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Ruling
Subject: Application of Regulation 35 of the Taxation Administration Regulations 1976
Question 1
Do thresholds in subregulation 35(1) of the Taxation Administration Regulations 1976 apply to payments made by you to your investors?
Answer
Yes.
Question 2
Do thresholds in subregulation 35(2) of the Taxation Administration Regulations 1976 apply to payments made by you to your investors?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts
The company is a borrowing corporation under the Corporations Act. It accepts money from the general public in the form of Unsecured Notes via a prospectus. The company pays its customers interest on the funds invested, on a monthly, quarterly or annual basis in accordance with customer directions.
The company is also more commonly referred to as a "financial institution".
The company is not an Authorised Deposit-Taking Institution (ADI).
Additional information on the operations of the company, including a copy of the current prospectus can be obtained from the company's website.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 995-1
Income Tax Assessment Act 1936 Section 202A
Income Tax Assessment Act 1936 Section 202D
Taxation Administration Act 1953 Schedule 1 Section 12-140
Taxation Administration Act 1953 Schedule 1 Section 12-170
Taxation Administration Regulations 1976 Regulation 34
Taxation Administration Regulations 1976 Regulation 35
Reasons for decision
Subregulation 35(1)
Regulation 35 of the Taxation Administration Regulations 1976 sets out thresholds for Part VA investment payments where tax does not have to be withheld in situations where a tax file number has not been quoted (sections 12-140, 12-145 and 12-170 of Schedule 1 of the Taxation Administration Act 1953).
Subregulation 35(1) is applicable to investors where the investment body is aware of the investor's age and they have not turned 16 on the 1 January before the date on which the payment was made.
For payments in respect of Part VA investments (an investment of a kind mentioned in section 202D of the Income Tax Assessment Act 1936 (ITAA 1936)) except for payments mentioned in Item 6 (shares in a public company) in the table in subsection 202D(1) of the ITAA 1936, the investment body does not have to withhold where the payment in respect of the whole financial year is less than $420 or less than a proportionate amount for a part year.
You are considered to be a body corporate (Item 3) as per the table in subsection 202D(1) of the ITAA 1936, therefore the money invested with you will be considered to be Part VA investments. The thresholds in subregulation 35(1) will apply to you as an investment body as you meet all the criteria of this section.
Subregulation 35(2)
Subregulation 35(2) applies to Part VA payments that are not of a kind described in subregulation 35(1) and where the investment is of a kind mentioned in item 1 or 2 in the table in subsection 202D(1) of the ITAA 1936.
Items 1 and 2 refer to financial institutions which are defined in section 202A of the ITAA 1936 as meaning a bank or a co-operative housing society. A bank is defined as: the Reserve Bank of Australia, a body corporate that is an ADI (authorised deposit-taking institution) for the purposes of the Banking Act 1959; or a person who carries on State banking within the meaning of paragraph 51(xiii) of the Constitution. You do not fall into any of these categories and it has been agreed that you are a body corporate under Item 3.
Therefore the threshold in subregulation 35(2) will not apply to your investors as the Part VA payments that you are making to investors do not fall within the applicable criteria. If a TFN is not quoted for an investor you will have to withhold on any Part VA payments made to them.