House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan MP

Chapter 2 - Collection and recovery of income tax rewrite - Part VI of the ITAA 1936

Outline of chapter

2.1 Schedule 1 to this Bill rewrites the remaining sections of Part VI of the Income Tax Assessment Act 1936 ( ITAA 1936) into the Income Tax Assessment Act 1997 ( ITAA 1997) and the Taxation Administration Act 1953 ( TAA 1953).

Context of amendments

2.2 The context of the rewrite is explained in Chapter 1.

2.3 The remaining sections of Part VI of the ITAA 1936 are contained in Divisions 1 and 8 to 10. Those Divisions can be broken into three discrete topics, namely:

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Division 1 - general rules about collections and recovery of income tax;

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Divisions 8 and 10 - prompt recovery of certain income tax liabilities through estimates; and

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Divisions 9 and 10 - penalties for directors of non-complying companies.

Detailed explanation of new law

2.4 Part VI of the ITAA 1936 is repealed by this Bill [Schedule 1, item 2]. The contents of Part VI have been rewritten and this Bill will include the rewritten rules in either the ITAA 1997 or Schedule 1 to the TAA 1953.

Division 1 of Part VI

2.5 Division 1 of Part VI of the ITAA 1936 now contains only three unrelated sections. The remainder of the Division has already been rewritten or relocated into the TAA 1953. These sections were original sections from the enactment of the ITAA 1936.

2.6 Section 204 of the ITAA 1936 sets the time in which income tax for an income year becomes due and payable. It also imposes the general interest charge on overdue income tax debts and sets the time at which any shortfall interest charge must be paid to the Commissioner of Taxation (Commissioner). The effect of this section has been reproduced in the core provisions of the ITAA 1997.

2.7 Section 213 of the ITAA 1936 has been largely untouched since its enactment in 1936. It allows the Commissioner to seek security from a taxpayer for a future income tax liability. Refusal to provide security sought by the Commissioner is a criminal offence. The effect of this section has been reproduced in the TAA 1953. Consistent with current tax administration policy about having a single set of general collection and recovery rules for all taxes, the effect of the section has been expanded to cover all taxes administered by the Commissioner. Machinery provisions have also been incorporated into the security deposits rules to provide certainty for taxpayers about their rights and obligations.

2.8 Section 219 of the ITAA 1936 allows the Commissioner to consolidate the income tax assessments of a number of different agents if they are in respect of the same foreign resident or an Australia resident absent from Australia. The provision facilitates the issuing of assessments and the collection of income tax where there are several agents in receipt of income from the one foreign resident. The section has particular application to cases where there are several selling agents for the same foreign resident firm. As this provision relates to the making of income tax assessments by the Commissioner, it is being relocated to Part IV of the ITAA 1936 (about assessments of income tax). A rewrite of this provision cannot be undertaken before Part IV has been rewritten.

Divisions 8 and 10 of Part VI

2.9 Divisions 8 and 10 of Part VI of the ITAA 1936 introduced a new regime in 1993 to enable the Commissioner to recover certain tax debts earlier and more effectively. The regime provides the Commissioner with the ability to recover amounts based on reasonable estimates.

2.10 See the explanatory memorandum to the Insolvency (Tax Priorities) Legislation Amendment Bill 1993 for a more detailed explanation of the operation of Division 8 of Part VI.

2.11 The rewrite reproduces the effect of Divisions 8 and 10 of Part VI in the TAA 1953.

Divisions 9 and 10 of Part VI

2.12 Divisions 9 and 10 of Part VI of the ITAA 1936 introduced a new regime in 1993 to enable the Commissioner to recover certain tax debts earlier and more effectively. The regime imposes a duty on directors to cause the company to forward amounts withheld from payments to employees and some other creditors to the Commissioner. The duty is enforced by penalties equal to the unpaid amounts. The penalty is automatically remitted if the company meets its obligations, or promptly goes into voluntary administration or liquidation.

2.13 The penalty regime reflects the public duty on directors to ensure that amounts withheld from payments to third parties are promptly forwarded to the Commissioner. The public duty arises because withheld amounts are similar in nature to amounts held on trust. That is, the directors are in a position of trust and have a duty to protect those monies until they have been forwarded to the Commissioner.

2.14 In addition, because the pay as you go (PAYG) withholding rules often give a credit to the entity from which an amount has been withheld regardless of whether the withholder has paid the amount to the Commissioner, the Commonwealth is effectively guaranteeing such amounts. Such a guarantee necessitates the imposition of penalties on directors to ensure companies comply with their PAYG withholding obligations and to maintain the integrity of the tax system.

2.15 See the explanatory memorandum to the Insolvency (Tax Priorities) Legislation Amendment Bill 1993 for a more detailed explanation of the operation of Division 9 of Part VI.

2.16 The rewrite reproduces the effect of Divisions 9 and 10 of Part VI in the TAA 1953.

How the rewrite is different

2.17 References in this chapter are to Schedule 1 to the TAA 1953 unless otherwise stated.

Division 1 of Part VI

Guide material

2.18 The rewrite contains newly written guide material in respect of section 204 of the ITAA 1936. The guide material explains how the rewrite fits within the core provisions of the ITAA 1997 and when the provisions would apply to a particular taxpayer . [Schedule 1, item 3, section 5-1 of the ITAA 1997]

Structural changes

2.19 The remaining sections in Part VI of the ITAA 1936 are unrelated to one another and are not co-located in the rewrite. Section 204 has been rewritten into the core provisions of the ITAA 1997 in a newly created Division . [Schedule 1, item 3, Division 5 of the ITAA 1997]

2.20 Section 213 has been rewritten into Schedule 1 to the TAA 1953 with other rules about collection and recovery of tax-related liabilities . [Schedule 1, item 9, Subdivision 255-D]

2.21 Section 219 has not been rewritten as part of this Bill. It has instead been relocated within the ITAA 1936 and will be rewritten with the other rules about income tax assessments . [Schedule 1, item 1, section 169AA of the ITAA 1936]

2.22 The rewrites of sections 204 and 213, whilst expressed differently, do not involve a change in structure as the sections are relatively short and self-contained.

Differences in Division 5 of the ITAA 1997 (former section 204)

2.23 The rewrite is a simplified expression of section 204 but contains no substantive policy changes.

Income tax payability dependent on assessment

2.24 The Commissioner currently interprets the law as making income tax due and payable only once income tax has been assessed. That is, an assessment is required before any income tax can be due and payable. Whilst that conclusion is not clear from the law itself, the High Court of Australia agreed with this view in considering the application of the law to full self-assessment cases ^[4] (typically, companies, superannuation trustees and first home saver account providers). The High Court has not considered the application of this law to non-full self-assessment cases.

2.25 The rewrite makes that result clear for both full self-assessment and non-full self-assessment cases. This change to the text of the tax law is consistent with the way the Commissioner already administers the tax law and the context in which the Act operates . [Schedule 1, item 3, subsections 5-5(2) and (3) of the ITAA 1997]

2.26 Once an assessment has been made by the Commissioner, the income tax assessment is due and payable in accordance with the general rules. In order to ensure that the law applies equally to all taxpayers the due and payable date might be treated as having occurred before the assessment was made. Setting a fixed due and payable date (which might be before an assessment) facilitates the correct calculation of interest charges for taxpayers who fail to lodge income tax returns within the required timeframes . [Schedule 1, item 3, subsection 5-5(3)]

Commissioner's ability to defer due dates for payment

2.27 The Commissioner's power to generally defer the date on which income tax for self-assessment taxpayers becomes due and payable has been omitted. The Commissioner can instead rely on his general power to defer the time at which a tax-related liability becomes due and payable, contained in Division 255 in Schedule 1 to the TAA 1953.

2.28 The Commissioner's ability to defer payment of income tax is generally set out in the TAA 1953. It gives the Commissioner a discretion to extend payment dates for taxes, to enter into payment arrangements and, in some cases, to write off debts. The provisions apply widely to all the taxes for which the Commissioner is responsible.

2.29 The older administrative provisions in the ITAA 1936 allow the Commissioner to grant a general extension to full self-assessment taxpayers by publishing a notice in the Commonwealth of Australia Gazette.

2.30 The Commissioner's powers under the TAA 1953 are sufficient to defer the due and payable date for either single taxpayers or classes of taxpayers. The Commissioner therefore does not use his powers under the ITAA 1936 but uses the wider TAA 1953 powers to achieve that outcome. Accordingly, the rewrite does not reproduce the ITAA 1936 powers.

2.31 However, there is a slight doubt about the breadth of the Commissioner's powers under the TAA 1953 as they apply to 'classes' of taxpayer. The rewrite therefore changes those powers to remove any doubt that the Commissioner can grant extensions of due dates for single taxpayers as well as for classes.

2.32 Section 255-10 in Schedule 1 to the TAA 1953 has been modified to clarify its application to classes of taxpayers. Section 255-10 allows the Commissioner to defer the time at which an amount of a tax-related liability becomes due and payable. The section does not explain how the Commissioner defers the due date for classes of taxpayers as it only discusses how such a deferral occurs in relation to a particular taxpayer.

2.33 Schedule 1 to this Bill amends section 255-10 to provide a procedure for the Commissioner to defer a tax-related liability for a class of taxpayers. The Commissioner will be required to publish on the Australian Taxation Office (ATO) website a notice advising taxpayers of his or her decision to defer the due and payable date of a tax-related liability . [Schedule 1, item 7, subsections 255-10(2A) to (2C)]

2.34 Situations in which the Commissioner may exercise this power include extensions for the lodgment of business activity statements (BASs) immediately following the Christmas break and extensions for the lodgment of BASs for taxpayers affected by a natural disaster.

2.35 The rewrite notes that a notice published on the ATO website is not a legislative instrument. This statement is included to merely assist readers. The notice is not a legislation instrument within the meaning of the Legislative Instrument Act 2003 and therefore the provision has no substantive effect other than to assist readers . [Schedule 1, item 7, subsection 255-10(2C)]

Differences in Subdivision 255-D in Schedule 1 to the TAA 1953 (former section 213)

Application of the rules to all taxes

2.36 Consistent with current tax administration policy about having a single set of general collection and recovery rules for all taxes, the effect of section 213 has been expanded to cover all taxes administered by the Commissioner . [Schedule 1, item 9, section 255-100]

2.37 The rewrite applies to all existing and future tax-related liabilities. Section 213 was limited to existing and future income tax liabilities.

2.38 However, a number of provisions in the tax laws extended the operation of section 213 to cover particular taxes (for example, franking deficit tax). These extensions are no longer necessary and are being repealed . [Schedule 1, item 28]

2.39 The overall structure of the rewrite and the conditions it contains have not been amended. However, the rewrite is a simplified expression of section 213. Section 213 is currently a single block of text. The current conditions have been separated out with the intention of making clearer each of the conditions and powers it contains.

2.40 References to 'carrying on a business' in section 213 have been changed to 'carrying on an enterprise' to reflect the widened application of the provisions to other taxes, including the goods and services tax . [Schedule 1, item 9, paragraph 255-100(1)(a)]

Operation of the security deposit rules

2.41 The security deposit rules allow the Commissioner to seek security from a taxpayer for an existing or future tax liability in certain situations. Refusal to provide security sought by the Commissioner is a criminal offence . [Schedule 1, item 9, Subdivision 255-D]

2.42 The Commissioner may ask for security where he or she believes there is a serious risk of a tax-related liability not being paid. Examples of such situations include:

•

where a taxpayer plans to temporarily carry on an enterprise in Australia and leave without returning;

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where the taxpayer has a history of non-compliance (including by defaulting on their tax liabilities);

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where the directors of a corporate taxpayer have a history of non-compliance;

•

where the Commissioner is granting a taxpayer the benefit of a payment arrangement; and

•

to protect the integrity of the tax system against schemes such as 'fraudulent phoenix activity', which broadly involves winding up a company (with significant unpaid debts) but continuing the same business through a newly 'risen' company.

2.43 The Commissioner must consider all relevant matters and act reasonably in deciding whether to request security, how much security to require a taxpayer to provide, what kind of security to accept and when, and how often to ask for security . [Schedule 1, item 9, section 255-100]

2.44 The Commissioner's decisions are administrative in nature and reviewable by the Federal Court of Australia under the Administrative Decisions (Judicial Review) Act 1977.

2.45 The Criminal Code defences apply to the criminal offence of refusing to provide security sought by the Commissioner. Of particular relevance is the defence of 'involuntariness'. A taxpayer who is unable to provide security as requested by the Commissioner can rely on the defence provided they are incapable of providing the security as required. However, a taxpayer would be expected to comply with the request as far as they are capable and/or refraining from the activity that will generate the tax liabilities for which the Commissioner has sought security.

2.46 A security deposit requirement is enforced by criminal sanctions for non-compliance. Security need not be provided by way of a cash deposit (for example, security can be provided by granting a mortgage over property). Such requirements are neither taxes nor withholding obligations. Therefore, collection of security deposits is not subject to the general collection and recovery rules that apply to tax-related liabilities. Requests for security deposits cannot be allocated to a running balance account and the general interest charge is not applied to taxpayers who fail to provide security within timeframes required.

2.47 Security can be provided by way of bond or deposit or by any other means the Commissioner believes appropriate. Such other means include a mortgage over property (real or personal), floating charges, liens and guarantees. The Commissioner may be required to register his or her security interests where required by law . [Schedule 1, item 9, subsection 255-100(2)]

2.48 The Commissioner's ability to exercise his or her rights in relation to a security arrangement (to settle a tax-related liability) is governed by the general law applying to security arrangements and will often be situation specific and dependent upon the reason for the request for security and the nature of the liabilities to which the security relates. In general, the Commissioner would be able to exercise his or her rights under the security arrangement where the taxpayer has failed to meet his or her tax debt as and when it fell due, or where the taxpayer has breached the conditions of a payment arrangement. Further, a taxpayer may request the Commissioner use a security deposit to extinguish their tax-related liability.

2.49 Whether the Commissioner must relinquish his or her rights under a particular security arrangement is also governed by the general law applying to security arrangements. In general, the Commissioner would be required to relinquish his or her rights under a security arrangement (for example, by refunding a bond) when the underlying tax-related liability is discharged. However, a further requirement to give security could sometimes be met by the Commissioner simply retaining the rights under an existing security arrangement.

Machinery provisions

2.50 Machinery provisions have been incorporated into the security deposits rules [Schedule 1, item 9, section 255-105]. Incorporating these machinery provisions provides certainty for taxpayers about their rights and obligations. The machinery provisions incorporate the following features.

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The Commissioner is required to give written notice to a taxpayer required to give security.

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The notice must explain why the Commissioner has asked for security, describe the means by which security can be provided; set out by when security must be provided and advise of the procedures available to have the Commissioner's decision reviewed.

•

In order to avoid taxpayers challenging or defeating the application of the provision on purely technical grounds, a failure to comply with specific technicalities of the notice requirements does not affect the validity of a request by the Commissioner for a security deposit.

•

The Commissioner may accept a security deposit by instalments.

Penalty

2.51 Section 213 has been largely untouched since its enactment in 1936 including the amount of the penalty for breaching the security requirement. Although the penalty has not been updated since that time to reflect inflation or the current capital available to taxpayers, it was recently amended to change the penalty from a fixed monetary amount to an equivalent penalty unit amount.

2.52 The penalty therefore no longer provides an appropriate deterrent for those taxpayers who do not comply with a requirement to provide security. The penalty is therefore adjusted to reflect changed circumstances since 1936.

2.53 The penalty is increased to 100 penalty units (or $11,000) for individuals. This increase is broadly consistent with changes in the Consumer Price Index and average weekly earnings since 1936. As a result of the operation of section 4B of the Crime Act 1914, the penalty applied to bodies corporate is therefore automatically raised to five times the new standard penalty for individuals (500 penalty units, or $55,000) . [Schedule 1, item 9, section 255-110]

Divisions 8 and 10 of Part VI

Guide material

2.54 The rewrite contains newly written guide material for the whole Division . [Schedule 1, item 10, section 268-1]

2.55 The guide material gives a simple explanation of the intent and mechanics of the Division.

Structural changes

2.56 The rewrite follows the basic structure of Division 8 of Part VI. However, some related provisions have been merged so as to avoid unnecessary duplication. A few of the provisions have also been reordered to simplify and bring together a number of related matters.

2.57 The rewrite is split into six Subdivisions, namely rules about:

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the object of the Division;

•

making estimates;

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liability to pay estimates;

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reducing and revoking estimates;

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late payment of estimates; and

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a number of miscellaneous matters about estimates.

Differences

Who can make declarations and affidavits

2.58 The Commissioner can make estimates of unreported PAYG withholding liabilities and can sue based on those estimates. The rules providing the Commissioner with the power to make estimates allow taxpayers to make a statutory declaration or an affidavit if they believe the Commissioner has wrongly estimated the liability.

2.59 The law sets out who is eligible to make such a declaration or affidavit. The current list does not cover all types of taxpayer. That deficiency is the result of the passage of time and the number of ad hoc changes that have been made to the law over the years. The rewrite updates the list to cover every type of taxpayer . [Schedule 1, item 10, section 268-90]

Removing special payment arrangement rules

2.60 The rules providing the Commissioner with the power to make estimates also allow the Commissioner to enter into payment arrangements for collecting those estimated debts. These rules are narrower than the Commissioner's general TAA 1953 powers to enter into payment arrangements, which also apply to these debts.

2.61 The provisions in the estimates rules allowing for payment arrangements are superfluous because of the TAA 1953 powers and are seldom used. The rewrite therefore seeks to simplify and shorten the rules by not reproducing the estimates payment arrangement provisions.

2.62 The Commissioner's general power to enter into payment arrangements in the TAA 1953 will now be the only rules that apply to estimates.

Changes to reflect the introduction of the running balance account system

2.63 Division 8 was not amended to reflect the introduction of the running balance account system in 1999. That system provides a bank account style credit/debit arrangement for a taxpayer's interaction with the Commissioner.

2.64 Under the system, a number of credits and debits are offset at various stages (for example, the BAS would offset a fuel tax credit against a PAYG withholding liability and only the net balance of the BAS is payable or refundable). With regard to payments made, the Commissioner has an unfettered discretion to allocate payments as he or she sees fit. That is, a taxpayer might intend to make a payment against a particular tax liability, but the Commissioner can ignore such wishes and apply the payment (credit) against any debt he or she so chooses.

2.65 The same rules apply in respect of other credits of the taxpayer. So, even on a BAS, the Commissioner can choose how he or she will apply any offsetting (or even whether to apply offsetting within the statement - for example, the statement credits might be applied to other outstanding liabilities which would leave the statement debts still owing). A more common example will be where the taxpayer makes a part payment towards an undisclosed statement liability. The Commissioner may exercise the discretion so that the payment reduces non-PAYG liabilities thereby opening up the possibility of the Commissioner making an estimate.

2.66 The introduction of the running balance account means that the estimate rules requiring the taxpayer to supply information on 'amounts paid or applied' do not practically work because they ask taxpayers to supply information to the Commissioner that they cannot possibly know without asking the Commissioner.

2.67 It is therefore inappropriate to ask taxpayers to supply this information in a statutory declaration or affidavit. The content of a statutory declaration or affidavit should be limited to taxpayers providing information on amounts of debts (underlying liabilities). Therefore, the requirement to supply amounts paid or applied has been removed . [Schedule 1, item 10, section 268-90]

Rules about service

2.68 The rules about service have been clarified taking account of a number of court decisions, particularly with regard to the application of similar rules in Division 9. Where appropriate, the outcomes of those decisions are reflected in the rewrite. See paragraphs 2.78 to 2.82 . [Schedule 1, item 10, section 268-15]

Divisions 9 and 10 of Part VI

Guide material

2.69 The rewrite contains newly written guide material for the whole Division . [Schedule 1, item 10, section 269-1]

2.70 The guide material gives a simple explanation of the intent and mechanics of the Division.

Structural changes

2.71 The rewrite basically follows the structure of Division 9 of Part VI.

2.72 However, a few provisions have been merged or moved to different Subdivisions. For example, the existing separately specified directors' obligations have been combined into one section.

2.73 The rewrite is broken up into four Subdivisions, namely rules about:

•

the object and application of penalties for directors of non-complying companies;

•

obligations of directors and penalties for breaching those obligations;

•

discharging liabilities for penalties; and

•

miscellaneous rules about directors' penalties.

2.74 The rewrite has sought to standardise the various directors' obligations. A small number of minor differences that existed between the various obligations have been removed.

Differences

2.75 Some of the material previously included in the object and outline has been included as guide material. The wording of the objects clause has also been adjusted to reflect current drafting practice.

2.76 The Division has been rationalised and standardised. There have been a number of changes made to the Division over the years as additional obligations have been placed on directors to ensure compliance with the income tax laws. However, there have been subtle changes to the wording of new obligations which have resulted in unnecessary complexity being imposed on directors. The rewrite has sought to simplify the expression of the directors' obligations and to list each obligation in a standardised way.

2.77 The rewrite provides directors with a clear set of rights and obligations in respect to duties to ensure a company complies with its taxation obligations.

Directors' penalty notices

2.78 The rewrite has been drafted taking account of a number of court decisions on the application of Division 9. Where appropriate, the outcome of those decisions has been reflected in the rewrite.

2.79 For example, the Meredith case ^[5] concerned when the Commissioner has given a director penalty notice. The court decided that section 29 of the Acts Interpretation Act 1901 did not apply, so that a notice was given when it is posted ( rather than when it is received).

2.80 That result was the intended result under the current law but, to remove any possibility of a future misunderstanding, the rewrite clearly excludes the operation of section 29 of the Acts Interpretation Act 1901. This has not resulted in a policy change as it simply reflected the current state of the law as set out in the Meredith decision . [Schedule 1, item 10, section 269-25]

2.81 However, an implication of the Meredith decision is that directors could have less than 14 days to comply with a notice, because of the time taken to deliver the post (especially to remote areas). To address this issue, the rewrite extends the 14-day period to 21 days, so that all directors will at least have as much time as they would under the Commissioner's administrative practice (which counts the 14-day period, not from when it posted the notice, but from when the notice would normally have been delivered) . [Schedule 1, item 10, section 269-25]

2.82 The general rules about the service of documents will continue to be governed by section 28 of the Acts Interpretation Act 1901 and the Taxation Administration Regulation 1976. Amongst other methods, those rules permit the Commissioner to give a notice by posting it either to the place of residence or business of the taxpayer last known to the Commissioner, or to the taxpayer's 'preferred address for service'.

Addresses from Australian Securities and Investments Commission documents

2.83 When issuing director penalty notices, the ATO is entitled to also rely on certain Australian Securities and Investments Commission (ASIC) records to ascertain directors' addresses. In practice, the ATO relies on the ASIC database to obtain the addresses rather than the original forms because it is not practical for the ATO to get the addresses from the source documents.

2.84 The rewrite makes clear that the ATO does not have to use ASIC source documents but can search appropriate ASIC computing records to find directors' addresses (that is, the ATO can rely on information held by ASIC) . [Schedule 1, item 10, section 269-50]

2.85 The law permits the use of ASIC records because directors have a legal duty under the Corporations Act 2001 to keep their address with ASIC current. Therefore, it is appropriate to allow the Commissioner to use that address for the purposes of service.

2.86 Information held by ASIC includes information ASIC has obtained from source documents and audit activity and transferred onto their computing systems. The information held by ASIC operates effectively as conclusive evidence of a director's address and can be relied upon by the Commissioner.

Defences for directors' penalties

2.87 The director penalty regime imposes a duty on directors to cause their company to forward to the Commissioner all amounts it withholds from payments it makes to its employees and some other creditors. The duty is enforced by a penalty equal to any unpaid amount. The penalty is automatically remitted if the company meets its obligations, or promptly goes into liquidation or voluntary administration.

2.88 The automatic remission of the penalty when the company promptly goes into liquidation or voluntary administration reflects the additional obligation on directors, in the event that they cannot cause their company to forward all amounts it withholds to the Commissioner, to take all reasonable steps necessary to promptly place the company into liquidation or administration . [Schedule 1, item 10, subsection 269-15(2)]

2.89 The regime excuses directors if, because of illness or some other good reason, they did not take part in the management of the company.

2.90 Following some recent court judgments, there was a concern that the present wording of the defence provision can excuse directors on the basis of relatively minor ailments, including those suffered by others. The rewrite restores the original policy intent of the provision by qualifying the condition that the director 'did not take part' in the management of the company with the additional condition that it would have also been unreasonable to expect the director to take part . [Schedule 1, item 10, subsection 269-35(2)]

2.91 The defence provisions now expressly state that section 1318 of the Corporations Act 2001 does not apply as a possible defence to a directors' penalty. This follows a decision of the New South Wales Court of Appeal ^[6] which came to this conclusion after considering the contexts of both provisions and the interaction between the Corporations Act 2001 and the ITAA 1936 . [Schedule 1, item 10, subsection 269-35(5)]

Application and transitional provisions

Division 1 of Part VI

Application and commencement

2.92 The rewrite of Division 1 of Part VI commences on 1 July 2010 . [Clause 2]

2.93 The rewrite of section 204 applies from the 2010-11 financial year and later financial years . [Schedule 1, item 54, section 5-5 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997)]

Transitional rules

2.94 Despite its repeal, section 204 continues to apply to income tax and shortfall interest charge a taxpayer must pay in relation to the 2009-10 financial year and earlier financial years . [Schedule 1, item 56]

2.95 Any general interest charge that is accruing under section 204 at the time the rewrite commences is transitioned into the rewritten provision. That is, any unpaid general interest charge under section 204 is taken to have been imposed under the rewritten provision. This will allow the interest to continue to accrue until it is paid. Effectively, this will mean that the rewrite will have no effect on outstanding liabilities and accruing interest . [Schedule 1, item 54, section 5-10 of the IT(TP)A 1997]

2.96 If the Commissioner has required a taxpayer under section 213 to give security for a potential tax debt, or a taxpayer has given the Commissioner the required security, the security obligation is taken to have been made under the rewrite as opposed to section 213. This will allow for a smooth transition into the new arrangements. The rewrite will therefore not affect any past arrangements. The new notice requirements do not apply to existing security obligations transitioned into the new arrangements . [Schedule 1, item 57]

2.97 Tax sharing agreements entered into by members of consolidated groups often contain references to sections that are rewritten or amended by this Bill. Where those agreements refer to those provisions, they are deemed to instead refer to the rewritten and amended provisions . [Schedule 1, items 54 and 55, sections 5-1 and 721-25 of the IT(TP)A 1997]

Divisions 8 and 10 of Part VI

Application and commencement

2.98 The rewrite of Divisions 8 and 10 of Part VI commences on 1 July 2010 . [Clause 2]

2.99 From 1 July 2010, the Commissioner must make estimates under the new provisions regardless of when the underlying liability arose. That is, from 1 July 2010, the Commissioner may make estimates under the new law in relation to liabilities that arose before 1 July 2010 or that arise after 1 July 2010. The Commissioner cannot issue estimates under the current law once the new law commences . [Schedule 1, item 58]

Transitional rules

2.100 The new law applies to estimates still in force made under the current law as if those estimates were made under the new law . [Schedule 1, items 58 to 60]

2.101 Regulations made under the ITAA 1936 to support the current law continue in force to support the new law as if they had been made under the TAA 1953. These regulations will be formally remade under the TAA 1953 as soon as practicable after the commencement of the new law . [Schedule 1, item 63]

2.102 The general interest charge continues to accrue on estimates made under the current law . [Schedule 1, item 61]

2.103 Payment arrangements made before the commencement of the new law continue in effect . [Schedule 1, item 62]

Divisions 9 and 10 of Part VI

Application and commencement

2.104 The rewrite of Divisions 9 and 10 of Part VI commences on 1 July 2010 . [Clause 2]

2.105 The rewrite applies to obligations arising both before and after 1 July 2010 subject to a number of transitional rules. For example, the Commissioner can issue a notice of a penalty that arose in relation to an unfulfilled obligation under the current law as if the new law had always applied. This approach will ensure a smooth transition between the old law and new law . [Schedule 1, item 64]

Transitional rules

2.106 No penalties are imposed under the new law if a penalty was payable under the old law at anytime before 1 July 2010. This will prevent a taxpayer being subject to multiple penalties in relation to a breach of a single obligation . [Schedule 1, item 65]

2.107 Penalties that remain unpaid as at 1 July 2010 under the old law are taken to have been payable under the new law for the purposes of the machinery provisions. This will ensure a smooth transition between the old and new law . [Schedule 1, item 65]

2.108 Payment arrangements made before the commencement of the new law continue in effect afterwards. If a taxpayer defaults on a payment arrangement that resulted in a remission of a director penalty, the penalty will be treated as having not been remitted and will be taken to be payable under the new law . [Schedule 1, item 65]

Consequential amendments

2.109 As a result of the rewrite, a number of consequential amendments are required to ensure cross references to the old law are updated to refer to the new law . [Schedule 1, items 11 to 27, 29 to 32 and 34 to 52]

Legislative history of Part VI

Division 1 of Part VI

2.110 Sections 204, 213 and 219 (Division 1) of the ITAA 1936 are original sections of that Act.

2.111 These Acts have amended those sections:

Divisions 8 and 10 of Part VI

2.112 Divisions 8 and 10 of Part VI of the ITAA 1936 were added by the Insolvency (Tax Priorities) Legislation Amendment Act 1993 [ Act No. 32 of 1993].

2.113 These Acts have amended Division 8 of Part VI:

Divisions 9 and 10 of Part VI

2.114 Divisions 9 and 10 of Part VI of the ITAA 1936 were added by the Insolvency (Tax Priorities) Legislation Amendment Act 1993 [ Act No. 32 of 1993].

2.115 These Acts have amended Division 9 of Part VI: