Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 1 - Pay as you go (PAYG) withholding
1.1 Schedules 1, 5, 10, 11 and 14 to this Bill will amend the TAA 1953, ITAA 6 and other Acts to supplement the rules establishing a PAYG withholding system that were contained in the PAYG Bill. The amendments will:
- replace the current system of employment declarations with a new system of voluntary TFN declarations for certain recipients of payments covered by PAYG withholding;
- require payers of payments covered by PAYG withholding and certain other payments to advise the Commissioner about recipients of those payments who do not give a TFN declaration to the payer;
- set out how to calculate the amount to be withheld from the different types of payments subject to PAYG withholding;
- replace existing rules about payers reporting annually to the Commissioner about various types of income (e.g. salary or wages) subject to withholding with new simpler arrangements;
- make technical amendments to the PAYG withholding provisions in the PAYG Bill, primarily to ensure that a firm will not be required to withhold from a payment to a worker under a labour hire arrangement unless the firm is carrying on a labour hire business;
- require an entity with a PAYG withholding obligation to register with the Commissioner and enable an entity to register a branch for PAYG withholding purposes; and
- make consequential amendments to the ITAA 6, ITAA 1997 and other Acts so that Commonwealth legislation accurately reflects the terms used in the new PAYG withholding system.
1.2 Abbreviations used throughout this Chapter are summarised in the glossary following the Table of contents for this Explanatory Memorandum. Unless otherwise stated, legislative references are to provisions in Part 2-5 of Schedule 1 to the TAA 1953.
The measures are explained in the following sections:
- Section 1
- Working out how much to withhold
- Section 2
- Declarations of TFNs and other matters affecting amounts withheld
- Section 3
- Payer reporting obligations
- Section 4
- Technical improvements to the PAYG Bill
- Section 5
- Registration of PAYG withholders
- Section 6
- Consequential amendments
SECTION 1 WORKING OUT HOW MUCH TO WITHHOLD
Summary of the amendments
1.4 To prescribe how a payer must work out the amount to withhold from different types of payments covered by the PAYG withholding system.
1.5 The amendments will apply to payments made on or after 1 July 2000. [Item 6 of Schedule 1]
1.6 Under the PAYE legislation, the amount an employer must withhold from payments of salary or wages under subsections 221C(1) and 221C(1A) of the ITAA 6 is worked out using the method prescribed in Division 2 of Part 7 of the ITR 6. This method requires employers to work through the complex calculation rules in those regulations.
1.7 In practice, the great majority of employers do not have regard to these complex regulations in working out how much to withhold. Instead, they rely on commercially produced payroll software packages or on the income tax instalment schedules and statements of coefficients published by the Commissioner to assist employers.
1.8 As part of the modernisation and simplification of the withholding law, the PAYG legislation will not continue to prescribe how much to withhold through complex regulations.
1.9 Under the PAYG withholding arrangements, a payer will instead be required to work out how much to withhold in one of the following 3 ways:
- under withholding schedules and procedures to be made and published by the Commissioner;
- under the regulations; or
- in the special case of natural resource payments to non-residents, under a notice or certificate issued by the Commissioner as provided in sections 12-325 to 12-335.
1.10 These rules will replace proposed section 16-10 as introduced in the PAYG Bill on 30 June 1999. This section had proposed that in all cases an entity making a payment covered by the PAYG withholding system work out how much to withhold under the regulations.
1.11 A detailed explanation of the rules about working out how much to withhold is provided below under the Explanation of the amendments.
Explanation of the amendments
Commissioner's schedules and procedures
1.12 Broadly, Subdivisions 12-B (payments for work or services), 12-C (retirement payments, eligible termination payments and annuities) and 12-D (benefit and compensation payments) provide withholding coverage for those payments subject to withholding under the existing PAYE system.
1.13 New subsection 15-10(1) will require payers making payments covered by Subdivisions 12-B, 12-C and 12-D to work out how much to withhold by going directly to schedules and procedures made by the Commissioner under new subsection 15-25(1) . This rule will cover an entity making payments subject to withholding under the new voluntary agreement or labour hire arrangements.
1.14 This general rule will be subject to the exception that where a regulation prescribes the amount to withhold from a payment covered by one of these 3 Subdivisions, the payer must withhold in accordance with that regulation rather than the Commissioner's schedules and procedures.
1.15 At this stage it is envisaged that a new regulation under the TAA 1953 will provide that where a recipient of a payment covered by Subdivision 12-B, 12-C or 12-D has not given an effective TFN declaration (under Division 3 of Part VA of the ITAA 6), or is not party to a voluntary agreement under section 12-55 covering the payment, the payer must withhold at the top marginal rate. The existing law has such a rule under the PAYE system where an employee does not quote a TFN. This rule is set out in regulation 81 of the ITR 6.
1.16 The withholding schedules and procedures will be similar in form and operation to the income tax instalment schedules and statements of coefficients currently published by the Commissioner.
1.17 They will have the advantage of being easier to use than the complex calculation method set out under the ITR 6. Further, they will also allow the law to better accord with and support the current commercial practice of many businesses.
1.18 At the same time as achieving improvements in the simplicity and relevance of the law, the schedules and procedures will achieve the same result as the calculation rules set out in the ITR 6. That is, they will set out progressive rates of withholding resulting in sufficient amounts being withheld over the course of a year of income to meet a recipient's liabilities for:
- income tax;
- the Medicare levy; and
- contributions under HECS,
in respect of income derived during that year from payments covered by Subdivisions 12-B, 12-C and 12-D.
1.19 In applying the schedules a payer will need to take account of any information provided by a recipient in a TFN declaration or a declaration under new section 15-50 . [New section 15-1]
1.20 These new declaration arrangements are explained in Section 2 of this Chapter.
1.21 Where relevant, the payer will also need to take account of information required to be provided in a voluntary agreement under section 12-55. The information provided in these declarations or in a voluntary agreement may affect the amount to be withheld.
How will the schedules and procedures be prepared?
1.22 New subsection 15-25(1) enables the Commissioner to make withholding schedules and procedures. However, the Commissioner's ability to do so will be closely circumscribed. New section 15-30 provides that the Commissioner must have regard to the following matters when preparing the schedules and procedures:
- the rates of income tax as specified in the Income Tax Rates Act 1986 ;
- the rates of Medicare levy as specified in the Medicare Levy Act 1986 ;
- the rates of HECS contributions specified in section 106Q of the Higher Education Funding Act 1988 ;
- any prescribed tax offsets;
- the family tax benefit as established under the A New Tax System (Family Assistance) Act 1999 ;
- the periods in respect of which payments are made; and
- any other matter specified in the regulations.
1.23 The Commissioner's ability to make the schedules will also be limited to the purpose of enabling the collection of income tax, the Medicare levy and contributions under the HECS. [New subsection 15-25(1)]
1.24 These limitations are designed to ensure that the schedules and procedures show a clearly discernible, proportionate and direct relationship to the matters listed above at paragraph 1.22. They will ensure that the Commissioner cannot set levels of withholding that are arbitrary or inconsistent with the income tax rates and other matters stipulated by the Parliament.
1.25 It is intended that the schedules and procedures published by the Commissioner will be calculated using the method currently articulated in the ITR 6.
The schedules must be publicly available
1.26 New subsection 15-25(5) requires the Commissioner to make each withholding schedule publicly available.
1.27 Under new subsection 15-35(1) , regulations will be used to prescribe the amount to withhold under the following events:
- dividends, interest or royalties paid to non-residents;
- no TFN/ABN on investment income;
- no ABN on a supply; and
- payments for mining or exploration on Aboriginal land.
These regulations will be made under the TAA 1953.
1.28 For those events which have equivalents under the current withholding arrangements in Part VI of the ITAA 6, the rate of withholding will remain at its existing level.
1.29 For the new No ABN arrangement, the TAR 1953 will prescribe a rate of withholding equal to the top marginal rate.
1.30 A regulation will also prescribe withholding at the top marginal rate for payments covered by Subdivision 12-B, 12-C or 12-D where the recipient has not given an effective TFN declaration and the payment is not subject to a voluntary agreement under section 12-55.
1.31 New subsection 15-35(2) makes clear that the regulations prescribing the rate of withholding for these arrangements may prescribe different rates for different kinds of withholding payments, different periods in respect of which those payments are made, and recipients with different circumstances.
Natural resource payments to non-residents
1.32 Sections 12-325 to 12-335 contain rules governing how much a payer must withhold from natural resource payments. In essence the Commissioner will continue to advise the payer how much to withhold through a written notice or written certificate. This will be consistent with the existing withholding arrangements for these kinds of payment.
1.33 A payer making a natural resource payment must work out how much to withhold in accordance with the Commissioner's advice. [New subsection 15-10(2)]
Summary of withholding amounts
1.34 The following table summarises the new PAYG withholding payments and the amounts that are intended to be withheld from 1 July 2000.
1.35 Unless stated otherwise, references to regulations are to the ITR 6.
|Withholding payment||Section||How much to withhold|
|A payment of salary etc. to an employee.||12-35||The amount worked out under the Commissioner's withholding schedules and procedures. These amounts will be based on progressive rather than flat rates. They will have regard to the:
|A payment of remuneration to the director of a company.||12-40||As above.|
|A payment of salary etc. to an office holder.||12-45||As above.|
|A return to work payment.||12-50||As above.|
|A payment covered by a voluntary agreement.||12-55||As above.|
|A payment under a labour hire arrangement or a payment specified in the regulations.||12-60||As above.|
|A payment of pension or annuity.||12-80||As above.|
|A payment for unused leave.||12-90||As above.|
|A social security or similar payment.||12-110||As above.|
|A Commonwealth education or training payment.||12-115||As above.|
|A compensation, sickness or accident payment.||12-120||As above.|
|An eligible termination payment.||12-85||The rates currently applying under regulation 98. These rates will be prescribed either by the TAR 1953 or in a withholding schedule.|
|A payment arising from an investment where the recipient does not quote its TFN, or in some cases, ABN.||12-140||48.5% of the payment unless the income is in the form of a partly franked dividend. (In which case the 48.5% rate effectively applies only to the unfranked proportion - see subsection 221YHZC(1D) of the ITAA 6). These rules will be prescribed by the TAR 1953.|
|Investor becoming presently entitled to income of a unit trust.||12-145||48.5% of the payment. This rate will be prescribed by the TAR 1953.<|
|A payment for a supply where no ABN is quoted.||12-190||As above.|
|A dividend payment to an overseas person and a dividend payment received for a foreign resident.||12-210, 12-215||The rates currently set out in regulation 136. These rates will be prescribed by the TAR 1953.|
|An interest payment to an overseas person and an interest payment received for a foreign resident.
An interest payment derived by a lender in carrying on business through overseas permanent establishment.
|12-245, 12-250, 12-255||The rate of 10% currently set out in regulation 137. This rate will be prescribed by the TAR 1953.|
|A royalty payment to an overseas person and a royalty payment received for a foreign resident.||12-280, 12-285||The rates currently set out in regulation 138. These rates will be prescribed by the TAR 1953.|
|A mining payment.||12-320||The current rate of 4% as set out in section 6 of the Income Tax (Mining Withholding Tax) Act 1979 . This rate will be prescribed by the TAR 1953.|
|A natural resource payment.||12-325||The rate set by the Commissioner under sections 12-325 and 12-330.|
SECTION 2 DECLARATIONS OF TFNS AND OTHER MATTERS AFFECTING AMOUNTS WITHHELD
Summary of the amendments
1.36 The amendments will replace the current system of employment declarations contained in Division 3 of Part VA of the ITAA 6 (Division 3) with a new system of TFN declarations.
1.37 The amendments also allow a recipient of certain PAYG withholding payments to provide his or her payer with other declarations about matters affecting how much must be withheld. These declarations are called withholding declarations in this Chapter.
1.38 In this section, references to regulations are to the ITR 6.
1.39 The amendments will apply from 1 July 2000. [Subclause 2(10)]
1.40 Currently under Division 3 an employee may give their employer an employment declaration stating their TFN. Employee has the same extended meaning as in the PAYE provisions (i.e. it covers office holders, directors, social security recipients, etc.). Employer and salary or wages have corresponding meanings. In some cases (e.g. certain pensioners) Division 3 deems an employee to have given an employment declaration stating their TFN, even though they have not.
1.41 An employer who currently receives an employment declaration must send it to the Commissioner within 28 days of receipt.
1.42 The primary purpose of the employment declaration system is to improve the efficiency and effectiveness of the ATO's income-matching systems as a means of detecting undisclosed income. Employment declarations are also used by other Commonwealth agencies for authorised data matching purposes.
1.43 If an employee does not give an employment declaration stating their TFN, regulation 81 requires tax instalments to be withheld from payments of salary and wages made to that employee at the rate of 48.5%.
1.44 Regulations 85 to 90 establish a system of additional declarations. An employee for PAYE purposes may give one or more of these declarations to their employer notifying of matters the employee wishes to have taken into account in calculating the amount withheld from their salary or wages.
1.45 Broadly, these regulations enable an employee to notify the employer of their residency, that they wish to claim the general exemption and/or that they are entitled to various rebates, family tax assistance or Medicare levy variations. All of these matters have the effect of reducing the amount required to be withheld from payments of salary or wages made to the employee.
1.46 These regulations also:
- require an employee that makes an employment declaration under Division 3 to notify their employer if they have an accumulated HECS debt; and
- enable an employee to elect to meet their liability to the Medicare levy surcharge through the PAYE withholding arrangements.
1.47 Both of these matters have the effect of increasing the amount that must be withheld from payments of salary or wages made to the employee.
1.48 The current practice is to incorporate many of the declarations given under regulations 85 to 90 into the employment declaration given under Division 3. This practice is authorised by subregulation 89(2). Medicare levy variation declarations are not currently incorporated into the employment declaration and must be given separately.
1.49 Regulations 91 to 94 establish a system of Commissioner's certificates. Under this system employees may, in certain cases, give a declaration to the Commissioner rather than their employer. The Commissioner then issues the employee with a certificate to give to their employer in place of a declaration. This certificate operates as if it was a declaration given directly by the employee to the employer and deals with the same matters as a declaration.
1.50 The current system of employment declarations in Division 3 will be replaced with a system of TFN declarations. The rules about these declarations will continue to be located in Division 3.
1.51 This change is necessary because the existing employment declaration system relies heavily on the extended definitions of the terms employee and employer contained in subsection 221A(1) of the ITAA 6 and used in the current PAYE arrangements.
1.52 The PAYG withholding legislation does not use these extended definitions. Instead, it describes separately the various payments currently within the definition of salary or wages applying under the PAYE arrangements.
1.53 Consequently, the provisions dealing with employment declarations need to be revised to support the new PAYG withholding framework, in particular the absence of the PAYE concepts of employee and employer in the new withholding law.
1.54 Despite this change in terminology, TFN declarations will continue to fulfil the same roles as employment declarations. Like employment declarations, they will be voluntary . However, individuals who elect not to provide an effective TFN declaration will be subject to withholding at the top marginal rate in the same way as if they were taken not to have made an effective employment declaration. These individuals are entitled to a credit in their assessments for the income year equal to the amounts withheld.
1.55 Employment declarations in force at the end of 30 June 2000 will be deemed to be effective TFN declarations from 1 July 2000. This will avoid the need for individuals who have previously given an employment declaration to make a new TFN declaration on 1 July 2000. [Item 74 of Schedule 5]
1.56 Under the new PAYG withholding arrangements, a recipient of a payment covered by Subdivision 12-B, 12-C or 12-D will be able to give the entity making the payment a withholding declaration about matters affecting the amount to be withheld. Broadly, withholding declarations will cover the same kinds of matters about which an employee can currently give a declaration under regulations 85 to 90 (e.g. certain tax offsets, the family tax benefit, full or partial exemption from the Medicare levy).
1.57 A recipient who has given a TFN declaration will also be able to give a withholding declaration notifying of a change in circumstances affecting information given in the TFN declaration.
1.58 The payer will take the information provided in a withholding declaration into account when working out how much to withhold. This will be done by using the withholding schedules applying to a payment when a payer has received a declaration about a particular matter. The new withholding schedule arrangement is explained in Section 1 of this Chapter.
1.59 The new law will not expressly provide for the system of Commissioner's certificates currently set out in regulations 91 to 94. In practice it is exceedingly rare for this arrangement to be used. In future the arrangement will be provided for administratively.
Explanation of the amendments
1.60 The amendments at items 1 to 54 of Schedule 5 to this Bill replace the current employment declaration system in Division 3 with the new TFN declaration arrangements.
1.61 The majority of these amendments are consequential amendments to Divisions 1, 2 and 3 of Part VA of the ITAA 6 which are necessary to replace the current references to PAYE concepts such as employee , employer and employment declaration with the new PAYG concepts of recipient , payer and TFN declaration .
1.62 The majority of rules currently applying to employment declarations under Division 3 will apply to TFN declarations.
1.63 The TFN declaration arrangements will be located in Division 3. This Division contains sections 202A to 202G.
Who can give a TFN declaration?
1.64 Under new subsection 202C(1) , a person who receives an eligible PAYG payment or is likely to receive such a payment may give the person making the payment a TFN declaration. [Item 17]
1.65 Section 202A will define an eligible PAYG payment to mean a payment from which an amount must be withheld under Subdivision 12-B, 12-C or 12-D. The definition also covers a non-cash payment in respect of which an amount is payable under Division 14 where a cash payment would be covered by Subdivision 12-B, 12-C or 12-D. [Item 2]
1.66 The definition of eligible PAYG payment excludes payments to be covered by a voluntary agreement under section 12-55. This stems from the fact that under section 12-55 a person wishing to enter into a voluntary agreement must do so in the approved form which will involve quoting their ABN. Under the new tax system it is intended that a business should be able to use its ABN as its sole identifier for Government purposes. A requirement for a business that is party to a voluntary agreement to also state its TFN would be inconsistent with this policy and an unnecessary compliance burden.
How must the declaration be given?
1.67 A TFN declaration must be given in the approved form. [New subsection 202C(2), item 17]
1.68 For the purposes of the TFN declaration arrangements, approved form will have the same meaning as in subsection 995-1(1) of the ITAA 1997. [Item 1]
1.69 The Government envisages that the approved form will require a recipient who wishes to give a TFN declaration to also state in that declaration whether they:
- are an Australian resident for income tax purposes; and
- wish to claim the general exemption; and
- have an accumulated HECS debt.
1.70 The approved form for a voluntary agreement made under section 12-55 will allow the recipient of payments covered by the agreement to make these statements. This will provide a mechanism for these recipients, who will not be governed by the TFN declarations in new section 202C , to advise the payer of this information.
1.71 Under new Division 15 a payer will need to take this information into account in working out how much to withhold from payments caught by the 3 Subdivisions above. This is explained in more detail in Section 1 of this Chapter.
When is a TFN declaration effective?
1.72 New subsection 202CA(1) provides that a TFN declaration commences to be effective when it is made. [Item 18]
1.73 This is subject to the rule in new subsection 202CB(1) that a TFN declaration will not be effective unless it contains the person's TFN. [Item 210]
1.74 New subsections 202CB(2) to (5) replicate the effect of the existing subsections 202CB(2) to (5). These provide that a TFN will be taken to have been stated in certain circumstances for a limited period of time.
When does a TFN declaration cease to have effect?
1.75 A TFN declaration will cease to have effect if one of the following occurs:
- the recipient gives the payer another effective TFN declaration;
- a period of 12 months has passed since the declaration was given and no eligible PAYG payment has been made by the payer to the recipient during that period; or
- a period of 12 months has passed since the last eligible PAYG payment was made by the payer to the recipient. [Item 18, new subsections 202CA(1A), (1B) and (1C)]
What must a payer do with a TFN declaration?
1.76 New paragraph 202CD(1)(b) provides that a payer must forward a TFN declaration to the Commissioner within 14 days after it has been given to the payer. [Item 28]
1.77 This is different to the current rule for forwarding of employment declarations under which the employer has 28 days or such further period allowed by the Commissioner to forward the declaration.
1.78 Where an effective employment declaration is given before 1 July 2000 but the current forwarding period under subsection 202CD(3) has not expired by that date, the employer will still have 28 days within which to forward the declaration to the Commissioner. [Subitem 74(2)]
1.79 New paragraphs 202CD(4)(a) and (b) maintain the current effect of existing paragraphs 202CD(4)(a) and (b) by requiring a payer who receives a TFN declaration that does not state the recipient's TFN number to write that number on the declaration if the recipient gives it to the payer before the payer sends the declaration to the Commissioner. [Item 30]
1.80 The payer will also need to take the information provided in the TFN declaration into account when working out how much to withhold under the withholding schedules. [New section 15-1]
What happens if a TFN declaration is not given?
1.81 Under new section 202CF a person making an eligible PAYG payment will be required to notify the Commissioner of recipients who do not give an effective TFN declaration. The notification will be in an approved form. [Item 54, new section 202CF]
1.82 This requirement is explained in detail in Section 3 of this Chapter.
1.83 Under the regulations, a payer will also be required to withhold at the top marginal rate if the recipient has not given an effective TFN declaration under Division 3.
Withholding Declarations - PAYG Withholding
Who can give a withholding declaration?
1.84 Under new subsection 15-50(1) , an individual who expects to receive a payment covered by Subdivision 12-B, 12-C or 12-D will be able to give the payer a withholding declaration about various matters the individual wishes to have taken into account when the payer works out how much to withhold. The declaration must be given in the approved form.
1.85 An individual who wishes to change particular information given in a TFN declaration under Division 3 may also give a withholding declaration under new subsection 15-50(3) .
1.86 Under new paragraph 15-50(2)(a) , an individual may only give a withholding declaration under new subsection 15-50(1) if they have given the payer a TFN declaration in the approved form stating their TFN or have entered into a voluntary agreement with the payer under section 12-55. If an individual has not given a TFN declaration or entered into a voluntary agreement, the payer will be required to withhold at the top marginal rate regardless of any other matter.
1.87 New paragraph 15-50(2)(b) ensures that an individual can only give a declaration about prescribed matters under new subsection 15-50(1) to one payer at any given time. An individual will not be able to choose to have declarations about different prescribed matters in force concurrently with different payers. This rule will help to ensure that an appropriate rate of withholding applies to payments received by the individual.
What will a withholding declaration cover?
1.88 An individual will only be able to give a withholding declaration about a matter prescribed by the regulations. [New paragraphs 15-50(1)(b) and (3)(a)]
1.89 These matters will be prescribed in the TAR 1953. The regulations will enable an individual to give withholding declarations about many of the matters on which an employee can currently give a declaration under regulations 85 to 90. This will include matters such as rebate and family tax benefit entitlements and Medicare levy variations.
1.90 However, under the new arrangements an individual will give a TFN declaration under Division 3 rather than a withholding declaration under new section 15-50 to:
- claim the general exemption;
- advise the payer of their residency status; and/or
- advise the payer of an accumulated HECS debt.
1.91 While a TFN declaration must initially be used to notify a payer of these 3 matters, an individual will give a withholding declaration under new subsection 15-50(3) to notify the payer of any later changes to these matters. Unlike a declaration given under new subsection 15-50(1) , a declaration under new subsection 15-50(3) may be in effect with more than one payer at the same time.
What is the effect of a withholding declaration?
1.92 As highlighted by new section 15-1 , a payer will need to take the information in a withholding declaration into account in working out how much to withhold from payments falling within Subdivision 12-B, 12-C or 12-D.
1.93 The withholding schedules and procedures made by the Commissioner under new section 15-25 will explain how the payer must do so. The process will essentially be the same as under the current PAYE arrangements. Under these arrangements an employer has regard to the matters stated in an employee's employment declaration when working out how to apply the tax instalment schedules published by the Commissioner.
1.94 New subsection 15-50(5) provides that if:
- an individual gives an entity a declaration under new subsection 15- 50(1) or (3) about a prescribed matter; and
- the individual's circumstances change in relation to the matter;
the regulations may prescribe when the individual must give the entity a new withholding declaration about the matter.
1.95 It is envisaged that the TAR 1953 will require an individual whose circumstances in relation to a prescribed matter have changed to give a new withholding declaration reflecting that change in broadly the same range of situations as currently prescribed in regulation 95.
1.96 This will include an obligation to provide a new withholding declaration where an individuals entitlement to a particular tax offset or Medicare levy variation has changed or ceased altogether. It will also include an obligation to provide a new withholding declaration where an individual who is receiving the family tax benefit through reduced amounts of withholding decides to receive the family tax benefit through Centrelink payments.
Operation of a withholding declaration
1.97 New subsection 15-50(4) makes clear that for the purposes of new section 15-50 the regulations may prescribe:
- the matters about which a withholding declaration may be given; and
- when a withholding declaration starts or ceases to have effect; and
- when a withholding declaration will be taken to have been given.
1.98 It is envisaged that the new withholding schedules made by the Commissioner under new section 15-25 will set out procedures governing when a payer must have regard to a withholding declaration given under new section 15-50 . Ordinarily a payer will need to take a withholding declaration into account when working out how much to withhold from payments made after receipt of the declaration.
1.99 The TAR 1953 will prescribe when a withholding declaration ceases to have effect. It is envisaged that a withholding declaration will cease to have effect in a similar range of circumstances as currently set out in regulation 90. A new regulation will also maintain the current operation of regulation 87 which deems certain members of the Defence Force to have given a declaration claiming a Medicare levy variation entitlement.
SECTION 3 PAYER REPORTING OBLIGATIONS
Summary of the amendments
1.100 The purpose of the amendments is to require entities making payments covered by the PAYG withholding system to give an annual report about those payments to the Commissioner.
1.101 The amendments also require entities making payments covered by Subdivision 12-B (payments for work or services), 12-C (annuities, retirement payments and eligible termination payments) or 12-D (benefit and compensation payments) to notify the Commissioner of recipients who do not provide a TFN declaration stating their TFN.
1.102 An entity will be required to provide an annual report about a payment subject to withholding if the entity makes the payment during a financial year commencing on or after 1 July 2000. [Item 73 of Schedule 5]
1.103 The requirement to notify the Commissioner about recipients who do not give a TFN declaration stating their TFN will apply from 1 July 2000. [Subclause 2(10)]
1.104 The 9 existing withholding arrangements contained in Part VI of the ITAA 6 each impose different annual reporting obligations on a person required to deduct amounts under that Part. Under those arrangements a person must give a separate report about amounts withheld under each of the different withholding systems. The content of the report also differs between the various systems. For example, under the existing PAYE, PPS and investment income withholding arrangements, payers must give reports containing different types of reconciliations. Under the PAYE arrangements an employer must reconcile the total deductions shown in each group certificate with the total amount paid to the Commissioner in respect of those deductions. Investment bodies must currently reconcile the total of amounts deducted from investment income with the sum of all amounts paid to the Commissioner in respect of those deductions and all amounts offset by the body in respect of refunded amounts.
1.105 PAYG withholding will rationalise the annual reporting rules for payers. This will allow many payers to make one annual report about all the withholding payments they make. Under the PAYG arrangements the existing reconciliation statement obligations applying to various payers will also be removed.
1.106 Under the existing employment declaration arrangements contained in Division 3 of Part VA of the ITAA 6, an employer is not required to notify the Commissioner if an employee does not provide an employment declaration stating his or her TFN.
1.107 Under the new TFN declaration arrangements which will be replacing employment declarations, payers will be required to notify the Commissioner of recipients who do not give effective TFN declarations.
1.108 This supplementation of the TFN declaration arrangements is designed to improve compliance with the tax and social security systems.
Explanation of the amendments
1.109 Under new section 16- an entity will be required to give an annual report to the Commissioner if, during a financial year, the entity is required to:
- withhold an amount under Division 12; and/or
- pay an amount to the Commissioner in respect of a non-cash benefit under Division 14. [Item 69]
1.110 The general rule will be that the annual report must be given in a form approved by the Commissioner. This includes a requirement to provide any of the information required in the approved form. [New subsections 16-(1) and (2)]
1.111 However an entity required to withhold an amount under Subdivision 12-B, 12-C or 12-D during a financial year may choose to give an annual report about that payment in one of the following forms:
- a report in the approved form; or
- a report consisting of a copy of each annual payment summary issued under section 16-155 for amounts withheld under those 3 Subdivisions together with a statement in the approved form. [New subsections 16-(2) and (3)]
1.112 It is envisaged that the form approved by the Commissioner for the annual report will require the following kinds of information to be given:
- the details of each recipient to whom the entity has made a withholding payment;
- the total of each kind of withholding payment made to the recipient;
- the total amount withheld from payments made to the recipient or paid to the Commissioner in relation to non-cash payments;
- the total of any reportable fringe benefits amounts paid to the recipient because of their employment with the payer;
- the total amount refunded to the recipient under section 18-65; and
- the aggregate totals for amounts withheld or paid to the Commissioner for non-cash benefits under each kind of withholding payment for all recipients.
1.113 Investment bodies (e.g. financial institutions, public companies) making withholding payments covered by section 12-140 or 12-145 will not be required to give this annual report. Instead, they will continue to give the reports currently required under regulations 55 and 56 of the ITR 6. These regulations will be amended to require reporting of an entity's ABN where this has been quoted in place of its TFN under section 12-155. The current obligation on investment bodies to give a reconciliation statement will not be retained under the PAYG arrangements.
When must the report or payment summaries be given?
1.114 The due date for the annual report will be:
- no later than 31 October after the end of the relevant financial year for payers that withhold amounts under section 12-190, Subdivision 12-F or 12-G [new subsection 16-(1)] ; or
- no later than 14 August after the end of the relevant financial year for payers who withhold amounts under Subdivisions 12-B, 12-C or 12-D [new subsection 16-(2)] .
1.115 If a payer withholds amounts under both, they must provide one report for amounts withheld under section 12-190, Subdivision 12-F or 12-G and another report for amounts withheld under Subdivisions 12-B, 12-C or 12-D. The former must be provided no later than 31 October in the relevant financial year, the latter by 14 August in that year. A payer may choose to discharge both these obligations at the one time by providing both reports by 14 August in the relevant year.
1.116 As explained above, an entity that withholds an amount under Subdivision 12-G must provide an annual report no later than 31 October after the end of the financial year in which the amount was withheld. This changes the existing annual reporting obligation in paragraph 221ZC(1)(b) of the ITAA 6 for a person who deducts an amount from a mining payment. Under the existing rule that person must give an annual report within 2 months after the end of the relevant financial year. This change will facilitate a greater alignment of annual reporting obligations.
What happens if a report is not given?
1.117 Under the existing annual withholding reporting obligations, failure to provide a report as required is an offence punishable on conviction by a fine of up to $1,000, $2,000 or 20 penalty units depending on the withholding system. Failure to provide a report also attracts the Late Reconciliation Statement Penalty under Division 3 of Part IIA of the TAA 1953.
1.118 Under the new annual reporting provisions failure to provide a report as required will constitute an offence under section 8C of the TAA 1953. Alternatively, the payer will be liable to an administrative penalty of 10 penalty units. [New subsection 16-(4)] The value of a penalty unit is worked out under section 4AA of the Crimes Act 1914 . The current monetary value of a penalty unit is $110.
1.119 The proposed machinery rules in new Division 298 of new Part 4-25 of the TAA 1953 governing civil penalties expressed in penalty units will apply to this penalty. [Item 24 of Schedule 12]
The Commissioner may vary the obligation
1.120 New subsection 16-(6) will allow the Commissioner to vary any of the requirements about giving an annual report either for one payer or a class of payers. A variation to the obligations of a class of payers must be made by way of notice published in the Gazette . A variation to the obligations of an individual payer must be made by written notice given to the payer. [New subsection 16-(7)]
1.121 This is a change to most of the current annual withholding reporting rules under which the Commissioner does not have the ability to vary a payer's reporting obligations.
Recipients who do not give a TFN declaration
1.122 A person who expects to receive a withholding payment covered by Subdivision 12-B (payments for work or services), 12-C (annuities, retirement payments and eligible termination payments) or 12-D (benefit and compensation payments) will be able to give their payer a TFN declaration under Division 3 of Part VA of the ITAA 6 stating their TFN. [Item 190, new section 202C]
1. Under the new arrangements, a payer that commences a relationship with a recipient or any other person under which the recipient is entitled, or will become entitled, to receive a payment covered by Subdivisions 12-B, 12-C or 12-D from the payer must give a notice in the approved form about the recipient. The notice must be given to the Commissioner not later than 14 days after entering into the relationship unless a TFN declaration is in force between the payer and the recipient at the end of that 14 day period. [Item 54, new subsection 202CF(1)]
Recipients who do not have an employment declaration in place on 1 July 2000
1.124 There is a special transitional arrangement for recipients (e.g. employees) of payments covered by Subdivision 12-B, 12-C or 12-D who, at 1 July 2000, have not given an effective employment declaration to their payer. The payer will be required to notify the Commissioner no later than 31 October 2000. The payer will not be required to give the notice if the recipient provides a TFN declaration by 31 October 2000 that is in force on that day. This transitional rule, like the TFN declaration rules, does not apply to voluntary agreements under section 12-55. [New subsection 202CF(2)]
What happens if the payer does not notify the Commissioner?
1.125 Failure to provide notification as required under new section 202CF will constitute an offence under section 8C of the TAA 1953. Alternatively, a payer who fails to provide the required notification will be liable to an administrative penalty of 10 penalty units. [New subsection 202CF(3)]
1.126 The proposed machinery rules in new Division 298 of new Part 4-25 of the TAA 1953 governing civil penalties expressed in penalty units will apply to this penalty. [Item 24 of Schedule 12]
SECTION 4 TECHNICAL IMPROVEMENTS TO THE PAYG BILL
Summary of the amendments
1.127 The amendments will ensure that the labour hire withholding provision:
- only requires a firm to withhold from a payment to an individual under a labour hire arrangement if the firm is carrying on a labour hire business; and
- does not require withholding from payments under subcontracts.
1.128 The amendments will also make minor technical improvements to the PAYG withholding provisions contained in the PAYG Bill.
1.129 The PAYG withholding provisions, as amended by this Bill, will apply to payments made on or after 1 July 2000. [Subclause 2(9) of this Bill, item 3 of Part 1 in Schedule 1 of the PAYG Bill]
1.130 The Government's proposed new PAYG withholding system includes 3 new cases where withholding will be required. One of those is payments for work or services under labour hire arrangements, or as specified in the regulations. The provision requiring withholding in these circumstances is section 12-60 of Schedule 1 to the TAA 1953.
1.131 Paragraph 12-60(a) covers a payment by an entity to an individual if the payment is under an arrangement involving the performance of work or services by the individual for a client of the entity.
1.132 Paragraph 12-60(a) could potentially cover some payments that are not commonly regarded as made under labour hire arrangements. For example, the paragraph might cover some payments from a solicitor to a barrister for work done for the solicitor's client. The labour hire event in the PAYG withholding system was not intended to cover such payments. Consequently, an amendment is proposed so that withholding under paragraph 12-60(a) is limited to payments by labour hire firms.
1.133 The PAYG withholding provisions contained in the PAYG Bill have the following weaknesses:
- holders of exemption certificates in force on 30 June 2000 under the current withholding provisions for natural resource payments to non-residents would have to apply for new certificates under the PAYG system - if they wished to continue to make those payments without notifying the Commissioner;
- some aspects of the relationship between the ITAA 1997, the ITAA 6 and the TAA 1953 are unclear;
- the date of effect of some consequential amendments contained in the PAYG Bill is not clear; and
- they contain specific provisions for PAYG withholding about the Commissioner's power to obtain information and about how obligations apply to entities that are not legal persons (e.g. partnerships), rather than relying on more general provisions. This approach necessitates the replication of such rules when other sets of provisions are added to Schedule 1 of the TAA 1953.
Explanation of the amendments
1.134 Section 12-60 will be replaced by a new section 12-60 which does not change the proposed provision about withholding from payments specified in the Regulations. However, the new labour hire provision, subsection 12-60(1), differs from previous one in 2 ways. [Item 2 of Part 1 in Schedule 10]
1.135 First , there will be a requirement, in paragraph 12-60(1)(a), that the entity making the payments is carrying on a business of arranging for people to perform work or services for clients of the entity. This requirement will be satisfied if:
- the entity's activities consist only of a business of arranging for people to perform work or services for clients of the entity; or
- the entity's activities include a business of arranging for people to perform work or services for clients of the entity unless that business is merely incidental to the other business activities of the enterprise.
1.136 Thus, it is not necessary that the labour hire activities be the only business, or even the main business, of the paying entity. For example, if a firm's main business is providing services as a consultant but it has a secondary business of labour hire, new paragraph 12-60(1)(a) is satisfied. However, if arranging for people to perform work or services for clients is merely incidental to another business activity of the entity, the labour hire provision will not require withholding. For example, if a solicitor arranges for a barrister to perform work for the solicitor's client, that would only be incidental to the other business activities of the solicitor and withholding would not be required under the labour hire provision.
1.137 Secondly , the requirement that the payment be made under an arrangement involving the performance of work or services for a client of the paying entity will be modified to require that the work be done directly for the client. This change is intended to clarify that payments by a contractor to a subcontractor are outside the provision. It is not intended to require that there be any legal relationship (e.g. contractual) between the worker and the end user of the work or services.
Example 1.1 Paul is a builder and contracts to build a house for Susan. He subcontracts with Bruce for Bruce to do the plumbing work for the house. Paul does not have to withhold amounts under the labour hire provision from his payments to Bruce under the subcontract, because Bruce is not performing the work directly for Susan.
1.138 The new provision is intended to cover traditional labour hire arrangements of the type considered by the courts in the Odco and Drake Personnel cases [F2] . The provision is also intended to cover payments to an individual under similar arrangements that feature the on-hiring of labour to an end user.
Exemption certificates for natural resource payments
1.139 The existing withholding provisions for natural resource payments to non-residents prohibit a person making such a payment unless:
- the person has notified the Commissioner and the Commissioner has then notified the person of how much to withhold; or
- the payment is covered by an exemption certificate that is in force (subsection 221YHZB of the ITAA 6).
1.140 The PAYG withholding provisions in proposed sections 12-325 to 12-335 will have the same effect. However, exemption certificates issued under the existing law would not apply to payments made on or after 1 July 2000. Consequently, holders of exemption certificates would need to apply for new certificates under the PAYG provisions if they wished to continue to make natural resource payments without notifying the Commissioner.
1.141 To ensure that existing exemption certificates can have effect after 30 June 2000, this Bill will amend the application provisions for the PAYG withholding provisions (item 3 of Schedule 1 to the PAYG Bill). The amendment inserts subitem 3(3A), which provides that exemption certificates in force at the end of 30 June 2000 are treated as if the Commissioner had issued them under the new PAYG withholding provisions. [Item 20 of Part 2 in Schedule 10]
Relationship between the ITAA 1997, ITAA 6 and the TAA 1953
1.142 The PAYG provisions will be located in Schedule 1 to the TAA 1953. The ITAA 6, ITAA 1997 and Schedule 1 are intended to work together as one body of law. To help achieve this outcome, the PAYG Bill proposed to amend the definitions of 'this Act' in both the ITAA 6 and ITAA 1997 by adding a new paragraph (c) to section 6 of the ITAA 6 to include Schedule 1.
1.143 Paragraph (b) of the definitions of 'this Act' refers to Part IVC of the TAA 1953 which is about objections, reviews and appeals, so far as that Part relates to the ITAA 6 or the ITAA 1997. The intention of paragraph (b) is to read the objection and review provisions as part of the income tax law, to the extent that they concern income tax issues.
1.144 This Bill will replace paragraph (b) in both the ITAA 6 and the ITAA 1997 so that it also covers the objection, review and appeal provisions to the extent that they relate to PAYG and any other provisions in Schedule 1. [Item 22 of Part 2 in Schedule 10, item 36 in Schedule 18]
Application of definitions in the TAA 1953
1.145 Under the PAYG Bill the definitions in the TAA 1997 apply to the PAYG provisions (and any other provisions) in Schedule 1 of the TAA 1953 (proposed section 3AA of the TAA 1953). This Bill will amend section 2 of the TAA 1953 to make it clear that the general definitions in the TAA 1953 do not apply to Schedule 1. [Item 1 of Part 1 in Schedule 10]
Application of definitions in ITAA 1997
1.146 Subsection 995-1(2) of the ITAA 1997 is designed to ensure that the definitions in that Act do not apply to the ITAA 6, 'except as provided'. Subsection 995-1(2) ITAA 1997 does not mention Part IVC of the TAA 1953 - despite the definitions section (section 995-1) beginning in this Act and the definition of 'this Act' including Part IVC of the TAA 1953 (so far as it relates to income tax). This Bill will replace subsection 995-1(2) ITAA 1997 to clarify that the definitions in the ITAA 1997 do not apply to Part IVC, unless that Part provides otherwise. [Item 37 of Schedule 18]
Date of effect of some consequential amendments contained in the PAYG Bill
1.147 Item 3 of Part 1 in Schedule 1 contained application rules for the new PAYG withholding rules, but not for the associated consequential amendments. The only consequential amendments that had express application rules were the amendments to the FBTAA 1986 (Item 84 in Part 2 of Schedule 1). Therefore, the other consequential amendments would have, under clause 3 of the PAYG Bill, operated according to their terms. In a few cases it may not have been clear from the terms of a consequential amendment as to when it was intended to start.
1.149 This Bill contains some amendments to clarify the application of some consequential amendments in the PAYG Bill. The amendments to the substantiation and car expense provisions of the ITAA 1997 and to the ABNA 1999 commence on 1 July 2000. The amendment to paragraph 221YHZQ(1)(b) of the ITAA 6 (dealing with the collection of TFN withholding tax payable on the non-quotation of a TFN for deferred interest securities) applies to an income year ending after 30 June 2000. [Items 19 and 21 of Part 2 in Schedule 10]
Application of obligations to partnerships, unincorporated companies and superannuation funds
1.150 Proposed Subdivision 20-A of Schedule 1 to the TAA 1953 explained how the PAYG withholding provisions applied to entities that are not legal persons - in particular, partnerships, unincorporated companies and superannuation funds.
1.151 This Bill will repeal Subdivision 20-A and replace it with generic provisions in new Division 444 of Schedule 1 . The rules in Division 444 are the same as those in Subdivision 20-A, except that:
- they apply to all of Schedule 1, not just to the withholding provisions; and
- they do not include rules about offences where obligations are imposed on partnerships or unincorporated companies.
[Item in Part 2 of Schedule 2, item 4 in Part 1 of Schedule 2]
1.152 Those offence rules will be in new section 20-45 of Schedule 1 . The rules are the same as those in Subdivision 20-A. [Item 104 in Part 2 of Schedule 2]
Commissioner's power to obtain information and evidence
1.153 Proposed section 20-60 of Schedule 1 to the TAA 1953 gives the Commissioner power, in relation to the withholding provisions, to require any person to provide information, to attend and give evidence or to produce documents.
1.154 This Bill will repeal Subdivision 20-C, which includes section 20-60, and replace it with generic provisions in new Division 353 of Schedule 1 . New section 353-10 is the same as section 20-60 except that:
- it applies to all of Schedule 1, not just to the withholding provisions; and
- it expressly states that the Commissioner's powers to require any person to provide information, to attend and give evidence or to produce documents can only be exercised by notice in writing.
[Item 105 in Part 2 of Schedule 2, item 3 in Part 1 of Schedule 2]
SECTION 5 REGISTRATION OF PAYG WITHHOLDERS
Summary of the amendments
Purpose of the amendments
1.155 The amendments in Schedule 14 to this Bill will introduce new Subdivision 16-BA into the PAYG withholding provisions. The new provisions will require an entity with a PAYG withholding obligation to register with the Commissioner. They will also enable an entity to register a branch for PAYG withholding purposes.
1.156 The amendments will apply from the date of Royal Assent. This will allow early identification of entities and their branches so that the Commissioner can assist them to understand their PAYE withholding rights and obligations.
1.157 In order to efficiently administer the range of taxes covered by the BAS provisions , the Commissioner needs to be able to identify entities which have a notification or payment obligation. Identification is necessary for the Commissioner to be able to provide relevant businesses with information about the new tax system and to be able to issue each reporting entity with a BAS for the tax period.
1.158 Under the GST law, an entity carrying on an enterprise which has an annual turnover at least $50,000 must be registered for GST purposes. With ITI, FBTI and DCOIN obligations, the Commissioner will know whether an entity has an obligation to pay an instalment because of the assessment of tax payable in a previous year. The only debts under the new tax system where the Commissioner may not be aware whether an entity has an obligation is PAYG withholding.
1.159 Under the current law, an employer is required to register for PAYE purposes. This enables the Commissioner to identify employers, provide them with relevant information, and allocate group registration numbers to assist in accounting for their remittances. The PAYE provisions also allow the Commissioner to register any class of employees of an employer, i.e. the registration of a branch within the employer entity. This is similar to the GST law which allows the registration of a GST branch of an entity. The registration of branches within an entity enables the alignment of reporting and payment obligations with the accounting structure of larger businesses.
Explanation of the amendments
Registration of an entity for PAYG withholding
1.160 Under the PAYG withholding system, if an entity is required to pay the Commissioner either:
- an amount withheld from payments made in respect of various withholding events - Division 12; or
- an amount in respect of a non-cash benefit - Division 14,
then the entity must apply for registration for PAYG purposes under new subsection 16-140(1) . The application must be in the approved form and given to the Commissioner by the day on which the entity is first required to withhold an amount under Division 12 or pay an amount under Division 14. The Commissioner will have the discretion to extend the time for making an application for registration. [Item 1 of Schedule 14, new subsection 16-140(2)] .
1.161 The need to exercise the discretion could arise where an unregistered entity is required to withhold an amount from a payment for a cash-on-delivery supply because the recipient of the payment did not quote an ABN. Alternatively, the Commissioner may not need to extend the time because the approved form for notification may be by phone or electronic message. The provisions give the Commissioner the flexibility to work with business to facilitate the registration process.
1.162 An entity that fails to apply for registration will be liable to a civil penalty of 5 penalty units under new subsection 16-140(3) . The machinery provisions for civil penalties are introduced in Schedule 12 to this Bill and are contained in new Part 4-5 of Schedule 1 to the TAA 1953.
1.163 The Commissioner will have the discretion to register a person who has applied for registration and will also have the discretion to cancel a registration. [New section 16-141]
1.164 In administering this registration requirement the Commissioner will, where possible, rely on the ABN registration system as the mechanism for registering entities with PAYG withholding obligations. The ABN is the principal registration process for a business enterprise and the ABN registration form will be used to capture details of an entity's taxation obligations under the new tax system. The Commissioner can decide that the ABN form is the approved form for PAYG withholding registration. The requirement to have an entity separately apply for a PAYG withholding registration will primarily arise where an entity will have a withholding obligation but is not entitled, or chooses not, to be on the ABN register.
1.165 Under the current PAYE provisions all employers have a group employer number. This will not be used for PAYG purposes. Instead, the Commissioner will use an entity's ABN as its PAYG account number. Where an entity does not have an ABN the Commissioner will use the entity's TFN. In the case of branches, the Commissioner will use a number that is linked to the entity's ABN.
1.166 It is anticipated that many government entities , such as schools, hospitals and departments will have an ABN. They will be able to register for PAYE withholding purposes and will also have their own RBA. The effect of their registration will be the same as a PAYE withholding branch which is discussed in paragraphs 1.167 to 1.172.
1.167 Subdivision 54-A of the GSTA 1999 provides rules for the registration of GST branches. Similar provisions are being inserted into the PAYG withholding provisions to allow an entity to operate through branches for notification and remittance purposes. This will not affect the liability of the entity to pay any tax debt arising under the PAYG withholding provisions by the due date, or the requirement for the entity to notify the Commissioner of all payments by the due date. Nor will it change the electronic notification and payment obligations of entities that are large withholders. Each branch will carry those obligations because they still remain part of the large withholder entity.
1.168 The Commissioner will be able to establish a separate RBA for each branch and allow the branch to notify debts on a separate BAS. If an amount is outstanding on the branch's RBA then the GIC will accrue on that amount and it will be a tax debt payable by the entity. Having a separate RBA will assist entities whose normal accounting practice is to account on a divisional or branch basis. An entity is not required to register its branches. Alternatively, it can choose to register one, some or all its branches. A branch for PAYG purposes may also be registered as a branch for GST purposes.
1.169 New section 16-142 sets out the rules for PAYG withholding branch registration. An application for branch registration must be made in an approved form and can be made by the entity or a branch on behalf of the entity. However, the application can only be made if the entity has an ABN or is in the process of applying for one. Having an ABN will enable the Commissioner to link each branch's RBA to the entity. The registration is also contingent on the Commissioner being satisfied that the branch:
- maintains an independent system of accounting;
- can be separately identified by the nature of activities or location; and
- is carrying on, or intends to carry on, an enterprise.
1.170 The approved form for applying for PAYG withholding branch registration may be the same form as used for GST branch registration. This is possible because of the flexibility of the definition of approved form.
1.171 The registration of a PAYG withholding branch can be cancelled if the Commissioner is satisfied that the above criteria are not satisfied. If an entity's registration is cancelled, all PAYG withholding branches of that entity cease to have effect. [New sections 16-144 and 16-145]
1.172 Registration of a PAYG withholding branch will mean that any amount an entity is required to withhold and pay to the Commissioner, or notify in a BAS, will be separated into amounts relating to the branch of the entity and amounts that do not relate to the branch. The separated amounts will be treated as if they were amounts of a separate entity. The amounts that do not relate to the branch will be amounts the entity will continue to withhold, notify in a BAS and pay to the Commissioner. [New section 16-]
SECTION 6 CONSEQUENTIAL AMENDMENTS
1.173 The PAYG legislation necessitates consequential amendments to the tax legislation and other Commonwealth Acts listed below to update references to terms and provisions so that they reflect the new PAYG law. These consequential amendments are contained in Schedule 11 to this Bill.
Income Tax Assessment Act 1997
1.174 Section 3-1 of the ITAA 1997 includes a table which lists the locations of guides to particular topics. Item 3 of the table is obsolete due to the repeal of Parts 4-5 and 4-10 of the ITAA 1997 by the PAYG Bill. Item 3 of the table is repealed. [Item 80]
1.175 Section 12-5 of the ITAA 1997 contains a table which lists provisions of the ITAA 6 and ITAA 1997 which allow deductions. Items 81 and 82 replace the references to the current ITAA 6 provision with references to the new ITAA 1997 provision which allows a deduction for interest paid by a non-resident if withholding tax has been paid.
1.176 Divisions 25, 26 and 28 of the ITAA 1997 address aspects of the deductibility of amounts. Certain provisions within these Divisions refer to provisions and concepts of the current withholding systems. Items 83 to 86 amend these rules to refer to withholding payments and amounts withheld or payable under the new PAYG withholding system.
1.177 Division 34 of the ITAA 1997 contains rules about deductions for the costs of non-compulsory uniforms which are currently stated in terms of PAYE earners and PAYE earnings . Items 87 to 90 restate these rules in terms of the specific payments which are covered by the new PAYG withholding system.
1.178 Section 130-90 of the ITAA 1997 contains rules about capital gains tax in relation to employee share schemes, which are currently stated with reference to the term PAYE earner . Items 91 to 94 restate these rules in terms of the specific payments which are covered by the new PAYG withholding system.
1.179 In the provisions in Division 900 of the ITAA 1997 for the substantiation of business travel expenses there are a number of notes which refer to the defined term PAYE earnings . Items 95 to 100 , and 105 amend these notes to reflect the amendment of section 900-12 which refers to withholding payments covered by the new PAYG system.
1.180 Items 101, 102 and 104 replace references to group certificates with references to the new summary document in the PAYG withholding system called a payment summary .
1.181 A number of provisions of the ITAA 6 refer to provisions and concepts in current Part VI of the ITAA 6. Amendments are made to these provisions to update the references to also refer to the new PAYG withholding system equivalent provisions and concepts. [Items 14 to 30, 33 to 40 and 77 to 79]
1.182 Subsection 159ZR(1) of the ITAA 6 contains definitions of eligible income and salary or wages which refer to concepts in current Part VI of the ITAA 6. These definitions are amended to refer to the new PAYG system equivalent provisions to maintain the current scope of the law. [Items 31 and 32]
1.183 The defined term salary or wages in subsection 221A(1) of the ITAA 6 is replaced by a new label, work and income support related withholding payments and benefits, which is defined as payments from which amounts must be withheld or in respect of which amounts must be paid to the Commissioner under the new PAYG withholding system. The definitions of employer and employee are amended to reflect this new label. [Items 41 to 43]
1.184 Subdivision C of Division 3B of Part VI of the ITAA 6 contains rules for the collection of TFN withholding tax on the non-quotation of TFNs in respect of eligible deferred interest investments. These rules have not been translated into the new PAYG withholding system. Sections 221YHZX and 221YHZZ of this Subdivision refer to provisions of the current collection systems which have been translated into the new system. Item 44 inserts new sections 221YHZXA and 221YHZXB into the ITAA 6 to apply the new PAYG withholding system crediting and penalty rules to eligible deferred interest investments. Item 45 amends paragraph 221YHZZ(b) to refer to the new PAYG withholding system equivalent rules.
1.185 Division 8 of Part VI of the ITAA 6 provides for the prompt recovery, through estimates and payment agreements, of certain amounts withheld but not remitted. These rules currently refer to collection provisions of Part VI which have been replaced by the new PAYG withholding system. The amendments insert into these rules references to the provisions of the new PAYG withholding system. The rules in Division 8 of Part VI of the ITAA 6 will apply where obligations have not been met under Divisions 12, 14 and 16 of Schedule 1 to the TAA 1953. [Items 47 to 58]
1.186 Item 46 amends the title of Division 8 of Part VI to remove references to divisions of Part VI which have been superseded by the PAYG withholding provisions.
1.187 The amendments of Division 8 will remove an anomaly by covering amounts withheld from payments for mining on Aboriginal land. They will also clarify that payments to the Commissioner in relation to non-cash payments covered by the withholding rules are also within Division 8.
1.188 Item 59 amends the title of Subdivision B of the Division 9 of Part VI to remove references to divisions of Part VI which have been superseded by the PAYG withholding provisions.
1.189 Division 9 of Part VI of the ITAA 6 provides rules to encourage company directors to ensure that a company meets its obligations in relation to the collection of tax. These rules currently refer to collection provisions of Part VI which have been replaced by the new PAYG withholding system. The amendments insert into these rules references to the provisions of the new PAYG withholding system. New section 222AOBA is inserted to provide that these rules will apply to obligations related to non-cash benefits for which amounts must be paid to the Commissioner. [Items 60 to 75]
1.190 Item 76 amends subsection 255(2A) to also refer to the new PAYG withholding system provision which corresponds to Division 3B of Part VI of the ITAA 6.
1.191 The definition of salary or wages in the Income Tax Rates Act 1986 is amended to refer to payments under the new withholding events of the PAYG withholding system. [Item 106]
Crimes (Taxation Offences) Act 1980
1.192 In subsection 3(1) of the Crimes (Taxation Offences) Act 1980 the term income tax is defined with reference to provisions of the current collection systems. This definition defines the scope of certain rules of the Act by identifying those withholding payments in relation to which the rules apply. The definition is amended to also refer to the equivalent provisions of the new PAYG withholding system in Schedule 1 to the TAA 1953. [Item 10]
Taxation (Interest on Overpayments and Early Payments) Act 1983
1.193 In subsection 3(1) of the Taxation (Interest on Overpayments and Early Payments) Act 1983 the term relevant tax is defined with reference to provisions of the current collection systems. This definition identifies those payments in relation to which interest may be payable to a taxpayer under the Act. The definition is amended to also refer to the equivalent provisions of the new PAYG withholding system in Schedule 1 to the TAA 1953. [Items and 114]
Taxation Administration Act 1953
1.194 Section 8WC of the TAA 1953 contains rules imposing penalties where affairs have been conducted so as to avoid the TFN requirements of the taxation law. The section refers to provisions of the current collection systems. Items 111 and 112 amend sub-subparagraphs 8WC(1)(b)(iii)(A) and (B) of the TAA 1953 to also refer to the provisions of the new PAYG withholding system.
Consequential amendments to other Commonwealth Acts
Aboriginal Land Rights (Northern Territory) Act 1976
1.195 The new PAYG system also incorporates new rules for withholding from payments in respect of mining on Aboriginal land. Part VI of the Aboriginal Land Rights (Northern Territory) Act 1976 provides that amounts may be transferred from the Aboriginal Benefits Reserve to Consolidated Revenue. Further, subsection 64A(2) provides that these transfers are not to be subject to the rules for withholding from payments in respect of mining on Aboriginal land. The proposed amendment to the Aboriginal Land Rights (Northern Territory) Act 1976 inserts reference to new section 12-320 of Schedule 1 to the TAA 1953 to ensure that the new law will operate in the same way as the current law in relation to mining payments covered by the new PAYG system. [Items 1 and 2]
1.196 In the new withholding system the information currently presented on group certificates as part of the PAYE system will be included on a more general summary document to be called a payment summary . Paragraph 139U(3)(b) of the Bankruptcy Act 1966 is amended so that it will refer to group certificates and payment summaries. [Item 3]
Child Support (Registration and Collection) Act 1988
1.197 In the Child Support (Registration and Collection) Act 1988 the terms employee , employer and salary or wages are defined by reference to Division 2 of Part VI of the ITAA 6 which contains rules for the PAYE system. The introduction of the new PAYG system means that these references are obsolete. The defined term salary or wages is replaced with the new defined term work and income related withholding payments which has the same meaning. The definitions of the terms employee and employer are revised to refer to this new label. [Items 4, 5, 6 and 7]
1.198Subsection 46(8) refers to Division 2 of Part VI of the ITAA 6. Item 8 amends the section to also refer to the equivalent provision of the new PAYG withholding system.
1.199 Paragraph 72B(4)(b) contains rules which apply to persons receiving or controlling money of a debtor who is outside Australia. These rules refer to natural resource payments and royalty payments within the meaning of Division 3B of Part VI of the ITAA 6. The subsection is amended to refer to the new system equivalents, new section 12-325 and Subdivision F of Schedule 1 to the TAA 1953. [Item 9]
1.200 In subsection 120B(16) of the Defence Act 1903 'net salary' is defined with reference to salary payable under the current PAYE system. The amendment repeals the reference to Division 2 of Part VI of the ITAA 6 and substititues reference to the new PAYG system equivalent, Part 2-5 of Schedule 1 to the TAA 1953. [Items 11 and 12]
Higher Education Funding Act 1988
1.201 The Higher Education Funding Act 1988 currently refers to Division 2 of Part VI of the ITAA 6 in relation to the collection of HECS amounts. The provision is amended to refer to the new PAYG withholding system equivalent provisions. [Item 13]
1.202 In subsection 64(18) of the Public Service Act 1922 'net salary' is defined with reference to salary payable under the current PAYE system. The amendment repeals the reference to Division 2 of Part VI of the ITAA 6 and substititutes a reference to the new PAYG system equivalent, Part 2-5 of Schedule 1 to the TAA 1953. [Items 107 and 108]
Social Security Act 1991 and the Veterans' Entitlements Act 1986
1.203 In the new PAYG withholding system the information currently presented on group certificates as part of the PAYE system will be included on a more general summary document to be called a payment summary .
1.204 Subparagraph 93C(1)(a)(i) and paragraph 93C(2)(a) of the Social Security Act 1991 are amended so that they will refer to group certificates and payment summaries. [Items 109 and 110]
1.205 Subparagraph 45UA(1)(a)(i) and paragraph 45UA(2)(a) of the Veterans' Entitlements Act 1986 are amended so that they will refer to group certificates and payment summaries. [Items 115 and 116]
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