The Senate

Income Tax Assessment Amendment Bill (No. 6) 1982

Income Tax Assessment Amendment Act (No. 6) 1982

Second Reading Speech

by The Minister for Finance Senator the Hon. Dame Margaret Guilfoyle, D.B.E.

In speaking to the Bills I have just introduced to recover tax evaded in the course of "bottom-of-the-harbour" strips of untaxed company profits I mentioned that I would be introducing a further Bill to double the rate of penalty for late payment of income tax.

This Bill - which was on introduction in the House of Representatives was titled the Income Tax Assessment Amendment (Additional Tax) Bill - will achieve that purpose, not just for companies that were stripped of assets but also for all individuals and other companies that are late in paying their income tax.

It will also provide for an income tax deduction for payments of promoters Recoupment tax made under the Taxation (Unpaid Company Tax) Assessment Bill.

I now turn to details of this Bill.

On 10 August 1982 the Treasurer announced the Government's intention to propose an increase from 10% per annum to 20% per annum in the rate of penalties payable under the various taxation laws for late payment of tax.

At the same time he gave some details of the Government's intention to introduce a system for payment of interest on a refund of tax that occurs as a result of a successful objection or appeal by a taxpayer.

By this Bill, the income tax law will be amended to increase the rate of Late Payment Penalty for late payment of income tax and related amounts.

The increase to 20% will not, however, take effect until two months after this Bill has become law.

The new rate of penalty tax will apply in respect of the late payment of assessed income tax, withholding tax on interest and dividends paid to non-residents of Australia, mining withholding tax and tax instalment deductions made by an employer from salaries or wages paid to employees.

The Bill also proposes a corresponding increase in the rate of additional tax payable where the taxable income of a company has been underestimated and the company has thereby been enabled to pay reduced instalments of company tax.

The existing income tax law empowers the Commissioner of Taxation to remit all or part of an amount of Late Payment Penalty where that is judged to be appropriate.

Where there is an objection or appeal against an assessment and the Commissioner accepts that the taxpayer has a genuine difference of opinion about his or her tax liability, the present general administrative practice of the Commissioner is, in the exercise of that power to remit, to enter into an arrangement with the taxpayer to remit all Late Payment Penalty in the event that the taxpayer is not successful in his objection or appeal. This arrangement is on the basis that the taxpayer pays one-half of the tax in dispute pending the outcome of the objection or appeal - it has been called a 50/50 arrangement.

This Bill will re-express the power given to the Commissioner of Taxation to remit Late Payment Penalty, so that this particular approach to the handling of disputed income tax liabilities will not be available in future.

The Commissioner will of course continue to be empowered to remit Late Payment Penalty where there are special circumstances, such as adverse business conditions or other factors beyond the control of the taxpayer.

Although the remission power is to be altered for the future, existing 50/50 arrangements will be allowed to continue according to their terms.

I also make the point that under the legislation we propose that a person who has a genuine dispute about liability will be able to pay to the Commissioner one-half of the disputed tax and obtain an extension of time for payment of the balance on the basis that, if the taxpayer wins the contest, he or she will be paid interest when the 50 per cent is refunded but, if the taxpayer loses, the Commissioner will be entitled to recover the remaining 50 per cent subject to Late Payment Penalty of 20 per cent from the date when the assessment became payable.

It has not been practicable to include in this Bill the measures necessary to provide for the payment of interest to taxpayers.

We are committed to these measures and, although it has not been possible to prepare the necessary legislation for introduction in these sittings, a Bill incorporating these measures will be introduced early in the autumn sittings.

It also remains the Government's intention to introduce in the autumn sittings legislation dealing with Late Payment Penalties in respect of sales tax and other taxes administered by the Commissioner of Taxation.

As I have explained in my Second Reading Speech on introduction of the Taxation (Unpaid Company Ttax) Assessment Bill, there is to be payable by promoters of schemes to strip companies of pre-tax profits a share of the company tax evaded by those companies. This share is to be collected by imposition of a promoters recoupment tax on a promoters taxable amount and will be limited to the gross fee charged on the acquisition of the target company.

Such a fee would generally have the character of income in the hands of the promoter concerned, and it can be said that collection of both income tax and the recoupment tax would amount to a double imposition.

The Government sees the strength of that argument.

The broad notion behind imposition of the recoupment tax on promoters is that the promoters should never have benefited by the evasion of company tax, and that the recoupment tax will return from them the fees that represent their share of the evaded tax.

To put it another way, the promoters fee that was received will by reason of the promoters recoupment tax, be required to be paid back.

In these circumstances, the Government believes it to be appropriate that the income tax law should be made to apply to promoters' own liability to income tax as though they had never received the amounts that they in fact pay back as recoupment tax.

Accordingly, the Government proposes by this Bill to allow as an income tax deduction for a person the amount that he or she pays as promoters recoupment tax, or as a contribution towards the promoters recoupment tax that another member of the particular promoters class has paid.

This deduction will be allowable for the year in which the shares in the target company were purchased, but will not be allowed to give rise to a carry-forward loss.

Finally Mr President, I mention the review that has been going on in recent months of monetary and other penalties contained in the various taxation laws.

We intend, again in the autumn sittings, to introduce further legislation to increase the effectiveness of the other penalty provisions of the taxation laws.

Part of the review of penalties has focussed on the rate of additional tax payable in cases involving international profit shifting arrangements, where avoidance that would otherwise occur has been eliminated by the new legislation brought in by this Government.

The Government has not overlooked its undertaking given in the Senate earlier this year that the level of additional tax applicable to such profit shifting arrangements would be reviewed, and the results of that review will be announced shortly.

An explanatory memorandum giving technical explanations of provisions of the Bill has been made available to Honourable Senators and I commend the Bill to the Senate.