Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 2 - Collection and recovery rules
2.1 Schedule 2 to this Bill will introduce new Part 4-15 into Schedule 1 to the TAA 1953 to establish standardised rules which will enable the Commissioner to collect and recover tax-related liabilities which:
- arise under the various taxation laws for which the Commissioner has general administration; and
- remain unpaid after they become due and payable.
2.2 The standardised rules, together with amendments to ensure their application from 1 July 2000, are contained in Part 1 of Schedule 2 to this Bill. Parts 2 and 3 of Schedule 2 to this Bill contain the consequential and savings provisions which are necessary to either cease or modify the application of existing collection and recovery rules so that there will be a smooth transition to the new standardised rules from 1 July 2000.
2.3 The standardised collection and recovery rules represent a consolidation of features of the existing recovery provisions throughout the various taxation laws and, as such, do not reflect any significant change to existing policy. Examples of areas where variations have been necessary in moving to a standard rule are explained at paragraphs 2.39 to 2.52.
2.4 Abbreviations used throughout this Chapter are summarised in the glossary following the Table of contents for this Explanatory Memorandum.
Purpose of the amendments
2.5 The purpose of the amendments is to introduce standardised collection and recovery provisions which will:
- eliminate the duplication of these provisions across the different taxation laws administered by the Commissioner;
- remove inconsistencies in those provisions;
- achieve greater efficiencies in the collection of outstanding tax liabilities. For example, the Commissioner will be able to proceed to recover multiple taxation liabilities under one legislative provision rather than the multiple recovery provisions which currently exist; and
- align the collection and recovery procedures with other reform initiatives which involve integrated accounts to record and monitor outstanding debts which will be recovered either as individual debts or as an RBA deficit debt.
2.6 Because the standardised collection and recovery rules are replacing the operation of the existing recovery provisions throughout the taxation laws, there is a need to ensure the existing recovery rules cease to apply so that future recovery actions can, as far as possible, be governed by the new provisions being introduced in this Bill. Amendments to achieve this outcome in relation to the more essential existing recovery rules are in Parts 2 and 3 of Schedule 2 to this Bill. If necessary, amendments will be introduced in a later Bill to complete the transition.
Date of effect
2.7 The standardised collection and recovery rules will generally apply from 1 July 2000 to all tax-related liabilities which exist on 1 July 2000, whether or not those liabilities have arisen before, on, or after that day. [Item 2 of Part 1 of Schedule 2]
2.8 Specific consequential and savings provisions to other Acts administered by the Commissioner, required in order to ensure a smooth transition to the standardised collection and recovery rules, are contained in Parts 2 and 3 of Schedule 2 to this Bill.
2.9 Currently, each taxation law contains its own collection and recovery provisions. The ITAA 6 has several sets of collection and recovery rules which have evolved as new tax obligations have been introduced. For example, Part VI of the ITAA 6 contains separate Divisions to provide for the collection and recovery of income tax debts and other debts arising under different withholding systems such as the PAYE, PPS and RPS systems.
2.10 Many of the recovery provisions in Divisions in Part VI of the ITAA 6 are identical or similar in effect and result in a significant amount of duplication. In addition, there are also different provisions to achieve the same outcome but which vary, in various degrees, in structure and content.
2.11 The standardised collection and recovery rules will generally apply when tax-related liabilities remain unpaid after their due date for payment. Existing provisions in the different taxation laws which specify when a tax debt is due and payable are not affected by these amendments.
2.12 The standardised collection and recovery rules in new Part 4-15 will comprise:
- general rules about the collection and recovery of all tax-related liabilities. These rules cover variation of due dates for payment and court proceedings;
- specific rules about the collection and recovery of a person's tax-related liabilities from third parties, e.g. liquidators, receivers, agents and trustees of the estate of a deceased person. The third party rules also cover the collection of money from a person who owes money to a person who has a tax-related liability; and
- other supporting matters such as the right of a person to recover from another person an amount paid in discharge of a tax related liability.
2.13 The amendments contained in Schedule 2 to this Bill to introduce the standardised collection and recovery rules are explained in the following Sections:
Section 1 Standardised collection and recovery rules
Section 2 Application, consequential and savings-provisions
Section 3 Finding tables
2.14 Where not specifically stated, legislative references throughout this Chapter (e.g. new Divisions, sections, subsections and paragraphs) in relation to the standardised collection and recovery rules are references to provisions in new Part 4-15 of Schedule 1 to the TAA 1953.
2.15 The explanation for the amendments, which will be in new Part 4-15 of Schedule 1 to the TAA 1953, to introduce the standardised collection and recovery rules is provided in the following Parts:
Part 1 Structure of the new collection and recovery provisions
Part 2 Standardising existing collection and recovery provisions
Part 3 Variations to existing collection and recovery-provisions
2.16 Item 1 of Schedule 2 to this Bill introduces the various elements of the standardised collection and recovery rules. The rules are in the following Divisions in new Part 4-15 of Schedule 1 to the TAA 1953:
|250-A||Guide to Part 4-15|
|250-B||Object of this Part|
|255||General rules about collection and recovery|
|255-B||Commissioner's power to vary payment time|
|260||Special rules about collection and recovery|
|260-A||From third party|
|260-D||From agent winding up business for non-resident principal|
|260-E||From deceased person's estate|
|265-A||Right of person to seek recovery or contribution|
|265-B||Application of laws|
2.17 The features contained in new Divisions 255 to 265 are generally present in the existing collection and recovery provisions throughout the taxation laws. The Finding tables in Section 3 of this explanation provide a comprehensive map of those provisions which identifies the legislative references to the various features.
Definitions to support the new recovery rules
2.18 Schedule 18 to this Bill will add new definitions to Chapter 6 (the Dictionary) of the ITAA 1997 to support the interpretation of the standardised collection and recovery rules. The new definitions include tax-related liability , outstanding tax-related liability and definitions of assessment and taxation law .
2.19 Proposed new subsection 3AA(2 ) [F3] provides a mechanism whereby the definitions in the Dictionary in Chapter 6 of the ITAA 1997 apply to Schedule 1 to the TAA 1953, which contains the legislative provisions governing the PAYG system and the standardised collection and recovery provisions being introduced by this Bill.
2.20 The paragraphs in this Part explain some of the features of the new provisions and some aspects of the standardisation process.
Guide material and new concepts
2.21 New Division 250 is the introduction to new Part 4-15 . It contains new Subdivision 250-A which is the Guide to new Part 4-15 . The Subdivision introduces and explains some important concepts about a tax-related liability that is defined in new section 255-1 . The Subdivision contains 2 tabular indexes of different types of liabilities which arise throughout the various taxation laws and that would fall within the definition of tax-related liability. The 2 tables in new section 250-10 summarise those occurrences in the ITAA 6 and in other Acts respectively.
2.22 The tables in new section 250-10 also specify the relevant provisions which provide for when those liabilities become due and payable. It is at this time that the new standardised collection and recovery provisions will generally apply in relation to those liabilities.
2.23 Subsection 950-150(2) of the ITAA 1997 explains that a Guide is separate from the operative provisions. However, in interpreting an operative provision, a Guide can be considered in a number of ways, including determining the purpose or object underlying the provision or clarifying ambiguity.
2.24 As mentioned in the Background to the legislation in this Chapter, the provisions in the various taxation laws which specify the time for payment of a tax-related liability are not affected by the introduction of the new rules. Rather, they will generally become the trigger for when the standardised collection and recovery rules apply.
2.25 Example 2.1 shows the interaction between an existing due and payable provision, section 204 of the ITAA 6, and the standardised collection and recovery provisions. Section 204 is identified as item 55 in the table contained in new subsection 250-10(1) of tax-related liabilities in the ITAA 6. The table entry clarifies that income tax includes liabilities taken to be income tax (e.g. penalties and HECS debts) for the purposes of section 204.
Example 2.1 Where income tax has been assessed under Part IV of the ITAA 6, section 204 specifies that the assessed amount is due and payable on a date specified in a notice of assessment, not being less than 30 days after the service of the notice, or, if no date is specified, the 30th day after the notice was served. New subsection 255-5(2) will allow the Commissioner to sue in a court to recover the liability when the amount remains unpaid after it becomes due and payable.
Object of new Part 4-15
2.26 New Subdivision 250-B deals with other preliminary matters. New section 250-25 explains the object of new Part 4-15: to ensure that unpaid amounts are collected or recovered in a timely manner.
Variation of payment time
2.27 New Subdivision 255-B contains 3 provisions which facilitate the collection and recovery of tax-related liabilities through a variation of payment time. Notes are provided to each provision to explain how application of the provisions interacts with the GIC on liabilities which remain unpaid after they become due and payable. [New sections 255-10, 255-15 and 255-20]
2.28 As with other provisions in the standardised collection and recovery rules, the Finding tables in Section 3 of this explanation provide the appropriate reference to the provisions in the different taxation laws which will be replaced by new Subdivision 255-B .
Evidentiary certificates and the giving of evidence by affidavit in recovery proceedings
2.29 Standardising the current recovery rules has provided an opportunity to elevate some evidentiary provisions contained in the ITR 6, and other regulations, into one place in the principal legislation, thus allowing their use in proceedings for the recovery of all tax-related liabilities.
2.30 The standardised provisions covering evidentiary certificates and evidence by affidavit are in new sections 255-45 and 255-55 . The Finding tables in Section 3 of this explanation show that these new sections will remove the need for regulations 67 and 68 in the ITR 6, and FBT regulations 16 and 17.
2.31 The new standardised provisions will continue to provide administratively convenient methods of presenting evidence to a court. As the evidence presented in an evidentiary certificate is prima facie , it will not restrict a taxpayer from presenting evidence as a defence. The new standardised provisions for evidentiary certificates and evidence by affidavit will complement the new provision for the use of averments in recovery proceedings ( new section 255-50 - see paragraph 2.43).
Special rules about collection and recovery
2.32 New Subdivision 260-A will enable the Commissioner to continue to recover outstanding tax-related liabilities of a taxpayer by giving a notice to an entity (a third party) who owes or may later owe money to the taxpayer. Section 218 is the relevant section in the ITAA 6 and the Finding tables in Section 3 of this explanation show the similar provisions in other taxation laws that are being standardised.
2.33 Current administrative arrangements result in separate notices being issued under each provision for a particular liability. From 1 July 2000, one notice will issue under new subsection 260-5(2) in respect of multiple tax-related liabilities of a person.
2.34 Item 4 of Part 1 inserts new Part 5-45 into Schedule 1 of the TAA 1953. The new Part clarifies the application of Schedule 1, including the standardised collection and recovery rules in new Part 4-15 , to entities (e.g. partnerships, unincorporated companies and superannuation funds) that are not legal persons. [New sections 444-5, 444-10 and 444-15]
Liquidators, receivers and agents
2.35 Provisions throughout the taxation laws covering liquidators, receivers and agents are generally structured so that one provision covers all 3 applications. Section 215 of the ITAA 6 provides an example of this structure. The Finding tables in Section 3 provide other examples.
2.36 The standardised provisions in new Part 4-15 for liquidators, receivers and agents are contained in new Subdivisions 260-B, 260-C and 260-D respectively. As with the notices issued under new Subdivision 260-A , from 1 July 2000 the Commissioner will be able to issue one notice in respect of multiple tax-related liabilities.
Deceased person's estate
2.37 The standardised provisions in new Part 4-15 relating to deceased estates are contained in new Subdivision 260-E . Sections 216 and 220 are the relevant sections in the ITAA 6, and the Finding tables in Section 3 show the similar provisions in other taxation laws that are being standardised.
Consequential amendments in the ITAA 6
2.38 Consequential amendments are being made in Part 2 of Schedule 2 to this Bill to provide that:
- section 215 will not apply to liquidators, receivers and agents where their responsibilities commence in relation to particular affairs on or after 1 July 2000;
- sections 216 and 220 will not apply to deceased estates where the death occurred on or after 1 July 2000; and
- notices cannot be issued under section 218 on or after 1 July 2000.
[Items 28 to 31]
2.39 Having one standard rule for each particular aspect of collection and recovery has required some minor variations to aspects of the current specific recovery provisions throughout the different taxation laws. In some cases, the standardised collection and recovery provisions will fill gaps that exist in the various recovery provisions throughout the taxation laws.
2.40 The Finding tables in Section 3 provide an overview of where gaps currently exist in the different laws. Evidentiary certificates discussed in Part 2 above and averments discussed below provide 2 such examples.
2.41 These variations are a necessary consequence of having standardised provisions. Taxpayers should not be adversely affected by these variations. Examples of where variations have been necessary, in addition to those discussed in Part 2 above, are discussed below.
Substituted service of notice
2.42 An example of this wider application is the standardisation of the provision dealing with substituted service. The current application of section 214 of the ITAA 6 will be achieved through new section 255-40 . Section 214 currently allows the Commissioner to post the service of process to a taxpayer's last known place of business or abode in Australia. New section 255-40 proposes that the notice can be served at any Australian address of the taxpayer that is last known to the Commissioner. In practice, a taxpayer's application for an ABN or dealings with the Commissioner on other matters may disclose a more relevant address for service than the taxpayer's last known place of business.
2.43 The existing recovery provisions allow the use of averments in originating proceedings in some cases (e.g. for the recovery of amounts under the RPS, PAYE and PPS systems), but not others (e.g. for the recovery of assessed tax liabilities). New section 255-50 will allow the use of averments in recovery proceedings for all tax-related liabilities. This will complement the standardised rule in new section 255-45 which allows the use of evidentiary certificates in proceedings for the recovery of all tax-related liabilities.
2.44 The new standardised provisions will continue to provide administratively convenient methods of presenting evidence to a court. As the evidence presented using an averment under new section 255-50 is prima facie , it will not restrict a taxpayer in presenting evidence as a defence.
General references to debts under the withholding systems
2.45 Section 215 of the ITAA 6 contains special rules in relation to recovering tax-related liabilities from specific persons such as liquidators, receivers and certain agents. Those rules, as well as the provisions in section 218 of the ITAA 6, generally refer to amounts recoverable by the Commissioner under the various withholding systems in Part VI of the ITAA 6, other than withholding under the mining withholding tax system in Division 5 of Part VI.
2.46 New Subdivisions 260-A, 260-B, 260-C and 260-D , which standardise the current rules in relation to third parties and specific persons, will cover the collection of all tax-related liabilities, including mining withholding tax along with all other PAYG withholding amounts. These tax-related liabilities are referred to in the tabular index of liabilities at item 105 of the table in new subsection 250-10(2) .
2.47 The current provisions in section 218 of the ITAA 6 and other comparable provisions such as section 56 of the SGAA 1992 currently allow the Commissioner to garnishee withdrawable shares held by members of building and similar societies. The practice of requiring members to have such shares is now infrequent and, as such, this aspect of the provisions has not been incorporated in the standardised collection and recovery provisions in new Subdivision 260-A .
Priority for recovery from estate of a deceased person
2.48 Paragraph 216(1)(d) of the ITAA 6 (and similar provisions in other taxation laws) contain a priority in favour of the Commissioner in relation to recovery from a trustee of any outstanding tax-related liabilities in relation to a deceased taxpayer. This priority currently ensures that any tax payable by the trustee has priority over all other claims on the taxpayer's estate in the trustee's hands. This priority is no longer asserted by the Commissioner in dealings with trustees of deceased estates and, as such, is not contained in new section 260-140 .
Objection rights for estate of a deceased person
2.49 Some current recovery provisions (e.g. section 72 of the STAA 1992) permit the trustee of a deceased person's estate, or a person with an interest in an unadministered estate (e.g. section 220 of the ITAA 6), to lodge an objection against an assessment of the tax payable by the estate of the deceased person. The standardised rules in new sections 260-140 and 260-145 will continue to apply to the collection and recovery of all tax-related liabilities, including tax assessed, from a deceased person's estate.
Recovery from unadministered deceased estates
2.50 The standardised rule in new section 260-150 in relation to unadministered deceased estates permits the Commissioner to authorise a person to seize and dispose of a deceased person's property to satisfy any outstanding tax-related liabilities of the person. Before the Commissioner could exercise these powers, regulations would need to be made under new subsection 260-150(2) setting out procedures for the seizure and disposal of property. The Finding tables in Section 3 show how this rule is currently included in some existing recovery provisions but not others.
Right of person to seek recovery or contribution
2.51 The sections in new Subdivision 265-A will enable a person who has paid tax for or on behalf of another person to recover from that person the amount paid [new section 265-40] . In the case of persons with a joint tax liability, the person who paid may recover the appropriate contribution from another joint taxpayer [new section 265-45] . Sections 258 and 259 are the relevant sections in the ITAA 6, and the Finding tables in Section 3 show the similar provisions in other taxation laws that are being standardised.
2.52 A person may recover, under current section 258 of the ITAA 6, in a court of competent jurisdiction, the costs of recovery of tax paid on behalf of another person. However, section 259 does not allow these costs to be recovered by a person who is a joint taxpayer. The standardised provisions remove this inconsistency.
2.53 The application provisions to support the standardised collection and recovery rules are contained in item 2 of Part 1 of Schedule 2 to this Bill. The consequential and savings provisions are in Parts 2 and 3 of this Bill respectively. These provisions are discussed in the following paragraphs.
Relationship between application, consequential and savings provisions
2.54 Subitems 2(1) to 2(10) in Part 1 of Schedule 2 specify the application rules for specific sections and the Subdivisions of new Part 4-15 . As the new provisions are continuing the collection and recovery function of provisions contained in the different taxation laws, it is important that the application provisions are read in conjunction with the corresponding consequential and savings provisions, if relevant.
General approach taken
2.55 The approach taken to achieve the transition from the current to the new standardised collection and recovery provisions for income tax-related liabilities differs slightly to that taken for other liabilities (e.g. fringe benefits, GST). In relation to income tax liabilities, this usually involves a cessation of the application of the current provisions without their repeal. This approach reflects the drafting technique that has been generally adopted in ceasing the application of particular income tax provisions. Part 2 of Schedule 2 to this Bill contains the necessary consequential amendments to ensure the transition.
2.56 In relation to other liabilities, the respective provisions are generally repealed in Part 2 and a savings provision is included, where necessary, in Part 3 to enable the provision repealed to continue to have effect as appropriate on or after 1 July 2000.
2.57 Example 2.2 shows those relationships for new section 255-5 , which provides that a tax-related liability that is due and payable is a debt due to the Commonwealth and payable to the Commissioner and can be sued for by the Commissioner in a Court. New section 255-5 is the standardised provision to replace existing provisions in all recovery areas of the various taxation laws, including sections 208 and 209 of the ITAA 6 for income tax and section 94 of the FBTAA 1986.
Subitem 2(1) in Part 1 of Schedule 2
to this Bill provides that
new section 255-5
applies in relation to an amount of a tax-related liability that becomes due and payable on or after 1 July 2000.The consequential amendments in
Part 2 of Schedule 2
to this Bill are:
2.58 Similar relationships to those discussed in example 2.2 will apply for other standardised collection and recovery provisions. Those relationships can be explained in the following two steps:
- ascertain the standardised provision in item 2 of Part 1 by referring to either the particular provision or the Finding tables in Section 3;
- locate the relevant consequential and saving provision in Parts 2 and 3 of Schedule 2.
2.59 The following paragraphs work through this approach for recovery proceedings which commenced prior to 1 July 2000.
Recovery proceedings after 1 July 2000
2.60 These proceedings will rely on both the current collection and recovery provisions and the new standardised rules. For example, a cause of action enabling the Commissioner to sue for a pre-July 2000 liability through a Court will arise under the current provisions. However, where those proceedings continue after 30 June 2000, the new standardised evidentiary and procedural rules for recovery proceedings will then apply.
2.61 Paragraph (b) of subitem 2(3) of Schedule 2 will enable the standardised provisions dealing with the service of documents and evidentiary certificates in new sections 255-40 and 255-45 to apply in proceedings which commenced before 1 July 2000.
2.62 The Finding tables in Section 3 of this Chapter show that the income tax equivalent to new section 255-40 is section 214 of the ITAA 6. The consequential amendment in item 27 of Schedule 2 provides that a process cannot be served under section 214 on or after 1 July 2000.
2.63 Part 2 of Schedule 2 to this Bill contains consequential amendments to Acts administered by the Commissioner. These consequential amendments are to ensure that certain provisions fit into and operate within the context of the standardised collection and recovery provisions.
2.64 The TAA 1953 is amended to reflect the relocation of certain collection and recovery rules from Part IIA of that Act to new Part 4-15 of Schedule 1 of that Act. [Items 86 to 92]
2.65 Item 93 of Schedule 2 replaces existing subsection 8AAZH(1) of the TAA 1953 to ensure that a due date is specified in the taxation law for payment of an RBA deficit debt. The new subsection 8AAZH(1) is referred to at item 85 of the tabular index in new subsection 250-10(2).
2.66 The Finding tables summarise the provisions in the various taxation laws which have been standardised in the development of the collection and recovery rules in new Part 4-15 of Schedule 1.
|Standardised provisions||New collection and recovery rules|
|255-5(1)||a tax-related liability that is due and payable is a debt due to the Commonwealth and is payable to the Commissioner|
|255-5(2)||the Commissioner may recover an unpaid tax-related liability in a court|
|255-10||the Commissioner may defer the time for payment of a tax-related liability|
|255-15||the Commissioner may permit payment of a tax-related liability by instalments|
|255-20||the Commissioner may, in certain cases, bring forward the time for payment|
|255-40||service of documents in certain cases|
|255-45||an evidentiary certificate is prima facie evidence of the matters stated|
|255-50||certain statements or averments are prima facie evidence|
|255-55||a person may give evidence by affidavit|
|260-A||the Commissioner may collect amounts from a third party|
|260-B||the Commissioner may collect amounts from a liquidator|
|260-C||the Commissioner may collect amounts from a receiver|
|260-D||the Commissioner may collect amounts from an agent winding up a business for a non-resident principal|
|260-140||the Commissioner may collect amounts from the trustee of a deceased person's estate|
|260-145-260-150||the Commissioner may collect amounts from an unadministered deceased estate|
|265-40||the right of recovery if another person is liable to pay the tax-related liability|
|265-45||the right of contribution if persons are jointly liable to pay the tax-related liability|
|Standard provisions||Income tax assessed||Div 1AAA Payment of RPS, PAYE and PPS||Div 1AA RPS||Div 2 PAYE||Div 3A PPS||Div 3B NRP Part VA investment||Div 4 DIRWT||Div 5 MWT||Div 6 Films||Div 6A FMD||Div 1C Company instalments||Div 3 Provisional tax|
|255-55||Reg. 68||Reg. 68||Reg. 68||Reg. 68||Reg. 68||Reg. 68||Reg. 68||Reg. 68||Reg. 68||Reg. 68||Reg. 68||Reg. 68|
|Standard provisions||FBTAA 1986||GSTAA 1999*||GSTA 1999||PRRT 1987||SCTAC 1997||SCTM 1997||SGAA 1992||STAA 1992^||TAA 1953||TCAA 1955||TPTAC 1997||WTAA 1955|
|255-5(1)||94(1)(a)||33-30||86(1)(a)||26, 27||22, 23||50(1)(a)||69||8AAZH||21(1)||17, 18||44(1)|
|255-45||Reg. 16||Reg. 18||8AAZJ#||Reg. 8||Reg. 31|
|255-55||Reg. 17||Reg. 19||Reg. 9||Reg. 35|