House of Representatives

Tax Laws Amendment (2009 Measures No. 3) Bill 2009

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon Wayne Swan MP)

Chapter 2 Annual PAYG instalments when voluntarily registered for the goods and services tax

Outline of chapter

2.1 Schedule 2 to this Bill amends Division 45 of Schedule 1 to the Taxation Administration Act 1953 to allow taxpayers who are voluntarily registered for the goods and services tax (GST) and who choose to remit GST annually to choose to make their pay as you go (PAYG) instalments annually if they satisfy the other eligibility tests for annual PAYG instalments.

2.2 All of the legislative references in this chapter are made to Schedule 1 to the Taxation Administration Act 1953 unless otherwise specified.

Context of amendments

2.3 As part of the 2008-09 Budget the Government announced that it would introduce measures to align the PAYG instalments and GST payment and reporting requirements for taxpayers who are voluntarily registered for GST. However, the Government decided to defer the commencement of the measure until 1 July 2009.

2.4 Under the PAYG instalments system taxpayers earning business or investment income pay instalments during the year towards their final tax liability for that income year. Taxpayers generally make these instalment payments on a quarterly basis, however, provided a taxpayer meets certain conditions they may instead choose to make PAYG instalments annually.

2.5 The eligibility requirements that a taxpayer must meet in order to make PAYG instalments annually are set out in Subdivision 45-E. Under the current law a taxpayer can choose to make PAYG instalments annually if:

·
they are neither registered, nor required to be registered, under Part 2-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act);
·
they are not a partner in a partnership that is registered, or required to be registered, under Part 2-5 of the GST Act;
·
their most recent notional tax notified by the Commissioner of Taxation (Commissioner) is less than $8,000; and
·
in the case of a company, the company is not a participant in a GST joint venture under Division 51 of the GST Act or part of an instalment group.

2.6 If a taxpayer meets these conditions at the end of a starting instalment quarter and chooses to make their PAYG instalments annually, they must then notify the Commissioner of their choice, in the approved form, on or before the day on which their PAYG instalment would otherwise have been due.

2.7 The current condition that a taxpayer must not be registered or required to be registered for GST is an original feature of the PAYG instalment system and was introduced when GST was payable at least quarterly. However, in 2004 the option of paying GST on an annual basis was introduced for taxpayers who are voluntarily registered for GST.

2.8 Under the GST Act a taxpayer may now be eligible to pay GST annually if they are voluntarily registered for GST and make an annual tax period election under Division 151 of the GST Act.

2.9 The introduction of annual GST payments in 2004 without changing the annual PAYG instalment conditions at that time has created a misalignment between the PAYG and GST systems. This misalignment in some cases prevents taxpayers from making PAYG instalments annually solely due to their voluntary GST registration, even where they may be remitting GST annually. This imposes unnecessary compliance costs on these taxpayers.

2.10 These amendments will allow taxpayers to choose to make PAYG instalments annually where they are voluntarily registered for GST and meet the other eligibility tests for annual PAYG instalments. This will reduce compliance costs for eligible taxpayers.

Summary of new law

2.11 These amendments will allow taxpayers who are voluntarily registered for GST and who choose to remit GST annually to also choose to make their PAYG instalments annually if they satisfy the other relevant eligibility tests for annual PAYG instalments.

Comparison of key features of new law and current law

New law Current law
From the 2009-10 income year taxpayers that are voluntarily registered for GST and have made annual tax period elections may choose to make PAYG instalments on an annual basis where they satisfy the other relevant eligibility tests for annual payment. Taxpayers that are registered under the GST Act are not permitted to choose to make PAYG instalments annually, including in cases where the taxpayer is voluntarily registered for GST and remits GST on an annual basis.
From the 2009-10 income year partners in partnerships that are voluntarily registered for GST and have made annual tax period elections will be able to choose to make PAYG instalments on an annual basis where they satisfy the other relevant eligibility tests for annual payment. Partners in partnerships that are registered, or required to be registered, under the GST Act are not eligible to choose to make PAYG instalments on an annual basis.

Detailed explanation of new law

Taxpayers that are voluntarily registered for GST and have made an annual tax period election

2.12 Section 45-140 currently does not allow taxpayers that are registered, or required to be registered under Part 2-5 of the GST Act to choose to make PAYG instalments annually.

2.13 Under these amendments taxpayers that are voluntarily registered for GST and have made an annual tax period election under Division 151 of the GST Act will be able to choose to make PAYG instalments annually if they satisfy the other relevant eligibility tests for annual payment.

[ Schedule 2, item 3, subsection 45-140(1A )]

Example 2.1 Michael is a taxpayer who is voluntarily registered for GST and has made an annual tax period election under Division 151 of the GST Act for the 2009-10 income year. He is a partner in a partnership that is neither registered, nor required to be registered for GST and his most recent notional tax notified by the Commissioner is less than $8,000.Michael made quarterly PAYG instalments for the 2008-09 income year but would like to choose to make PAYG instalments annually for the 2009-10 income year.Michael is eligible to choose to make PAYG instalments annually for the 2009-10 income year as he meets the requirements set out in subsection 45-140(1A).

Partners in partnerships that have made an annual tax period election

2.14 Under these amendments a partner in a partnership that is voluntarily registered for GST and has made an annual tax period election under Division 151 of the GST Act will be able to choose to make PAYG instalments annually where they satisfy the other relevant eligibility tests for annual payment.

2.15 A taxpayer who is a partner in multiple partnerships that are registered under Part 2-5 of the GST Act will also be able to choose to make PAYG instalments annually so long as the registered partnerships in which they are a partner have made valid annual tax period elections and the taxpayer satisfies the other relevant eligibility tests for annual payment.

Example 2.2 Rebecca is a partner in three different partnerships. Two of the partnerships in which she is a partner are voluntarily registered for GST and have also made annual tax period elections under Division 151 of the GST Act for the 2009-10 income year. The third partnership is not registered for GST.Rebecca made quarterly PAYG instalments for the 2008-09 income year but would like to choose to make PAYG instalments annually for the 2009-10 income year.Rebecca will be eligible to make PAYG instalments annually if she meets the other eligibility tests in paragraphs 45-140(1A)(c) to (f), as she meets the requirements set out in paragraphs 45-140(1A)(a) and (b).

When must a taxpayer satisfy the eligibility tests

2.16 In order to satisfy the eligibility tests introduced by these amendments a taxpayer must meet the relevant eligibility tests set out in subsection 45-140(1A).

2.17 Taxpayers must satisfy the conditions in paragraphs 45-140(1A)(c) to (f) by the end of the relevant starting instalment quarter. This reflects the existing requirements under the current law.

2.18 Taxpayers must also satisfy the eligibility tests set out in paragraphs 45-140(1A)(a) or (b) at the time they make their choice to make PAYG instalments annually. The current law requires taxpayers to make this choice by notifying the Commissioner, in the approved form, on or before the day on which that instalment would otherwise be due.

2.19 Allowing taxpayers to satisfy the eligibility requirements in paragraphs 45-140(1A)(a) or (b) at this time will avoid significant confusion. If taxpayers were required to meet these requirements at the end of the relevant starting instalment quarter, taxpayers that made a valid annual tax period election after this time would not be eligible to choose to make PAYG instalments annually.

[ Schedule 2, item 3, subsection 45-140(1A )]

Example 2.3 Mark is a partner in a partnership that is voluntarily registered for GST. He made quarterly PAYG instalments for the 2008-09 income year but would like to choose to make PAYG instalments annually for the 2009-10 income year. He is not registered for GST.At the end of the starting instalment quarter, which for Mark is 30 September 2009, Mark is not a partner in a partnership that is required to be registered under Part 2-5 of the GST Act and his most recent notional tax notified by the Commissioner is less than $8,000.The partnership, in which Mark is a partner, however, has not made an annual tax period election under Division 151 of the GST Act by 30 September 2009.Mark speaks with Geoff, the other partner in the partnership, and they make an annual tax period election for the partnership for the 2009-10 income year on 10 October 2009.Mark is now able to choose to make PAYG instalments annually for the 2009-10 income year by notifying the Commissioner of his choice, in the approved form, by the day on which his PAYG instalment would otherwise have been due.

Cessation of eligibility to pay an annual PAYG instalment

2.20 The current law specifies when a taxpayer who has chosen to make PAYG instalments annually stops being an annual PAYG instalment payer. Taxpayers that choose to make PAYG instalments annually under the eligibility tests introduced by subsection 45-140(1A) will also be subject to these rules.

2.21 Taxpayers will stop being annual payers if:

·
they become required to be registered under Part 2-5 of the GST Act;
·
they become a partner in a partnership that is required to be registered under Part 2-5 of the GST Act;
·
the partnership in which they are a partner becomes required to be registered under Part 2-5 of the GST Act;
·
the Commissioner notifies them that their notional tax is more than $8,000;
·
the annual tax period election that applies to them or to a partnership in which they are a partner ceases to have effect; or
·
in the case of a company, the company becomes a participant in a GST joint venture, part of an instalment group or Subdivision 45-Q starts to apply to the company as the head company of a consolidated group.

2.22 The amendments to sections 45-150, 45-155 and 45-160 reflect the introduction of the eligibility tests to allow taxpayers that are voluntarily registered for GST and have made annual tax period elections to make PAYG instalments annually.

Example 2.4 Sharon is an individual who is voluntarily registered for GST and has made an annual tax period election for the 2009-10 income year under Division 151 of the GST Act.On 17 November 2010 she is informed by the Commissioner that her turnover is above the GST registration turnover threshold. The Commissioner accordingly disallows her annual tax period election.Under the GST Act Sharon's annual tax period will cease to have effect from 30 June 2011.As Sharon's annual tax period election will cease to have effect from 30 June 2011 she will also cease to be an annual PAYG instalment payer for the 2011-12 income year.

2.23 Amendments to paragraphs 45-150(3)(a), 45-155(4)(a) and 45-160(3)(a) reflect the fact that taxpayers may again become annual PAYG payers only if they satisfy the conditions in either subsection 45-140(1) or (1A).

2.24 The amendments to give effect to this change in paragraph 45-155(4)(a) reflect the fact that the section relates to circumstances at the start of the first instalment quarter in an income year rather than any instalment quarter. [ Schedule 2, item 11, paragraph 45-155(4)(a )]

Application

2.25 The amendments made by this Schedule apply in relation to instalments for income years starting after 30 June 2009. [ Schedule 2, item 15 ]


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