Senate

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 7 - Deferral of due dates

Outline of chapter

7.1 Schedule 3 to this Bill amends the FBTAA 1986, the ITAA 1936, the ITAA 1997 and the TAA 1953 to:

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defer the due dates for quarterly notifications and payments under those Acts for entities other than those with monthly GST obligations to 28 October, 28 February, 28 April and 28 July;

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ensure that where a due date for payment of a tax debt or lodgment of an approved form would otherwise fall on a Saturday, a Sunday or a public holiday, the payment and lodgment are due on the next business day; and

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streamline the reporting arrangements by providing that a form such as the BAS and IAS is in the approved form if it is incomplete, but contains the information that the Commissioner requires. The amendments will also provide that when a document is to be given in an approved form to the Commissioner, in paper form by an agent, it is only necessary for a taxpayer to sign the document if the document so requires.

7.2 This chapter also explains amendments in Schedules 1 and 2 which deal with the deferral of due dates for GST and PAYG instalments of income tax.

Context of reform

7.3 The new tax system introduced the BAS for the reporting of GST and other obligations to the Commissioner. In addition to being the GST return, the BAS is the approved form for entities to notify the Commissioner of the following liabilities:

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PAYG withholding amounts (although large withholders do not notify these amounts in a BAS);

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PAYG instalments;

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FBT instalments; and

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deferred COIN.

7.4 All obligations notified on the BAS or IAS are currently due and payable on the same day. The new tax system introduced a due date of the 21st day after the end of a particular tax period for notifying and paying these obligations. The due date has raised concerns for many taxpayers, most notably small business taxpayers, who are currently required to report on a quarterly basis. In particular, the quarter ending 31 December has presented difficulties due to the impact of the Christmas break. The due dates for all quarterly BAS or IAS obligations will be extended to give those taxpayers coming within the amendments, additional time to meet their obligations.

7.5 An issue that has become increasingly significant is when taxpayers and others must lodge a form with the Commissioner or pay an amount to the Commissioner, if a due date is specified in the tax law for lodgment and/or payment, and that date falls on a weekend or public holiday. Particular due dates in respect of which this issue arose were the extension of the due dates for lodgment of the first and the second quarterly BAS by 3 and 2 weeks respectively and associated payments for 2000-2001, being Saturday 11 November 2000 and Sunday 4 February 2001 respectively.

7.6 Different interpretations of the law in relation to this issue have emerged. One interpretation is that section 36 of the Acts Interpretation Act 1901 applies to enable taxpayers and others to lodge a form with, and pay amounts to, the Commissioner on the next business day after the weekend or holiday. The other interpretation is that taxpayers should lodge the form or pay the amount before the weekend or holiday. These different interpretations have created uncertainty for taxpayers and tax practitioners.

7.7 The new tax system also has rules specifying the form and content of the forms to be lodged with the Commissioner, and the requirements in relation to declarations and the signing of forms by taxpayers. These rules currently require that all the information that a form requires must be provided and that the forms must be signed by taxpayers. These rules may impose an unnecessary compliance burden on taxpayers and tax practitioners.

Summary of new law

7.8 The amendments will provide entities with additional time to meet quarterly obligations to report and pay GST, PAYG withholding, PAYG instalment, deferred COIN and FBT instalment obligations through the BAS and IAS, by extending the quarterly due dates for meeting these obligations. The amendments will also streamline the BAS and IAS approved form requirements.

7.9 The extension will generally apply to any entity that has a BAS or IAS quarterly obligation apart from an entity that has chosen or is required to pay GST monthly.

7.10 For those taxpayers affected, the due dates will be permanently extended by one week for all quarters, except the December quarter which will be extended by one month and one week, in recognition of the impact of the Christmas break. The changes are summarised in Table 7.1.

7.11 Monthly withholders on substituted accounting periods have non-standard quarters for PAYG instalments and deferred COIN. The due date for notification and payment of those amounts is also extended by one week. This is explained in paragraph 7.31.

7.12 The amendments will also provide greater certainty to taxpayers where a due date for payment of a tax debt or lodgment of an approved form such as a BAS or IAS falls on a Saturday, a Sunday or a public holiday. Where the due date would otherwise fall on such a day, the payment and lodgment are due on the next business day.

7.13 Further simplifications include:

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that a document needs only to be signed by a taxpayer if the document so requires, allowing agents to lodge a BAS and IAS in paper form without the signature of the taxpayer; and

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that a document such as a BAS is in the approved form if it is incomplete, provided it contains all the information required by the Commissioner. This will streamline BAS reporting requirements.

Detailed explanation of new law

Definition of a deferred BAS payer

7.14 The deferral of quarterly due dates will apply to taxpayers who are required to report and pay GST on a quarterly basis, or who are not registered for GST but are required to report another BAS obligation quarterly. These taxpayers will be defined by the term deferred BAS payer, inserted into subsection 995-1(1) of the ITAA 1997 and referred to in other relevant Acts. An entity will only be a deferred BAS payer for a month in which it has a quarterly obligation. For example, if the only obligation payable on an activity statement is a PAYG monthly withholding obligation, the entity will not be a deferred BAS payer for that month, and will notify and pay on the 21st. However, if the entity also has a quarterly obligation payable in a month, for example, GST or PAYG instalment, the entity will be a deferred BAS payer for that month. [Schedule 3, items 7, 16 and 18, subsections 136(1) of the FBTAA 1986, 221AZKC(9) of the ITAA 1936 and 995-1(1) of the ITAA 1997]

7.15 Entities with a monthly GST tax period, by virtue of either section 27-10 (taxpayer chooses) or 27-15 (Commissioners determination) of the GST Act, will not be able to take advantage of the revised quarterly due dates.

7.16 Diagram 7.1 sets out the process for determining whether the quarterly deferred due dates apply to an entity.

Diagram 7.1: Steps to determine if deferred due dates apply to an entity

Large and medium PAYG withholders

7.17 The current payment arrangements for large withholders in subsection 16-75(1) of Schedule 1 to the TAA 1953 are not affected by the deferral of quarterly due dates. The application of the new rules in relation to medium and large PAYG withholders are summarised in Tables 7.2 and 7.3.

7.18 The specific amendments to implement the changes to the due dates for each type of tax obligation are discussed in paragraphs 7.18 to 7.33.

GST

7.19 Subsection 31-8(1) and section 33-3 of the GST Act specify the revised due dates for providing GST returns and paying net amounts for a quarterly tax period. [Schedule 1, items 1 and 6, subsection 31-8(1) and section 33-3]

7.20 Section 162-70 specifies the dates by which GST instalments must be paid for those taxpayers who elect to pay GST by quarterly instalments. Section 162-80 caters for the payment of the 2 GST instalments for those entities who are averaging entities. These 2 instalments are to be aligned with the payment of the third and fourth quarterly instalment payments (i.e. 28 April and 28 July). [Schedule 1, item 29, sections 162-70 and 162-80]

FBT instalments

7.21 Subsection 103(1) of the FBTAA 1986is amended so that the current due dates for paying instalments of FBT continue to apply to an employer who is not a deferred BAS payer. New subsection 103(2) specifies the revised due dates for payment of FBT instalments for deferred BAS payers. As the FBT year commences on 1 April, the change will result in the payment arrangements as shown in Table 7.4.

7.22 A number of other amendments are being made to support the new quarterly deferred due dates for FBT. Section 109 of the FBTAA 1986 is amended to state the GIC period for the deferred due dates. Consequential amendments are being made to subsections 110(5), 111(1) and (2) and 112A(2) to remove references to the due date being the 21st day. [Schedule 3, items 1 to 7]

Deferred COIN

7.23 Section 221AZKC of the ITAA 1936 outlines the procedure for repayment of a deferred COIN for the 1999-2000 income year. Deferred COIN repayments are notified on each quarterly BAS or IAS and paid at the same time as other quarterly obligations. A number of changes as explained in paragraphs 7.23 to 7.27 are necessary to ensure that deferred BAS payers benefit from the new quarterly deferred dates. [Schedule 3, items 9 to 16, section 221AZKC]

7.24 Subsection 221AZKC(5) currently outlines the procedure for determining the due date for the first deferred COIN repayment. The subsection is being amended to state that the subsection applies subject to new subsection 221AZKC(6), ensuring that the due date of the 21st of a particular month continues to apply to taxpayers who are not deferred BAS payers. [Schedule 3, items 12 and 13, subsections 221AZKC(5) and (6)]

7.25 Existing subsection 221AZKC(6) is repealed and replaced with a new subsection 221AZKC(6). This subsection describes the date for the first COIN repayment for a deferred BAS payer. These dates will align with the due dates for quarterly PAYG instalment obligations notified on a BAS or IAS, that is, 28 October, 28 February, 28 April and 28 July. As a result, the first deferred COIN instalment for many small and medium deferred BAS payers will be due on 28 April 2001. [Schedule 3, item 14, subsection 221AZKC(6)]

7.26 In the 2000-2001 income year, all taxpayers with deferred COIN repayments will pay quarterly PAYG instalments, as this was a condition for eligibility to defer the final company instalment. In the 2001-2002 and later income years, however, ataxpayer with COIN repayments may be eligible to pay PAYG instalments annually or twice yearly, or may cease to have an ongoing PAYG instalment obligation. Deferred COIN repayments will continue to be due each quarter even if the taxpayer does not have a quarterly PAYG instalment obligation.

7.27 Current subsection 221AZKC(7) is being replaced with new subsections 221AZKC(7) and (7A) which will provide that deferred COIN repayments will continue to be due on the same date as PAYG quarterly instalments, whether the taxpayer continues to have this obligation or not. This is achieved by creating a notional PAYG quarterly instalment for all taxpayers with deferred COIN repayments defined by new subsection 221AZKC(7B). As a deferred COIN repayment is a BAS amount, a taxpayer with this liability will be a deferred BAS payer unless it has a GST obligation for a one month tax period. The due date for such taxpayers with a monthly GST tax period will be the 21st day after the end of a quarter, while all others will be due on 28 October, 28 February, 28 April and 28 July. [Schedule 3, item 14, subsections 221AZKC(7), (7A) and (7B)]

7.28 As a result of the extension of the December quarter lodgment date to 28 February, not all deferred COIN repayments will be paid at 3 month intervals. The references to quarterly in paragraph 221AZKC(3)(b), subsections 221AZKC(3), (5) and (8) are omitted to reflect this change. [Schedule 3, items 9 to 11 and 15, subsections 221AZKC(3), (5) and (8)]

PAYG withholding amounts

7.29Sections 13-5 and 13-20 in Schedule 1 to the TAA 1953 will be amended to apply the new quarterly deferred due dates to obligations that must be met by a personal services entity that is a deferred BAS payer. Subsections 13-5(3) to (5) and 13-20(2) make the necessary changes to implement the new quarterly deferred due dates. [Schedule 3, items 20 to 22]

7.30Some medium withholders will also benefit from the deferred quarterly due dates as their withholding obligations for the third month in a quarter are due and notified at the same time as their other quarterly obligations, if any, on the same BAS or IAS. For example, under the amendments, a medium withholder who is a deferred BAS payer will be required to pay its September withholding obligations on 28 October rather than 21 October. The timing for their July and August obligations will remain at 21 August and September respectively. Subsection 16-75(2) has been amended and new subsection 16-75(2A) allows the withholding obligation to be deferred to the 28th of the next month (or 28 February if the month is December) in any month in which the medium withholder is a deferred BAS payer. For medium withholders with standard quarters, this deferral will be available in March, June, September and December. [Schedule 3, items 23 and 24, subsections 16-75(2) and (2A)]

7.31 A small number of taxpayers with substituted accounting periods for income tax may have deferred COIN or PAYG instalment obligations for non-standard quarters. These taxpayers will be deferred BAS payers in respect of these amounts. The due date for notification and payment of these amounts and the withholding obligation for the third month of the non-standard quarter is extended by one week to the 28th day of the next month. [Schedule 3, items 20 and 24, subsections 13-5(5) and 16-75(2A)]

7.32 Subsection 16-75(3) in Schedule 1 to the TAA 1953 will be amended to state that the current quarterly due dates are retained for small PAYG withholders (annual remittances not exceeding $25,000) who are not deferred BAS payers. A new subsection is being inserted so that the new deferred quarterly due dates will apply to small withholders who are deferred BAS payers. [Schedule 3, items 25 and 26, subsections 16-75(3) and (4)]

7.33 Section 16-120 provides special rules specifying when certain amounts must be paid to the Commissioner if an entity withholds an amount under certain withholding provisions in the financial year starting on 1 July 2000. New subsection 16-120(2) is being inserted to apply the new deferred due dates to taxpayers who are deferred BAS payers of withholding amounts to which section 16-120 applies. [Schedule 3, items 27 and 28, subsection 16-120(2)]

PAYG instalments

7.34 Sections 45-50, 45-55, 45-60 and 45-65 of Schedule 1 to the TAA 1953 specify the liability to pay and the current due dates for PAYG instalments. As part of broader changes to the PAYG instalments system these sections are repealed and replaced with new sections to specify the revised liability to pay and due dates under the new PAYG instalment arrangements. These amendments take effect from the start of the 2001-2002 income year, apart from the deferred due dates which apply from 1 April 2001.

7.35 The deferred due dates for payers who are not deferred BAS payers are specified in new subsection 45-61(1). The due dates continue to be the 21st day after the end of the quarter for these payers. The deferred due dates for PAYG instalment payers who are deferred BAS payers are specified in subsection 45-61(2). Transitional provisions explained in paragraphs 7.42 to 7.46 ensure that the deferred due dates are effective from 1 April 2001. The changes to the PAYG instalment system are explained in more detail in Chapter 5. [Schedule 2, item 6]

Due date for lodgment of an approved form or payment of a tax debt falling on a Saturday, a Sunday or a public holiday

7.36 The law is also being amended to address due dates for the lodgment of an approved form or payment of a tax debt that fall on a day that is a Saturday, a Sunday or a public holiday. Where these due dates occur, taxpayers will be permitted to lodge the form and make associated payments on the first day following which is not a Saturday, a Sunday, or a public holiday. The new rule will apply to the due dates for all obligations to lodge approved forms and pay tax debts under the tax law. A tax debt does not include GIC that is already accruing on an existing debt.

7.37 Section 8AAZMB is being inserted into Division 4 of the TAA 1953 to provide the new rule for payment of tax debts. Subsection 8AAZMB(2) will introduce a definition of business day to support the new arrangements. Section 388-52 is being inserted into Division 388 of Schedule 1 to the TAA 1953 to provide the new rule for the lodgment of approved forms. The definition of business day is also inserted into subsection 995-1(1) of the ITAA 1997. [Schedule 3, items 34 to 36, sections 8AAZMB of the TAA 1953, 388-52 in Schedule 1 to the TAA 1953 and subsection 995-1(1) of the ITAA 1997]

7.38 Public holidays that may fall on a day other than a Saturday or Sunday include:

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New Years Day;

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Australia Day;

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Good Friday;

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Easter Monday;

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Anzac Day;

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Queens Birthday;

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Christmas Day;

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Boxing Day;

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Labour Day (ACT, NSW, QLD, SA, Vic and WA);

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Eight Hours Day (TAS); and

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May Day (NT).

Approved forms

7.39 Subsection 388-50(1) in Schedule 1 to the TAA 1953 states that a relevant form must contain all the information required in the form to be in the approved form. Subsection 388-50(1A) is being inserted to modify this requirement by providing that a document or form containing the information that the Commissioner requires, will be in the approved form. [Schedule 3, item 30, subsection 388-50(1A) in Schedule 1 to the TAA 1953]

Signature requirements

7.40Paragraph 388-75(2)(a) currently states that any return, notice, statement or other document given by an agent in paper form on a taxpayers behalf must be signed by the taxpayer. This paragraph is being repealed and a new paragraph 388-75(2)(a) is being inserted to provide that such a document need only be signed by the taxpayer if the document so requires. [Schedule 3, item 31, paragraphs 388-75(2)(a) and (b) in Schedule 1 to the TAA 1953]

Application and transitional provisions

7.41 The revised BAS and IAS lodgment dates and other amendments explained in this chapter will apply for amounts that are due and notifications or forms required on or after 1 April 2001. [Schedule 3, items 8, 17, 19, 29 and 32]

Transitional rule for PAYG instalments

7.42 Schedule 2to this Billamends the rules relating to PAYG instalments and will apply from 1 July 2001. The extension of due dates for deferred BAS payers, however, will commence from 1 April 2001. Transitional provisions are necessary to ensure that PAYG instalments are due on the same date as other quarterly obligations for the remainder of the 2000-2001 income year. [Schedule 3, item 33]

7.43 The transitional rules will only apply for instalment quarters in the 2000-2001 income year that end on or after March 2001. The rules also cater for taxpayers whose 2000-2001 income year ends other than on 30 June 2001. [Schedule 3, subitems 33(1) and (2)]

7.44 For entities that are not deferred BAS payers and whose income year ends on 30 June, the due date of the 21st day after the end of the quarter continues to apply. The extended due dates of 28 October, 28 February, 28 April and28 July will apply to an entity that is a deferred BAS payer. [Schedule 3, subitem 33(3)]

7.45 For entities whose income year ends other than on 30 June, similar transitional rules are being made. [Schedule 3, subitem 33(4)]

7.46 An interpretative provision is being inserted to ensure that in the transitional rules the terms deferred BAS payerand instalment quarter have the same meaning as in subsection 995-1(1) of the ITAA 1997. [Schedule 3, subitem 33(5)]