Senate

Taxation Laws Amendment Bill (No. 3) 2001

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
This Memorandum takes account of amendments made by the House of Representatives to the Bill as introduced

General outline and financial impact

GST returns and payments

Part 1 of Schedule 1 to this Bill amends the GST Act and the TAA 1953 to simplify the GST return and lodgement systems. The amendments:

·
extend the due date for payment of net amounts and lodgement of GST returns for entities that account for GST on a quarterly basis;
·
remove the requirement for the net amount to be provided on the GST return; and
·
ensure that the annual GST information sheet that an entity may need to lodge, can require entities to provide details for more than one tax period.

Date of effect: The amendments apply, and are taken to have applied, in relation to GST returns, and net amounts, for tax periods ending on or after 22 February 2001.

Proposal announced: A number of amendments were announced in Treasurers Press Release No. 7 of 22 February 2001.

Financial impact: Nil.

Compliance cost impact: The amendments will reduce compliance costs.

Payment of GST by instalments

Part 2 of Schedule 1 to this Bill amends the GST Act and the TAA 1953 to simplify the GST return and lodgement systems. The amendments set up the GST instalment system for small businesses.

Date of effect: The amendments apply, and are taken to have applied, in relation to GST returns, and net amounts, for tax periods ending on or after 22 February 2001.

Proposal announced: A number of amendments were announced in Treasurers Press Release No. 7 of 22 February 2001.

Financial impact: The estimated cost to revenue is $65 million in 2000-2001 and $130 million in 2001-2002, with an additional cost of $15 million in outyears due to growth. The additional tolerance before underestimation penalty is applied for the September 2001 quarter will result in an additional deferral of $10 million revenue to the succeeding financial year.

Compliance cost impact: The amendments will reduce compliance costs.

Substituted accounting periods

Part 3 of Schedule 1 to this Bill amends the GST Act to permit entities who use substituted accounting periods to be able to choose either quarterly or monthly tax periods, subject to the existing turnover threshold and election rules. Without these amendments the Commissioner must determine that an entity which has a substituted accounting period accounts for GST on a monthly basis unless that entity is a non-profit entity.

Date of effect: 1 July 2001.

Proposal announced: Not previously announced.

Financial impact: $80 million cost to revenue in the 2001-2002 financial year representing the deferral of 2 months instalments, with a further cost of $5 million in outyears due to growth.

Compliance cost impact: The amendments will reduce compliance costs.

Correcting GST errors

Part 4 of Schedule 1 to this Bill amends the GST Act to permit the Commissioner to make a determination that allows a net amount for a tax period to be worked out to take account of the need to correct errors made in the immediately preceding tax period.

The intention of these amendments is to allow the Commissioner to make flexible rules to minimise the effort required to remedy small errors made in preparing GST returns.

Date of effect: 1 July 2000.

Proposal announced: Not previously announced.

Financial impact: Small but unquantifiable.

Compliance cost impact: The amendments will reduce compliance costs.

Input tax credits for motor vehicles

Part 5 of Schedule 1 amends this Bill to allow GST registered businesses that are entitled to claim input tax credits, to claim full input tax credits for motor vehicles, trailers and vehicle bodies acquired or imported by them on or after 23 May 2001.

Date of effect: The amendments apply to acquisitions or importations of motor vehicles, trailers and vehicle bodies made on or after 23 May 2001.

Proposal announced: 2001-2002 Federal Budget announcement and Treasurers Press Release No. 34 of 22 May 2001.

Financial impact: $20 million in 2000-2001, $570 million in 2001-2002 and $80 million in 2002-2003.

Compliance cost impact: Minimal.

PAYG instalments

Schedule 2 to this Bill amends the PAYG instalments legislation to allow certain entities to pay instalments based on an amount worked out, and notified, by the Commissioner. All of the following entities will be able to pay instalments worked out by the Commissioner using the GDP-adjusted notional tax method following the amendments made by this Bill:

·
all individuals;
·
companies, superannuation funds and other entities that are taxed as companies that have $1 million or less in instalment income for their previous income year; and
·
companies, superannuation funds and other entities that are taxed as companies that have more than $1 million in instalment income for their previous income year and are eligible to pay annual instalments under the PAYG instalments regime but have not chosen to do so.

Note: an entitys instalment income is generally its ordinary business and investment income, but there are special rules for some entities including superannuation funds.

These amendments will reduce the costs these taxpayers incur in complying with their PAYG instalments obligations as they will no longer have to keep track of the instalment income they earn each quarter.

The PAYG instalments legislation will also be amended so that certain individuals who either carry on primary production businesses or who are authors, artists or other special professionals will be required to pay only 2, not 4, quarterly instalments each year. These 2 instalments will be payable at the end of the third and fourth quarters of the income year and will also be worked out using the GDP-adjusted notional tax method. This change will give those individuals whose income fluctuates from quarter to quarter during the income year, a way of paying GDP-adjusted notional tax instalments that addresses the fluctuating nature of their income flows.

Currently, the PAYG instalments provisions provide that a person must pay using the instalment income times instalment rate method (instalment income method) unless they are entitled to choose, and have chosen, to pay using another method. The PAYG instalments legislation will be amended so that taxpayers who qualify to use the GDP-adjusted notional tax method will be required to pay their instalments on that basis. However, they will be entitled to choose to pay annual instalments (if eligible) or to pay quarterly instalments worked out using the instalment income method. They will only be able to make that choice at the end of the first instalment quarter of the income year.

Schedule 5 to this Bill will make technical corrections to ensure that PAYG instalment variation credits are correctly taken into account on assessment.

Date of effect: The amendments made by Schedule 2 will generally apply for the 2001-2002, and later, income years.

However, entities who:

·
will become entitled to use the GDP-adjusted notional tax method as from the 2001-2002 income year; or
·
were already entitled to choose to use the GDP-adjusted notional tax method for the 2000-2001 income year but did not make the choice to use that method,

will be given the right to choose to use the GDP-adjusted notional tax method to pay any of their remaining 2000-2001 instalments. This Bill therefore contains special transitional rules which will ensure that the affected entities benefit immediately from the changes to the law.

The amendments made by Schedule 5 to this Bill will apply for the 2000-2001 income year and later income years.

Proposal announced: The main aspects of these amendments were announced in Treasurers Press Release No. 7 of 22 February 2001. The amendments in Schedule 5 and the amendments to allow certain individuals to pay only 2 quarterly instalments each year have not previously been announced.

Financial impact: The PAYG measures contained in this Bill will result in a one-off cost to the revenue for 2001-2002 of $200 million. There will be a $10 million cost to the revenue for subsequent years.

Compliance cost impact: The compliance cost impact is summarised in the regulation impact statement for this measure.

Deferral of due dates

Schedule 3 to this Bill amends the ITAA 1936, the TAA 1953 and other Acts to modify the conditions for lodgment of quarterly BAS and IAS, and for the payment of tax debts.

The amendments in this Bill will:

·
defer the due date for quarterly GST lodgement dates and payments and other quarterly obligations for entities other than those with monthly GST obligations to 28 October, 28 February, 28 April and 28 July;
·
ensure that where a due date for payment of a tax debt or lodgement of an approved form falls on a Saturday, a Sunday or a public holiday, the payment or lodgement may be made on the next working day without incurring a penalty or GIC; and
·
streamline the reporting arrangements in relation to the lodgement and signing of approved forms such as the BAS and IAS.

Date of effect: The amendments apply to amounts that are due and notifications required on or after 1 April 2001.

Proposal announced: The deferral element of the proposal was announced in Treasurers Press Release No. 7 of 22 February 2001.

Financial impact: The measures will result in the public debt interest costs as set out in the following table:

2001-2002 2002-2003 2003-2004 2004-2005
$150m $160m $170m $180m

Compliance cost impact: The measures will reduce the compliance burden on taxpayers by streamlining the approved form reporting requirements, and by giving taxpayers more time to meet their obligations. The compliance cost impact is explained in more detail in the regulation impact statement.

Changes to the GIC and the benchmark interest rate

Schedule 4 to this Bill amends the TAA 1953 to replace the benchmark rate applied in the calculation of the GIC and some interest amounts paid by the Commissioner. The amendment also reduces the margin that is added to the benchmark rate in order to determine the GIC rate, from 8 percentage points to 7 percentage points.

It is necessary to replace the current benchmark rate, the average yield of 13-week Treasury Notes tenders, because those notes are no longer issued. The replacement benchmark rate is the monthly average yield of 90-day Bank Accepted Bills published by the RBA.

The margin that is added to this benchmark rate, in calculating the GIC rate, is being reduced in response to concerns that the GIC rate is excessive.

Date of effect: The amendments will apply from the first full quarter following Royal Assent.

Proposal announced: Not previously announced.

Financial impact: The amendment to the benchmark rate will cost the revenue approximately $1 million per annum. The amendment to the loading for determining the GIC rate will cost the revenue $14 million in the 2001-2002 income year (assuming Royal Assent is granted on or before 1 July 2001) and $10 million per annum thereafter.

Compliance cost impact: Nil.

Summary of regulation impact statement - extended due dates and GST changes

There are separate regulation impact statements for the GST measures and the PAYG instalment measures. The GST regulation impact statement also deals with the extension of time to lodge the BAS or IAS, which impacts on all taxes reported on those forms.

Regulation impact on business

Impact: The measures are expected to significantly reduce compliance costs for enterprises which lodge their GST returns quarterly. There is a cash flow benefit to taxpayers reflected in the PDI cost of the delayed receipt of revenue. The GST instalments option will result in some deferral of revenue.

Main points:

·
The measures will considerably reduce compliance costs for entities whose turnover does not exceed the $20 million threshold for monthly lodgement, by providing additional options to ease their reporting burden. Nine out of 10 entities who lodge GST returns are quarterly remitters.
·
All entities with a liability reported on the BAS or IAS have their due dates for reporting and paying tax extended; 95% of quarterly GST payers with a net GST liability will be able to adopt the GST instalments option; and 82% of entities with substituted accounting periods will be able to lodge their GST returns quarterly.
·
The extension of the due dates will result in a significant cash flow benefit for quarterly lodgers, which is likely to exceed the PDI cost as small businesses typically pay higher interest rates than the Commonwealth.
·
There is a small additional administration cost involved in changing ATO systems and processes to deal with the new arrangements. An extensive education and information campaign, including television, press and radio advertisements, will assist business in evaluating the additional reporting and payment options.
·
There has been extensive consultation with small business and tax professionals in framing these measures.

Summary of regulation impact statement - PAYG instalments

Regulation impact on business

Impact: The amendments will reduce the costs incurred by many taxpayers in complying with their obligations under the PAYG instalments regime. This will occur because the affected taxpayers will be able to pay an instalment amount worked out, and notified, by the Commissioner and will not be required to keep track of the instalment income they earn each quarter. Further, some taxpayers will be able to pay 2 quarterly instalments rather than 4.

Main points:

·
It is estimated that some 1.1 million individuals who are currently required to work out the amount of their instalments using the instalment income basis, will be entitled to pay an instalment amount that is worked out, and notified, by the Commissioner.
·
It is estimated that some 400,000 companies, superannuation funds and other entities that are taxed like companies that are currently required to work out the amount of their instalments using the instalment income basis, will be entitled to pay an instalment amount that is worked out, and notified, by the Commissioner.


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