Explanatory Memorandum
(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)Chapter 6 - Running balance accounts
Outline of chapter
6.1 Schedule 6 to this Bill amends the Taxation Administration Act 1953 (TAA 1953) to ensure that it will not be mandatory for the Commissioner of Taxation (Commissioner) to apply a payment, credit or running balance account surplus against a tax debt that is a business activity statement (BAS) amount unless that amount is due and payable.
Context of amendments
6.2 This Schedule implements Recommendation 39 of the Board of Taxation's Review of the Legal Framework for the Administration of the Goods and Services Tax .
6.3 Under the current law, entities are required to notify a number of their business tax liabilities (for example, goods and services tax (GST), wine equalisation tax, luxury car tax and fuel tax credits) to the Commissioner by lodging a BAS. Those debts and any credit entitlements and payments made are usually all recorded on one running balance account. Currently, it is mandatory to apply payments, credits or running balance account surpluses against a tax debt that is a BAS amount even if it is due but not yet payable.
6.4 These application rules, in their current form, produce inappropriate outcomes in some circumstances and can give rise to compliance costs for entities in determining how the Commissioner has treated their refund. For example, where an entity has made a payment in respect of a tax debt that is a BAS amount, unaware that their income tax refund has been applied against the BAS amount, the overpaid amount will have to be refunded.
6.5 Additionally, in cases where there is use of a GST joint venture, a GST joint venture operator, in accounting for the activities of the GST joint venture, may have credits applied against any tax debts in the GST joint venture operator's own running balance account. Although the activities of each GST joint venture that a GST joint venture operator undertakes can be treated separately for running balance account purposes, applying any credits or refunds against any tax debts in the GST joint venture operator's own running balance account unnecessarily increases complexity.
6.6 The purpose of this amendment is to reduce compliance costs and unnecessary complexity for taxpayers.
Summary of new law
6.7 This Schedule ensures that it will not be mandatory for the Commissioner to apply a payment, credit or running balance account surplus against a tax debt that is a BAS amount unless that amount is due and payable.
Comparison of key features of the new law and current law
| New law | Current law |
|---|---|
| It will not be mandatory for the Commissioner to apply a payment, credit or running balance account surplus against a tax debt that is a BAS amount unless that amount is due and payable. | It is mandatory for the Commissioner to apply payments, credits or running balance account surpluses against a tax debt which is a BAS amount even if it is due but not yet payable. |
Explanation of new law
6.8 This Schedule allows the Commissioner to decide not to apply a payment or credit against a tax debt that is due but not payable, including a tax debt that is a BAS amount. [ Schedule 6, item 1, paragraph 8AAZL(3)(a) ]
Example 1.1: Discretion to apply amounts on the running balance account
Cameron lodges a BAS for the September 2010 quarter on 4 October 2010, notifying an entitlement to a GST refund and a liability to pay as you go (PAYG) instalments. The amount of the GST refund is smaller than the liability to PAYG instalments.
In this circumstance the Commissioner's normal practice will be to apply the GST refund against the PAYG instalments. However, the Commissioner will have, where it is appropriate to do so, the ability to not apply these amounts before the due and payable date.
6.9 A GST joint venture operator may have more than one running balance account in relation to its GST obligations. One running balance account may record its GST obligations in relation to its own activities and another running balance account may record its GST obligations in relation to the activities of the GST joint venture. If there is a credit on the running balance account recording the joint venture activities and a tax debt on the running balance account recording the joint venture operator's own activities, then the Commissioner may choose not to automatically have the credit on one running balance account apply against tax debts on the other running balance account where those tax debts are due but not yet payable.
Example 1.2: Discretion not to apply amounts on the running balance account
Oliver is registered for GST and notifies his GST obligations in relation to two activities, one in relation to his own activities and the other as an operator for a GST joint venture's activities. The Commissioner maintains separate running balance accounts for these activities under Oliver's Australian Business Number. One running balance account will record Oliver's BAS obligations (including GST) in relation to his own activities. The other running balance account will record Oliver's GST obligations in relation to the GST joint venture's activities.
As Oliver is going on holidays in January 2011, he decides to account for his GST obligations relating to his own activities and the GST joint venture by lodging early BASs. This is done in the December 2010 quarter. The BAS for the joint venture contains a credit arising from the acquisitions or supplies Oliver has made on behalf of the joint venture participants. The BAS for Oliver's own activities contains a fringe benefits tax debt. The joint venture credit will not be applied automatically against the tax debt on Oliver's own running balance account because the Commissioner decides not to apply it as the debt is due, but not yet payable, until 28 February 2011.
Application provisions
6.10 This measure will apply in applying amounts on the running balance account on or after 1 July 2011.