Explanatory Memorandum
(Circulated by authority of the Treasurer, the Rt Hon Phillip Lynch, M.P.)Notes on Clauses
Part 1
This clause provides formally for the citation of the new legislation.
Section 5(1A) of the Acts Interpretation Act 1901 provides that every Act shall come into operation on the twenty-eighth day after the day on which the Act receives the Royal Assent unless the contrary intention appears in the Act. By this clause, the Bill shall come into operation on the day on which it receives the Royal Assent.
Sub-clause (1) of this clause contains definitions of a number of terms used in the Bill:-
- "Assessment"
- in relation to a State tax law is defined to mean the calculation of the tax payable by a person under that law. The term does not include the calculation of the State rebate entitlement of a person as that will be done, not by "assessment", but by "determination" - see clause 8(a)(ii).
- "Board of Review"
- is defined to refer to the Taxation Boards of Review constituted under the Income Tax Assessment Act - referred to in this part of these notes as the "Assessment Act".
- "Employee"
- is defined to have a corresponding meaning to the meaning that the term has for purposes of the PAYE provisions of the Assessment Act and means, in addition to a person in receipt of salary or wages, a Member of Parliament and a person employed by the Commonwealth, a State or a Commonwealth or State authority, and a member of the Defence Force.
- "Employer"
- is also defined to have a similar meaning to that which the term has under the relevant Commonwealth income tax law.
- "Government loan interest"
- is defined to refer to interest on Commonwealth securities the prospectuses for which were issued before 1 July 1976. The definition is relevant for purposes of paragraphs (e) and (f) of sub-clause 7(1) whereby interest on such securities is to be exempt from State tax.
- "Income Tax Assessment Act"
- refers to the Income Tax Assessment Act 1936 as amended and the terms "the net income of a trust estate", "provisional tax" and "salary and wages" are to have the same meanings as these terms have under the relevant provisions of the Assessment Act.
- "Special rebate"
- refers to a Commonwealth rebate of tax that is declared by the Treasurer under "stage 1" legislation to be a rebate the allowance of which by the Commonwealth is not to affect the States' entitlement under that legislation. The term is used in this Bill in paragraphs (g) and (h) of sub-clause 7(1).
- "Special surcharge"
- similarly refers to a Commonwealth tax surcharge the proceeds of which are not to be shared with the States under the "stage 1" arrangements. The definition is relevant for purposes of paragraphs (e) (f), (g) and (h) of sub-clause 7(1).
- "Tax instalment deductions"
- refers to PAYE deductions from salaries and wages, on account of liability to State tax, under a State income tax law.
Under sub-clause (2) other expressions used in the Bill that are defined in the general definition provisions of the Assessment Act are (other than where they are used in a provision being inserted by this Bill in another Act) to have the same meaning as they have under those provisions.
By sub-clause (3) the term "State income tax law" is to be taken as a convenient description (other than where the term is used in a provision being inserted in the Income Tax Assessment Act or another Act) not only for a State law that provides for the imposition and assessment of a State income tax but also for a State law that provides for a rebate by a State of tax payable by its residents under Commonwealth law. (These State rebates are comprehended by the reference in the definition of the term, and in other parts of the Bill, to payments by the State to the Commonwealth in partial discharge of the Commonwealth tax liability of residents of that State.)
Part II
Clause 4: Power of Treasurer to declare States to be participating or supporting States
This clause is the first of a number of clauses - clauses 4 to 15 - that set out the requirements that will need to be met by State tax and rebate laws if the Commissioner of Taxation is to administer those laws.
The basic purpose of clause 4 is to provide the formal means whereby it can be established that a State law has met the relevant requirements. This is to be done by the Treasurer publishing in the Gazette a notice to the effect that the State law has met those requirements.
Under sub-clause (1) the Treasurer may, where he is satisfied that a State income tax law contains the requisite provisions, have published in the Gazette a notice declaring that State to be a "participating State" for the relevant income year. The provisions that will need to be contained in the State law are specified in Divisions 2 and 3. Division 2 sets out the requirements to be met by participating States, that is, States that themselves impose a State tax or allow a State rebate. Division 3 contains the requirements for States to legislate in support of the PAYE systems of other States and the internal Territories, in cases of certain "border" situations. A State will not be a "participating State" if it is not also a "supporting State".
Sub-clause (2) empowers the Treasurer to revoke a declaration of a State as a participating State should the State's income tax law come not to meet the requirements for the State to be a participating State.
Sub-clause (3) states formally that a State is to be treated at a relevant time as a participating State in relation to a year of income if a declaration that the State is a participating State is in force at that time.
Sub-clause (4) in effect contains a further requirement to which a State law must adhere if the State is to be a participating State. This requirement is designed to ensure that the State's tax and rebate laws which are applicable for an income year are in force by a date that will not cause dislocation in the administration of the Commonwealth's income tax laws. It is that the State law must be in force by the end of April preceding the commencement of the income year, or such later date (not later than 30 November) as the Treasurer may approve.
By sub-clause (5) the Treasurer may declare a State that does not have tax and rebate laws that comply with the "participating State" requirements of Division 2 but has legislation that supports the PAYE rules of another State to be a "supporting State". Where a State has been declared to be a "supporting State" employers are required - through the definition of "State income tax law" that is being inserted in the PAYE provisions of the Assessment Act by clause 38 - to remit the deductions made under the law of that supporting State to the Commissioner, and to fulfil the other miscellaneous duties of employers under the PAYE provisions of the Assessment Act.
Sub-clause (6) allows the Treasurer to revoke the declaration of a State as a supporting State under sub-clause (5) and sub-clause (7) treats a State as being a supporting State at a particular time if a declaration of the State as a supporting State is in force at that time.
The object of sub-clause (8) is to ensure that where the Treasurer has declared a State to be a participating State it will not be open to a taxpayer to challenge his tax assessment or the determination of the rebate to which he is entitled under the relevant State law, on the basis that despite the declaration of the State as a participating State, it did not, technically, qualify as a participating State.
Clause 5: Requirements in relation to participating States
This clause states formally that the requirements that are to be met by the tax and rebate laws of a State, if the State is to be treated as a participating State, are set out in the succeeding provisions of Division 2.
Clause 6: Administration of State income tax laws
This clause is one of a number of provisions designed so that State tax and rebate laws may be administered in efficient conjunction with the administration of Commonwealth income tax laws. It specifies that a State law must confer on the Commissioner of Taxation and other taxation officers like powers, functions and duties as are conferred on those persons under the Assessment Act. It also requires that the State law permit the Commissioner to delegate his powers to taxation officers - see section 8 of the Taxation Administration Act 1953 under which the Commissioner may delegate the powers he has for purposes of Commonwealth income tax.
Clause 7: Liability to State income tax
Sub-clause (1) of this clause is a key provision that sets out the range of persons on whom a State may levy its tax or may allow a rebate of Commonwealth tax, and specifies the basis on which the State tax or rebate is to be calculated. Very briefly, a State may tax or allow a rebate to individuals who are resident in the State and certain trustees, on the basis that the tax or rebate is to be a flat percentage of the basic Commonwealth tax payable by the individual or the trustee.
Paragraph (a) of sub-clause (1) limits the categories of taxpayers to which State tax and rebate laws are to be applied if a State is to qualify as a participating State, that is, a State whose tax or rebate laws may be administered by the Commissioner of Taxation under this Bill.
These categories of persons and trustees to whom the tax or rebate of a particular State may be applied are set out in sub-paragraphs (i) to (v):
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- Under sub-paragraph (i), a natural person who is a resident of the State for the year of income may be taxed by it or allowed a rebate. (Paragraphs (b) and (c) of the sub-clause specify in what circumstances a person is to be treated as a resident of a State.)
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- Under sub-paragraph (ii), a trustee who is taxed under section 98 of the Assessment Act in respect of the share of trust income of a beneficiary who is presently entitled to that income but under a legal disability (e.g., the beneficiary is a minor), may be subjected to State tax (or allowed a State rebate) if the beneficiary concerned is a resident of the State for the income year.
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- Sub-paragraph (iii) applies to the trustee of a deceased estate who is liable to tax under section 99 of the Assessment Act in respect of trust income to which no beneficiary is presently entitled. In this case the State is to apply its tax or rebate law to the trustee if the deceased person, immediately before death, was a resident of the State.
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- Sub-paragraph (iv) applies to trustees (other than trustees of deceased estates) liable to tax under section 99 or 99A of the Assessment Act in respect of trust income to which no beneficiary is presently entitled. If the administration of the trust for the year of income was wholly or mainly carried out in the State the State is required for that year, subject to sub-clause 7(2), to make the trustee liable to State tax or eligible for State rebate.
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- Sub-paragraph (v) applies to any trustee who is liable to tax under section 102 of the Assessment Act in respect of income of a trust that is revocable by the settlor or is for the benefit of minor unmarried children of the settlor. In these circumstances the trustee pays Commonwealth income tax calculated on the basis of the tax liability of the settlor. By sub-paragraph (v), the State is required to cover the trustee by State law if the settlor is a resident of the State for the particular year.
A further important provision of paragraph (a) is that the State tax or rebate applicable to such persons and trustees is to be a fixed proportion of the basic Commonwealth tax payable by the person or trustee for the year. (Paragraphs (e) to (h) of sub-clause (1) define what is meant by "basic Commonwealth tax").
Paragraph (b) of clause 7(1) contains the basic test of when a person is to be regarded as a resident of a State for a year of income. Under the sub-clause, a person is only to qualify as a resident of a particular State for a year of income if the person is for that year a resident of Australia for Commonwealth tax purposes. People resident solely on Norfolk Island, Cocos (Keeling) Island or Christmas Island will not be eligible to be classified as residents of the States.
The main test of State residence is contained in sub-paragraph (i) of paragraph (b). This is that the person's sole or principal place of residence in Australia on 30 June of the year of income concerned was in that State.
Sub-paragraph (ii) deals with the situation of people who did not have a sole or principal place of residence in Australia on 30 June of a year. In these situations such a person will be treated as a resident of the State if he or she, on 30 June, had a legal domicile in the State or failing that, the State with which his or her personal and economic relations are most closely connected is that State.
Paragraphs (c) and (d) of sub-clause 7(1) deal with the situation of people who die or leave Australia during the course of the income year. In these cases the tests of residence to be applied under paragraph (b) for people who are in Australia on 30 June are to be applied as at the date of the person's death or the date that he or she left Australia. This means, for example, that if a person had his or her sole or principal place of residence in a particular State immediately prior to leaving the country, that person would be liable to tax of that State, or entitled to a rebate allowed by that State, for that year.
Paragraph (e) of sub-clause 7(1) gives meaning, for individuals, to the expression "basic Commonwealth tax" which is the amount of Commonwealth tax to which a State may, in effect, add a percentage or in respect of which it may allow a rebate. The term means the amount of Commonwealth income tax payable by the person exclusive of any health insurance levy liability and special surcharge or any additional (penalty) tax. In arriving at the amount of basic Commonwealth tax, concessional tax rebates (e.g., the concessional rebate for a spouse) and most other rebates are to be taken into account but credits, e.g. a credit for foreign tax, are not. A further qualification is that if a person has derived Commonwealth loan interest that under a prospectus covering the loan is to be exempt from State income tax, the person's basic Commonwealth tax is to be calculated as the amount which it would have been if the person had not derived that interest.
Paragraph (f) makes provision for the calculation of the basic Commonwealth tax of trustees, corresponding with paragraph (e) in relation to individuals.
Paragraphs (g) and (h) deal with the calculation of the rebates to be taken into account in the calculation of the basic Commonwealth tax of individuals and trustees for any year in which a special surcharge of Commonwealth tax is payable or a special rebate is allowed by the Commonwealth. The object is to enable the calculation of State tax to be un-influenced by the special Commonwealth surcharge or rebate.
The expressions "special surcharge" and "special rebate" are defined in clause 3 of the Bill and mean those surcharges and rebates that are specially declared by the Treasurer under the "stage 1" legislation as surcharges and rebates that are not to affect States' "stage 1" entitlements.
Paragraph (j) of sub-clause 7(1) sets out what is to be meant by the term "the average rate of basic Commonwealth tax" which is referred to in the sub-clause. It is the amount of the basic Commonwealth tax (ascertained in accordance with the provisions mentioned in the previous paragraphs) divided by the person's taxable income or, in the case of a trustee of a trust, by the net income, or the part of the net income of the trust on which the trustee is required to pay Commonwealth tax.
Paragraph (k) of sub-clause 7(1) deals with another matter. It applies to any State that legislates to allow a rebate of Commonwealth tax to its residents. Where a State does that, the State will have to make a payment to the Commonwealth of the amount of the rebate in order that the Commonwealth tax to be paid by the taxpayer can be reduced accordingly. By paragraph (k) a State will also be called on to make a payment to the Commonwealth to reimburse the Commonwealth the costs of administering the State's rebate laws. This provision matches the provision in clause 76 of the Bill which entitles the Commonwealth to retain an amount from the collections received on account of a State tax, in reimbursement of the cost of administering the State's tax laws.
Sub-clause 7(2) provides that a State may, if it wishes, not allow a rebate to a trustee of a trust estate of the kind referred to in sub-paragraph (a)(iv) of sub-clause (1) if the Commissioner is of the opinion that the administration of the trust was carried out in the State for the purpose of obtaining the benefit of the rebate. In other words the sub-clause is a safeguard against trusts being "moved" to a State to get the advantage of a rebate intended by that State for its own residents.
This clause outlines the provisions that will need to be included in State tax and rebate laws dealing with the making of assessments of liability to State tax and determinations of eligibility for State rebates, and the rights of taxpayers to object against those assessments and determinations.
Under paragraph (a), the State law is to include provisions (matching, so far as practicable, those that are in the Commonwealth income tax law) that deal with the making by the Commissioner of Taxation of assessments and amended assessments to State tax and the determination of eligibility for State rebates and credits for foreign tax (under clause 11). Taxpayers are also to have rights, corresponding with those in Commonwealth law, to lodge objections against State assessments and determinations and to have those objections decided by Taxation Boards of Review and the courts.
State law is also to provide for a liability to provisional tax in circumstances where the taxpayer is liable to Commonwealth provisional tax.
The background to paragraph (b) is that taxpayers have rights of objection, review and appeal in relation to assessments to Commonwealth tax. This means that where a taxpayer successfully exercises those rights, his or her Commonwealth tax liability as assessed by the Commissioner is reduced. Because, under the provisions of State law required by paragraph (c) of clause 8, an assessment to State tax is automatically to be amended to reflect any adjustment to the Commonwealth tax on which the State tax is based, paragraph (b) provides that a taxpayer is not to have a right under State law to object against a State tax assessment or rebate determination where the matter at issue affecting the State assessment or determination is one in respect of which rights of objection etc are available, in relation to the basic Commonwealth assessment, under the Assessment Act.
As just noted, paragraph (c) requires that State law contains provisions to the effect that whenever an assessment of Commonwealth tax is amended there is automatically to be an adjustment to the person's tax liability or rebate entitlement under State law.
Paragraph (d) of clause 8 follows the scheme of the Commonwealth income tax law under which a taxpayer has rights to challenge an assessment to Commonwealth tax by way of the procedures of objection, review and appeal referred to earlier. The Commonwealth law under those circumstances provides in effect (section 177) that a taxpayer is to have no further right to challenge the correctness of the assessment, e.g., if the matter were to come before a court in the context of a suit by the Commissioner for recovery of outstanding tax. Paragraph (d) adopts this principle and specifies that State law is to provide that assessments and determinations under State law are to be final and binding, subject to any review or appeal instituted after the lodging of an objection.
This clause specifies that a State's income tax law must contain certain provisions for the imposition of additional (penalty) tax.
Under section 226 of the Assessment Act, a taxpayer who omits to return assessable income, or who claims deductions for expenses in excess of those that he has incurred, is liable to additional tax of twice the amount of Commonwealth tax that is attributable to the omission or the over-claiming. Failure to furnish a return renders a taxpayer liable for additional tax equal to the amount of tax involved. The Commissioner of Taxation, however, has power to remit some or all of the additional tax, according to the circumstances of the case.
Under section 221YDB a taxpayer who applies for a reduction of his provisional tax for a year, and who for that purpose significantly under-estimates his taxable income for the year, and consequently is charged less than the appropriate amount of provisional tax, may be liable to a penalty based on the amount of provisional tax avoided.
By clause 9, State tax law will need to contain provision for imposition of corresponding State additional tax and penalty, measured by reference to the amount of State tax that is involved. This is to be achieved by the State law providing that there is to be State additional tax or penalty equal in amount to the additional tax or penalty that would be payable under Commonwealth law if the State tax or State provisional tax that is avoided had been Commonwealth tax or provisional tax.
Clause 10: Tax instalment deductions
The broad object of clause 10 is to require that State tax laws make provision for State tax that is imposed on residents of the State to be collected, to the maximum practicable extent, by way of PAYE deductions from salaries and wages.
Sub-clause (1) sets out that where a State levies a tax, its law will need to oblige stated categories of employers to make PAYE deductions, representing State tax liability, from the pay of employees resident in the State.
Under paragraph (a) of sub-clause (1), companies incorporated in a State that levies a State income tax, and individuals who are residents of the State, will need to be required by State law to make PAYE deductions from the salaries and wages of employees who are residents of the State at the time that the salaries and wages are paid. (Under clause 40 of the Bill provision is being made for an employee to notify his or her employer of the employee's State of residence.)
Paragraph (b) of sub-clause (1) makes it necessary that State law require the State and its authorities to make State PAYE deductions from the pay of people resident in the State.
By paragraph (c) other employers - paying salaries or wages to residents of the State - who carry on business in the State, who make payment in the State of the salaries or wages or who pay the salaries or wages for work done in the State, will need to be required by the State's law to make PAYE deductions representing the tax of the State.
By the closing words of sub-clause (1), the State law will, in each of the situations covered by paragraphs (a), (b) and (c), need to require the employers concerned to make appropriate State PAYE deductions. The actual amount of the deductions will be fixed by regulations made under the Commonwealth Income Tax Assessment Act and which would, of course, be calculated on the basis of the rate of State tax applicable for the year in the State concerned.
PAYE deductions for Commonwealth purposes are fixed by regulations made under the Assessment Act and it will be convenient if the two basic amounts of PAYE deductions - Commonwealth and State - are fixed, in conjunction, under Commonwealth regulations. Sub-clause (5) of clause 10 - which provides for "merged" collection of Commonwealth and State PAYE deductions - will however enable the implementation of systems whereby employers deduct a single amount from the pay of each employee, that single amount being a combination of the necessary Commonwealth and State PAYE deductions.
The key purpose of sub-clause (2) of clause 10 is to specify that State law is to provide a legal basis for the making of State PAYE deductions from the pay of certain people resident in the State, (e.g. those who live in the State but work across the border in another State), in respect of whom the State law enacted pursuant to sub-clause (1) does not require the making of State PAYE deductions.
Sub-clause (2) accordingly makes it necessary that where the appropriate PAYE deductions of a State are not made from the salary or wage of an employee resident in the State, the State law is to require the employee concerned to pay to the Commissioner of Taxation an amount equal to what would have been the appropriate State PAYE deductions had the employer been obliged to make them.
The principal intended effect of sub-clause (2) is that the formal obligation on the employee to make a PAYE payment will provide a setting in which the State in which the employee works (i.e., a State that is not the employee's State of residence) may require that the employer in that State makes PAYE deductions reflecting the tax of the State in which the employee resides. A provision for the State in which the employee works to enact such "supporting" legislation is set out in clause 15. (See also clause 75 for cases where the "across-the-border" employer is in the Australian Capital Territory or the Northern Territory.) Where a State passes "supporting" legislation requiring employers in that State to make PAYE deductions from the pay of employees resident in another State, those employees will have State PAYE deductions made from their pay on the same basis as if their employer was in the employee's State of residence, and the employee will be discharged from the obligation, pursuant to sub-clause (2), to make a PAYE payment to the Commissioner.
The broad purpose of sub-clause (3) is to specify that the test of whether an employee is a resident of a State at the time that a salary or wage is paid is to be applied on the basis of the most recent advice that the employee has given to his or her employer of the employee's State of residence. Proposed section 221EB of the Assessment Act (being inserted in that Act by clause 40 of the Bill) will permit the making of regulations that require employees to notify to their employer their State or Territory of residence.
Another effect of sub-clause (3) is that, for purposes of sub-clause (1), the test of where a person's sole or principal place of residence is situated is to be used in determining where an employer is resident.
By sub-clause (4) the notice given by an employee pursuant to proposed section 221EB will be used, under sub-clause (2), in determining where an employee is resident at the time of payment of a salary or wage.
Sub-clause (5) of clause 10 is related to planned procedures for "merged" collection of Commonwealth and State tax. By reason of it, the State income tax law will need to assign to the Commonwealth the right to receive and to recover State PAYE deductions made from salaries and wages. Amounts that are collected by the Commonwealth pursuant to such an assignment will of course be credited against the taxpayer's tax liability and, by clause 76, the State is to be paid by the Commonwealth the amounts collected on its behalf following the assignment.
By reason of this clause, it will be necessary for State income tax law to contain provisions under which people who have taxable income from foreign sources, and who do not obtain full credit against Commonwealth tax for the foreign tax on that income, will be eligible for a credit against their State tax.
Under the Commonwealth income tax law, double taxation of foreign-source income of Australian residents is relieved in a number of situations - e.g., interest and royalties from countries with which Australia has a double taxation agreement, dividends and most income from Papua New Guinea - by allowing credit for the foreign tax against the person's Commonwealth tax. Credit cannot, however, exceed the Australian tax (i.e. Commonwealth tax) on the income. (See, for example, section 14(4) of the Income Tax (International Agreements) Act 1953.)
Under sub-clause (1) State law will need to provide that a resident of the State who has foreign-source income in respect of the foreign tax on which a credit is allowable under Commonwealth income tax law, but who is not allowed a credit for the whole of the foreign tax, is to be allowed a credit against the person's State tax of the amount of the foreign tax that is not credited against Commonwealth tax because it is in excess of the Commonwealth tax.
Sub-clause (2) adopts the Commonwealth principle that credit is not to exceed the amount of Australian tax on the relevant income, by providing that a State may limit the allowance of its credit to the amount of State tax on the relevant income.
The Commonwealth provisions allowing credit for foreign taxes are contained variously in the Assessment Act and the Income Tax (International Agreements) Act. Sub-clause (3) therefore states formally that references in the clause to the income tax law of the Commonwealth are references to both of these Acts.
The broad object of this clause is to require that State income tax law contain provisions whereby appeals against assessments to State tax and against determinations of eligibility for a State rebate will be heard by the same tribunal that is to hear any appeal against the matching assessment to Commonwealth income tax.
Under the Commonwealth income tax law, a taxpayer who objects against his or her assessment and who is dissatisfied with the Commissioner's decision on that objection, may lodge an appeal with the Supreme Court of a State or Territory, or may elect to have the matter reviewed by a Taxation Board of Review. Taxpayers also have rights to appeal to a Supreme Court from a decision of a Board of Review, and questions of law arising before a Board may be referred for determination by a Supreme Court.
The basic point necessary for an understanding of clause 12 is that a taxpayer who wishes to have a dispute about a Commonwealth and the matching State tax assessment (or determination) for a year determined by a review tribunal, will need to make a selection of the tribunal on the basis of which tribunal has jurisdiction to determine the State questions that are in issue. The taxpayer will be expected to have the dispute about his Commonwealth assessment determined by the same tribunal.
By reason of clause 73, Boards of Review will have jurisdiction to review assessments of liability to State tax and determinations of eligibility for State rebate. A taxpayer who asks that such a matter be referred to a Board of Review will also be able to ask that any dispute about the matching Commonwealth assessment be determined by the Board. If the taxpayer wishes that the dispute be heard, instead, by a Court, the only Court with jurisdiction to decide the "State" matter may be the Supreme Court of the State concerned. The taxpayer would in that case be entitled to have any dispute about the matching Commonwealth assessment determined by that Supreme Court.
Against this general background, paragraphs (a) to (d) of clause 12 specify limitations that will need to be contained in State law as to the selection by taxpayers of the tribunal to hear any dispute about their State tax liability or rebate entitlement. Clauses 29 and 30 contain matching limitations that are being inserted in the relevant "appeal" provisions of the Assessment Act.
Under paragraph (a) of sub-clause (1), if a taxpayer has requested that his Commonwealth objection be treated as an appeal and forwarded to the Supreme Court of the State concerned, the person is not to be entitled to have a dispute about the matching State assessment or determination referred to a Board of Review and is not to be entitled to have the State matter referred to the Supreme Court if the hearing of the Commonwealth appeal has already commenced.
Pursuant to paragraph (b) of sub-clause (1), a taxpayer who arranges to have his Commonwealth objection referred to the Supreme Court of another State or Territory or to a Board of Review will not be entitled to have an appeal against the matching State assessment determined by a Court. Similarly, pursuant to paragraph (c), if the taxpayer lodges an appeal to the Supreme Court of another State or Territory from a decision of a Board of Review dealing with his or her "Commonwealth" liability, the taxpayer will not be entitled to take the relevant "State" appeal to the Supreme Court of his or her State. Paragraph (d) will have a similar effect where a question of law arising before a Board of Review is referred to the Supreme Court of another State or Territory.
Under sub-clause (2) "determination" is defined to mean the determination of a person's eligibility for a State rebate of part of the Commonwealth tax payable by the person.
Clause 13: Assignment of right to receive and recover amounts of tax
This clause, together with clauses 10(5) and 15(2), is designed to facilitate the "merged" collection of Commonwealth and State taxes. The scheme of the intended arrangements is that State law will create debts for State tax in circumstances corresponding with those under which Commonwealth law creates debts for Commonwealth tax. Clause 13 and the other two provisions call on the State to assign to the Commonwealth the right to collect the State tax debt, and this will be done by the Commissioner in conjunction with the collection of the matching Commonwealth debt.
Clause 13 provides for the assignment of debts owed to the State for assessed State tax, State provisional tax and State additional (penalty) tax. When the State law contains such an assignment, sections 208A and 208B of the Assessment Act (being inserted by clause 33 of the Bill) will enable the Commonwealth to collect the assigned State tax debts as if they were debts arising under relevant Commonwealth provisions.
By clause 76 of the Bill, the Commonwealth is to pay to participating States the amounts that it collects on their behalf pursuant to such assignments.
Clause 15: Tax instalment deductions
These clauses, which together constitute Division 3 of Part II of the Bill, contain requirements about the provisions that will need to be contained in State income tax law in the area of PAYE deductions from salaries and wages in "border" situations.
The purpose of the clauses, when read with clause 4(1), is to make it a condition of Commonwealth administration of a State's tax and rebate laws that that State legislate to "support" the PAYE requirements of other States, insofar as those requirements relate to employees resident in the other States. The Bill lays down this condition only in relation to a State that wishes to impose a tax or allow a rebate in the circumstances set out in the Bill. There is no requirement in the Bill on a "non-taxing" and "non-rebating" State to pass such "supporting" legislation.
Clause 14 is a formal provision to the effect that the requirements set out in clause 15 are requirements to be met by a State's law if the Commissioner of Taxation is to administer that State's tax and rebate laws.
The main provisions of clause 15 are contained in sub-clause (1). Under the sub-clause, the State will need to impose PAYE obligations in support of other States and in support of any internal Territory that imposes a tax on income of residents of that State or Territory.
The State will, under paragraphs (a) and (b) of sub-clause (1), be expected to impose these obligations on authorities of the State, companies incorporated in the State, individual employers resident in the State, employers who carry on business in the State and employers who pay the salaries and wages in the State or for work done in the State. By reason of paragraph (c) however, such employers need only have "supporting" PAYE obligations imposed on them if the most recent advice given by the employee concerned as to his or her "State" residential status (see clause 40 of the Bill) indicates that he or she is a resident of a participating State (i.e., a State that imposes an income tax on its residents) or of an internal Territory the law of which imposes an income tax on residents of the Territory.
Where the circumstances set out in paragraphs (a), (b) and (c) of sub-clause (1) apply, the State law is to require the employer to make the PAYE deductions from the pay of the employee that would be made if the employee were paid by an employer resident in the State or Territory in which the employee is resident. In short, an employee living in one State and working across the border in another State will, on the relevant "supporting" legislation being passed, have PAYE deductions of his "home" State made from his salaries and wages.
Clause 15 calls on States to "support" the PAYE requirements of other States and Territories. By clause 75 of the Bill, "support" for State PAYE requirements is provided in cases where the employer concerned is located in a Commonwealth Territory.
Sub-clause (2) of clause 15 calls on a "supporting" State to assign to the Commonwealth, for collection purposes, the right to receive amounts deducted from salaries and wages pursuant to a State law enacted to comply with sub-clause (1) of clause 15. By reason of clause 76 of the Bill, amounts collected pursuant to clause 15 will be paid to the State on whose behalf the PAYE deductions are made.
Part III
Amendments of Income Tax Assessment Act (Clauses 16 to 68)
Clauses 17 to 68 will effect a number of amendments to the Income Tax Assessment Act, which is referred to in these clauses, and in clause 16, as the "Principal Act". These amendments will enable information relevant to State taxes and rebates to be shown on Commonwealth return forms and assessment notices and enable the Commissioner to collect (including by way of PAYE deductions made by employers from salaries and wages) a State tax in conjunction with Commonwealth tax. Conversely, where a State law provides for a rebate of tax payable by its residents under Commonwealth law, the amendments will enable the rebate to which a person is entitled to be taken into account for PAYE purposes, and in determining the amount payable by the person on assessment. Other amendments being made by these clauses include the insertion in the Principal Act, by clauses 29 and 30, of provisions dealing with disputed assessments and that correspond with those that (by clause 12) a State income tax law is to contain if that State is to qualify as a participating State.
More detailed explaations of clauses 16 to 68 of the Bill are provided below.
This clause facilitates references in Part II of the Bill to the Income Tax Assessment Act 1936 by adopting, as a reference to that Act, the term "Principal Act".
This clause inserts in sub-section 6(1) of the Principal Act - which defines a number of words and phrases used in that Act - a new phrase - "State income tax law". This phrase is to mean (except in the amended PAYE and provisional tax provisions where, by virtue of clauses 38 and 53, it is to be taken to have a broader meaning) a State tax or rebate law which has met the criteria set out in Part II of the Bill and by reason of which the State had been declared by the Treasurer to be a participating State.
Clause 18: Governor-General may make arrangements with Governor of State
Section 15 of the Principal Act which is being repealed by clause 18 is a pre-uniform tax provision under which arrangements could be made for the Commonwealth to collect State income tax. In the light of the comprehensive arrangements proposed by this Bill for the collection by the Commonwealth of State income tax, and the allowance of State rebates, the section has no further use and it is therefore proposed to repeal it.
Clause 19: Officers to observe secrecy
This clause makes a number of amendments to section 16 of the Principal Act which requires the Commissioner of Taxation and his officers, members of Taxation Boards of Review and other officials who obtain information under the taxation laws not to divulge that information to any other person, other than in the course of their official duties. As amended, the Principal Act will place a corresponding obligation on officers in relation to information obtained for the purposes of a State income tax law.
By sub-section 16(3) of the Principal Act a Court may not require an officer to produce in Court taxation documents or to reveal to the Court information obtained by him in the course of his official duties, except where it is necessary for the Court to have the documents or information for the purposes of carrying into effect the provisions of the taxation laws of the Commonwealth. Paragraph (a) of clause 19 will amend sub-section 16(3) to include in the taxation laws covered by that sub-section the State income tax law of a participating State and the laws of a supporting State relating to the deduction of PAYE tax instalments from the pay of employees.
Paragraphs (b) to (d) of clause 19 propose a number of amendments to sub-section 16(4) of the Principal Act. Sub-section 16(4) of the Principal Act specifies a number of exceptions to the general prohibition on taxation officials divulging information to other people. Under this sub-section, the Commissioner and his officers may communicate information to other taxation officers for the purposes of carrying out their official duties, and may communicate information to Boards exercising functions under the taxation laws of the Commonwealth that are administered by the Commissioner. Information may also be supplied to certain specified Commonwealth officials for the purposes of the administration by those officials of designated Commonwealth laws and to certain State taxation officials and the Chief Collector of Taxes for Papua New Guinea, where those officials are authorised by law to afford similar information to the Commissioner of Taxation.
Paragraph (b) of clause 19 re-expresses paragraph (a) of sub-section 16(4) which now permits the disclosure of information to a Commonwealth or State official for the purposes of allowing that person to carry out a duty arising under a Commonwealth Act administered by the Commissioner. The paragraph is being re-expressed to reflect the fact that the Commissioner and his officers will be carrying out duties under State income tax laws and that the administration of Commonwealth and State income tax laws will be in the hands of Commonwealth officers only.
By paragraph (c) of clause 19, the reference in paragraph (b) of sub-section 16(4) to communication of information to a board exercising functions under any State Act administered by the Commissioner of Income Tax of any State is being deleted and replaced by a reference to a board exercising functions under any "State income tax law" as that term is to be defined by clause 17. This will make it clear that the Boards to which the Commissioner and his officers are permitted to communicate information are those operating in the context of criteria set out in Part II of the Bill.
Similarly, as under the proposed arrangements the Commissioner of Taxation is himself to have the administration of State income tax laws, paragraph (d) of the clause will omit from paragraph (c) of sub-section 16(4) the authority in that paragraph for information to be supplied to the Commissioner of Income Tax of any State.
Sub-section 16(5A) of the Principal Act makes it clear that Commonwealth Ministers are included among the persons to whom taxation officials may not communicate information concerning the affairs of taxpayers which has come to the knowledge of the officials during the course of their duties. Paragraph (e) of clause 19 will also make it clear that it would be a breach of the secrecy provisions of the law for a taxation official to communicate information to a State Minister.
Section 160AE is one of the provisions of the Principal Act governing the allowance of a credit, against Australian tax payable by a resident of Australia on certain income derived from Papua New Guinea, in respect of Papua New Guinea tax on the income. The amount of such credit is, by section 160AF, limited to the amount of Australian tax otherwise payable on that income. The amount of Australian tax payable on the Papua New Guinea income is for this purpose determined by applying the "average rate of Australian tax" to the amount of the income from Papua New Guinea.
In cases where the taxpayer is entitled to a rebate under a State income tax law, the average rate of Australian tax is to be calculated by reference to the amount of income tax payable under Commonwealth law, reduced by the amount of the State rebate of that tax. This result will be achieved by the insertion of sub-section (1A) in section 160AE. Section 203, to which the new sub-section refers, is being inserted by clause 31 and authorises the application of State rebates in reduction of the taxpayer's Commonwealth tax liability. A corresponding amendment of the Income Tax (International Agreements) Act is being made by clause 72 of the Bill.
Clauses 21 to 24 : Miscellaneous provisions with respect to credits
Division 19 of Part III of the Principal Act contains machinery provisions applicable to credits allowable in respect of Papua New Guinea tax (see notes on clause 20) and to credits in respect of tax paid in another country that are allowable by virtue of the Income Tax (International Agreements) Act 1953. The Division provides, among other things, for the amendment by the Commissioner of Taxation of his determination of the amount of a credit (section 160AK), the manner in which a credit is to be applied against tax liabilities of the taxpayer (section 160AN and new section 160AP) and for an overall limit on the amount of credit which any person can be allowed (section 160AO).
Clause 21: Amendment of determinations
Sub-sections (2) and (3) of section 160AK provide basically that, unless a person has failed to make a full and true disclosure of all material facts, a determination of a credit shall not be amended except to correct an error in calculation or a mistake of fact or in consequence of an adjustment, credit or refund of Australian tax or non-Australian tax. Because the amount of any credit allowable under the Principal Act can be affected by the amount of a State rebate (see clauses 20, 23 and 72), this clause will amend section 160AK to provide, as a further ground for the amendment of a determination of a credit, any adjustment of the amount of a State rebate to which the person is entitled.
Clause 22: Application of credits
Sub-section (2) of section 160AN provides that the Commissioner of Taxation may apply any part of a foreign tax credit to which a person is entitled against any liability of that person to the Commonwealth under any Act administered by the Commissioner.
This clause will amend sub-section (2) to provide that the Commissioner may also apply a foreign tax credit against a liability of the person which arose by virtue of a State income tax law (and which would have been assigned to the Commonwealth for collection).
Section 160AO provides that the sum of all credits in respect of foreign tax to which a person is entitled for a year is not to exceed the amount of Australian tax that he would be required to pay before the allowance of those credits.
This clause is complementary to clauses 20 and 72 and will mean that the amount of Australian tax for the purposes of the calculation of the maximum credit allowable is to be reduced by the amount of any State rebate to which the person is entitled.
Clause 11 provides, as a criterion for a State to be declared to be a participating State, that the State income tax law must provide for the allowance of a credit against State tax in respect of so much of the foreign tax paid by a person on income on which the State tax is imposed a is not allowed as a credit under Commonwealth law.
Clause 24 proposes to insert a new section - section 160AP - in the Principal Act which will empower the Commissioner of Taxation to deal with a State foreign tax credit in the same way as he can deal with a Commonwealth foreign tax credit.
Under sub-section (1) of section 160AP, where a taxpayer is entitled under State law to a credit for foreign tax the amount of the credit is, technically, a debt due and payable to that person by the Commissioner on behalf of the Commonwealth.
Sub-section (2) will empower the Commissioner to apply the amount of any State foreign tax credit against any liability of the person to the Commonwealth which arises by virtue of any Act administered by the Commissioner, including any State income tax law.
Sub-section (3) provides for the necessary appropriation of the Consolidated Revenue Fund in the event that any part of the State foreign tax credit is to be paid to a person. In the usual case, the amount of such a credit will be fully applied against the tax payable by the person.
Although sub-sections (1) and (3) provide for the Commonwealth to be responsible initially for meeting a person's entitlement under State law to a foreign tax credit, the provisions of clause 76, under which the States are to be paid the amount collected on their behalf, will have the effect that the State concerned is ultimately to bear the cost of allowing credits under State law for foreign tax.
Sub-section (4) of proposed section 160AP authorises the Commissioner to recover from a taxpayer any amount of foreign tax credit allowed under State law that proves to be excessive because of a subsequent amendment of an assessment.
Section 161 of the Principal Act provides, broadly, that a person who derives income is required to lodge with the Commissioner of Taxation an annual return setting out his or her total income and deductions for the year.
A separate return for State tax or rebate purposes will not be required under proposed "stage 2" arrangements, but such information as is required by the Commissioner for those purposes and as is prescribed by the Income Tax Regulations will be sought through the Commonwealth income tax return. This information would normally consist only of details concerning the person's State of residence and the amount, if any, of certain Commonwealth loan interest derived by the person during the year (see paragraph (e) of sub-clause 7(1)).
This clause therefore proposes to amend section 161 to enable Commonwealth income tax return forms to contain provision for such additional "State" information.
By section 163 of the Principal Act the Commissioner of Taxation can require any person to lodge a special return for the purposes of that Act.
This clause will amend section 163 so that a special return can also be required for the purposes of a State income tax law.
Clause 27: Refunds of amounts overpaid
This clause proposes the replacement of the existing section 172 of the Principal Act with a new section to provide, in cases where an amendment of an assessment has reduced a person's liability for either Commonwealth tax or State tax or both, authority for the Commissioner of Taxation to refund any tax overpaid.
The existing section is limited in its scope to refunds following amendments of Commonwealth assessments.
Clause 28: Notice of assessment
The purpose of this clause is to allow amounts relevant to an assessment of liability to State tax, or to a determination of eligibility for a State rebate, to be included on a notice of assessment issued for the purposes of Commonwealth tax.
Paragraph (a) of the new sub-section(2) which is to be inserted by this clause in section 174 of the Principal Act, will provide that an amount relevant to a State tax assessment or rebate determination may be shown separately on a Commonwealth notice of assessment. Paragraph (b) will, in addition, provide that, where appropriate, Commonwealth and State amounts may be combined and shown in that form on a notice of assessment.
It is intended that combined notices of assessment will clearly identify how much tax is assessed to a taxpayer under Commonwealth law, and how much is assessed as tax due to his or her State of residence.
Clause 29: Application for appeal or review
Clause 30: Appeal or reference to Supreme Court
As indicated in the notes on clause 12, under the Income Tax Assessment Act - sections 187 and 196 - a taxpayer who objects against his or her assessment and who is dissatisfied with the Commissioner's decision on that objection may lodge an appeal with the Supreme Court of a State or Territory, or may elect to have the matter reviewed by a Taxation Board of Review. Taxpayers also have rights to appeal to a Supreme Court from a decision of a Board of Review, and questions of law arising before a Board may be referred for determination by a Supreme Court.
The amendments to sections 187 and 196 of the Principal Act, which are being made by clauses 29 and 30, are designed to complement the provisions which, by clause 12, a State income tax law is to contain if it is to be administered by the Commissioner of Taxation. The effect of the amendments will be mainly that a taxpayer who has asked to have a dispute concerning his or her State assessment or determination of eligibility for a State rebate determined by a Board of Review or the Supreme Court of the State may only have a dispute against his matching Commonwealth assessment determined by the same tribunal that is to determine the disputed State assessment or determination.
Clause 29 will amend section 187 of the Principal Act to insert in that section three new sub-sections - sub-sections (2), (3) and (4). Under new sub-section 187(2), if a taxpayer has requested that his State objection be treated as an appeal and forwarded to the Supreme Court of the State concerned, the person is not to be entitled to have a dispute about the matching Commonwealth assessment referred to a Board of Review or to another Supreme Court.
Under new sub-section (3) a taxpayer who arranges to have his or her State objection referred to a Board of Review will not be entitled to have an objection against the matching Commonwealth assessment determined by a Court.
In new sub-sections (2) and (3) the determination of a person's entitlement to a State rebate is referred to as a determination. New sub-section (4) makes it clear that the State determination referred to in those sub-sections is the determination of the person's entitlement to a State rebate.
Clause 30 inserts similar provisions in section 196 of the Principal Act to those inserted by clause 29 in section 187. New sub-section 196(2A) provides that if a taxpayer appeals to the Supreme Court of a State against a decision of a Board of Review on a disputed State assessment or determination, he is not entitled to appeal to another Supreme Court against the matching Commonwealth decision of a Board of Review.
New sub-section (2B) corresponds with sub-section (2A) in circumstances where the State matter is a question of law arising before a Board of Review. In such circumstances the person is not entitled to have a question of law arising before a Board of Review on his or her disputed Commonwealth assessment referred to the Supreme Court of another State.
New sub-section (2C) defines the term "determination" which is used in the new sub-sections (2A) and (2B) to mean the determination of a person's eligibility for a State rebate.
Clauses 31 to 37 : Collection and recovery of tax - General
Division 1 of Part VI of the Principal Act contains provisions to facilitate the collection and recovery of Commonwealth income tax. Divisions 2 and 3 of that Part go on to provide means of collection of Commonwealth tax by the systems of PAYE deductions from salaries and wages and provisional tax. More will be said of Divisions 2 and 3 in connection with the later clauses of the Bill that relate to those Divisions.
Clause 31 enables State rebates to be applied in reduction of assessed Commonwealth tax and clauses 32 to 37 propose amendments to Division 1 which are designed to enable the collection and recovery of State tax in conjunction with Commonwealth tax.
Clause 31: Payments by States to be applied in partial discharge of liability of income tax
This clause proposes the insertion of a new section - section 203 - in the Principal Act. Section 203 will apply in cases where a participating State has granted a tax rebate to its residents and pays to the Commonwealth the amount of that rebate. Earlier provisions of the Bill - in particular, clause 7 - set out the basis on which a State may, in the context of "stage 2" arrangements, grant its residents a rebate of the tax payable by them under Commonwealth law.
The effect of section 203 will be to authorise the Commissioner of Taxation to apply, in partial discharge of a person's liability for Commonwealth tax, so much of the amount of the State rebate as that person is entitled to.
Clause 32: Application of certain provisions to State tax
Section 204A, which is to be inserted in the Principal Act by this clause, provides that a reference in sections 205, 206, 207, 209 or 214 to tax or to income tax will include a reference to State tax assessed, to additional (penalty) State tax payable and, except in section 205, to State provisional tax. These sections, except section 207, govern the collection of Commonwealth tax in varying circumstances and the function of section 204A will be to allow State tax to be collected as if it were Commonwealth tax. For example, the combined effect of sections 204A and 209, in the context of clauses 13 and 33 of the Bill, will be to enable the Commissioner to institute a single action in a court for recovery of unpaid Commonwealth and State tax.
Section 207 of the Principal Act imposes additional tax for late payment of tax, at the rate of 10 per cent per annum on the amount of tax outstanding. The effect of section 204A in this case is to impose the same rate of additional tax on the State component of the amount outstanding. However, while additional tax for late payment of State tax will arise in this way under Commonwealth law, clause 76 of the Bill is so constructed that the State concerned will be paid such additional tax as is collected by the Commonwealth on the State's behalf.
Clause 33: Sections 208A and 208B
This clause proposes the insertion of two new sections - sections 208A and 208B - in Division 1 of Part VI of the Principal Act.
Section 208A : Recovery of assigned debts
Section 208A, which will be the counterpart, for State tax purposes, of existing section 208, will provide that any debt of a person which, by virtue of a State income tax law (see clause 13), is assigned to the Commonwealth for collection, is to be a debt due to the Commonwealth and payable to the Commissioner of Taxation in the manner and place prescribed by the Income Tax Regulations. The basic effect of this section will be to provide for the collection of State tax as if that tax were Commonwealth tax. Under section 208, Commonwealth tax is a debt due and payable to the Commissioner in the manner and at the place prescribed.
Section 208B : Application of payment in partial discharge of debts
Section 208B will apply when a person has debts outstanding in respect of both Commonwealth tax and State tax and has made a payment that falls short of the total of those debts. The effect of the section will be to facilitate recovery by the Commissioner of Taxation of the amounts outstanding by allowing the separate debts to be merged and by allowing the total of any payments received from the person to be applied against that merged sum without distinction between Commonwealth and State components. The result is that the Commissioner may proceed to recover a single undifferentiated balance.
By reason of clause 76 of the Bill, the State concerned will be paid its share of what is collected by the Commissioner.
Clause 34: When tax not paid during lifetime
The broad effect of section 216 of the Principal Act is to make the trustees of a deceased person's estate liable to pay, out of the estate, such amounts of tax that should have been paid, but which were not paid by reason of the deceased not having made complete and accurate returns during his lifetime. The amendments proposed by this clause will place the trustees in the same position in respect of any State tax or rebate.
Paragraph (a) of the clause will amend paragraph (b) of section 216 to require the trustees to also make, on behalf of the deceased, such returns as the Commissioner requires for an accurate assessment of State tax or for an accurate determination of eligibility for State rebate.
Paragraph (b) of the clause will amend paragraph (d) of section 216 to include in the amount of tax payable by the trustees, the amount of any State tax. Paragraph (d) provides that the amount of outstanding tax is to be a first charge on the estate.
Clause 35: Provision for payment of tax by trustees of deceased person
Section 217 of the Principal Act has an effect with regard to Commonwealth tax for trustees of a deceased person's estate similar to that of section 216. Section 217 applies where the completeness or accuracy of returns lodged by the deceased during his lifetime is not in question, but the tax on income derived up to the date of the person's death has not been assessed and paid. The section as it stands provides that the Commissioner of Taxation has the same powers and remedies for the assessment and recovery of Commonwealth tax from the trustees as he would have had against the deceased if the deceased were alive.
This clause proposes amendments to section 217 so that it will also have effect against trustees, where appropriate, with regard to State tax. This course can only be taken with respect to the recovery of State tax that has been assigned to the Commonwealth for collection - the assessment of State tax being a matter to be dealt with by the State income tax law.
Paragraph (a) of the clause is a drafting measure designed to remove the "recovery" aspect of section 217 from sub-section (1). This aspect is being dealt with separately by the new sub-section (1A).
Paragraph (b) of the clause proposes the insertion in the Principal Act of new sub-section (1A) which will provide that, where Commonwealth tax is assessed in accordance with sub-section (1) or State tax is assessed in accordance with a corresponding provision of a State income tax law, the Commissioner of Taxation will have the same powers and remedies for the recovery of that tax from the trustees as he would have had against the deceased if the deceased were alive.
The reference in the notes on paragraphs (a) and (b) of clause 35 to "sub-section (1A)" should read "sub-section (4)" and the reference in the notes on paragraph (b) to "sub-section (1)" should read "sub-section (1) or (3)".
Clause 36: Commissioner may collect tax from person owing money to taxpayer
The purpose of section 218 of the Principal Act is to enable the Commissioner of Taxation to recover any outstanding tax, owed by a taxpayer, from any person who owes money to or holds money on behalf of that taxpayer.
Clause 36 proposes the amendment of the section to enable the Commissioner to also recover an amount of State tax from such a person. For this purpose, the definition of "tax" in sub-section (6) of the section which is now expressed to include any judgment debt and costs in respect of Commonwealth tax (in addition to that tax itself), has been widened to include also State tax (including State provisional tax) and any judgment debt and costs in respect of Commonwealth tax or in respect of such State tax.
Clause 37: Where no administration
Broadly, the purpose of section 220 of the Principal Act is to enable the Commissioner of Taxation to assess and recover Commonwealth tax from the estate of a deceased person in respect of any income derived by the deceased prior to death, tax on which has not been assessed and paid. The section applies where probate has not been granted or letters of administration have not been taken out within 6 months of the person's death. In such cases, the Commissioner of Taxation can authorise the appropriation and sale of any property of the deceased, in order to effect recovery of the tax.
This clause proposes to amend section 220 to enable the Commissioner to recover, in a like manner, the amount of any State tax assessed against the deceased's estate under a corresponding provision of the State income tax law.
Clause 38 to 52: Collection by instalments of tax from salaries and wages
Division 2 of Part VI of the Principal Act contains the PAYE provisions of the Commonwealth income tax law. Briefly, these provisions enable the collection of Commonwealth income tax on salaries and wages at the time at which the income is earned, by requiring employers to make deductions on account of tax from salaries and wages paid to their employees.
As noted earlier, clause 10 specifies that a State's income tax law must, in order that the State be regarded as a participating State, make provision for State tax on salaries and wages to be collected through the PAYE system. By reason of clause 10, employers in a participating State will be required by the law of that State to make PAYE deductions, reflecting the State's tax, from salaries and wages paid to employees who are residents of that State on pay-day.
Clause 15 will have the effect in "border" situations that an employer in one State (a supporting State) who pays salary or wages to an employee who, on pay-day, is a resident of another State (a State that is a participating State), will be required by the law of the supporting State to make PAYE deductions reflecting the tax imposed by the participating State.
Similarly, where an employer in a Commonwealth Territory pays salary or wages to an employee who, on pay-day, is a resident of a participating State, clause 75 of the Bill will require the employer to make PAYE deductions reflecting the tax imposed by the participating State.
The debts created in respect of deductions made from salaries or wages under the law of a State will be assigned to the Commonwealth for collection. Debts arising as a result of clause 75 would, in the first instance, be owed to the Commonwealth. In both situations, however, the amounts collected by the Commonwealth will, by clause 76, be paid to the State from the pay of whose residents the amounts are deducted.
The basic function of clauses 38 to 52 is to modify the Commonwealth PAYE provisions so that deductions made under the law of a State, or under clause 75, may be collected by the Commissioner of Taxation in conjunction with Commonwealth PAYE deductions. This will be achieved by adding to the amount of Commonwealth PAYE deductions to be taken from the pay of residents of the State, amounts of State PAYE deductions. A single Commonwealth/State deduction will be made from the pay of each employee. Conversely, where a State allows a tax rebate to its residents, a corresponding reduction will be made in the Commonwealth PAYE deductions made from the pay of residents of that State.
Sub-section (1) of section 221A of the Principal Act contains definitions of words and phrases used in Division 2 of Part VI of that Act.
Paragraph (a) of the clause proposes the amendment of the definitions of "group certificate" and "tax stamps certificate". These terms at present refer to the certificates issued by employers in respect of Commonwealth PAYE deductions made from salaries and wages. By this amendment, the terms will refer to such certificates issued in respect of deductions reflecting both Commonwealth and State PAYE deductions.
Paragraph (b) proposes the insertion of a new definition - "State income tax law". By this definition, the term will be taken to include, in addition to the law of a participating State, the law of a supporting State relating to PAYE deductions. The earlier definition of State income tax law, which is to be inserted in section 6 of the Principal Act by clause 17, includes only the law of a participating State.
Paragraph (c) proposes to re-define the term "tax payable by the employee" to mean both Commonwealth and State income tax that will become payable by the employee as a result of his or her Commonwealth and State assessments. In conjunction with section 221H of the Principal Act this will enable Commonwealth/State PAYE deductions to be applied against assessed Commonwealth and State taxes.
Clause 39: Deductions by employer from salary or wages
Paragraph (a) of the clause proposes the insertion of new sub-section (1AA) in section 221C of the Principal Act. This sub-section will apply, in cases where a State has granted a tax rebate to its residents, to enable a reduction in the prescribed rates of Commonwealth deductions that would otherwise be made by employers from salaries and wages paid to employees who are residents of the State. The new sub-section enables the making of regulations under which the ordinary Commonwealth PAYE deductions would be reduced by the amount of the rebate applicable to the employees concerned.
Paragraph (b) of clause 39 is a drafting measure consequential upon the insertion of new sub-section (1AA) in section 221C.
Clause 40: New sections 221EA and 221EB
This clause proposes the insertion of two new sections - section 221EA and 221EB - in Division 2 of Part VI of the Principal Act.
Section 221EA : Rates of deductions in respect of State income tax
This clause will, for purposes of State tax, be a companion measure to section 221C of the Principal Act which is the provision under which rates of PAYE deductions for purposes of Commonwealth tax are prescribed.
Section 221EA will apply where a State has legislated to impose a tax on the income of its residents and has fixed, by legislation, the rate of that tax. Before section 221EA could apply the State would also have to legislate to require employers to make PAYE deductions representing the State's tax.
The function of section 221EA in these circumstances is to authorise Commonwealth regulations fixing the actual rate of State PAYE deductions. Provision for these rates to be fixed by Commonwealth regulations will enable, where appropriate, the co-ordination of changes in PAYE deductions and will facilitate proposed arrangements under which employers will be asked to use combined schedules of Commonwealth/State PAYE deductions in relation to those employees who are residents of participating States.
Section 221EB : Employee to furnish statement as to place of residence
Under arrangements outlined above, the amount of PAYE deductions to be made from the salaries and wages of employees may be increased or reduced if those employees are resident in a State that imposes a tax on its residents or allows its residents a rebate of tax payable under Commonwealth law.
Proposed section 221EB will facilitate these arrangements by enabling the making of regulations by which employees may be required to give to their employer a notice as to the employee's State of residence.
Section 221F of the Principal Act sets out the obligations of employers, registered as group employers, in respect of PAYE deductions made by them. Basically, group employers are required to pay to the Commissioner of Taxation on a monthly basis, an amount equal to the PAYE deductions made by them and to issue a group certificate to each employee in respect of the deductions made. (Other employers are required to purchase tax stamps monthly in respect of PAYE deductions made, and to issue to their employees tax stamps certificates and the sheets to which the tax stamps have been affixed.)
Paragraph (a) of the clause proposes to amend sub-section (5) of section 221F so that a reference to the word "deductions" will include deductions made in respect of State tax. This amendment will, in effect, treat PAYE deductions made in respect of a State tax as if they were Commonwealth PAYE deductions and will therefore impose, in respect of Commonwealth/State PAYE deductions, obligations on employers to make payments to the Commissioner of Taxation and to include the amount of the combined deductions on group certificates.
Paragraph (b) proposes an amendment to sub-section (9) of section 221F so that the word "tax" in that sub-section will be read as including State tax. Sub-section (9) requires that where the Commissioner of Taxation credits, in payment of an employee's tax, an amount shown on a group certificate and the amount shown on the group certificate is greater than the amount that the employer deducted from the employee, the employer is required to pay to the Commissioner the amount of the difference. Paragraph (b) is therefore a measure to bring sub-section (9) into line with the other amendments proposed by the Bill.
Clause 42: Employers other than group employers
This clause proposes the insertion of sub-section (7) in section 221G of the Principal Act. The effect of the clause will be that, in the case of employers other than group employers, PAYE deductions made in respect of a State tax will be treated as if they were Commonwealth PAYE deductions. This will impose obligations on such employers to purchase tax stamps in respect of the Commonwealth/State deductions, to affix the stamps to the tax stamps sheet in respect of an employee and to show as the amount of deductions on an employee's tax stamps certificate, the amount of the combined Commonwealth/State PAYE deductions.
Clause 43: Application of deductions in payment of tax
Section 221H of the Principal Act provides that the Commissioner of Taxation is to credit, in payment of the tax payable by an employee, the amount of deductions made by his or her employer that is represented on a group certificate or tax stamps sheet issued to the employee. New sub-sections (8) and (9) that are being inserted by this clause in section 221H will alter the section so as to reflect State taxes and rebates.
Sub-section (8) will provide that the term "deductions", where used in section 221H, will include deductions made by an employer in respect of a State tax. This will enable the Commissioner of Taxation to apply, as a credit against tax payable by an employee, the amount of Commonwealth/State PAYE deductions made from the pay of the employee. The tax payable by the employee is to be defined to include both Commonwealth and State tax. (See paragraph (c) of clause 38).
Sub-section (9) will provide that, in a case where an employee is entitled to a State tax rebate, the "tax payable by the employee", for the purposes of section 221H, will be the person's Commonwealth tax as reduced by the amount of rebate allowable to the person.
Clause 44: Use of tax stamps by persons other than employees
Section 221K of the Principal Act provides that taxpayers, other than employees, who wish to make prior provision for the tax that will be payable on their end-of-year assessment, may purchase tax stamps which will be allowed as a credit by the Commissioner of Taxation in payment of tax assessed.
This clause proposes an amendment of section 221K which will enable such taxpayers to also purchase tax stamps in anticipation of their State tax assessments.
Clause 45: Recovery of amounts not deducted
Section 221N of the Principal Act provides that where an employer fails to make the required PAYE deductions from salaries or wages paid by him, he is liable to pay to the Commissioner of Taxation an amount equal to the amount he failed to deduct.
This clause proposes to amend section 221N so that where an employer fails to make State PAYE deductions he will similarly be required to pay an amount to the Commissioner equal to the amount he failed to deduct.
Clause 46: Employer not accounting for deductions
Section 221P of the Principal Act provides that where an employer makes PAYE deductions but fails to either pay to the Commissioner of Taxation the amount of those deductions or to purchase tax stamps, as required, that employer (and any trustee into whose hands the property of the employer has passed) is liable to pay the amount so deducted to the Commissioner.
This clause proposes an amendment of section 221P which will mean that where an employer makes State PAYE deductions and fails to deal with the amount deducted in the manner required, the employer (or trustee) will also be liable to pay the amount deducted to the Commissioner. Amounts collected by the Commissioner under this provision in respect of State PAYE deductions will, of course, be paid to the State concerned under clause 76 of the Bill.
Clause 47: Employer failing to issue group certificate or deliver tax stamps sheet
The purpose of section 221Q of the Principal Act is to enable the Commissioner of Taxation, where he is satisfied that an employer has made PAYE deductions but has failed to issue the employee concerned with a group certificate or a tax stamp sheet in respect of those deductions, to nevertheless allow a credit, in payment of tax payable by the employee, equal to the amount of the deductions made.
By this clause, section 221Q will be amended so that the term "deductions", wherever used, will include PAYE deductions insofar as they reflect State tax. This will enable the Commissioner to allow a credit, in payment of tax payable by the employee, in respect of any State PAYE deduction for which the employer has failed to issue the employee with a group certificate or tax stamps sheet. By reason of clause 76 of the Bill the cost of the credit will be borne by the State concerned.
Clause 48: Recovery of amounts by Commissioner
Briefly, section 221R of the Principal Act provides that the Commissioner of Taxation may sue for recovery of an amount owing by an employer in respect of Commonwealth PAYE deductions.
This clause will have the effect that the Commissioner may also sue for recovery of an amount of State PAYE deductions, the debt in respect of which has, by a State income tax law, been assigned to the Commonwealth for recovery. New sub-section (3) being inserted in section 221R extends the scope of the section to debts owing in respect of State PAYE deductions and new sub-section (1A) allows the Commissioner to apply payments against the undissected total amount owing for Commonwealth and State purposes and to sue for the undissected balance of Commonwealth and State amounts.
Amounts recovered by the Commissioner that arise from liability under a State's income tax law sill, by clause 76, be paid to the State concerned.
Clause 49: Arrangements with authorities of other countries
Section 221S of the Principal Act authorizes the Commissioner of Taxation to enter into an arrangement with the government of another country, where that government has an office in Australia through which it engages employees, for PAYE deductions to be made, where appropriate, from the salary or wage paid to such an employee. If such an arrangement is made, the employee is required to authorize his or her employer to make deductions from his or her salary or wage, and to pay the amount so deducted to the Commissioner.
This clause, in the same manner as earlier clauses, proposes an amendment to the section to authorize the Commissioner to enter into such an arrangement with regard to State PAYE deductions.
Clause 50: Application by Commissioner of amounts received from employees
This clause proposes the insertion of a new section - section 221TA - in the Principal Act.
It was noted earlier that sub-clause (2) of clause 10 of the Bill will require that the law of a participating State is to provide a legal basis by which a supporting State can require an employer in that State to make State PAYE deductions from salary or wages paid to a resident of the participating State. For this purpose, sub-clause 10(2) proposes that an employee, who is a resident of a participating State and whose employer is not required by the law of that State to make appropriate State PAYE deductions, will himself be required to pay an equivalent amount to the Commissioner of Taxation.
While sub-clause 10(2) is intended primarily as a machinery provision to provide the basis for legislation by supporting States, if an employee does pay an amount to the Commissioner, section 221TA will require the Commissioner to credit the amount in payment of the tax payable by the employee in the same manner as if the amount had been deducted by the employer and a group certificate had been issued.
Clause 51: Payments to and from Consolidated Revenue Fund
The purpose of section 221U of the Principal Act is twofold. Firstly, it provides that the Commissioner of Taxation is to pay into the Consolidated Revenue Fund all moneys received by him as PAYE deductions. Secondly, it provides for appropriations from the Consolidated Revenue Fund to enable the Commissioner of Taxation to make such refunds in respect of PAYE deductions received by him as are authorized by the Principal Act.
This clause proposes the amendment of section 221U to provide, firstly, that combined Commonweath/State PAYE deductions received by the Commissioner are to be paid into Consolidated Revenue and, secondly, for the appropriation of the Consolidated Revenue Fund to enable the Commissioner to make necessary refunds in respect of Commonwealth/State PAYE deductions.
By reason of clause 76 of the Bill, payments into and from the Consolidated Revenue Fund that reflect the tax of a State will be to the account of the State.
Section 221V of the Principal Act sets out a number of offences relating to persons who fraudulently obtain credit in respect of Commonwealth PAYE deductions.
This clause proposes an amendment of section 221V so that the same range of offences will apply in regard to Commonwealth/State PAYE deductions.
Clauses 53 to 58 : Provisional tax
Division 3 of Part VI of the Principal Act sets out the provisional tax requirements of the Commonwealth income tax law. By these provisions, provisional tax is made payable in respect of income, other than salary or wages, in the year in which such income is derived. Provisional tax imposed for a year is allowable as a credit against the tax subsequently assessed on the income of that year.
It was noted earlier, in relation to clause 8 of the Bill, that for a State to be regarded as a participating State, its income tax law must provide for the imposition of State provisional tax. Clauses 53 to 58 propose amendments to Division 3 which will enable State provisional tax to be collected in conjunction with Commonwealth provisional tax and for both Commonwealth and State provisional taxes to be credited against assessed Commonwealth and State tax.
Section 221YA of the Principal Act sets out the interpretation applicable to certain words and phrases used in Division 3 of Part VI of the Principal Act.
Paragraph (a) of the clause proposes the insertion in sub-section 221YA(1) of a definition of "State income tax law". By this definition, which is only of technical significance, a State income tax law will, for the purposes of Division 3, include, in addition to the law of a participating State, the law of a supporting State.
Paragraph (b) proposes the insertion of sub-section (6) in section 221YA. This new sub-section will enable the Commissioner of Taxation to show - where appropriate - on a notice of assessment or other notification of provisional tax, one undissected amount in respect of Commonwealth and State provisional tax. In cases where it becomes necessary for the Commissioner to sue for recovery of any provisional tax, sub-section (6) will deem, for the purposes of such a suit, the notification of the undissected amount of provisional tax to be notification of the separate amounts of Commonwealth and State provisional tax.
Clause 54: When provisional tax payable
Section 221YD of the Principal Act specifies the manner in which Commonwealth provisional tax is to be notified to taxpayers, and determines the date on which the provisional tax is to become payable. Briefly, provisional tax may be notified on the notice of assessment for the year preceding the year for which the provisional tax is imposed, and is payable on the date on which the tax for the preceding year is payable.
This clause will amend section 221YD with the effect that State provisional tax may be notified on the same notice of assessment on which Commonwealth provisional tax for the year is notified, and that the State provisional tax is payable on the same date as the Commonwealth provisional tax.
Clause 55: Provisional tax on estimated income
Section 221YDA of the Principal Act provides that a taxpayer may vary the amount of provisional tax notified - normally on a notice of assessment - and that for this purpose he or she is to provide the Commissioner of Taxation with an estimate of his or her taxable income for the year for which the provisional tax has been notified. The taxpayer's estimate is to include the amounts of the estimated taxable income that are represented by salary or wages and other income, an estimate of certain rebates to which the taxpayer will be entitled in his or her assessment and an estimate of the amount of PAYE deductions that will be made from his or her salary or wages. Where the taxpayer furnishes the required estimates, the Commissioner is required to recalculate the provisional tax on the basis of those estimated amounts.
The purpose of the amendments proposed by this clause is to facilitate a similar variation by taxpayers of the amount of State provisional tax.
New paragraph (d), which is proposed to be inserted in sub-section (1) of section 221YDA by paragraph (a) of the clause, will require the taxpayer to furnish the Commissioner of Taxation with estimates of the amounts of salary or wages, Government loan interest and other income that are included in the taxpayer's estimated taxable income. The estimation of the amount of Government loan interest (see clause 3) will be required by the Commissioner to enable him to calculate the State provisional tax on a basis that excludes such interest from liability to provisional tax.
Paragraph (b) of the clause proposes an amendment to paragraph (e) of sub-section (1) so that the amount to be estimated by the taxpayer as PAYE deductions will include the amount of State PAYE deductions.
Paragraph (c) of the clause is a technical amendment, the effect of which will be to dispense with the now redundant requirement for taxpayers to calculate the amount of provisional tax payable on the estimated taxable income.
Paragraph (d) of the clause proposes the insertion of sub-section (1A) in section 221YDA of the Principal Act. The purpose of new sub-section (1A) is to require taxpayers to furnish to the Commissioner of Taxation whatever other information the Commissioner requires for the purposes of processing an application by the taxpayer for a variation of the amount of State provisional tax. Such information will normally consist only of details necessary to determine the taxpayer's State of residence.
Paragraph (e) is simply a drafting measure made necessary by the insertion of sub-section (1A) in section 221YDA.
Turning to paragraph (f) of clause 55, sub-section (2) of section 221YDA sets out the method of calculation of provisional tax in a case where a taxpayer has applied for a variation of provisional tax. Briefly, sub-section (2) provides that the amount of provisional tax in such cases is to be the amount of tax that would be payable on the estimated taxable income after the deduction of estimated rebates, less the Commonwealth PAYE deductions that the taxpayer has estimated will be deducted from his or her salary or wages. There will need to be a corresponding provision in the income tax law of a participating State for the re-calculation of State provisional tax.
Because, in practice, a single Commonwealth/State PAYE deduction will be made from the pay of residents of participating States, the amount estimated by the taxpayer in respect of PAYE deductions will include any amount deducted in respect of State tax (see paragraph (b) of this clause). New paragraph (b) of sub-section (2), which is to be inserted by paragraph (f) of this clause, will enable the Commissioner of Taxation, in re-calculating the amount of Commonwealth provisional tax, to estimate the Commonwealth component of the PAYE deductions. The State component of the estimated PAYE deductions will be taken into account in the corresponding re-calculation of provisional tax made for State tax purposes.
Sub-section (3) of section 221YDA provides that the amount of provisional tax resulting from an application for a variation of provisional tax is to be payable not later than the due date for payment of provisional tax originally notified. Paragraph (g) of the clause proposes the re-enactment of sub-section (3) so that where the amount of State provisional tax is varied the varied amount will also be payable not later than the due date originally notified.
Paragraph (h) of the clause proposes the insertion of new sub-section (7) in section 221YDA. This new sub-section will authorize the Commissioner of Taxation to incorporate on the notification of provisional tax issued to a taxpayer under sub-section 221YDA(4) of the Principal Act (see also sub-section 221YDA(6)), the amount of State provisional tax determined in accordance with the provision of the State income tax law that corresponds with sub-section 221YDA(4). Briefly, sub-section 221YDA(4) provides that, where a taxpayer has applied for a variation of provisional tax and the Commissioner of Taxation believes that the taxpayer has underestimated his taxable income, the Commissioner can himself estimate the taxpayer's taxable income and the amount of provisional tax payable thereon, and notify the taxpayer accordingly.
Clause 56: Penalty where income underestimated
Section 221YDB of the Principal Act provides for a penalty to be imposed on a taxpayer who substantially underestimates his or her taxable income for the purpose of reducing the amount of provisional tax. The penalty is 10 per cent of the difference between the provisional tax payable on the estimated taxable income and the income tax that would be payable on the lesser of a taxable income equal to four-fifths of the taxpayer's current year taxable income and a taxable income equal to four-fifths of taxable income of the previous year.
The income tax law of a participating State will need to contain a provision to impose a similar penalty (see clause 9). The purpose of this clause is to enable the Commissioner of Taxation to collect the State-imposed penalty in conjunction with the Commonwealth penalty.
Paragraph (a) of the clause is a technical amendment brought about by the fact that the amount of PAYE deductions on which the computation of the penalty is, in part, based, is the total, undivided, sum of Commonwealth and State PAYE deductions.
Paragraph (b) proposes to amend sub-section 221YDB(2) to provide that the Commissioner of Taxation may sue for the recovery of an amount of State-imposed penalty in the same way that he can sue for the recovery of similar Commonwealth penalty.
Clause 57: Reduction of provisional tax in certain circumstances
This clause proposes the insertion of a new section - section 221YDBA - in the Principal Act. The purpose of section 221YDBA is to enable the reduction, by an appropriate amount, of the amount of Commonwealth provisional tax to be imposed on a taxpayer in cases where the taxpayer will be entitled to a rebate of tax under a State income tax law. The broad aim of the regulations to be authorized by section 221YDBA will be to reduce the taxpayer's provisional tax by the amount of the rebate to which he will be entitled. Clause 39 of the Bill makes similar provision for a reduction in Commonwealth PAYE deductions to reflect State rebates.
Clause 58: Provisional tax to be credited against other tax
Section 221YE of the Principal Act provides that the amount of provisional tax paid by a taxpayer for a year is to be credited in payment of income tax for that year, provisional tax in respect of the next year of income or any other tax owed by the taxpayer.
The effect of the new sub-section (2) proposed to be inserted by clause 58 is that both Commonwealth and State provisional tax will be able to be credited in payment of Commonwealth and State taxes.
Clauses 59-68: Miscellaneous amendments to Income Tax Assessment Act
The clauses previously discussed cover the main amendments to the Principal Act by which it is intended that a State income tax will be collected in conjunction with Commonwealth income tax.
The remaining amendments proposed by Part III of the Bill deal with a number of miscellaneous matters and are discussed below.
Clause 59: Additional tax in certain cases
This clause proposes the insertion of sub-section (5) in section 226 of the Principal Act. Section 226 applies to impose additional (penalty) tax in circumstances where a taxpayer has failed to furnish a return or information required by the Commissioner of Taxation, has omitted income from a return or has over-claimed deductions or rebates. In these cases, the amount of the penalty tax is related to the amount of tax that would have been avoided as a result of such omissions or acts by the taxpayer.
The income tax law of a participating State that imposes a State tax will need to contain a corresponding provision to impose a similar penalty tax (see clause 9).
New sub-section (5) of section 226 will apply in cases where a taxpayer is entitled to a rebate of tax under a State income tax law. The effect of sub-section (5) will be to reduce, by the amount of the State rebate, (and to the benefit of the taxpayer) the amount of Commonwealth tax on which the penalty tax is based.
Clause 60: False returns or statements
This clause proposes the amendment of section 227 of the Principal Act. Section 227 provides for the prosecution of taxpayers who furnish to the Commissioner of Taxation false returns or other false information. The penalty that may be imposed by a Court on conviction for such an offence can be related to the amount of income tax that would have been avoided by the taxpayer had the false return or information been accepted by the Commissioner.
By this clause, the amount of income tax on which a Court may base the calculation of the amount of penalty under section 227 will include the amount of any State income tax which would have also been avoided had the return or information been accepted.
Conversely, where the taxpayer is entitled to a State tax rebate, the amount of Commonwealth income tax on which the penalty may be based is to be reduced by the amount of the rebate.
Clause 61: Understating income
Section 230 of the Principal Act provides for the prosecution of a taxpayer who knowingly and wilfully understates his or her taxable income or who makes any other misstatement affecting his or her liability to tax. The penalty in such cases is more severe than the penalty under section 227 but, like under section 227, the Court can base the calculation of the amount of penalty on the amount of tax that would have been avoided had the return been accepted as being correct.
This clause proposes the amendment of section 230 so that the amount of tax on which the penalty can be based will include the amount of State tax that would have been avoided had the taxpayer's return been accepted as correct.
Clause 62: Penalties not to relieve from tax
The purpose of section 251 of the Principal Act is to ensure that the payment of a penalty arising from a prosecution will not affect the amount of tax that is to be assessed and paid.
The amendment proposed by this clause is of a technical nature and will similarly mean that the payment of such a penalty will not relieve the taxpayer of his or her liability to pay State income tax.
Clause 63: Agents and trustees
The broad purpose of section 254 of the Principal Act is to provide that an agent or trustee is to be liable to Commonwealth tax in respect of income derived in his representative capacity and that the Principal Act will apply to the agent or trustee as if the agent or trustee were the taxpayer.
The amendment proposed by this clause will extend the scope of section 254 so that it will impose the same liabilities and obligations on agents and trustees in respect of tax under a State income tax law.
Clause 64: Recovery of tax paid on behalf of another person
Section 258 of the Principal Act provides that where a person is required to pay an amount to the Commissioner of Taxation in respect of tax payable by another person, the person who paid the amount may sue for recovery of that amount, together with the costs of recovery, from that other person or deduct the amount paid from moneys that he or she owes that other person.
Clause 64 proposes amendment of section 258 to provide that a person who has paid an amount to the Commissioner in respect of State tax assessed to another person will have the same rights to recover the amount paid from that other person or to deduct the amount from moneys he or she owes to that other person as the person would have had, had the amount paid been in respect of Commonwealth tax.
Clause 65: Contributions from joint taxpayers
Under section 259 of the Principal Act, where two or more people are jointly liable for tax each is liable for the whole amount, but the person who pays the tax is entitled to recover an appropriate part of the payment from the other persons concerned. Clause 65 will amend the section so that the tax referred to in the section is Commonwealth tax and State tax.
Clause 66: Release of taxpayers from liability in cases of hardship
The purpose of section 265 of the Principal Act is, broadly, to provide for relief from payment of tax in cases where, in the opinion of a Board constituted for the purposes of section 265, the exaction of the full amount of tax would entail serious hardship.
This clause proposes the amendment of section 265 to provide that relief may also be granted by the Relief Board in respect of a liability to pay State tax, where the exaction of that tax would entail serious hardship.
Clause 67: Release of liability of members of Defence Force on death
Broadly, section 265A of the Principal Act operates to release from liability to tax the trustees of a deceased person who was, at the time of his or her death, a member of the Defence Force. The amount of such relief is limited to the amount of the tax attributable to the pay and allowances received as a member of the Defence Force, reduced by the amount of any PAYE deductions that have not been credited in payment of tax. Such relief is not available unless the deceased person's death occurred in circumstances which would normally render the Commonwealth liable to pay Department of Veterans' Affairs disability pensions (or war pensions) to the dependants of the deceased member.
The amendments proposed to be made to section 265A by this clause will provide for corresponding relief in respect of State tax imposed on the deceased person's pay and allowances.
Paragraph (a) of the clause will have the effect that the amount of PAYE deductions brought into the computation of the amount of relief will include the amount of any unapplied State PAYE deductions.
Paragraph (b), which proposes the insertion of new sub-section (6) in section 265A, will have the effect that the amount of any State tax assessed to the deceased person will, to the extent to which it is attributable to the deceased's pay and allowances, be included in the amount of tax in respect of which relief is to be granted.
Clause 68: Treatment of amounts received by Commissioner
Section 265B of the Principal Act is an old provision relating to the time when the Social Services Contribution Assessment Act 1945 was in force.
The section no longer has any purpose and, in fact, would be in conflict with the provisions relating to the determination of net personal income tax collections in the States (Personal Income Tax Sharing) Act 1976 and with sub-clause 76(3) of this Bill.
This clause therefore proposes the repeal of the section.
Part IV
Clause 69: Amendment of Commonwealth Inscribed Stock Act
This clause which amends section 52B of the Commonwealth Inscribed Stock Act is intended to reinforce and clarify the intent of that section. The amended section will place it beyond any legal doubt that the Commonwealth will meet undertakings given in loan prospectuses issued prior to 30 June 1976, that loan interest in respect of securities issued under those prospectuses will not be subject to State income tax.
Clause 70: Repeal of Commonwealth Salaries Act
The Commonwealth Salaries Act, enacted in 1907, states circumstances in which, according to the Act, a State may tax the salaries of members of the Commonwealth Parliament and of Commonwealth officials. The rate of tax imposed by a State on such salaries is not to be higher than on other salaries earned in the State, and the Act is expressed to limit a State's right to tax Commonwealth salaries to salaries that are earned in the State by people resident in the State. A member of the Parliament is deemed to reside in, and to earn his or her salary in, the State in which he or she was elected.
There is now thought not to be a legal need for an Act of this kind and the Act, as expressed, is not consistent with the proposed basis for State income tax that is contemplated by the Bill. For example, a limitation of State taxing rights in respect of Commonwealth salaries to salaries earned in the State by officials resident in the State is not in keeping with the proposal that a State may tax its residents on income wherever earned.
The Commonwealth Salaries Act 1907 is therefore to be repealed.
Clause 71: Amendments of the States (Personal Income Tax Sharing) Act
The amendments being made by this clause to the "stage 1" legislation under which the States are to receive 33.6 per cent of the personal income tax collected under Commonwealth law are designed to reflect the intention that, under "stage 2", Commonwealth personal income tax will be collected, in a merged way, with State income tax. It is necessary to amend the Act so that the States' "stage 1" entitlements are based only on the Commonwealth content of "merged" Commonwealth/State collections.
Paragraph (a) of sub-clause (1) deals with the starting point for the calculation of the amount of personal income tax collections in which the States are to share under "stage 1" arrangements. This starting point is the amount of gross personal income tax collections during the relevant year. Gross collections, as the description implies, represents the gross amounts of personal tax collected before PAYE and other refunds are taken into account.
As, under "stage 2" arrangements, gross collections received by the Commissioner of Taxation will include amounts received in respect of State tax liabilities (Commonwealth and State tax will be collected in a "merged" or undivided way), the definition of "gross personal income tax collections" is being amended to reflect the fact that gross collections will represent a "pool" of Commonwealth and State tax.
Paragraph (b) of sub-clause (1) amends that part of the definition of "refund of personal income tax" that requires that the effect of credits for foreign tax be taken into account in calculating the amount of collections in which the States are to share under "stage 1" arrangements. The amendment applies the principles of the existing law to the State credit for foreign tax for which clauses 11 and 24 of the Bill make provision.
The amendment being made by paragraph (c) corresponds with that proposed by paragraph (a) of the sub-clause. Just as under paragraph (a) the State "stage 2" component of gross collections is to be taken into account, so under paragraph (c) refunds of State income tax are to be taken into the calculations.
The net effect of the amendments being made by paragraphs (a) to (c) is to establish the "pool" of net collections of Commonwealth and State personal income tax. Sub-clause (2) of clause 71 (explained below) will enable the basic Commonwealth element of this pool - the element in which the States are to share under "stage 1" - to be established.
Paragraph (d) of sub-clause (1) formally defines "State income tax law" to mean the law of a participating State, i.e., a State whose tax and rebate laws meet the "stage 2" criteria set out earlier in the Bill.
In certain circumstances an overpayment of personal income tax which would otherwise be refunded to the person concerned may be applied against the person's liability for another tax. Under sub-section 4(2) of the States (Personal Income Tax Sharing) Act 1976 where such a transfer payment is made the amount transferred is treated as a refund of personal income tax for the purposes of establishing the net pool of personal income tax collections as the amount is, in effect, "taken out" of that pool and applied in payment of another tax. Paragraph (e) of clause 71 will amend sub-section 4(2) to, in effect, provide that where an overpayment of Commonwealth tax is applied against a State's income tax it is not to be treated as a refund, as in those circumstances the tax against which the amount is being applied is one, the collections in respect of which are taken into account in arriving at the total net personal income tax collection figure. As amended, sub-section 4(2), when read with the amended definition of "refund of personal income tax", also provides that an overpayment of State tax which is applied against a liability for another tax, other than Commonwealth or State personal income tax, is to be treated as a refund for the purposes of establishing the amount of net personal income tax collections.
Sub-clause (2) of clause 71 amends section 6 of the States (Personal Income Tax Sharing) Act 1976 under which the amount of net personal income tax collections under Commonwealth law in which the States are to share - 33.6 per cent of those collections are to be paid to the States - is established. As explained earlier, the collections received in future, once any State has commenced to levy a tax on its residents, will include both Commonwealth and State tax. Similarly, should any State allow its residents a rebate of tax payable by them under Commonwealth law, that rebate will reduce the amount of net personal income tax collections as that term is defined in the Act.
Against this background, sub-clause (2) will require that the amount in which the States are to share under "stage 1" will be calculated in a way that excludes the effect of any tax imposed, or rebate allowed, by a State under "stage 2" arrangements. Under the Act as it stands, collection on account of health insurance levy and any special Commonwealth sur-charges or rebates which are the subject of a declaration by the Treasurer under section 5 of that Act are already excluded from the base figure.
Clause 72: Amendments of Income Tax (International Agreements) Act
The purpose of this clause is to achieve the result that a rebate of Commonwealth tax allowed by a State to a resident of the State is taken into account in determining the amount of Australian tax that provides an upper limit to the allowance of credit for foreign tax on the taxpayer's income.
A taxpayer who derives income from a foreign country with which Australia has a double taxation agreement may be entitled to credit the foreign tax on that income against his or her Australian tax on the income. Section 14 of the Income Tax (International Agreements) Act 1953 which governs the allowance of such credits provides, in sub-section (4), that the credit allowable in respect of any income shall not exceed the Australian tax payable in respect of that income.
Section 15 of the Act contains provisions for ascertaining, for this purpose, the amount of Australian tax on any income and this is, broadly, the amount arrived at by applying the average rate of the taxpayer's tax to the amount of foreign source income concerned.
If a taxpayer resident in a State is allowed by the State a rebate of Commonwealth tax (see, in particular, the notes on clause 31 of the Bill) that rebate effectively reduces the tax payable by the taxpayer. In these circumstances, the amendment to be made by clause 72 to section 15 of the Agreements Act will require that the reduction in a taxpayer's liability brought about by the State rebate will be taken into account in calculating his or her average rate of Australian tax. Correspondingly, where a State imposes a tax, clause 11 contains requirements under which the State may need to allow credit for the foreign tax.
Part V
Clause 73: Authority to perform functions under State law
By this clause authority is to be given for Commonwealth administration of State income tax and rebate laws. If a State is a "participating State" in relation to a year of income - that is, its law meets the criteria applicable under clauses 5 to 15 - the Commissioner of Taxation, the Second Commissioners and other taxation officers, as well as the Commonwealth's Taxation Boards of Review, are to be empowered to carry out functions under the income tax and rebate laws of the State.
Clause 74: Report by Commissioner in relation to State tax
This clause will govern the provision of information by the Commissioner of Taxation and taxation officers to the States about the working of State tax and rebate laws.
Under sub-clause (1) the Commissioner may be directed by the Treasurer to furnish him, for transmission to the relevant State Minister, with a report on the working of the Act in relation to the State. Such a report is to be furnished as soon as practicable after the end of the year of income concerned. Sub-clause (2) will have the effect that, except in the course of his ordinary annual Report to the Commonwealth Parliament under section 14 of the Income Tax Assessment Act, the Commissioner (and his officers) will not be required to provide any report on the working of State tax and rebate laws except through the processes set out in sub-clause (1).
Clause 75: Tax instalment deductions by certain employers
This clause will provide, in Commonwealth Territories, "support" for PAYE requirements of the States matching the support that, by clause 15 of the Bill, a State that imposes a tax or allows a rebate is called on to lend to other States.
Just as, by reason of clause 15, a "participating State" will require employers in the State to make PAYE deductions of another State from the salaries and wages of employees resident in that other State, so clause 75 will require employers in any Commonwealth Territory (not merely the A.C.T. and N.T.) to make PAYE deductions for a State from the pay of employees resident in that State.
Clause 75 will have a field of operation, in relation to employers in the Territories, corresponding with the scope of State "supporting" law to be enacted pursuant to clause 15. It also declares expressly that the Commonwealth is to make State PAYE deductions from the pay of Commonwealth employees, reflecting the tax of the State in which those employees are resident.
This clause provides for the payment to participating States in respect of income tax collected on their behalf, and for payments by way of equalization assistance to less populous participating States. There are seven sub-clauses, which are set in the context that Commonwealth and State tax is to be collected in a "merged" way.
Sub-clause (1) provides for the proposed section to apply in respect of a participating State in relation to each financial year in respect of which it imposes a tax on incomes of residents of the State, and in relation to each subsequent year.
Sub-clause (2) provides for the Commissioner of Taxation, when requested to do so by the Treasurer, to calculate the amount of net collections of income tax imposed by a participating State in relation to a financial year or part of a financial year.
Sub-clause (3) prescribes the method of calculating net collections of State income tax which the Commissioner is to use.
Except where any of the States allows its residents a rebate of the income tax payable by them under Commonwealth law, the starting point for calculation of the net collection of a State's tax for a period will be the "pool" of net collections of Commonwealth and State personal income tax for that period. This "pool" is defined, for "stage 1" purposes, by the States (Personal Income Tax Sharing) Act 1976 (as proposed to be amended by clause 71 of the Bill) and means broadly the net collections of Commonwealth and State personal income tax, inclusive of the health insurance levy and any special Commonwealth surcharge and after allowing any special Commonwealth rebate.
The next step in calculating the net collections of a State's tax for a period is for the Commissioner to estimate by how much the "pool" of collections for the period would have been reduced if the State had not levied a tax on the income of its residents. That amount then becomes the measure of the net collections of a State's tax for the period. In other words, the net collections for a State for a particular period is the amount by which the Commissioner's tax collections in that period have been increased by the imposition of an income tax by that State.
Broadly speaking, a State that imposes a tax on its residents will, by clause 76, be entitled to receive from the Commonwealth the amount collected by the Commonwealth that represents the total of -
- •
- State PAYE deductions from the pay of residents of the State;
- •
- amounts paid by residents of the State as State provisional tax;
- •
- amounts paid as assessed State tax (after allowance of credit for State PAYE deductions and State provisional tax paid previously);
- •
- additional (penalty) tax under State law for incorrect returns;
- •
- the State's share of additional tax for late payment;
as reduced by -
- •
- refunds of overpaid State tax (e.g. refunds of excess PAYE deductions).
If one or more States were to allow its residents a rebate of tax imposed under Commonwealth law the calculations of the effect on the "pool" of Commonwealth/State collections of the imposition of tax by a State are to be carried out on the basis that no such rebate had been allowed.
Sub-clause (4) requires that when the Commissioner has, under sub-clauses (2) and (3), calculated the amount of net collections of a State's tax for a period, the amount so calculated is, subject to one adjustment, to be payable to the State. This adjustment allows for a reduction in the payment to the State of an amount, agreed between the Commonwealth and State Treasurers, representing the Commonwealth's costs of administering the State's income tax law.
Sub-clause (5) provides that participating States other than New South Wales and Victoria, are to be paid equalization assistance as assessed by the Commonwealth Grants Commission. The Commission is to base its assessment of the amount payable on the amount necessary to bring the per capita yield from a personal income tax levied by the particular less populous State up to the average per capita amount which would be yielded if New South Wales and Victoria levied a tax on the same basis.
This sub-clause is designed to give effect to understandings reached between the Commonwealth and the States at Premiers' Conferences that equalization arrangements would be made to enable the less populous States to obtain the same relative advantage from imposing an income tax as the States with a broader tax base.
It was also agreed between Governments that the Commonwealth Grants Commission would be responsible for assessing amounts payable under these arrangements and that the assessment would be independent of any examination of the overall financial position of the State concerned vis-a-vis other States.
Sub-clause (6) provides that the Treasurer may make advances to a State of portions of any amount to which it appears to him the State will be entitled under the proposed section in respect of a financial year. This is a standard provision in legislation providing for the payment of funds to the States.
Sub-clause (7) provides for payments under the proposed section to be made out of the Consolidated Revenue Fund and for the Fund to be appropriated accordingly. This is also a standard and necessary provision in such legislation.
Under this clause, the receipt by the Commissioner of State tax moneys, pursuant to an assignment by the State to the Commonwealth of the right to receive those moneys, is to be subject to audit by the Commonwealth Auditor-General. So too is the payment to a State under clause 76 of amounts representing tax collected by the Commonwealth on the State's behalf, pursuant to such an assignment. In these circumstances such receipts and payments are not to be subject to separate State audit.