House of Representatives

Taxation Laws Amendment Bill (No. 1) 1996

Explanatory Memorandum

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

Chapter 1 Provisional tax uplift factor


1.1 Part 1 of Schedule 1 of the Bill proposes to amend subsection 221YA(1) of the Income Tax Assessment Act 1936 (the Act) so that a provisional tax uplift factor of 6 per cent will be used in ascertaining provisional tax payable (including instalments) for the 1996-97 year of income, and 10 per cent for later years of income, until the Parliament otherwise provides.

Summary of the amendments

Purpose of the amendments

1.2 The purpose of the amendments is to reduce the provisional tax uplift factor to 6 per cent for the 1996-97 year of income.

Date of effect

1.3 The amendment will apply in relation to the calculation of provisional tax (including instalments) payable for the 1996-97 year of income. [Item 2]

Background to the legislation

1.4 The amount of income subject to provisional tax for a year is obtained by uplifting the preceding year's taxable income by the provisional tax uplift factor. Provisional tax is then calculated by applying the tax rates and Medicare levy to the uplifted income, and allowing for rebates and credit entitlements (such as tax instalments deducted) which are expected to be claimed or allowed in the provisional year of income (section 221YCAA).

1.5 The level of the uplift factor is intended to be a reasonable reflection of the growth in income of provisional taxpayers. This growth cannot be predicted with accuracy so it is preferable not to place undue emphasis on a specific forecast or estimate in setting the factor. Matters such as inflation effects are taken into account. The factor is intended, on average, over time and across taxpayers, to reflect the expected increase in provisional income.

1.6 The uplift factor for the calculation of 1995-96 provisional income currently stands at 8 per cent (definition of 'provisional tax uplift factor' in subsection 221YA(1)), and for subsequent years of income, 10 per cent. The policy document 'A New Deal for Small Business' announced that the uplift factor of 8 per cent will be reduced to 6 per cent for the purpose of calculating 1996-97 provisional tax.

Explanation of proposed amendments

1.7 This amendment to the definition of provisional tax uplift factor is to provide for the existing definition of 'provisional tax uplift factor' contained in the Act to be repealed and replaced so that the factor of 6 per cent is applicable for the 1996-97 year of income and, until the Parliament otherwise provides, 10 per cent for later years of income. [Item 1]

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