Senate

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Chapter 4 Administration

Outline of chapter

4.1 Schedule 5 to the Fuel Tax (Consequential and Transitional Provisions) Bill 2006 includes amendments to various Commonwealth Acts as a consequence of the Fuel Tax Bill 2006. They primarily amend the Taxation Administration Act 1953 (TAA 1953) to provide the administrative arrangements for the Fuel Tax Bill 2006.

4.2 The Fuel Tax Bill 2006 operates under the general compliance and administrative umbrella of the TAA 1953, generally aligning with the administrative arrangements for other indirect tax laws (governing goods and services tax (GST), luxury car tax and wine equalisation tax).

Context of reform

4.3 The introduction of the fuel tax credit system is the first of a number of fuel tax measures announced in the Government's June 2004 white paper, Securing Australia's Energy Future .

4.4 The introduction of the fuel tax credit system, providing fuel excise relief for a wide range of businesses and households, was announced in the Treasurer's Press Release No. 48 of 15 June 2004. Further details can be found in Chapter 1 of this explanatory memorandum.

4.5 The fuel tax credit system is a single system to replace all existing rebates and subsidies. Unlike the various current systems, the single system will utilise the administrative system applying to other indirect tax laws.

4.6 As part of the Government's commitment to improving the quality of the taxation laws and consistent with its aim of establishing an integrated tax code ^[1] , Part VI of the TAA 1953 is rewritten using the Tax Law Improvement Project drafting style and relocated into the Schedule to that Act.

Summary of new law

4.7 The Fuel Tax Bill 2006 operates under the general compliance and administrative system contained in the TAA 1953 consistent with other taxation laws administered by the Commissioner of Taxation (Commissioner).

4.8 Schedule 5 to the Fuel Tax (Consequential and Transitional Provisions) Bill 2006 applies the administrative rules applying to other indirect tax laws, to the proposed fuel tax credits scheme.

4.9 The amendments to the TAA 1953 incorporate a rewrite of Part VI (administration of GST, wine equalisation tax and luxury car tax) in the Tax Law Improvement Project drafting style. The rewritten version simplifies the expression of the law, making it easier to understand and comply with.

Detailed explanation of new law

Amendments to the Taxation Administration Act 1953

4.10 The amendments to the TAA 1953, implement the administrative arrangements for the Fuel Tax Bill 2006. In general, the administrative rules for the fuel tax law is the general administration rules that apply to all taxes administered by the Commissioner and the specific administration rules that apply to other indirect tax laws. This chapter broadly explains how those provisions apply to this Bill.

4.11 The administration rules for indirect taxes have been rewritten and relocated into Schedule 1 to the TAA 1953. The rewrite does not change the existing outcomes for indirect taxes. Therefore, this chapter does not explain the general operation of the rewritten provisions.

4.12 Some issues have been raised about the operation of the current indirect tax administration provisions. This Bill does not address those issues. They are being considered separately.

4.13 It should also be noted that on 16 December 2004 the Government announced its agreement to Recommendation 7.2 of the Report on Aspects of Income Tax Self Assessment , resulting in Treasury undertaking a review into the possible application of the recommendations, contained in the report, to all federal taxes. When that review is completed, the Government will consider whether any changes may be required to the administrative provisions for indirect taxes.

General administration

4.14 The Commissioner has the general administration of the Fuel Tax Bill 2006. The Commissioner therefore has all the rights, powers, responsibilities and obligations provided to the administrator of such laws under statute and common law. [Schedule 5, item 49, section 356-5 in Schedule 1 to the TAA 1953]

4.15 The Commissioner's annual report must include, a report on the workings of the Fuel Tax Bill 2006, including any breaches or evasions of that law. [Schedule 4, item 45, section 352-5 in Schedule 1 to the TAA 1953]

Assessments

4.16 Consistent with the administration of other indirect tax laws under the TAA 1953, a taxpayer's entitlement to refunds or obligation to make payments under the Fuel Tax Bill 2006 ordinarily arises without any formal assessment process being undertaken by the Commissioner.

4.17 It may occasionally be necessary for the Commissioner to issue an assessment of a taxpayer's net fuel amount for a tax period (or fuel tax return period for a non-business taxpayer). For example, the Commissioner may make an assessment if:

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a taxpayer fails to lodge a return;

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the Commissioner believes that amounts stated in a return are incorrect; or

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the taxpayer asks the Commissioner to make an assessment (eg, because they are unsure of their entitlements or obligations under the law).

4.18 The Commissioner can also make an assessment of a part of a net amount. This might be an assessment of the first three months of a taxpayer's tax period, if that taxpayer had annual tax periods.

Summary of the rules on assessments

4.19 Unlike income tax, the assessment process for indirect taxes is not necessary to make a liability under an indirect tax law due and payable. The assessment process for indirect taxes, amongst other things, establishes a mechanism for resolving disputes between taxpayers and the Commissioner over the application of the indirect tax law.

4.20 An assessment of a taxpayer's net fuel amount (or a part of that amount) may be made by the Commissioner with or without a request by the taxpayer. If the Commissioner makes an assessment, the taxpayer must be notified of that assessment.

4.21 The Commissioner may amend an assessment at any time but there are time limits on collecting debts and making refunds.

4.22 The procedure for reviewing assessments are the standard taxation review procedures in Part IVC of the TAA 1953, which allow taxpayers to seek a review by the Commissioner and appeal to the Administrative Appeals Tribunal.

Detailed rules on assessments

4.23 The Commissioner can make an assessment at any time of a taxpayer's net fuel amount, or a part of the taxpayer's net fuel amount. An assessment covers no more than a single tax period (or fuel tax return period for non-business taxpayers). [Schedule 5, item 41, section 105-5 in Schedule 1 to the TAA 1953]

4.24 A taxpayer can also ask the Commissioner to make an assessment of their net fuel amount, for a tax period or fuel tax return period. [Schedule 5, item 41, section 105-10 in Schedule 1 to the TAA 1953]

4.25 Generally, a taxpayer can only ask for an assessment within four years after their tax period (or fuel tax return period for non-business taxpayers). Assessments made outside the four years would generally not have any effect as the Commissioner would be unable to recover outstanding amounts or pay any refunds otherwise owing. [Schedule 5, item 41, subsection 105-10(2) in Schedule 1 to the TAA 1953]

4.26 A taxpayer who is dissatisfied with their assessment may seek a review by lodging an objection in accordance with the procedures set out in Part IVC of the TAA 1953.

4.27 A taxpayer's liability to pay, and the Commissioner's obligation to refund an amount under the fuel tax law arise independently of any assessment. That is, those liabilities or refunds do not depend on there being an assessment. [Schedule 5, item 41, section 105-15 in Schedule 1 to the TAA 1953]

4.28 The Commissioner must provide a notice of any assessment made to the taxpayer. However, if the Commissioner fails to provide the notice to the taxpayer, it will not invalidate the assessment. [Schedule 5, item 41, subsection 105-20(1) in Schedule 1 to the TAA 1953]

Amended assessment

4.29 The Commissioner may amend an assessment at any time. An amended assessment replaces any earlier assessment made. Despite being able to amend an assessment at any time, the Commissioner may be time barred from either collecting debts or making refunds (see paragraphs 4.36 and 4.37). [Schedule 5, item 41, section 105-25 in Schedule 1 to the TAA 1953]

4.30 A taxpayer who is dissatisfied with their amended assessment may seek a review by lodging an objection in accordance with the procedures set out in Part IVC of the TAA 1953.

Multiple assessments

4.31 If a taxpayer ever receives two or more inconsistent assessments for the same tax period, the latest assessment overrides all earlier assessments to the extent of the inconsistency. [Schedule 5, item 41, section 105-30 in Schedule 1 to the TAA 1953]

Electronic transmission

4.32 Where a taxpayer supplies the Commissioner with business activity statements (BAS) electronically, the Commissioner may provide any notice of assessment to the taxpayer by electronic transmission. [Schedule 5, item 41, subsection 105-20(2) in Schedule 1 to the TAA 1953]

Recovery

4.33 The standard collection and recovery rules contained in Part 4-15 of Schedule 1 to the TAA 1953 apply to the Fuel Tax Bill 2006. These rules apply to all laws administered by the Commissioner.

4.34 The rules about running balance accounts and applications of payments and credits contained in Part IIB of the TAA 1953 apply to the Fuel Tax Bill 2006, as they do to all other taxation laws the Commissioner administers.

4.35 The application of the running balance account system to the fuel tax law means that amounts that are owed to a taxpayer at the end of each tax period (or fuel tax return period for non-business taxpayers) can be applied by the Commissioner to reduce a taxpayer's other tax liabilities. This means that refunds will generally only be made where the taxpayer has no debts owing to the Commissioner.

4.36 The general time limits applying to the recovery of unpaid amounts for indirect taxes apply to the fuel tax law. Taxpayers will generally not be required to pay any amount owing under the fuel tax law if the amount remains unpaid four years after it first become payable. Similarly, taxpayers will lose their entitlement to fuel tax credits if they have not received a refund within four years after the end of their tax period. [Schedule 5, item 41, sections 105-50 and 105-55 in Schedule 1 to the TAA 1953]

4.37 Those time limits do not apply in the case of fraud or evasion. They also cease to apply where either the Commissioner or the taxpayer has notified the other of an amount owing or an entitlement to a refund or credit within the time limit. [Schedule 5, item 41, sections 105-50 and 105-55 in Schedule 1 to the TAA 1953]

Penalties

4.38 The standard penalty rules applying to taxation laws also apply to the fuel tax law. These penalties include the charges and administrative penalties contained in Part 4-25 in Schedule 1 to the TAA 1953.

General interest charge

4.39 Taxpayers who fail to pay a debt owing under the fuel tax law are subject to the general interest charge. [Schedule 5, item 41, section 105-80 in Schedule 1 to the TAA 1953]

4.40 The general interest charge also applies to overpayments of fuel tax credits by the Commissioner. The general interest charge would generally apply from the date of the overpayment. This is the current treatment for overpayments of input tax credits under the GST law. Penalties may also apply to some of these overpayments.

Credit interest

4.41 Generally, if the Commissioner takes longer than 14 days to refund an amount owing under the fuel tax law, the Commissioner will be required to pay the taxpayer interest. The taxpayer will not be entitled to interest if the Commissioner has allocated the refund to pay other outstanding tax debts of the taxpayer. The provisions governing the payment of interest are contained in the Taxation (Interest on Overpayments and Early Payments) Act 1983 .

Special rules for certain entities

4.42 The special rules about entities that are not individuals that apply to other indirect tax laws also apply to the fuel tax law. The rules accommodate entities such as corporations, partnerships and trusts (common entities) as well as arrangements that are particular to indirect taxes (eg, GST groups and GST joint ventures). [Schedule 5, item 52, Division 444 in Schedule 1 to the TAA 1953]

4.43 The rules include creating joint and several liability for partners in a partnership, members of a GST group or participants in a GST joint venture and making directors responsible for certain obligations of a corporation.

Evidence

4.44 The rules about evidence that apply to other indirect tax laws also apply to the fuel tax law. Those rules specify the evidentiary effect of certain documents. They ensure that the primary avenue for a dissatisfied taxpayer to appeal a decision of the Commissioner is to dispute the amount of the liability (under Part IVC of the TAA 1953) rather than disputing the procedures followed in creating relevant documents. [Schedule 5, item 41, Subdivision 105-E in Schedule 1 to the TAA 1953]

Reviewable decisions

4.45 A taxpayer who is dissatisfied with an assessment or an amended assessment of their net fuel amount (or a component of their net fuel amount) can object against that assessment (or amended assessment) following the procedures set out in Part IVC of the TAA 1953 [Schedule 5, item 41, section 105-40 in Schedule 1 to the TAA 1953] . In accordance with section 14ZW of the TAA 1953, objections against these assessments must be lodged within four years after the end of the relevant tax period or within 60 days of the relevant assessment, whichever is the later.

4.46 The mechanisms for objecting against a taxation decision and, ultimately, appealing against it, are set out in Part IVC of the TAA 1953.

4.47 A taxpayer can also object against decisions made by the Commissioner under the general anti-avoidance rules contained in Division 75 of the Fuel Tax Bill 2006. [Schedule 5, item 41, section 112-50 in Schedule 1 to the TAA 1953]

Other

4.48 The same rules that protect the confidentiality of taxpayers' information and allow the Commissioner to access premises and gather information for other indirect tax laws also apply to the fuel tax law. [Schedule 5, items 46 to 49, sections 353-10 and 353-15 and Subdivision 355-5 in Schedule 1 to the TAA 1953]

4.49 Taxpayers must keep records substantiating their claims for fuel tax credits. The evidence needed to substantiate a claim for an input tax credit under the GST law (eg, a tax invoice) is generally sufficient to substantiate a claim for a fuel tax credit on the same transaction. [Schedule 5, item 51, section 382-5 in Schedule 1 to the TAA 1953]

Rulings

4.50 The generic expanded rulings system contained in Divisions 357 to 361 of Schedule 1 to the TAA 1953 applies to the Fuel Tax Bill 2006. This new system commenced on 1 January 2006. A further review is under way to determine whether it should be extended to cover all other indirect taxes (see paragraph 4.13). [Schedule 5, item 50, section 357-55 of Schedule 1 to the TAA 1953]

4.51 Public or private rulings issued by the Commissioner relating to the fuel tax law will generally be binding on the Commissioner. Other types of advice, as well as the Commissioner's general administrative practice, may also prevent the Commissioner from applying penalties and interest where taxpayers have relied on that information. Further information on the proposed rulings system can be found in the explanatory memorandum to the Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005.

Effect of the administrative provisions on the Crown

4.52 The fuel tax law is intended to bind the Crown (in each of its capacities). That is, the Crown is entitled to fuel tax credits and must comply with the obligations imposed under that law.

4.53 The Crown (in each of its capacities) is also generally bound by the provisions in the TAA 1953 (especially, Schedule 1 to that Act). Therefore, the Crown is required to comply with obligations under the general administrative rules in the TAA 1953 (such as record keeping rules, the Commissioner's access and information gathering powers and the collection and recovery rules).

4.54 There are special rules in the fuel tax law that apply to the Commonwealth. Because the Commonwealth cannot tax itself, those rules allow the Minister for Finance and Administration to put in place directions about, amongst other things, the transfer of monies between accounts to give effect to Parliament's intention that the effect of the fuel tax law be applied to the Commonwealth and its untaxable entities. Despite those rules, the other obligations in the fuel tax law do apply to the Commonwealth.

Minor consequential amendments

4.55 A number of corrections to cross-references have been made to these Commonwealth Acts:

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Administrative Decisions (Judicial Review) Act 1997 ;

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A New Tax System (Goods and Services Tax) Act 1999 ;

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A New Tax System (Goods and Services Tax Transition) Act 1999 ;

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A New Tax System (Wine Equalisation Tax) Act 1999 ;

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A New Tax System (Luxury Car Tax) Act 1999 ;

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Crimes (Taxation Offences) Act 1980 ;

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Freedom of Information Act 1982 ;

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Income Tax Assessment Act 1936 ;

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Income Tax Assessment Act 1997 ;

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TAA 1953; and

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Taxation (Interest on Overpayments and Early Payments) Act 1983 .

[Schedule 5, items 59 to 174]

4.56 Some of the above Acts have also been amended to include appropriate references to the Fuel Tax Bill 2006.

4.57 Terms used in Schedule 1 to the TAA 1953 are defined in the Dictionary to the Income Tax Assessment Act 1997 . Definitions of new defined terms created for the rewrite of the indirect administration provisions have been added to that Dictionary. [Schedule 5, items 5 to 38]

4.58 As part of the rewrite of the TAA 1953 some of the offences have been rewritten as strict liability offences or contain elements of strict liability. These offences include:

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recording or disclosing indirect tax information obtained as an employee of the Commonwealth, a delegate of the Commissioner, or while performing services for the Commonwealth, and obtained under an indirect tax law;

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an entity that is required to keep or retain records pertaining to indirect taxing or crediting (such as transactions or calculations) but does not; and

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an occupier of land or premises that is accessed by the Commissioner (for the purpose of the indirect tax laws) and the occupier does not provide reasonable facilities or assistance to the Commissioner.

4.59 These provisions, which relate to access, confidentiality and the keeping of records, require the application of a standard of strict liability. The provisions are consistent with the current Commonwealth practice of establishing liability regardless of the element of fault as they relate to matters that are purely a question of fact or purely a question of law, where intention is not relevant. [Schedule 5, items 46 to 51]

4.60 Additionally, as part of the rewrite, the provisions have been redrafted to take account of the introduction of the Legislative Instruments Act 2003 . Where decisions of the Commissioner are of an administrative nature, the provisions expressly provide that the decision is not a legislative instrument. Other provisions have also been rewritten as a result of necessary language changes resulting from the transition to the new regime.

Conversion table of new law/old law provisions

4.61 Conversion Tables 4.1 and 4.2 cross-reference the sections in the new law with the corresponding sections in the previous law.

Application and transitional provisions

Commencement

4.62 The amendments commence at the same time as the commencement of the Fuel Tax Bill 2006 (1 July 2006). [Clause 2, items 18 and 21]

4.63 Some amendments are contingent upon the commencement of Schedule 4 to the Tax Laws Amendment (2005 Measures No. 4) Act 2005 (about the scheme to extend the wine equalisation tax rebate to New Zealand wine producers). Once that scheme commences some additional minor amendments to the TAA 1953 will occur. [Schedule 5, Parts 2 and 3]

Transitional rules

4.64 There are a number of transitional rules to ensure the smooth transition from Part VI of TAA 1953 (old law) to the rewritten version in Schedule 1 to the TAA 1953 (new law).

4.65 Despite the repeal of the old law imposing the general interest charge on amounts owed to the Commonwealth, the general interest charge will continue to accrue on any unpaid amounts. [Schedule 5, item 54]

4.66 Records kept under obligations imposed by the old law will need to be kept in accordance with those obligations despite the repeal of the old law. [Schedule 5, item 56]

4.67 The provisions in the new law providing taxpayers with a right of review apply to decisions made under the old law and the new law. [Schedule 5, items 55 and 57]

4.68 Instruments (such as regulations, approved forms, determinations, authorisations and notices) made under the old law are taken to have been remade under the corresponding provisions of the new law. [Schedule 5, subitem 58(1 )]

4.69 Assessments made under the old law, and requests made under the old law for assessments to be made, are taken to been made under the new law. [Schedule 5, subitem 58(2 )]