House of Representatives

A New Tax System (Tax Administration) Bill 1999

Explanatory Memorandum

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

Chapter 4 - Payment, ABN and identification verification system


4.1 Schedule 4 to this Bill will introduce new Part 5-30 into Schedule 1 of the TAA 1953 to establish a transaction reporting, ABN and identification verification system aimed at improving compliance with the taxation laws. The system is intended to be used in areas where non-compliance with the taxation laws is entrenched. The main objective of the new system is to ensure that business participants meet their tax obligations and that any current or future competitive advantage resulting from non-compliance is minimised.

4.2 The new compliance system, aspects of which were foreshadowed in ANTS, will contain 4 components each of which will be able to apply to payments for supplies which are specified in regulations.

4.3 Components of the new compliance system will only be used in areas where there is entrenched non-compliance and when the Government is convinced that it is necessary.

4.4 Abbreviations used thoughout this Chapter are summarised in the glossary following the Table of contents for this Explanatory Memorandum.

Summary of the legislation

Purpose of the amendments

4.5 The purpose of the amendments is to provide a legislative framework for the application of one or more of 4 components of a new compliance payment and identification system. The framework enables specific components to be activated, by specifying payments in the regulations, depending on the nature of the non-compliance.

4.6 The specified payments will cover targeted areas or particular industries when it can be shown that tax evasion is occurring or is suspected. Each component may operate independently from or in combination with other components. The components include:

transaction reporting by purchasers;
transaction reporting by suppliers;
verification of a supplier's ABN by a purchaser; and
verification of a supplier's identity by a purchaser.

4.7 It is envisaged that the proposed system will be responsive to areas of non-compliance. It is also expected that the system will be able to operate within a changing technological environment.

4.8 The verification components are designed to support the application of the no ABN withholding event under the PAYG withholding system introduced in the PAYG Bill. This support will come through targeted purchasers being better informed as to whether an ABN quoted on a supplier's invoice is in fact the supplier's ABN.

4.9 Section 12-190 of the new PAYG Bill requires a purchaser to withhold an amount from a payment made to a supplier where no ABN is quoted or there is doubt that the ABN quoted by the supplier is the supplier's ABN.

Date of effect

4.10 The new compliance system will operate from 1 July 2000 and will be able to apply to certain payments which are specified in regulations. [Item 2 of Schedule 4]

Background to the legislation

4.11 The Government has foreshadowed, as part of its tax simplification strategy, the need to reduce compliance costs incurred by businesses in the industries in which reporting systems currently operate. At the same time, there is also a need to ensure compliance with the taxation laws.

4.12 The introduction of a targeted reporting and verification system is considered to be an appropriate response to address systematic tax evasion in high risk areas and improve compliance with the taxation laws. This approach will be more flexible in its application than the current PPS and RPS arrangements thereby reducing compliance costs.

4.13 The linkage to the no ABN withholding event will also assist purchasers to comply with the no ABN withholding event in the PAYG Bill and help ensure the integrity of the new tax system.

Explanation of the amendments

4.14 The amendments contained in Schedule 4 to this Bill to introduce the new compliance system are in 2 Parts. Part 1 of Schedule 4 introduces new Part 5-30 of Schedule 1 of the TAA 1953. Part 2 of Schedule 4 contains the application item governing the new system. [Items 1 and 2]

4.15 Where not specifically stated, legislative references throughout this Chapter (eg. new Divisions, sections, subsections and paragraphs) in relation to the new compliance system are references to provisions in new Part 5-30 of Schedule 1 to the TAA 1953.

The new payment, ABN and identification verification system

4.16 The new compliance system, incorporating the 4 components, will be contained in new Part 5-30 and structured as follows:

Component Division Sections Element
All 400 Guide to Part 5-30
1 405 Transaction reporting by purchasers
405-5      Payments to which this Division applies
405-10      Reporting requirements
405-15      Invoices produced by purchasers
2 410 Transaction reporting by suppliers
410-5      Payments to which this Division applies
410-10      Reporting requirements
410-15      Invoices produced by purchasers
3 415 Verification of suppliers' ABNs by purchasers
415-5      Payments to which this Division applies
415-10      ABN verification requirements
415-15      Method of obtaining ABN verification
415-20      Verification applies to later payments
4 417 Verification of suppliers' identities by purchasers
415-5      Payments to which this Division applies
415-10      Identity verification requirements
415-15      Method of obtaining identity verification
415-20      Verification applies to later payments
All 420 Penalties for not reporting or verifying
420-5      Failing to report or verify: civil penalty
All 425 Other matters
425-20      Constructive payment
425-25      Non-cash benefits
425-30      Amounts to be expressed in Australian currency

Features of the new system

4.17 The various components of the new system contain similar elements to ensure their operation. This particular structure has been selected so as to provide maximum flexibility from an administrative perspective. Unlike the current reporting elements of the RPS, PPS and PAYE systems, each of the 4 components of the new system will be capable of application to specific payments.

4.18 Further, the requirements in relation to those payments will be tailored, if necessary, to suit specific purchasers/suppliers covered by particular payments. Features of the new system are explained at paragraphs 4.19 to 4.29.

Payments affected

4.19 For a payment to come within a component of the new reporting and identity verification system it must be specified in regulations made for the purpose of each section governing that component. [New subsections 405-5(1), 410-5(1), 415-5(1) and 417-5(1)]

4.20 As noted in the Overview of this Chapter, payments will only be subject to the new system when the Government is satisfied there is evidence of tax evasion in a particular industry.

Flexibility as to reporting and verification requirements

4.21 The Government recognises the additional cost through requiring taxpayers to comply with various aspects of the taxation laws. In the RPS and PPS for example, a one in all in type approach has been adopted in a specific industry to enable the Commissioner to ensure that taxpayers within an industry are meeting their obligations.

4.22 Such an approach can add additional compliance costs on taxpayers who are fully complying with the laws. The new system will address those situations by trying to better target non-complying areas within an industry and by recognising that business practices can vary considerably between industries. The new system also allows the obligations to be tailored to minimise compliance costs.

Transaction reporting by purchasers and suppliers

4.23 To achieve a more targeted approach, each reporting component will allow the Commissioner to vary specific requirements in relation to a purchaser/supplier or class of purchaser/supplier. [New subsections 405-10(4) and 410-10(4)]

Verification of suppliers' ABNs and identities

4.24 New subsections 415-15(1) and 417-15(1) will provide that the verification procedures for the components covering a supplier's ABN and a supplier's identity will be as determined, in writing, by the Commissioner. The Commissioner will issue administrative guidelines covering these verification procedures.

4.25 In relation to ABN verification, the procedure may not involve the Commissioner. For example, it may be appropriate for a purchaser to access the Australian Business Register (eg. via the internet if available) to verify that the ABN provided on an invoice is entered on the Register with the name of the supplier.

Variations remaining in force

4.26 A purchaser will generally only have to verify a supplier's ABN or identity once. New subsections 415-20(1) and 417-20(1) provide that a verification will continue to apply until 2 years has elapsed during which no further payments are made.

Penalties under the new system

4.27 New section 420-5 will introduce a civil penalty of 20 penalty units for when purchasers and suppliers fail to meet their respective reporting and verification requirements.

4.28 New Division 298 which is being introduced into the TAA 1953 by Schedule 12 to this Bill provides general machinery provisions to govern the notification, due dates for payment, remission and GIC in relation to civil penalties imposed on entities under a taxation law and which are expressed as penalty units.

Other matters

4.29 New Division 425 contains provisions covering other matters such as constructive payment, non-cash benefits and the expression of amounts in Australian currency.

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