House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)

Glossary

This Explanatory Memorandum uses the following abbreviations and acronyms.

General outline and financial impact

Schedule 1 - Foreign resident capital gains withholding payments

Outline

Schedule 1 to the Bill amends the TAA 1953 to ensure better compliance by foreign residents with their Australian tax obligations and support the collection of tax liabilities from foreign residents.

Date of effect

Schedule 1 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October to occur after the day the Bill receives Royal Assent.

Proposal announced

Schedule 1 to the Bill fully implements the 'Increasing the integrity of the foreign resident capital gains withholding regime' measure in the 2023-2024 MYEFO.

Financial impact

Schedule 1 to the Bill is estimated to increase receipts by $150.0 million and increase payments by $5.9 million over five years from 2022-23.

All figures in this table represent amounts in $m.

Human rights implications

Schedule 1 to the Bill does not raise human rights issues. See Statement of Compatibility with Human Rights - Chapter 5.

Compliance cost impact

Schedule 1 to the Bill is expected to have a minimal impact on compliance cost comprising of a small implementation impact and small ongoing costs.

Schedule 2 - Allowing employers to make single touch payroll declarations for extended periods

Outline

Schedule 2 to the Bill reduces the administrative burden for employers reporting under STP. An employer can make a standing declaration, covering multiple lodgements, that the STP information they provide to their agent for lodging is correct, and that their agent has authority to lodge the information on their behalf. Previously, the law required an employer to lodge a declaration to their agent in relation to each STP lodgement.

Date of effect

Schedule 2 to the Bill commences the day after Royal Assent.

Proposal announced

Schedule 2 to the Bill partially implements the 'Driving Collaboration with Small Business to Reduce the Time Spent Complying with Tax Obligations' measure in the 2023-2024 Budget.

Financial impact

Nil.

Human rights implications

Schedule 2 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 5.

Compliance cost impact

This measure is expected to reduce compliance costs for employers.

Schedule 3 - Self-amendments by small and medium businesses

Outline

Schedule 3 to the Bill amends the ITAA 1936 to allow amendments to be made to the assessments of small and medium business taxpayers who apply to the Commissioner within four years after the day the Commissioner gave notice of an assessment. Extending the amendment period for such taxpayers seeks to alleviate some of the administrative and financial burdens for both taxpayers and the Commissioner.

Date of effect

Schedule 3 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October to occur after the day the Bill receives Royal Assent and applies to assessments issued after the commencement of the Schedule for income years starting on or after 1 July 2024.

Proposal announced

Schedule 3 to the Bill partially implements the 'Driving Collaboration with Small Business to Reduce the Time Spent Complying with Tax Obligations' measure in the 2023-2024 Budget.

Financial impact

Nil.

Human rights implications

Schedule 3 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 5.

Compliance cost impact

Schedule 3 to the Bill is expected to reduce the ongoing compliance costs for small and medium business taxpayers by allowing a longer amendment period, reducing instances of pursuing objection or appeals.

Schedule 4 - Reducing the use of cheques for tax refunds

Outline

Schedule 4 to the Bill amends the TAA 1953 to extend the circumstances in which the Commissioner may retain an entity's tax refund to encourage taxpayers to provide the Commissioner with valid Australian financial institution account details to facilitate the faster, safer and cheaper payment of refunds.

Date of effect

Schedule 4 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October to occur after the day of Royal Assent.

Proposal announced

Schedule 4 to the Bill partially implements the 'Driving Collaboration with Small Business to Reduce the Time Spent Complying with Tax Obligations' measure in the 2023-2024 Budget.

Financial impact

Nil.

Human rights implications

Schedule 4 to the Bill does not raise any human rights. See Statement of Compatibility with Human Rights - Chapter 5.

Compliance cost impact

The measure is expected to reduce compliance costs for taxpayers (including small businesses) as depositing cheques is a time consuming and inefficient means of receiving a tax refund as compared with electronic transfer.

Chapter 1: Foreign resident capital gains withholding payments

Outline of chapter

1.1 Schedule 1 to the Bill amends Subdivision 14-D in Schedule 1 to the TAA 1953 to modify the FRCGW regime to:

•

increase the withholding rate to 15 per cent (from 12.5 per cent); and

•

remove the threshold before which withholding applies so that disposals of relevant CGT assets by a foreign resident are subject to FRCGW requirements regardless of the market value of the CGT asset.

1.2 These amendments seek to ensure better compliance by foreign residents with their Australian tax obligations and support the collection of tax liabilities from foreign residents.

1.3 All legislative references in this Chapter are to Schedule 1 to the TAA 1953 unless otherwise specified.

Context of amendments

1.4 As part of the 2023-24 MYEFO, the Government announced that it will increase the integrity of the FRCGW regime by increasing the FRCGW rate to 15 per cent, from 12.5 per cent, and removing the threshold before which withholding applies. The threshold being removed currently exempts transactions of less than $750,000 involving either taxable Australian real property or an indirect Australian real property interest that provides company title interests. This measure complements the Government's initiatives to improve housing affordability for Australians.

1.5 The FRCGW regime, as set out in Subdivision 14-D in Schedule 1 to the TAA 1953, imposes a non-final withholding obligation on the purchaser of certain Australian real property and related interests where the property is acquired from a foreign resident vendor.

1.6 The FRCGW regime first came into effect on 1 July 2016 to:

•

assist with the collection of CGT liabilities owed by foreign residents; and

•

address low levels of compliance by foreign residents with their Australian income tax obligations.

1.7 Under the current law, if a FRCGW obligation arises, the purchaser is required to withhold from the vendor 12.5 per cent of the first element of the cost base of the CGT asset that they acquired and pay that amount to the Commissioner. The first element of the cost base of the CGT asset is usually the purchase price of the asset.

1.8 The vendor is entitled to a credit for amounts withheld upon the lodgement of an income tax return and the making of an income tax assessment. Excess credits are refundable to the vendor by the Commissioner.

1.9 However, a FRCGW obligation does not arise in relation to a CGT asset if, so far as is relevant, the market value of the CGT asset is less than $750,000 and the CGT asset is:

•

taxable Australian real property; or

•

an indirect taxable Australian real property interest, the holding of which causes a company title interest to arise.

1.10 The withholding rate was last increased to the current 12.5 per cent, from 10 per cent, and the withholding threshold was reduced to the current $750,000, from $2 million, from 1 July 2017.

1.11 The current 12.5 per cent withholding rate is increasingly falling short of assessed CGT liabilities of foreign residents in respect of income tax payable on capital gains. This reflects the upwards shifts in Australian real property valuations, particularly for residential property.

1.12 ATO data indicates a low propensity for foreign residents who have disposed of real property interests to lodge an Australian tax return unless they are in a refundable position. This highlights that where a final CGT liability is greater than an amount withheld by the purchaser, there is an incentive for foreign residents to not lodge an Australian income tax return and, in doing so, delay (and possibly avoid) the payment of their full Australian income tax liability.

1.13 Increasing the withholding rate will better support the collection of income tax liabilities and further incentivise foreign residents to lodge an Australian income tax return so their final tax liabilities can be properly assessed and collected.

1.14 By removing the threshold before which FRCGW applies, the integrity of the FRCGW regime will be increased by ensuring that amounts are withheld to cover liabilities from the disposal of certain Australian real property assets by foreign residents regardless of the market value of the underlying CGT asset. This provides for a more equitable treatment of disposals of Australian real property interests by foreign residents with respect to Australia's FRCGW regime.

Comparison of key features of new law and current law

Table 1.1 Comparison of new law and current law

Detailed explanation of new law

Increasing the withholding tax rate

1.15 Currently, if a FRCGW obligation arises in relation to the acquisition of a CGT asset from a foreign resident, the amount of withholding is 12.5 per cent of the first element of the cost base of the CGT asset. The first element of the cost base of the CGT asset is usually the purchase price of the asset. This amount may be withheld from the payment the purchaser makes to the vendor.

1.16 These amendments increase the rate of withholding to 15 per cent.

[Schedule 1, items 1 and 2, paragraphs 14-200(3)(a) and 14-205(4)(a) of Schedule 1 to the TAA 1953]

1.17 Consequently, if a FRCGW obligation arises, purchasers will need to withhold from the vendor 15 per cent of, generally, the purchase price of the CGT asset and pay the withheld amount to the Commissioner. This amount will subsequently be available to the vendor as a credit to apply to any income tax liability that arises upon the making of an income tax assessment.

Removing the withholding threshold

1.18 Currently, a FRCGW obligation does not arise in relation to a CGT asset if, so far as is relevant, the market value of the CGT asset is less than $750,000 and the CGT asset is:

•

taxable Australian real property; or

•

an indirect taxable Australian real property interest, the holding of which causes a company title interest to arise.

1.19 These amendments remove the $750,000 exclusion threshold.

[Schedule 1, items 3 to 6, subsection 14-215(1) heading, subsection 14-215(1), paragraph 14-215(1)(a) and subsections 14-215(2) and (3) of Schedule 1 to the TAA 1953]

1.20 Consequently, a FRCGW obligation will arise in relation to the disposal of a relevant CGT asset by a foreign resident, regardless of the market value of the CGT asset. Other transactions that are currently excluded from the FRCGW regime remain unamended and continue to apply. The Commissioner's power to vary particular amounts, or classes of amounts, of withholding by a purchaser under the FRCGW regime also continues to apply.

1.21 Vendors can continue to apply for clearance certificates from the Commissioner to advise purchasers that they are not a foreign resident in respect of an Australian real property transaction or an indirect Australian real property interest that provides company title interests.

1.22 For any other relevant asset, the vendor can still make a residency declaration or a declaration that the asset is a not an indirect Australian real property interest. This measure does not amend the approach to these processes.

Commencement, application, and transitional provisions

1.23 Schedule 1 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October to occur after the day the Bill receives Royal Assent.

1.24 The amendments apply to acquisitions made on or after the later of the start of 1 January 2025 and the commencement of Schedule 1 to the Bill.

1.25 A purchaser is generally taken to have acquired an asset on the date they entered into the contract to acquire it (see Division 109 of the ITAA 1997). Therefore, these amendments will not apply to transfers that occur under a contract entered into prior to the later of the start of 1 January 2025 and the commencement of Schedule 1.

[Schedule 1, item 7]

Chapter 2: Allowing employers to make single touch payroll declarations for extended periods

Outline of chapter

2.1 Schedule 2 to the Bill reduces the administrative burden for employers reporting STP through a registered tax or BAS agent by allowing an employer to make a standing declaration to the agent that covers multiple STP lodgements by the agent on the employer's behalf. Previously, the law required an employer to provide a declaration to their agent in relation to each STP lodgement.

Context of amendments

2.2 Under STP, an employer, unless they are exempt, provides payroll and superannuation information to the Commissioner when employees are paid. Employer STP reporting obligations are outlined in Division 389 in Schedule 1 to the TAA 1953.

2.3 Some businesses, typically small businesses, use registered tax or BAS agents to prepare and submit STP reports. Where an employer arranges for these reports to be made through a registered tax or BAS agent, the employer must make a declaration to the agent that:

•

any information they have provided to the agent for preparation of the document is true and correct; and

•

the agent is authorised by the employer to give the document to the Commissioner.

2.4 Currently, this declaration must be made at each STP lodgement in an approved form prescribed under section 388-50 of Schedule 1 to the TAA 1953.

2.5 Prior to STP, the relevant reports were provided to the Commissioner on a less frequent basis (generally monthly or quarterly; annually in some cases) as they were not required to be made contemporaneously with each payment event. Under STP, the relevant reports are made before or at the same time as when employees are paid. Employers that make these reports through an agent therefore need to make a declaration each time a payment is made, for example, every pay cycle.

2.6 The increased frequency in reporting has increased the administrative burden for small businesses and agents because of the need to make the above declarations much more frequently.

2.7 The amendments in Schedule 2 to the Bill seek to reduce that increased burden.

Summary of new law

2.8 Schedule 2 to the Bill amends Schedule 1 to the TAA 1953 to provide the ability for an employer to make a standing declaration to their agent which would be valid for multiple STP lodgements made by that agent.

Comparison of key features of new law and current law

Table 2.1 Comparison of new law and current law

Detailed explanation of new law

2.9 Division 389 in Schedule 1 to the TAA 1953 requires employers, other than exempt employers, to report information to the Commissioner about certain amounts paid to their employees on or before the day those amounts are paid. This reporting scheme is known as STP.

2.10 Section 388-65 in Schedule 1 to the TAA 1953 provides that where an employer uses an agent to submit this information to the Commissioner, the employer must make a declaration to the agent declaring:

•

that any information they have provided to the agent for the preparation of the document to be lodged is true and correct; and

•

the agent is authorised by the employer to give the document to the Commissioner.

2.11 This declaration must be made in relation to each lodgement the agent makes on behalf of the employer.

2.12 The amendments allow an employer to make a standing declaration covering multiple lodgements for amounts required to be reported to the Commissioner under Division 389 (a STP amount).

[Schedule 2, item 5, subsection 389-35 in Schedule 1 to the TAA 1953]

2.13 The declaration must be made in writing and state that the employer has authorised the agent to give one or more notifications to the Commissioner. The declaration must also state that any information the employer has provided to the agent or will provide to the agent over the time the declaration is in force, will be true and correct.

2.14 The declaration must specify a date at which the declaration would cease to have effect. This date must not exceed 12 months from the date the declaration is made.

[Schedule 2, item 5, subsection 389-35(2) in Schedule 1 to the TAA 1953]

2.15 A declaration in relation to STP amounts is valid from the day the declaration is made until whichever occurs earlier:

•

the day specified in the declaration (which must not exceed 12 months from the day the declaration is made);

•

the day the agent is notified that the employer has withdrawn the declaration; or

•

the day the agent becomes aware that there has been a material change in their relationship with the employer, or in the affairs of the employer's business since the declaration was made.

[Schedule 2, item 5, subsections 389-35 (2)(c) and (4) in Schedule 1 to the TAA 1953]

2.16 Examples of what would constitute a material change include, but are not limited to, changes to:

•

staff, processes and technology used to provide employee data to the agent;

•

the agent relationship (ending the engagement or changing the level of the agent's responsibilities);

•

the agent's status (for example, there is a change to the status of the agent's Tax Practitioners Board registration through termination, suspension and / or other sanctions);

•

the business environment that results in a significant change to how the employer completes reporting obligations (for example, changes to the payroll software used); or

•

the law or policy applying to reporting under the Division (for example, if the employer was required to report additional amounts or if the Commissioner makes significant changes to the approved forms for reporting).

2.17 It would be expected that employers in the general course of dealings would notify their tax agent of any material changes as described above.

2.18 The employer's obligation to make a declaration for each lodgement, under current law, is switched off if a valid declaration under subsection 389-35 is made.

[Schedule 2, item 1, subsection 388-65(1) and item 5 subsection 389-35(3) in Schedule 1 to the TAA 1953]

2.19 However, the employer must still:

•

give the declaration to the agent, pursuant to subsection 388-65(2);

•

retain a copy of the declaration, pursuant to subsection 388-65(3);

•

have the capacity to produce the declaration to the Commissioner, pursuant to subsection 388-65(4); and

•

sign the declaration, pursuant to subsection 388-65(6).

[Schedule 2, item 5, subsection 389-35(3) and subsection 388-65 in Schedule 1 to the TAA 1953]

2.20 If a valid declaration is made pursuant to subsection 389-35, the agent will then be able to make a declaration to the Commissioner that they are authorised by the employer to act on their behalf for the purpose of Division 389.

[Schedule 2, item 2, subsection 388-70 in Schedule 1 to the TAA 1953]

2.21 The rule concerning the declaration in subsection 389-35 is outlined in the guide material in subsection 389-1 of Division 389.

[Schedule 2, item 3, subsection 389-1 in Schedule 1 to the TAA 1953]

2.22 The Table of Sections in Division 389 is updated to reflect the new law.

[Schedule 2, item 4, Division 389 in Schedule 1 to the TAA 1953]

Commencement, application, and transitional provisions

2.23 Schedule 2 to the Bill commences the day after Royal Assent.

2.24 The amendments apply in relation to declarations that are made on or after the commencement of the amendments.

Chapter 3: Self-amendments by small and medium businesses

Outline of chapter

3.1 Schedule 3 to the Bill amends the ITAA 1936 to allow amendments to be made to the assessments of small and medium business taxpayers who apply to the Commissioner within four years after the Commissioner has given notice of an assessment. Extending the amendment period for such taxpayers in this way seeks to alleviate some of the administrative and financial burdens for both taxpayers and the Commissioner.

Context of amendments

3.2 Prior to this amendment, the standard period in which the Commissioner could amend an assessment of a small and medium business entity (either on application by the entity or under the Commissioner's own initiative) was two years. After expiry of the limitation period, the Commissioner was generally not able to amend the assessment, unless an exception applied, such as the exception for amendments to give effect to objections.

3.3 This relatively short statutory limitation period was intended to provide swift certainty for such taxpayers about their income tax liabilities. However, this timeframe has led to an increased number of these taxpayers seeking an extension of time to lodge an objection to the assessment and pursuing appeals of objection decisions by the Commissioner, resulting in increased administrative burden for such taxpayers and the Commissioner.

3.4 This amendment seeks to alleviate some of these administrative and financial burdens for both taxpayers and the Commissioner.

Summary of new law

3.5 This amendment allows the Commissioner to amend an assessment of a small or medium business entity, if:

•

the Commissioner is no longer able to amend the assessment under the general two-year amendment period;

•

the small or medium business entity requests the amendment in the approved form; and

•

the request is given to the Commissioner within four years after the day on which the Commissioner gave notice of the assessment to the taxpayer.

3.6 While this amendment allows the Commissioner to amend such assessments in response to an application by the taxpayer, the provisions do not require the Commissioner to do so.

3.7 The Commissioner may only amend such assessments to give effect to the Commissioner's decision on the taxpayer's application. The provisions do not permit the Commissioner to amend the assessment about other particulars that are not included in the taxpayer's application. This ensures that sufficient certainty is still afforded to these taxpayers, as the extended four-year limitation period only applies to amendments to give effect to the Commissioner's decision on the taxpayer's application.

3.8 The amendment must be made within four years of the Commissioner issuing notice of the assessment to the taxpayer. The four-year amendment period is only available after the applicable amendment period in table items 1, 2 or 3 of section 170(1) of ITAA 1936 has expired. This restriction ensures the taxpayer is not subject to more than one amendment period, which provides certainty about how these amendments interact with other parts of the ITAA 1936.

3.9 The Commissioner is unable to further amend an amended assessment solely because it is within four years of the time the amended assessment was made where four years have lapsed since the Commissioner has given notice of the original assessment to the taxpayer. This rule prevents the taxpayer's amendment period recommencing each time an amendment is made, which would otherwise allow the amendment period to be refreshed in perpetuity, contrary to the intended policy outcome.

3.10 However, the Commissioner may amend an amended assessment in relation to a particular in the way set out in the table in section 170(3) of the ITAA 1936 within two years after the amended assessment was made. This ensures the Commissioner and taxpayer have time to properly consider the effect of the amendment and is consistent with the existing rules for amended assessments.

3.11 Despite the four-year amendment period, the Commissioner is not prevented from amending an assessment where the Commissioner is of the opinion there has been fraud or evasion, or to give effect to a decision of an appeal or review process.

Comparison of key features of new law and current law

Table 3.1 Comparison of new law and current law

Detailed explanation of new law

3.12 Schedule 3 to the Bill extends the general statutory amendment period for small and medium business entities from two years to four years in certain circumstances. Specifically, the amendment allows the Commissioner, on application by the taxpayer, to amend an assessment of an individual, a company, or a person in their capacity as trustee of a trust estate, where the taxpayer is a small or medium business entity, within four years after the day on which the Commissioner gives notice of the assessment to the taxpayer. The taxpayer's application for an amendment must be in the approved form and given to the Commissioner before the expiry of the four-year period. The Commissioner may amend the assessment within the four-year period to give effect to the decision on the taxpayer's application.

[Schedule 3, item 1, table item 3A in subsection 170(1) of the ITAA 1936]

3.13 The statutory amendment periods are set out in section 170 of the ITAA 1936. Generally, the standard statutory amendment period for small and medium business entities is two years. This amendment allows that period to be extended where the taxpayer requests the Commissioner to amend their assessment, in the approved form, within four years. On deciding that the taxpayer's requested amendment should be made, the Commissioner may amend the taxpayer's assessment within the four-year period.

[Schedule 3, item 1, table item 3A in subsection 170(1) of the ITAA 1936]

3.14 The extended amendment period is only available where the applicable amendment period under items 1, 2 or 3 of the table in subsection 170(1) of the ITAA 1936 have expired. This ensures only one amendment period applies for a taxpayer at any one time, which provides certainty about how these amendments interact with other parts of the ITAA 1936.

3.15 While the Commissioner may amend the assessment within the extended amendment period, the Commissioner is not required to make the requested amendment. This is consistent with the discretionary nature of the Commissioner's existing amendment powers. This approach means the Commissioner may decline to make an amendment if the Commissioner becomes aware that the application would result in the assessment not correctly reflecting the taxpayer's taxable income if the requested amendment were made.

3.16 Any amendments made by the Commissioner to give effect to the decision on the taxpayer's application must be made within four years after the day on which the Commissioner gives notice of the assessment to the taxpayer. Section 173 of the ITAA 1936 provides that an amended assessment is an assessment. Therefore, the amendment periods set out in the table in subsection 170(1) apply equally in respect of amended assessments. To prevent the amendment period being refreshed in perpetuity, the Commissioner is prevented from amending an amended assessment if the four-year period in respect of the original assessment has ended. However, the Commissioner may amend an amended assessment about a particular in the way provided for in the table under subsection 170(3) within two years after notice of that amended assessment is given to the taxpayer if the four-year amendment period under item 3A of the table in subsection 170(1) applies in respect the original assessment.

[Schedule 3, items 2 and 3, subsection 170(2A) and paragraph 170(3)(a) of the ITAA 1936]

3.17 These amendments intend to reduce some administrative and financial burden for small and medium business entities by extending their amendment period in limited circumstances, to avoid some instances of these taxpayers pursuing objections and appeals. These amendments do not seek to change the taxation objection process and therefore consequential amendments to the TAA 1953 ensure that these taxpayers continue to have a two-year period to lodge a taxation objection.

[Schedule 3, items 4 and 5, subparagraphs 14ZW(1)(aa)(i) and (1A)(b)(i) of the TAA 1953]

Commencement, application, and transitional provisions

3.18 Schedule 3 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October to occur after the day the Bill receives Royal Assent.

3.19 The amendments apply in relation to assessments issued after commencement of this Schedule for income years starting on or after 1 July 2024.

[Schedule 3, item 6, Application of amendments]

Chapter 4: Reducing the use of cheques for tax refunds

Outline of chapter

4.1 Schedule 4 to the Bill amends the TAA 1953 to extend the circumstances in which the Commissioner may retain an entity's tax refund to encourage taxpayers to provide the Commissioner with valid financial institution account details to facilitate the faster, safer and cheaper payment of refunds.

4.2 The changes seek to make the provision of refunds faster, safer, and cheaper by reducing the use of cheques by the Commissioner when providing refunds to entities of certain RBA surpluses or other credits (including excess non-RBA credits).

Context of amendments

Issuing of credits and surpluses

4.3 Section 8AAZLH of the TAA 1953 sets out how the Commissioner must pay refunds to an entity of RBA surpluses, or excess non-RBA credits that relate to an RBA if primary tax debts under:

•

any of the BAS provisions (e.g. FBT, PAYG, indirect tax law (GST, wine tax, luxury car tax or fuel tax credits)); or

•

the PRRT provisions;

have been allocated to the RBA.

4.4 The section requires the Commissioner to issue affected refunds to an entity by crediting their Australian financial institution account if the account details have been provided in the approved form by the entity. Should the entity fail to specify an Australian financial institution account for the purposes of receiving a refund, the Commissioner is not under an obligation to refund any amount to the entity until the entity has nominated a financial institution account.

4.5 This section does not extend to all refunds, including income tax refunds. Prior to these amendments, the Commissioner was required to refund these amounts despite not having valid Australian financial institution account information. This could delay the ultimate receipt of refunds if cheques were misplaced by entities or not otherwise deposited into an account in a timely manner. The TAA 1953 imposes an obligation on the Commissioner to refund these amounts within a reasonable time. Current ATO online lodgement of individual income tax returns via myTax (the ATO section of myGov) requires entities to provide valid Australian financial institution account information to enable electronic transfer of refunds to them. However, entities that lodge a paper tax return or via a tax agent can lodge the return without valid Australian financial institution details being provided. This can delay refunds and result in the need to pay such refunds by cheque.

4.6 In practice, paying refunds by cheques imposes a cost on the Commissioner and potentially results in a delay in an entity receiving their tax refund. Potential delays to the entity receiving their tax refund can include:

•

the time for the cheque to be issued;

•

the required time for the cheque to be delivered by post to the entity;

•

the time for the entity to deposit the cheque into their current Australian financial institution; and

•

the time for the cheque to clear in the entity's financial institution account.

4.7 Potential further delays include cheques becoming lost during postage, cheques being incorrectly delivered and cheques becoming stale if they are not deposited into an Australian financial institution account within 15 months of being issued causing further cost and delays to re-issue the cheques.

4.8 Allowing the Commissioner a discretionary power to retain an amount for up to 90 days from when refunds are payable, allows the Commissioner time to contact an entity to seek to obtain the entity's current Australian financial institution details.

4.9 Providing the Commissioner with time to obtain from an entity its current Australian financial institution details reduces the use of cheques for affected tax refunds and modernises and streamlines the payment mechanism for such refunds. Reducing the use of cheques in these circumstances also removes potential delays in receiving refunds from misplaced cheques or delays in depositing and clearance of cheques.

Summary of new law

4.10 Schedule 4 to the Bill makes amendments to provide the Commissioner with a discretionary power to retain a refund of certain tax refunds and credits. These refunds (or credits) may be held for a 90-day period to enable the Commissioner to obtain from the entity their nominated current Australian financial institution details for the refund to be paid into.

4.11 The 90-day holding period begins on the date on which the refund or credit becomes payable to the entity.

4.12 The holding period does not apply if an entity has supplied their valid Australian financial institution details to the Commissioner in the approved form. In these cases, refunds must be paid directly to the account of an entity in a timely manner.

Comparison of key features of new law and current law

Table 4.1 Comparison of new law and current law

Detailed explanation of new law

90-day holding period

4.13 Schedule 4 to the Bill amends the TAA 1953 to permit the Commissioner to retain an amount that the Commissioner would otherwise have to refund to an entity where section 8AAZLH of the TAA 1953 does not apply. Section 8AAZLH already enables the Commissioner to retain refunds of RBA surpluses or excess non-RBA credits relating to an RBA where primary tax debits arising under any BAS or PRRT provisions have been allocated to that RBA. This measure is intended to apply to all refund amounts which are not covered by section 8AAZLH.

[Schedule 4, item 1, subsections 8AAZLGC(1) and (2) of the TAA 1953]

4.14 The Commissioner may retain such refunds if an entity that is entitled to the refund has failed to provide valid Australian financial institution account details.

[Schedule4, item 1, subsection 8AAZLGC(1) of the TAA 1953]

4.15 The Commissioner has the authority to retain the refund amount:

•

until the end of the day the entity gives the Commissioner a nominated Australian financial institution account in the approved form that meets the applicable account requirements; or

•

should the Commissioner not obtain nominated financial institution account details which satisfy the applicable requirements, until the end of the 90-day holding period.

[Schedule 4, item 1, paragraphs 8AAZLGC(6)(a) and (b) of the TAA 1953]

4.16 During the 90-day holding period in which the Commissioner may hold the refund amount, the Commissioner has an obligation to notify the entity and seek valid Australian financial institution account details from the entity.

[Schedule 4, item 1, subsections 8AAZLGC(3) and (4) of the TAA 1953]

Notification requirements

4.17 When a refund is retained by the Commissioner, the Commissioner must inform the affected entity that this has occurred. The Commissioner must also notify the entity that a valid Australian financial institution account may be nominated by the entity to receive the refund amount. The law is not prescriptive on how the Commissioner must meet these requirements. This provides the Commissioner flexibility to determine the appropriate approach to engage with impacted taxpayers.

[Schedule 4, item 1, subsections 8AAZLGC(3) and (4) of the TAA 1953]

4.18 If the Commissioner fails to undertake the notification requirements and does not notify the entity of the refund amount being held by the Commissioner or that the entity has failed to provide details of a valid Australian financial institution account, the validity of the decision to retain the refund amount is not affected. ATO systems will provide for the necessary notification. However, this exclusion ensures that an unintended procedural failure to fully satisfy the notification requirements and the request for valid account information does not have adverse administrative consequences.

[Schedule 4, item 1, subsection 8AAZLGC(5) of the TAA 1953]

Nominated financial institution account requirements

4.19 The Commissioner can refund an amount to an account which is maintained at a branch or office of a financial institution within Australia. The account must be held by the entity, the entity and another entity, the entity's registered tax agent or BAS agent, or the entity's legal practitioner as trustee or executor.

[Schedule 4, item 1, subsection 8AAZLGC(1) of the TAA 1953]

Commencement, application, and transitional provisions

4.20 Schedule 4 to the Bill commences on the first 1 January, 1 April, 1 July, or 1 October to occur after the day of Royal Assent.

4.21 The amendments apply to amounts the Commissioner refunds on or after the day of commencement.

[Schedule 4, item 2]

Chapter 5: Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Schedule 1 - Foreign Resident Capital Gains Withholding Payments

Overview

5.1 Schedule 1 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

5.2 Schedule 1 to the Bill amends Subdivision 14-D in Schedule 1 to the TAA 1953 to modify the FRCGW regime to:

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increase the withholding rate to 15 per cent (from 12.5 per cent); and

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remove the threshold before which withholding applies so that disposals of relevant CGT assets by a foreign resident are subject to FRCGW requirements regardless of the market value of the CGT asset.

5.3 These amendments seek to ensure better compliance by foreign residents with their Australian tax obligations and support the collection of tax liabilities from foreign residents.

Human rights implications

5.4 Schedule 1 to the Bill does not engage any of the applicable rights or freedoms.

5.5 The amendments in this Schedule do not impose any restrictions on the purchase of properties (i.e., relevant CGT assets) and only requires purchasers to withhold a portion of the sale proceeds under certain circumstances, as a measure to ensure foreign residents comply with their CGT obligations.

Conclusion

5.6 Schedule 1 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 2 - Allowing employers to make single touch payroll declarations for extended periods

Overview

5.7 Schedule 2 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

5.8 Schedule 2 to the Bill reduces administrative burden for employers participating in STP through a tax or BAS agent by allowing an employer to make a standing declaration that covers multiple STP lodgements by the agent on the employer's behalf. Previously, the law required the employer to lodge a declaration to their agent in relation to each STP lodgement.

Human rights implications

5.9 Schedule 2 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

5.10 Schedule 2 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 3 - Self-amendments by small and medium businesses

Overview

5.11 Schedule 3 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

5.12 Schedule 3 to the Bill makes amendments that simplify tax compliance requirements for individuals and other entities where that individual or other entity is a small or medium business entity. It extends the time in which the small or medium business taxpayer may apply to have a tax assessment amended. The period is extended from two to four years after the Commissioner has given notice of an assessment. A small or medium business taxpayer may apply to the Commissioner to amend their assessment, stating the particulars the taxpayer seeks to amend.

5.13 These amendments do not apply to individuals who are not small or medium business entities.

5.14 Prior to this amendment, the standard limitation period in which the Commissioner could amend an assessment of such small and medium business entities was two years. This limitation period provided swift certainty for the taxpayers about their income tax liabilities. However, it also resulted in an increased administrative burden for those taxpayers who sought to extend the time in which they could take action to amend their assessment beyond the two-year period. By extending the period for small and medium business taxpayers, the amendment under Schedule 3 alleviates some of the administrative and financial burdens they might have otherwise experienced.

5.15 The amendment limits the discretion exercised by the Commissioner in relation to this extended amendment period. The Commissioner can only amend the assessment using the extended powers provided by this amendment in accordance with the particulars set out in the application (and not beyond them).

5.16 The Commissioner may still decline to make an amendment. For example, the Commissioner may decline to make the amendments where the timing would give rise to a tax position that could not be corrected across assessments for all relevant income years.

5.17 The amendments apply in relation to assessments issued after their commencement and for income years starting on or after 1 July 2024.

Human rights implications

5.18 Schedule 3 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

5.19 Schedule 3 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 4 - Reducing the use of cheques for tax refunds

Overview

5.20 Schedule 4 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

5.21 Schedule 4 to the Bill amends the TAA 1953 to implement a 90-day period in which the Commissioner does not have to provide certain refund amounts to an entity and be granted time to notify the entity and have the entity provide their current Australian financial institution details.

Human rights implications

5.22 Schedule 4 to the Bill does not engage any of the applicable rights or freedoms.

5.23 The amendments provide the Commissioner with 90 days to seek the current Australian financial institution details from an entity to receive certain refunds. This amendment seeks to reduce the use of cheques for refunds and modernise and streamline the payment of refunds.

Conclusion

5.24 Schedule 4 to the Bill is compatible with human rights as it does not raise any human rights issues.