Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
General outline and financial impact
The amendments in Schedule 1 to the Bill will provide for the following three measures:
- alignment of remittance dates;
- charges and penalties for failing to meet obligations; and
- running balance accounts.
Alignment of Remittance Dates
Amends the Income Tax Assessment Act 1936 to align the remittance dates for medium and small PAYE, PPS and RPS payers from the 7th to the 21st day of the month.
The alignment to the 21st of the month is in anticipation of a large number of businesses being required to make one payment each quarter to cover most tax debts.
Date of effect: The amendments will apply from 1 July 1999.
Proposal announced : The Government's Tax Reform paper Tax Reform: not a new tax, a new tax system: The Howard Government's Plan for a New Tax System in August 1998.
Financial impact: There will be a cost to the revenue of approximately $60 million per year in lost public debt interest as a result of the alignment measure.
Compliance cost impact: The amendments are not expected to impose any significant compliance costs on taxpayers.
Charges and penalties for failing to meet obligations
Reintroduces amendments to various Acts for which the Commissioner of Taxation (the Commissioner) has general administration to:
- replace the existing late payment penalty provisions with a tax deductible general interest charge on outstanding tax debts;
- introduce a penalty for failing to notify the Commissioner of an obligation to remit a source deduction (eg. PAYE, PPS, etc.) or sales tax;
- introduce a penalty for failing to give the Commissioner an annual reconciliation statement of source deductions made; and
- make other consequential amendments to support the above measures.
These amendments were previously introduced into the House of Representatives on 2 July 1998 in Taxation Laws Amendment Bill (No.5) 1998 and lapsed with the calling of the October 1998 election.
Date of effect: The new general interest charge together with the failure to notify and reconciliation statement penalties will generally apply from 1 July 1999.
The interest charge for unpaid sales tax and source deductions will apply to amounts payable before that date. However, this will not disadvantage taxpayers as the interest charge being proposed is lower than the current rate which would otherwise apply.
Proposal announced: The 1998-99 Budget, 12 May 1998.
Financial impact: The revenue impact of the changes cannot be quantified. With greater automation of the penalty systems the incidence of imposition of late payment penalties is expected to increase. However, penalties generally will be levied at a lower rate.
Compliance cost impact: The amendments are not expected to impose any additional compliance costs on taxpayers.
Summary of Regulation Impact Statement
The policy objective of this measure is to replace the existing late payment penalty provisions in various Acts for which the Commissioner of Taxation has the general administration with a single tax deductible general interest charge (GIC) on outstanding amounts. The new regime will be transparent, consistent, commercially based and easy to administer. A further objective is to encourage withholders who cannot remit deductions by the due dates to notify the Commissioner of the existence of liabilities and to make sure withholders send in their annual reconciliation statements of deductions.
The proposals overcome problems with the current penalty regimes identified by the Small Business Deregulation Task Force. The GIC will enable:
- a common single rate of interest for all tax types where a correct payment is not received by the due date;
- abolition of complex and punitive culpability elements that apply for the late payment of some taxes; and
- simpler tax accounting and collection arrangements that will position the Australian Taxation Office to better assist taxpayers to minimise any escalation of amounts outstanding.
The failure to notify penalty will encourage withholders who cannot remit deductions by the due dates to notify the Commissioner of the existence of these liabilities. The changes will eliminate the current high level penalties that are imposed on businesses that are unable to remit withheld amounts when they are due.
Assessment of impacts of the proposals:
The groups impacted by the new penalty regimes are as follows:
taxpayers - by having consistent and more easily understood late payment penalties and more equitable and commercially acceptable failure to notify penalties. Taxpayers, in particular small business taxpayers, will not face heavy penalties where temporary cash flow problems prevent them from remitting withheld amounts on time;
tax agents and accountants - who will find it easier to advise clients on penalty regimes;
the ATO - which will find the new penalty regimes easier to administer; and
the Commonwealth Government - which, over time, should benefit from reduced levels of outstanding debt.
Running Balance Accounts (RBAs)
Amends various Acts for which the Commissioner has general administration to introduce a system of running balance style accounts to account for and administer debts under the sales tax, PAYE, PPS and RPS arrangements for the year commencing 1 July 1999.
The RBA amendments, which rely on a consistent GIC applying on any outstanding tax debt, will:
- enable four separate RBAs to be established for a taxpayer's sales tax, PAYE, PPS and RPS debts;
- allow those debts to be aggregated into one outstanding balance for each of those tax types;
- allow the GIC to be calculated on the RBA deficit;
- enable the Commissioner to recover the RBA deficit as a tax debt; and
- provide the Commissioner with a discretion on the application of tax debts to an RBA and the application of payments and credits against tax debts.
These amendments are the first phase in a program to establish an RBA to account for and monitor the majority of a taxpayer's outstanding debts after 1 July 2000. The single RBA is to be the accounting platform for the Government's Tax Reform program.
Date of effect: 1 July 1999.
Proposal announced: Not announced.
Financial impact: The revenue impact of this measure cannot be quantified.
Compliance cost impact: The amendments are not expected to impose any additional compliance costs on taxpayers. They are aimed at assisting taxpayers to better manage their outstanding tax debts.
Summary of Regulation Impact Statement
The objective of the RBA measure is to provide the legislative framework for a taxpayer accounting system to monitor a taxpayer's different tax liabilities on an RBA and apply a daily interest charge to any RBA deficit.
The introduction of an RBA will enable:
- simpler tax accounting and collection arrangements that will position the ATO to better assist taxpayers to minimise any escalation of amounts of outstanding tax debts;
- the ATO to provide a comprehensive statement of a taxpayer's outstanding tax debts at a particular point in time; and
- an automatic calculation of the GIC on the RBA deficit. This represents a considerably more efficient process than individually calculating the GIC for each component debt which contributed to the RBA balance.
As the first step towards a single RBA for all tax debts, these amendments will introduce four separate running balance accounts in relation to sales tax, PAYE, PPS and RPS debts for the year ending 30 June 2000.
Assessment of impacts of the proposals
Taxpayers will benefit from receiving regular periodic statements detailing their outstanding tax debts. This compares with the current arrangements where statements are generated on an ad hoc basis or following requests from taxpayers for an explanation of their outstanding debts. The provision of regular and comprehensive account statements should enable taxpayers to better manage their outstanding debts at a reduced cost. These new arrangements will particularly benefit small businesses.
The Government will benefit as taxpayers are more likely to reduce outstanding debts at a faster rate as a result of taxpayer RBAs being issued and being used in the recovery process. Improvements are likely to be made in the timing of resultant collections but increases in total revenue are expected to be minimal.
Schedule 2 to the Bill amends the anti-avoidance provisions contained in Part IVA of the Income Tax Assessment Act 1936 (the ITAA36) to enable those provisions to apply to schemes designed to acquire or generate foreign tax credits. There will also be amendments made to the penalty provisions contained in Part VII of the ITAA36 to ensure that penalties which currently apply to Part IVA schemes will also apply to foreign tax credit schemes.
Date of effect: Schemes entered into after 4.00 pm, by legal time in the Australian Capital Territory, on 13 August 1998.
Proposal announced: Treasurer's Press Release No. 78 of 13 August 1998.
Financial impact: The measures are designed to protect the revenue base against potential international tax avoidance schemes involving foreign tax credits. In the absence of the measure, to the extent that the revenue base would not be protected, there would be a significant revenue loss.
Compliance cost impact: There are unlikely to be any significant compliance costs associated with the proposed measures. The general anti-avoidance provisions will only affect taxpayers who are contemplating entering into such schemes.
Consultation: This measure is designed to combat potential tax avoidance arrangements and as such it was not possible to engage in public consultation prior to the measure being announced.
Schedule 3 to the Bill amends various Acts to correct earlier drafting errors. The amendments do not involve changes of policy significance.
Date of effect: Royal Assent and earlier dates as explained in Chapter 3 of this Explanatory Memorandum.
Proposal announced: Not previously announced.
Financial impact: None.
Compliance cost impact: None.