Supplementary Explanatory Memorandum & Correction to the Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 1 - Technical amendments
1.1 This Chapter explains amendments to A New Tax System (Tax Administration) Bill (No. 2) 2000 to clarify particular aspects of the:
- provision of tax services by registered tax agents and lawyers;
- delivery of BAS services by members of a recognised professional association from 1 July 2000; and
- administrative penalty regime and approved form provisions so that those areas of the law operate as intended.
1.2 This Chapter also explains amendments being introduced to previously enacted areas of the law to support the new tax system from 1 July 2000. These amendments include:
- an extension to the provisions in the ITAA 1997 which provide an immediate write-off of GST-related expenditure;
- an exclusion for wholly input taxed supplies from the no ABN withholding event in the PAYG withholding provisions in Schedule 1 to the TAA 1953; and
- a modification to the application provisions of the standardised collection and recovery rules in Schedule 1 to the TAA 1953.
1.3 The Bill as introduced provides the legislation necessary for a uniform administrative penalty regime to cover the taxation laws administered by the Commissioner. It also consolidates the current income tax and FBT arrangements which deal with registered tax agents, and provides a regime for people other than registered tax agents to prepare and lodge a BAS and advise on BAS matters.
1.4 Concerns have been expressed by tax practitioners that the provisions in this Bill do not reflect the current arrangements. Amendments are being made to address those concerns and further clarify the new arrangements. Some minor technical amendments are also being made to the proposed administrative penalty regime and the provisions relating to approved forms.
1.5 The amendments being made in relation to deductibility of GST-related expenditure, the no ABN withholding event and the standardised collection and recovery rules are necessary to ensure a smooth transition to the new tax system from 1 July 2000.
1.6 The amendments will generally apply from 1 July 2000. Amendments relating to FBT matters will apply from 1 April 2001.
1.7 Section 284-15 of the administrative penalty regime in Schedule 1 to this Bill currently provides that a matter is reasonably arguable if 'what is argued for is as likely to be correct as incorrect'. Although a commonsense approach would imply that a position on the application of the law is reasonably arguable where 'it is more likely correct than incorrect', the concept is being clarified by expressly referring to such a position. Paragraphs 1.20 to 1.29 of the explanatory memorandum to this Bill provide a detailed explanation of the reasonably arguable standard.
1.8 A shortfall amount under section 284-80 includes an amount of an overclaimed credit under a tourist refund scheme in Division 168 of the GST Act. This amendment will ensure that the section also includes an overclaimed credit under a tourist refund scheme in Division 25 of the WET Act.
1.9 Section 284-145 deals with the liability to an administrative penalty in relation to schemes. Subparagraph 284-145(1)(b)(ii) is amended to refer to the principal effect of a scheme under Division 165 of the GST Act.
1.10 Division 284 imposes an administrative penalty where there is a shortfall amount or a scheme shortfall amount. In certain circumstances, some shortfall amounts may be reduced. Under subsection 284-215(2) the shortfall amount resulting from a statement that is false or misleading is reduced where the taxpayer, or the taxpayer's agent, took reasonable care in making the statement.
1.11 This amendment to subsection 284-215(2) clarifies that the shortfall amount is reduced only for the purposes of calculating the administrative penalty. The reduction in the shortfall amount does not reduce the amount of the underlying tax liability.
1.12 This amendment will align the FBT instalment variation threshold with the PAYG instalment variation threshold at 85%. It will allow taxpayers a wider variation discrepancy on estimated FBT payable before the general interest charge is imposed.
1.13 This amendment corrects the date from which the current penalty provisions in the FBTAA 1986 cease to operate. That is, they will not apply to the FBT year commencing 1 April 2001 as this is when the new penalty regime will apply to FBT matters.
1.14 This amendment corrects the note in section 119 of the FBTAA 1986 that refers to section 251L of the ITAA 1936 for rules prohibiting unregistered or excluded people from charging a fee for tax agent services.
1.15 This amendment makes a minor correction to the definition of 'BAS provisions' in section 251A of the ITAA 1936.
1.16 The definition of a taxation law in section 251A of the ITAA 1936 is being amended to exclude certain Acts. The definition in the Bill refers to the tax dictionary which includes all Acts for which the Commissioner has general administration. The amendment will clarify that the registered tax agent provisions do not apply to excise and diesel fuel rebate matters for which the Commissioner has responsibility under a delegation from the Chief Executive Officer of Customs. The amendment will also exclude diesel fuel grant and sales tax matters from the tax agent restrictions. This will clarify that sales tax consultants, licensed customs brokers and other indirect tax law consultants can continue to provide those services without having to be registered as tax agents.
1.17 Subsection 251L(8) is being introduced into the ITAA 1936 by Schedule 2 to the Bill to exclude certain services provided by legal practitioners from the tax agent rules. This provision will replace subsection 251L(4) of the ITAA 1936 and subsection 119(2) of the FBTAA 1986 which permit a solicitor or counsel (who is not a registered tax agent), while acting in the course of his or her profession, to:
- prepare any objection;
- undertake litigation or proceedings before a board, the AAT or a court;
- act in an advisory capacity in connection with the preparation of any income tax return, FBT return or FBT objection; or
- act in an advisory capacity in connection with any income tax or FBT matter.
1.18 Concerns have been raised by legal practitioners that the Bill will limit these services and compromise their ability to represent taxpayers, despite subsection 251L(8) which allows legal practitioners to undertake all these services. Nevertheless, it is being amended to clarify that solicitors and barristers, acting in the course of their profession, can deal with the Commissioner in relation to giving advice about taxation laws and certain other services for which they are permitted to charge a fee.
1.19 Legal practitioners will be able to prepare or lodge a notice, application or other document on behalf of taxpayers about a liability under a taxation law. However, they are not permitted to prepare or lodge tax returns or activity statements, except in the capacity of the trustee or legal personal representative for a trust or a deceased estate. The amendments also clarify that, although there are rights conferred upon them by various state and territory laws, solicitors and barristers are able to undertake litigation or proceedings about taxation matters.
1.20 Legal practitioners have also expressed concern that the Bill will allow registered tax agents (who are not lawyers) to give legal advice about taxation laws. This is against a background where subsection 251L(1) of the ITAA 1936 and subsection 119(1) of the FBTAA 1986 currently allow registered tax agents to advise taxpayers in relation to preparing tax returns and objections, and to transact any business in income and FBT matters. To avoid any uncertainty about what constitutes legal advice, the amendments will remove the references to 'legal'.
1.21 Further consideration of what advice can be provided by registered tax agents, legal practitioners, accountants and other advisers will be undertaken as part of a review of tax agent services, as explained in paragraphs 2.21 to 2.22 in the explanatory memorandum to the Bill. Until that review is completed, these amendments will allow current practices in relation to giving advice on tax matters to continue to operate as well as provide a basis for certain other people to provide BAS services under the new tax system from 1 July 2000.
1.22 Under the amendments in Schedule 2 to the Bill, paragraph 251L(1)(c) of the ITAA 1936 restricts preparing or lodging an objection to an assessment on behalf of a taxpayer to registered tax agents. Legal practitioners are excluded from this restriction by virtue of paragraph 251L(8)(b). This amendment will expand the scope of tax agent services to all objections covered by Part IVC of the TAA 1953, that is, objections against assessments, private rulings and remission decisions under 'taxation laws', as defined. Legal practitioners will also be allowed to object against all these matters on behalf of their clients.
1.23 Schedule 2 to the Bill introduces subsection 251L(6) into the ITAA 1936 to allow certain people to provide BAS services for a fee, without the need to be a registered tax agent or excluded by the legal practitioner provisions. Subsection 251L(6) will enable members of an RPA, bookkeepers working under the direction of registered tax agents and payroll bureaus to assist businesses with their obligations under the new tax system.
1.24 Most RPAs have several categories of membership, including members who are studying for relevant qualifications and members who have retired from practice. The Bill currently allows any member of an RPA to provide BAS services. Paragraph 251L(6)(a) will be amended to prevent student members and retired members from undertaking BAS service work.
1.25 Licensed customs brokers will be providing certain indirect tax law work that is ancillary to their customs services. An amendment is being made to allow them to undertake BAS services but only so far as it relates to importations or exports of goods relating to GST, LCT or WET.
1.26 This amendment will modify the meaning of an RPA in section 251LA to broaden the eligibility criteria for RPA status. An organisation that is not established as a professional body but has a role in providing education, information and training about taxation laws will be able to qualify for RPA status under the amended criteria. This will expand the number of people who can provide BAS services by allowing tax practitioners who are not members of the professional bodies, but who are members of taxation practitioner bodies that have an educative or training role, to provide BAS services.
1.27 Subsection 251LA(5) in Schedule 2 to the Bill deals with the requirement for a member of an RPA to hold certain qualifications. An amendment is being made to exclude student members of RPAs from this rule so that an organisation with student members can still be an RPA. Another amendment is being made to permit organisations to satisfy the requirement in paragraph 251LA(5)(c) where the organisation has members who are exempt from holding certain qualifications. For example, this would apply to long-serving members of professional bodies who obtained membership prior to the body requiring members to hold qualifications.
1.28 These amendments make minor corrections to the provisions of subsection 251LA(6) in Schedule 2 to the Bill, relating to the continuing professional excellence and conduct requirements of an RPA.
1.29 Section 995-1 of the ITAA 1997 is amended to remove references to section 251L of the ITAA 1936 from the Dictionary definition of 'recognised tax adviser'.
1.30 Division 388, which deals with requirements about giving material to the Commissioner, is introduced into Schedule 1 to the TAA 1953 by Schedule 2 to the Bill. An important element of these requirements is the concept of an approved form. The provisions relating to approved forms will apply to returns and other material to be provided to the Commissioner for the 2000-2001 year. This amendment will ensure that all amendments relating to approved forms will commence to apply on the same date.
1.31 This amendment corrects the date on which the approved forms provisions will commence to apply to FBT matters. That is, they will apply for the year commencing 1 April 2001.
1.32 This amendment will modify the definition of 'BAS provision' in the Dictionary in section 995-1 of the ITAA 1997 to insert the term 'sales tax law'. The term has the same meaning as in section 5 of the STAA 1992. This amendment will enable sales tax credits to be an amount to which the delayed refund interest provisions apply under Part IIIAA of the TAA 1953.
1.33 Part 4-15 in Schedule 1 to the TAA 1953 contains standardised rules for the collection and recovery of tax-related liabilities and other amounts. These rules will generally apply from 1 July 2000. In particular, it was intended that the procedural and evidentiary rules would apply to all recovery proceedings after 1 July 2000.
1.34 The application provisions of the A New Tax System (Tax Administration) Act 1999 provide for these rules to apply to continuing proceedings which were commenced before 1 July 2000, and to new proceedings for tax-related liabilities arising on or after 1 July 2000. However, the application provisions did specifically not address those proceedings which commence on or after 1 July 2000 for tax-related liabilities arising before that time.
1.35 This amendment ensures that the new procedural and evidentiary rules will apply to these proceedings. The standardised rules will then apply to all recovery proceedings on or after 1 July 2000.
1.36 The Parliament has already enacted an immediate income tax deduction for small and medium sized businesses for expenditure incurred between 1 July 1999 and 30 June 2000 in acquiring or upgrading plant or software to prepare for the GST. The deduction is available where the annual turnover of an entity (including any connected entities) does not exceed $10 million.
1.37 Under the current legislation, it is a precondition for the immediate write-off that before 1 July 2000 a taxpayer use the plant or software, or install it ready for use, to produce assessable income. Where a taxpayer is acquiring plant, it is also necessary that the taxpayer becomes the owner before 1 July 2000.
1.38 It was announced in Treasurer's Press Release No. 40 of 23 May 2000 that these conditions will be relaxed.
1.39 A taxpayer will qualify for the immediate deduction if the taxpayer enters into a contract to purchase the plant or software before 1 July 2000. A taxpayer that is making or upgrading plant or software 'in-house' will also qualify if it incurs the expenditure before 1 July 2000. Consequently, it will not be necessary that the taxpayer has paid for the plant or software by that date. [Schedule 4A, items 1 to 3, 6, 11 and 12, subsections 25-80(1) and 42-168(1) of the ITAA 1997]
1.40 To protect the extension of the concession against possible abuse, before 1 July 2001 taxpayers will have to use the plant or software (or install it ready for use) to produce assessable income. For a taxpayer acquiring plant, it will also be necessary that the taxpayer become the owner before 1 July 2001. If a taxpayer has already obtained an immediate deduction in an assessment but fails to satisfy these conditions, the Commissioner can amend the assessment to disallow the deduction. [Schedule 4A, items 4, 7 and 12, subsections 25-80(1) and 42-168(1)]
1.41 There will also be a technical amendment of section 25-80, which covers expenditure on upgrading plant to prepare for the GST. This amendment will ensure that the immediate deduction is only allowable to the extent that the taxpayer uses the upgraded plant to produce assessable income. The acquisition of plant or software and the upgrading of software are covered by the depreciation provisions which, under section 42-170, already reduce the deduction allowable to the extent that the plant or software is not used to produce assessable income (e.g. if it is used for private purposes). [Schedule 4A, item 9, subsections 25-80(4) and (5)]
1.42 The extension of the concession to apply where a taxpayer has not acquired the plant or software by 30 June 2000 has necessitated supplementary rules about plant or software not used exclusively to produce assessable income. Where the taxpayer does not yet have the plant or software at 30 June 2000, any reduction in the deduction for non-income producing use will be determined by what can reasonably be expected at 30 June 2000. [Schedule 4A, items 9 and 16, subsections 25-80(5), 42-170(4) and (5)]
1.43 The A New Tax System (Pay As You Go) Act 1999 introduced the new PAYG withholding system into the TAA 1953 for the collection of income tax. An element of the system is the no ABN withholding obligation provided in section 12-190 of Schedule 1 to the TAA 1953. Under that provision, an enterprise is required to withhold from a payment for a supply of goods or services by another enterprise where the supplier does not quote its ABN (unless one of the exceptions applies).
1.44 Section 12-190 of Schedule 1 to the TAA 1953 is being amended to exclude from its operation supplies which are wholly input taxed under the GST legislation. The amendment will ensure that the no ABN withholding event does not apply to those transactions in respect of which it produces minimal compliance benefit and places an unnecessary burden on taxpayers. Input taxed supplies include those related to financial services, residential rent and sales of residential property, precious metals and supplies by tuckshops as well as those specified by particular Acts. [Schedule 3, item 8A, paragraph 12-190(4)(d)]
1.45 This amendment will support amendment 28 by inserting the term 'input taxed' into the Dictionary in section 995-1 of the ITAA 1997. The term will have the same meaning as in the GST law.