Supplementary Explanatory Memorandum
(Circulated by authority of the Treasurer,the Hon Ralph Willis, MP)Chapter 2 - Amendments 4 to 11 - Refunds of TFN amounts
Overview
2.1 Amendments 4 to 11 apply to Part 1 of Schedule 3 of the Bill.
2.2 They change in two respects the provisions of the Bill concerning the refund of TFN amounts deducted in error by investment bodies. The first change is to the commencement date of several of the provisions from 1 July 1995 to the date of Royal Assent to the Bill.
2.3 The second change introduces new provisions which will limit the liability of investment bodies to provide refunds for TFN amounts deducted in error prior to Royal Assent. It will maintain the rights of investors in these cases, with existing rights to receive a direct refund now to be exercised by investors against the Commissioner of Taxation.
Summary of the amendments
2.4 It is necessary to change the commencement date of 1 July 1995 for some of the provisions contained in the Bill as that date has now passed. In addition, representations by a number of investment bodies have led to new provisions being proposed to deal with their liabilities in respect of TFN amounts incorrectly deducted in the past. The proposed new provisions will have effect, from the date of Royal Assent, on deductions made before that date.
Amounts deducted before the date of Royal Assent
2.5 Section 221YHZDA of the Income Tax Assessment Act 1936 currently makes investment bodies liable to refund to investors TFN amounts that they have deducted in error and paid to the Commissioner of Taxation. The Bill proposes a new refund system from 1 July 1995. If that date is left as the commencement date for the new system it may remove rights that investors currently have in respect of TFN amounts incorrectly deducted during the period 1 July 1995 to the date of Royal Assent.
2.6 It is not intended that rights that investors currently have under the law be removed. A change to the commencement date is necessary to avoid that possibility.
2.7 Since introduction of the Bill, a number of investment bodies have stated that the existence of those rights in respect of TFN amounts that may have been deducted in error before 1 July 1995 is a matter of serious concern to them. This is because of the liabilities that they still have in respect of the deductions and because of the compliance costs involved in connection with refunds. It is proposed, therefore, to relieve investment bodies of those liabilities, without disturbing existing investor rights, by making the Commissioner of Taxation liable to provide direct refunds in lieu of the particular investment body.
Explanation of the amendments
2.8 The amendments will alter the application date of the provisions of the Bill that deal with refunds to investors (currently in the Bill at 1 July 1995 - item 12 ). Items 1 to 4 of the Bill, which provide for investment bodies to more easily recovery from the Commissioner of Taxation amounts that they have refunded to investors, remain applicable to deductions made on or after 1 July 1995. Items 6 to 11 of the Bill and new item 4A now apply from the date of Royal Assent. [Amendments 10 and 11]
2.9 The current liability of investment bodies to refund amounts deducted in error prior to the date of Royal Assent is amended by new sections 221YHZDAB and 221YHZDAC. These new provisions, as inserted by the amendments, apply to deductions made before 1 July 1995 and deductions made during the period 1 July 1995 to the date of Royal Assent respectively.
2.10 New section 221YHZDAB applies to deductions made before 1 July 1995. It transfers from an investment body to the Commissioner of Taxation, the liability to provide a refund in all cases except where an application for refund has already been made to the investment body or the error discovered by the investment body prior to the commencement date of the new provision. The Commissioner of Taxation will refund on the same conditions as investment bodies. Persons who are entitled to a refund are not entitled to a credit on assessment of the amount deducted in error. [Item 11, amendment 9]
2.11 New section 221YHZDAC applies to deductions made in error on or after 1 July 1995 but before the date of Royal Assent. Where an application for a refund of an incorrectly deducted amount is made, or an error discovered by the investment body, before 16 July 1996 the investment body will refund the amount. However, after 15 July 1996, the Commissioner of Taxation becomes liable to provide any refund for amounts deducted in error during the period to which the section applies (on the same basis as is to exist for deductions made before 1 July 1995) and applications for refunds must then be made to the Commissioner. Persons who are entitled to a refund are not entitled to a credit on assessment of the amount deducted in error. [Item 11, amendment 9]
2.12 Other amendments to the Bill are merely consequential to the amendments described above. These other amendments are contained in amendments 4 to 8.
2.13 The following chart explains the operation of the changes proposed by these amendments:
| Deductions made between 1 July 1991 and 30 June 1995 | Deductions made between 30 June 1995 and Royal Assent | Deductions made from Royal Assent but before 1 July 1996 | Deductions made from 1 July 1996 |
|---|---|---|---|
| Where an application for a refund is lodged or the error discovered by an investment body before the date of Royal Assent the investment body will refund directly. | Where an application for a refund is lodged or an error discovered by an investment body before or on 15 July 1996 the investment body will refund directly. | Where an application for a refund is lodged or an error discovered by an investment body before or on 15 July following the financial year in which the deduction was made the investment body will refund directly. | |
| Where an application for a refund is lodged or the error discovered by an investment body from the date of Royal Assent the ATO will refund directly. | Where an application for a refund is lodged or the error discovered by an investment body after 15 July 1996 the ATO will refund directly. | Where an application for a refund is lodged or an error discovered by an investment body after 15 July 1996 the ATO will credit or refund under the new arrangements*. | Where an application for a refund is lodged or an error discovered by an investment body after 15 July of the year following the financial year in which the deduction was made the ATO will credit or refund under the new arrangements*. |
| * (Under the new arrangements, an investor who has not applied to an investment body by the 15 July of the year after a TFN amount was incorrectly deducted will generally obtain a credit for the amount when the investor's assessment for the previous year is made. Investors will be entitled to direct refunds only where the requirements set out in proposed new section 221YHZDAA are satisfied.) | |||
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
