Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 1 (body of text)
Overview
1.1 The A New Tax System (Indirect Tax Administration) Bill 1999 (ITA Bill) will amend the Taxation Administration Act 1953 (TAA 1953) to provide support for the administration and collection of wine equalisation tax (WET) and luxury car tax (LCT)
1.2 It will modify new Part VI of the TAA 1953, as proposed by the A New Tax System (Goods and Services Tax Administration) Act 1999 (GSTA Act), by extending its scope to cover these measures in addition to the goods and services tax (GST)
Summary of amendments
1.3 The amendments will adopt for the WET and LCT the same administrative and collection measures as those proposed for the GST New Part VI of the TAA 1953, as proposed by the GSTA Act, will be modified so that its provisions will apply to the 3 indirect taxes; GST, WET and LCT
1.4 The modified provisions will:
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- establish who is to administer the indirect tax laws;
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- support the collection and recovery of indirect taxes;
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- set maximum penalties for breaching indirect tax obligations;
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- permit entities to rely on the Commissioner of Taxation's (Commissioner) interpretation of the law;
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- set time limits on indirect tax liabilities and on credit entitlements;
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- adopt existing mechanisms for the review of assessments and other indirect tax decisions;
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- confer powers on the Commissioner for the gathering of information; and
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- protect the confidentiality of information disclosed for indirect tax purposes
1.5 Additionally, amendments to new Part VI will:
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- apply a 4 year limit within which there will be an entitlement to a refund for importations;
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- replace the fixed rate penalty for unpaid GST with a commercially realistic interest charge based on the outstanding balance of unpaid indirect tax;
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- exclude from liability to penalty any breach of an obligation resulting from an amendment to an indirect tax law where that breach occurred before the 28th day after the granting of Royal Assent to the amending law;
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- extend the review rights to include reviewable WET decisions and reviewable indirect tax decisions;
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- include listed WET decisions as reviewable WET decisions
1.6 The amendments will apply from 1 July 2000 and commence immediately after the amendments proposed by the GSTA Act
Background to the legislation
1.7 The GSTA Act was introduced into the Parliament on 2December 1998 as part of the first tranche of the Government's Tax Reform legislation and proposes the insertion of new Part VI in the TAA 1953, to provide for the administration and collection of GST
1.8 As part of the second tranche of legislation to give effect to the Government's indirect tax reforms, the ITA Bill will modify new Part VI to extend its scope to cover the administration and collection of WET and LCT
1.9 Schedule 1 to the ITA Bill contains the amendments to the TAA 1953 The modifications to new Part VI are basically of two kinds Most of the amendments merely substitute references to GST' or GST law' with references to indirect tax' or indirect tax law' A number of amendments make substantive changes to the provisions of new Part VI
1.10 The heading to new Part VI will accordingly be changed to Administration of the GST, wine equalisation tax and luxury car tax' [Item 2]
Substitution of references to 'GST' with 'indirect taxes'
1.11 The administration provisions in new Part VI of the TAA 1953 are closely connected, and are therefore to be read, with the provisions of the GST, WET and LCT legislation and other relevant provisions of the TAA 1953 [Item 3 - new section 19]
1.12 The following terms used in the modified new Part VI will be defined in subsection 20(1)
| Defined term | Schedule 1 |
|---|---|
| Indirect tax | Item 4 |
| Indirect tax law | Item 5 |
| Luxury car tax | Item 6 |
| Luxury Car Tax Act | Item 7 |
| Luxury car tax law | Item 8 |
| Wine tax | Item 9 |
| Wine Tax Act | Item 10 |
| Wine tax law | Item 11 |
1.13 The following table identifies the provisions for which references to GST or GST law have been substituted by references to indirect tax or indirect tax law In some provisions, references to the transactions giving rise to liability for WET or LCT have been inserted, for example, taxable dealing (defined in section 33-1 of the A New Tax System (Wine Equalisation Tax) Act 1999) and taxable importation of a luxury car (defined in section 27-1 of the A New Tax System (Luxury Car Tax) Act 1999)
| Section | About | Schedule 1 |
|---|---|---|
| 22 | Assessments of indirect tax by the Commissioner | Items 12 and 13 |
| 23 | Requests for assessment of indirect tax | Item 14 |
| 24 | Liability to indirect tax does not depend on assessment | Item 15 |
| 26 | Amendment of assessments | Items 16 and 17 |
| 28 | Recovery of unpaid indirect tax and penalties | Item 18 |
| 29 | Application of payments when multiple amounts are owing | Item 19 |
| 30 | Recovery of indirect tax paid by one entity on behalf of another entity | Item 20 |
| 31 | Recovery of indirect tax when entities are jointly liable | Items 21, 22, 23, 24 and 25 |
| 32 | Recovery of indirect tax from the trustee of a deceased estate | Items 26, 27, 28 and 29 |
| 33 | Recovery of indirect tax from an unadministered deceased estate | Item 29 |
| 34 | Recovery from a third Party who owes money to an entity that has an indirect tax debt | Items 30, 31, 32 33, 34 and 35 |
| 35 | Time limit on recovery by the Commissioner of unpaid indirect tax | Item 36 |
| 37 | Reliance on the Commissioner's interpretation of indirect tax law | Items 38, 39, 40, 41 and 42 |
| 39 | Refund of indirect tax amounts overpaid by, or of indirect tax credits owing to, an entity | Item 43 |
| 46 | Penalty for making false statements | Items 46, 47 and 48 |
| 47 | Notification of penalty and due date for payment | Item 50 |
| 48 | Remission of penalty | Item 51 |
| 50 | Liability of Partners in a Partnership | Item 53 |
| 51 | Liability of Participants in a GST joint venture | Item 53 |
| 52 | Liability related to unincorporated associations or bodies of persons | Item 53 |
| 53 | Liability of members of GST groups | Item 53 |
| 54 | Liability of representatives of incapacitated entities | Item 53 |
| 55 | Obligations of a liquidator or receiver | Items 54, 55, 56, 57 and 58 |
| 56 | Public officer of a company | Item 59 |
| 57 | Liability of directors, officers, and agent of a company | Item 59 |
| 58 | Obligations of an agent winding up the Australian business of a non-resident | Items 59, 60, 61 and 62 |
| 60 | Certificate of amount payable is prima facie evidence | Item 63 |
| 61 | Signed copies of documents are evidence of the matters set out in the original | Item 64 |
| 62 | Reviewable GST decisions, reviewable wine tax decisions and reviewable indirect tax decisions | Items 67, 68 and 69 |
| 63 | Commissioner has general administration of indirect tax laws | Item 72 |
| 64 | Commissioner must prepare annual report on the working of the indirect tax laws | Item 73 |
| 65 | Commissioner may direct a person to provide information | Item 74 |
| 66 | Access to premises, etc by authorised officers | Item 74 |
| 67 | Address for service | Items 74, 75, 76, 77 and 78 |
| 68 | Protection of confidentiality of information | Items 79, 80, 81 and 82 |
| 69 | Notices etc by the Commissioner | Item 83 |
| 70 | Keeping records of indirect tax transactions | Items 84 and 85 |
Time limit on credits and refunds
1.14 New section 36 of the TAA 1953, as proposed to be inserted by the GSTA Act, provides that entitlements to GST refunds expire 4 years after the end of the tax period to which they relate unless a claim is notified to the Commissioner before that time
1.15 In addition to applying the time limit to the refund of overpaid WET and LCT included in the net amount for a tax period, the replacement of section 36 will also ensure that the 4 year time limit will apply to indirect tax refunds attributable to an importation [Item 37 - new section 36]
1.16 New section 40 of the TAA 1953, as proposed to be inserted by the GSTA Act, provides for a fixed rate penalty for unpaid GST New section 48 provides that the Commissioner may remit the penalty if it is fair and reasonable to do so in the circumstances of each particular case
1.17 New section 40 proposed by the ITA Bill will replace the penalty with a general interest charge (GIC) on unpaid indirect taxes [Item 44]
1.18 This will make the penalty treatment for late payment of indirect taxes consistent with that proposed for other taxes by Taxation Laws Amendment Bill (No 5) 1998 which was passed by the Senate the week beginning 8 March 1999, and is awaiting Royal Assent
How is the GIC different from the penalty originally proposed?
1.19 The administrative penalty under new section 40, as proposed to be inserted by the GSTA Act, would be calculated at the rate of 16% per annum on the unpaid amount This would be reduced, in each particular case, where the Commissioner exercises a discretion to remit some or all of the penalty A relevant consideration in exercising that discretion may be the interest rate prevailing for the period the amount remained unpaid The degree of culpability in not paying on time is another relevant consideration
1.20 The GIC will provide a more transparent basis for calculating the penalty It will be based on a commercially realistic rate together with a fixed culpability component The nominal annual interest rate will be set at the weighted average yield for the 13 Week Treasury Note yield rate plus 8 percentage points
1.21 GIC will be calculated on a daily compounding basis from the time the indirect tax liability was due to be paid The daily effective rate will be derived from the nominal annual interest rate and will be adjusted each quarter to reflect quarterly movements in the 13 Week Treasury Note yield
1.22 Subsections 40(3) and (4), as proposed to be inserted by the GSTA Act, would have operated to reduce the late payment penalty by the amount of any interest on the GST component of a judgment debt These provisions will no longer be necessary The reduction of GIC by the amount of interest on the indirect tax component of a judgment debt will instead be achieved by new section 8AAH of the TAA 1953 (proposed by Taxation Laws Amendment Bill (No 5) 1998)
1.23 The Commissioner will be able to remit GIC having regard to the circumstances specified in new section 8AAG of the TAA 1953 (proposed by Taxation Laws Amendment Bill (No 5) 1998) The remission authority that applies to penalties under new Part VI of the TAA 1953 will therefore not apply to GIC under section 40 [Item 52 - new subsection 48(4)]
1.24 A reference to the replacement section 40 will be included in the table in new subsection 8AAB(5) of the TAA 1953 (as proposed by Taxation Laws Amendment Bill (No 5) 1998) This table lists the provisions of Acts (other than Income Tax Assessment Acts) that deal with liability to the GIC [Item 1]
Penalty for failing to give GST return or other information
1.25 New subsection 43(2), to be inserted by the GSTA Act, provides for a penalty for failure to give information (other than information relating to a GST return), when required under the GST law, in relation to a taxable supply or taxable importation
1.26 The ITA Bill will similarly provide for penalties for failure to give information (other than information relating to a GST return), when required under the wine tax law, in relation to a dealing [Item 45 - new subsection 43(2A)] and for failure to give information (other than information relating to a GST return), when required under the LCT law, in relation to a supply or importation of a luxury car [Item 45 - new subsection 43(2B)]
1.27 The maximum penalty will be 200% of the wine tax payable on the dealing, or 200% of the luxury car tax payable on the supply or importation, as appropriate
Indirect tax amending Acts cannot impose penalties etc earlier than 28 days after Royal Assent
1.28 New section 46A operates to remove liability for a indirect tax penalty which would otherwise be incurred in the 28 day period after an indirect tax amendment Act receives Royal Assent, where that penalty applies as a result of the amending law The effect of the provision is that until the 28th day after Royal Assent is reached for the amending law, a person cannot be guilty of an offence or be liable to a penalty that arises from an infringement of the amending law [Item 49 - new section 46A]
1.29 The provision will not affect the liability of any person to pay tax that is payable as a result of the amending law
Reviewable GST decisions, reviewable wine tax decisions and reviewable indirect tax decisions
1.30 The mechanisms and conditions for a person dissatisfied with a taxation decision to object against the decision and, ultimately, to request a review or appeal against the decision are set out in existing new Part VI of the TAA 1953
1.31 The ITA Bill will similarly provide for review rights to be extended to cover reviewable taxation decisions in the WET and reviewable indirect tax decisions in addition to reviewable GST decisions [Item 65 - new subsection 62(1)]
1.32 Reviewable WET decisions are set out in the ITA Bill in new subsection 62(2A) [Item 66]
1.33 Wine tax credit is defined in new subsection 62(4). [Item 70]
Alteration of contracts if cost of supplies etc is affected by later alterations to indirect tax law
1.34 If a change to the wine tax law or the LCT law affects the cost of the goods in a contract involving a supply or a taxable dealing, the contract price is automatically altered by the difference in the tax payable on the goods as a result of the change The contract price is not altered if the contract provides that it should not be [Item 71 - new section 62A]