Explanatory Memorandum
(Circulated by authority of the Minister representing the Treasurer, Senator the Hon. Peter Walsh)MAIN FEATURES
The main features of this Bill are as follows -
Amendments of the Income Tax Assessment Act 1936 (Part III)
A new Part - Part VA - will be inserted into the Principal Act to facilitate the administration of a reliable system of tax file numbers for persons and entities and to specify the circumstances in which the option of quoting a TFN or having tax withheld is to apply.
The Bill will enable a person (including a company, partnership or trustee of a trust estate) who does not have a tax file number to apply for one. For convenience, it is intended that applications made by natural persons will be able to be lodged at official post offices as well as any Tax Office. On lodging an application a person will be required to produce for inspection documents proving the person's identity. Where the Commissioner of Taxation is satisfied with the applicant's identity a TFN will be issued to the applicant by the Tax Office.
A TFN may be cancelled where the identity under which the TFN was issued is found not to be the person's true identity.
Persons who commence new employment on or after a date to be proclaimed will have the option of completing an employment declaration to be lodged with their employer. Those who are in employment as at 1 April 1989 (or a later date as proclaimed) will have the option of completing an employment declaration to be lodged with their employer. TFN's will be able to be quoted on each declaration. Declarations will remain in force until the Commissioner, by notice in the Gazette, calls for their renewal. Employees will also be required to complete a new instalment declaration on 1 April 1989.
In the case of a person who chooses not to quote, at the relevant date, his or her employer will be required to deduct tax at the top marginal rate plus Medicare levy (currently 50.25%). A person will be taken to have quoted a TFN if he or she states on an employment declaration that an application for a TFN has been lodged or states that a request has been made for re-notification of his or her TFN.
A person will be taken not to have quoted a TFN where -
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- the Commissioner advises the employer that an incorrect TFN has been quoted;
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- a TFN is not quoted within 28 days of the employee declaring that a TFN application or re-notification request has been lodged and the Commissioner has not granted an extension of the 28-day period; or
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- the declaration ceases to have effect without the lodgment of another employment declaration in which the TFN is quoted or taken to have been quoted.
The obligation to issue a group certificate or to keep a tax deduction sheet will now arise by reason of the payment of salary or wages irrespective of whether tax instalments are deducted from the payment. Such an obligation will not, however, arise in respect of casual domestic wages from which tax instalments are not required to be deducted. The TFN - where it is quoted - is to be included on group certificates issued to employees.
The provisions contained in the Income Tax Assessment Act in relation to obligations of employers to deduct and remit tax instalment deductions will remain unchanged.
Quotation of TFN - investments
The quotation provisions in relation to investments will apply to persons (investors) who enter into certain transactions with investment bodies after 1 July 1991 or who already have such investments as at that date. A phasing-in period will enable investors with existing investments to quote their TFN from 1 July 1990.
The investments in respect of which the option of quoting or having tax withheld is to apply are -
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- interest-bearing accounts or deposits with financial institutions;
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- money invested with a government or semi-government body or with a company;
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- money deposited in a solicitor's trust account;
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- units in a cash management or property trust; and
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- shares held in a public company.
Where an investment body pays or credits income (or in the case of a unit trust a beneficiary becomes presently entitled to a distribution from the trust) after 1 July 1991, and a TFN has not been quoted in respect of the account or investment, the investment body will be required to deduct 50.25 per cent from any amount paid or credited. Where an unfranked or partly-franked dividend is paid or payable, the amount to be deducted will be calculated on the basis of the unfranked portion of the dividend.
An investment body who refuses or fails to withhold the amounts prescribed in the circumstances described in the preceding paragraph, or who remits withheld amounts after the time by which they are required to be remitted, will be liable to penalties similar to those that currently apply for non-deduction and late remittance of tax instalment deductions and deductions under the Prescribed Payments System.
Credits in respect of amounts deducted
Deductions in respect of investment income will not be a final tax. A person will be required to include the total amount of investment income in his or her income tax return and credit will be allowed for any amounts deducted from that income.
Division 5 of new Part VA to be inserted by this Bill will exempt certain categories of investors from the quotation arrangements in respect of certain investments.
The first of these exemptions applies to children under the age of 16 years in respect of investments with -
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- a financial institution;
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- a government body or a corporation;
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- a solicitor; or
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- a property or cash management trust,
The child's parent or guardian will be required to lodge a declaration claiming the exemption with the investment body and the exemption will remain in force until the commencement of the calendar year following that in which the child turns 16.
The Bill also exempts from the quotation arrangements all categories of investments by recipients of any part of an age, service, widows', wives', carers' or invalid pension or a special or supporting parents' benefit. As with children, a pensioner claiming exemption will be required to complete a declaration and lodge it with an investment body. The exemption will remain in force until the pensioner ceases to be entitled to any part of a pension and the Commissioner of Taxation advises of the withdrawal of the exemption. There will also be no need for recipients of any part of the above pensions or benefits to quote a TFN in respect of either their pension/benefit income or their non-pension/benefit income. With respect to the latter, however, the pensioner/beneficiary will be required to indicate on an employment declaration lodged with their employer that they are in receipt of a qualifying pension or benefit.
Other persons to be exempted include -
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- entities not required to lodge income tax returns;
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- recently-arrived visitors to Australia;
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- non-residents; and
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- residents of Norfolk Island and Cocos (Keeling) Islands in respect of salary or wages earned or investments in those Territories.
Manner of providing information
The Bill will also amend the law to require organisations that store information on a data processing device to supply the information to the Commissioner of Taxation in a form suitable for processing by the Tax Office computer system. The Bill will authorise the Commissioner by notice published in the Gazette to set out the Tax Office requirements. Organisations will not be required to establish computer systems to store information. In addition, organisations that currently store information on a data processing device will be exempted from the transmission requirements where there are substantial difficulties in meeting the Commissioner's specifications.
Amendment of the Taxation Administration Act 1953 (Part IV)
Privacy Sanctions
The Taxation Administration Act 1953 is to be amended to make it an offence (punishable by a penalty of up to $10,000 and/or 2 years' imprisonment) for a person to:
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- require or request another person to quote that person's TFN;
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- to record another person's TFN;
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- to disclose another person's TFN; or
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- use another person's TFN as an identity link,
A further amendment of the Administration Act will be made to enable the Commissioner to be granted a Federal Court injunction against any person disclosing taxation information obtained in unauthorised circumstances.
Amendments to Secrecy Provisions (Part V)
The existing penalties for unauthorised release of taxpayer information by employees of the Tax Office under the various Taxation Acts are to be increased from $5,000 and/or one year's imprisonment to $10,000 and/or 2 years' imprisonment.
Avoidance Safeguards
The Administration Act is also to be amended to prevent arrangements intended to exploit interest thresholds proposed for certain pre-existing accounts ($120) and accounts of children under 16 ($420) through the use of multiple accounts.
Amendment of the Income Tax Regulations (PART VI)
The Income Tax Regulations (the Regulations) are to be amended by this Bill to set the rate of deduction from a resident employee's salary or wages at 50.25 per cent where the employee has chosen not to quote his or her TFN on an employment declaration. For non-resident employees (who are not required to pay the Medicare Levy) the rate of deduction is to be 49 per cent.
The Regulations do not presently require tax instalment deductions to be deducted from small amounts of casual domestic salary or wages (e.g., child minding). Currently, this provision applies to amounts of salary or wages of not more than $40 per week. This Bill will increase the amount of salary or wages to which this provision applies from $40 to $60 per week.
The Bill will also exempt children under the age of 16 from the need to quote a TFN on an employment declaration where the amount of income earned is such that it does not attract tax instalment deductions under the present law.
The sanctions in relation to the Prescribed Payments System will be brought into line with the sanctions proposed for employment uses. At present, where a payee fails to quote a TFN to a payer under the Prescribed Payments System, the rate of deduction is calculated at 30 per cent, double the applicable deduction where a TFN is quoted. From a date to be proclaimed, non-quotation of a TFN by a payee on a deduction form will result in a deduction of 50.25 per cent being made from the prescribed payment.
Amendments to the Regulations will prescribe the rate of tax to be deducted from investment income in circumstances where a TFN has not been quoted. The rate is to be the maximum marginal rate of tax, plus the Medicare levy. Accordingly, the rate is 50.25 per cent.
Reporting by investment bodies
The Regulations will also require investment bodies to forward quarterly reports of TFN quotations received during the quarter to the Commissioner of Taxation. The reports are due within one month of the close of the quarter.
Annual income reports incorporating the investors' TFNs are required to be forwarded to the Commissioner of Taxation within 4 months of the close of the income year in which the income entitlement arose.
Amendment of the Crimes (Taxation Offences) Act 1980
A consequential amendment is to be made to the Crimes (Taxation Offences) Act 1980 to reflect changes being made to the provisions of the Income Tax Assessment Act 1936 dealing with the collection of tax in respect of certain payments, including payments of investment income from investments in respect of which a TFN is to be quoted.
A more detailed explanation of the provisions of the Bill follows.