By this clause of the Bill, this new Act is to be cited as the Australian Capital Territory Tax (Transfers of Marketable Securities) Act 1986.

Clause 2: Commencement

By this clause, the new Act is to be deemed to have come into operation at 5pm (by standard time in the Australian Capital Territory) on 10 June 1986. But for this clause, the Act would, by reason of sub-section 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after it receives the Royal Assent.

Clause 3: Incorporation

This clause specifies that the new Act is to be incorporated and read as one with the Australian Capital Territory Taxation (Administration) Act 1969, as proposed to be amended by the accompanying Taxation Laws Amendment Bill (No. 4) 1986 - see earlier notes on that Bill.

Clause 4: Imposition of tax

By this clause, tax is to be imposed on the registration, by an ACT-incorporated company, of a transfer of a marketable security where -

·
the transferor, or any of the transferors, executed the relevant instrument of transfer after the commencement of the new Act - i.e., by clause 2, after 5pm in the ACT on 10 June 1986 (paragraph (a)); and
·
the marketable security was registered, in a register kept outside the ACT, immediately before the date on which the instrument of transfer was executed (paragraph (b)).

The tax to be imposed by the new Act complements the stamp duty imposed on instruments of transfer of marketable securities by the Australian Capital Territory Stamp Duty Act 1969. Where a marketable security is transferred, ACT stamp duty applies if it was registered in a register kept by a company in the ACT. After the commencement of this Act, if a transferred marketable security was registered in a register kept outside the ACT by a company incorporated in the ACT, the tax proposed by this Bill will apply.

Clause 5: Rate of tax

The rate of tax imposed by the new Act is, by this clause, 15 cents for every $25, or part thereof, of the unencumbered value of the marketable security. This rate is the same as the rate of ACT stamp duty imposed on an instrument of transfer of a marketable security registered in a register kept in the ACT.

Clause 6: Exemptions

By reason of sub-clause 6(1), tax will not be imposed on the registration of certain transfers of marketable securities. The exemptions provided by this sub-clause are based on, and broadly consistent with, existing exemptions under ACT stamp duty and related tax laws as they apply to transfers, purchases and sales of marketable securities.

Paragraph (a) of the sub-clause does, however, provide a new exemption - for transfers of marketable securities prescribed by regulation. A transfer which is subject to duty or similar tax in the jurisdiction where the marketable security was registered, at a rate broadly equivalent to the tax that will apply in the ACT, will be prescribed by regulation for the purposes of this paragraph.

Broadly, the other paragraphs of sub-clause 6(1) exempt from tax the registration of a transfer of a marketable security -

·
where stamp duty imposed in Australia on the sale and purchase of the marketable security is payable by a broker (paragraph (b));
·
where the instrument of transfer is exempt from stamp duty by virtue of the Bankruptcy Act 1966 (paragraph (c));
·
where the marketable security is issued by a local government or a Commonwealth, State or Territory public authority (paragraph (d));
·
where the transfer is to, or to trustees for, a public hospital, public benevolent institution, religious institution or public educational institution (paragraph (e));
·
where the transfer is made in consequence of a change in the trustees of a trust, provided the transfer is not part of a tax avoidance scheme (paragraph (f));
·
where the transfer is from an executor or administrator to another executor or administrator of the same will or estate of a deceased person (paragraph (g));
·
where the transfer is to a beneficiary under a will or to an entitled person under an intestacy (paragraph (h));
·
where the transfer is from a trustee to a person who paid for the transfer by which the trustee obtained the marketable security, provided the transfer is not part of a tax avoidance scheme and -

· .
any tax or stamp duty payable in Australia on the initial transfer to the trustee has been paid, or
· .
the security was acquired by the trustee on issue (paragraph (j));

·
where the transfer is to a trustee for the beneficial owner, or from the trustee to the beneficial owner by way of re-transfer, provided the transfers are not part of a tax avoidance scheme (paragraph (k));
·
where the transfer is to facilitate the appointment of a director of a company to vote on behalf of a second company which has a controlling interest in the first company, or to re-transfer the marketable security from that director to the second company (paragraph (m));
·
where the transfer is to correct a clerical error in an instrument of transfer (paragraph (n));
·
where the transfer is by way of security or by way of re-transfer from the person who held the marketable security by way of security (paragraph (p));
·
where the transfer is by a broker to another person who had "lent" a similar marketable security to the broker (paragraph (q)); or
·
where the transferee is a member of a diplomatic mission or a member of the family of a member of a diplomatic mission, the transferee is not an Australian citizen or ordinarily resident in Australia and the country which the diplomatic mission represents either has no similar stamp duty or tax or grants Australian diplomatic representatives an exemption corresponding to that granted by this paragraph (paragraph (r)).

By sub-clause 6(2), the term "tax avoidance scheme", as used in a number of the paragraphs in sub-clause (1), is defined. The term is defined to mean a scheme where one or more of the parties to the scheme entered into it for the sole or dominant purpose of ensuring that an amount of tax payable under the Act proposed by this Bill would be reduced or would not be payable.

Clause 7: Regulations

Sub-clause 7(1) authorises the Governor-General to make regulations for the purposes of paragraph 6(1)(a) of the Act proposed by this Bill, while sub-clause 7(2) provides that section 48 of the Acts Interpretation Act 1901 applies to such regulations as if a reference in paragraph (1)(b) of that section to a date specified in the regulations included a reference to a time specified in the regulations. Paragraph 48(1)(b) of the Acts Interpretation Act provides that regulations made under an Act are to take effect from a date notified or a date specified in the regulations.

Reflecting the fact that regulations will need to be made for the purposes of paragraph (a) of sub-clause 6(1), sub-clause 7(2) will enable those regulations to take effect from the time that this new Act comes into operation - 5pm in the ACT on 10 June 1986.

SALES TAX (EXEMPTIONS AND CLASSIFICATIONS) AMENDMENT BILL (NO. 2) 1986

Clause 1: Short title, & c.

By sub-clause (1) of this clause, the amending Act is to be cited as the Sales Tax (Exemptions and Classifications) Amendment Act (No.2) 1986.

Sub-clause (2) facilitates references to the Sales Tax (Exemptions and Classifications) Act 1935 which is referred to in the Bill as "the Principal Act".

Clause 2: Commencement

By this clause, the amending Act is to come into operation on the day on which it receives the Royal Assent. But for this clause, the amending Act would, by reason of sub-section 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after the date of Assent.

Clause 3: Exemptions

This clause will amend the Principal Act by inserting a new sub-section - sub-section (1A) - in section 5 of the Act to make it clear that, where goods are described in clear terms in an item or sub-item in any Schedule to the Principal Act (other than the First Schedule) - i.e., in a taxing Schedule - and might be argued as being also covered by a general description of goods in an item or sub-item in the First Schedule (the exemption Schedule) to that Act, the goods are not covered by the item or sub-item, as the case may be, in the First Schedule.

It has been suggested that, for example, notwithstanding the clear terms of taxing Item 1 of the Second Schedule which specifies (inter alia) precious stones and cultured pearls, those articles are also covered by, respectively, sub-item 82(1) (which deals with building materials such as stone) and sub-item 21(1) (which deals with, inter alia, primary products from fishing operations) of the First Schedule. Suggestions of that nature are not accepted on the basis that, as a matter of statutory interpretation, a specific taxing item overrides a more generally expressed exemption item. The amendment proposed will, however, put it beyond doubt that, in those circumstances, there is a liability to sales tax on the sale value of the goods, at the rate applicable to the relevant taxing Schedule.

As explained in earlier notes on this Bill, the amendment will not alter the practical administration of the sales tax law and is intended to do no more than express an established principle of statutory interpretation.

Clause 4: First Schedule

Sub-clause 4(1) proposes certain amendments of Items 73 and 73A of the First Schedule to the Principal Act. Broadly stated, these items exempt from sales tax certain goods that are for the personal or official use of the Governor-General, State Governors, or members of their families, as well of as staff members who are not Australian citizens.

Item 73 operates to exempt from sales tax imported goods when the goods are cleared from bond or, in the case of goods imported directly by the person who is entitled to the exemption, on importation. Item 73A provides sales tax exemption for locally manufactured goods (which are subject to excise duty) at the time those goods are cleared from bond, provided the goods were owned before clearance by the person for whose use they were cleared or by the Commonwealth Government or the relevant State Government.

As mentioned in earlier notes on this Bill, the customs and excise laws were amended recently to remove exemptions from those duties that were available in respect of goods for the personal or official use of non-Australian members of the staff of the Governor-General or State Governors, and goods for the personal use of the Governor-General, State Governors and members of their families. Sub-clause (1), which is to the same effect as the customs and excise amendments, will amend Items 73 and 73A of the First Schedule to the Principal Act to remove the corresponding sales tax exemptions for those goods.

By sub-clause (2), the amendments are to apply to relevant transactions, acts or operations effected on or after the commencement of the amending Act - i.e., the date on which the Act receives the Royal Assent.


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