House of Representatives

Explanatory Memorandum

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

Chapter 4 - Recovery of PAYG withholding amounts

Outline of chapter

4.1 This chapter describes amendments to the ITAA 1936. Part 1 of Schedule 4 contains amendmentsthat will enable:

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the Commissioner to recover all PAYG withholding debts that are due and payable by making an estimate of the amount; and

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taxpayers to reduce the Commissioners estimate of any PAYG withholding amount by making a statutory declaration.

4.2 Part 2 of Schedule 4 contains a number of technical amendments to Divisions 8 and 9 of Part VI of the ITAA 1936.

Context of amendments

4.3 Divisions 8 and 9 of Part VI of the ITAA 1936facilitate recovery of amounts that have been deducted but not remitted to the Commissioner by empowering the Commissioner to make an estimate of the amount and to recover the estimated amount. The rules facilitate recovery of amounts withheld from payments made under the former PAYE, reportable payments and prescribed payments systems, and from natural resource, dividend, interest and royalty payments. These collection systems were replaced by the PAYG withholding system from 1 July 2000.

4.4 When the PAYG withholding system was introduced it was intended that Divisions 8 and 9 would also allow recovery of amounts payable under that system. Amendments to achieve this were made to section 222AFA, which states the object of the Division, and to the definition of remittance provision in section 222AFB. However, a number of other consequential amendments were inadvertently overlooked. These included amendments to provisions enabling a person who received an estimate of a liability under the PAYG withholding system to make a statutory declaration in order to have the estimate reduced or revoked.

Summary of new law

4.5 The Commissioner is able to take recovery action by estimating a debt for a PAYG withholding amount that has been withheld but not paid to the Commissioner. The amendments will expand this recovery power to all remittances required to be made under the PAYG withholding regime. The amendment will allow a taxpayer to have the estimate of any PAYG withholding debt reduced or revoked by giving the Commissioner a statutory declaration. The Commissioner may then recover the amount under the collection and recovery rules in Part 4-15 of Schedule 1 to the TAA 1953.

Comparison of key features of new law and current law

Detailed explanation of the amendments

4.6 Subsection 222AFB(1) currently defines due date for recovery by estimates of amounts deducted but not paid to the Commissioner. The definition is amended to ensure that it covers all amounts that must be paid to the Commissioner under the PAYG withholding provisions. This is done by amending the definition to provide that the due date means the day on, by or before which a person liable to remit an amount must pay that amount to the Commissioner. [Schedule 4, item 1, subsection 222AFB(1)]

4.7 A definition of non-cash benefit is included for the purposes of the estimate provisions referring to amounts which must be paid under Division 14 in Part 2-5 of Schedule 1 to the TAA 1953. [Schedule 4, item 2, subsection 222AFB(1)]

4.8 The definition of person in subsection 222AFB(1) includes the various entities that have obligations under the different withholding regimes. It is amended to make specific reference to an entity that has an obligation to pay under the PAYG withholding regime under Part 2-5 of Schedule 1 to the TAA 1953. [Schedule 4, item 3, subsection 222AFB(1)]

4.9 Section 222AGA specifies the circumstances when the Commissioner may make an estimate for the recovery of amounts not paid to the Commissioner and the things that the Commissioner may have regard to in making the estimate. It refers to deduction obligations which would exclude the provision of non-cash benefits and alienated personal services payments from the scope of the estimate provisions. Paragraphs 222AGA(1)(a) and (b) are amended to remove the reference to deductions. Subsection 222AGA(2) which determines the scope of the Commissioners considerations in making an estimate is amended so that it specifically refers to the different obligations to pay under the former deduction regime and the PAYG withholding provisions in Divisions 12 to 14 and 16 of Schedule 1 to the TAA 1953. [Schedule 4, item 4, paragraphs 222AGA(1)(a) and (b) and item 5, subsection 222AGA(2)]

4.10 Section 222AGB specifies that the Commissioner must send a written notice of the estimate made under section 222AGA, to the person liable to pay the estimate. It provides that the notice must state that the estimate will be reduced or revoked if the person, or the persons trustee, gives the Commissioner a statutory declaration stating that the person deducted a lesser amount or made no deductions. The section is amended to require the Commissioner to include in the notice, advice that the person, or the persons trustee, may make a statutory declaration about obligations under the PAYG withholding provisions in order to have the estimate reduced or revoked. [Schedule 4, item 6, paragraphs 222AGB(2)(e), (ea) and (eb)]

4.11 Section 222AGD provides that an estimate under section 222AGA is revoked if the person, or the persons trustee, liable to pay the estimate gives a statutory declaration that no deductions were made during the period concerned under the former PAYE, reportable payments and prescribed payments systems, and from natural resource, dividend, interest and royalty payments. Paragraph 222AGD(1)(b) is repealed and replaced to ensure that the estimate can also be revoked if the person, or the persons trustee, makes a statutory declaration about amounts withheld, or which must be paid to the Commissioner, under the PAYG withholding provisions. [Schedule 4, item 7, paragraph 222AGD(1)(b)]

4.12 Section 222AGF specifies the requirements for a statutory declaration. Subsection (4) is repealed and replaced with a requirement that the statutory declaration must specify the total of amounts deducted, withheld or paid as appropriate, or that no amounts were deducted, withheld or paid. Subsection (5) is amended so that it makes reference to the generic remittance obligations. These amendments ensure that the declaration covers amounts which must be paid to the Commissioner under the PAYG withholding provisions as well as those under the former withholding system. [Schedule 4, item 8, subsection 222AGF(4) and item 9, subsection 222AGF(5)]

4.13 Subsection 222ANB provides that an amount purported to have been deducted for the purposes of a particular provision of the former collection regimes is taken to have been made for the purposes of that provision. The subsection is amended to also provide that amounts purported to have been withheld for the purpose of a particular PAYG withholding event are taken to have been withheld for the purposes of that withholding event. This will ensure that recovery of an amount by the Commissioner will not be prevented only on the grounds that the amount has been withheld under the wrong withholding provision. [Schedule 4, item 10, subsection 222ANB(3)]

Technical amendments

4.14 Section 222AOF provides notification rules for recovering amounts from directors of companies that received an estimate. It contains references to identifying directors from documents lodged under the Corporations Act 2001 . This Act was renumbered by Company Law Review Act 1998 and Corporate Law Economic Reform Program Act 1999 . Section 222AOF is amended so that it refers to the renumbered provision and to the renamed Australian Securities and Investment Commission. Section 222AIB is also being amended so that it refers to renumbered provisions of the Corporations Act 2001 . [Schedule 4, item 11, paragraph 222AIB(1)(a) and items 16 to 18, section 222AOF]

4.15 A correction is being made to section 222AIC to insert the word of into the phrase for the purposes of that section. [Schedule 4, item 12, section 222AIC]

4.16 Section 222AJB refers to "penalty" payable under certain withholding Divisions where the underlying liability remains undischarged. From 1 July 1999 the penalty under those Divisions for late payment of tax is imposed by way of a general interest charge. The references to a penalty in paragraph 222AJB(1)(b) and subsection 222AJB(3) are replaced by references to the general interest charge. The heading of the section is also amended to reflect this change. [Schedule 4, items 13 and 14, paragraph 222AJB(1)(b) and item 15, subsection 222AJB(3)]

4.17 Subsection 222AJB(3) refers to provisions of Divisions 1AAA, 3B or 4 of the ITAA 1936 and Subdivision 16B in Schedule 1 to the TAA 1953 which reduce the amount of general interest charge payable where a judgment debt carried interest. These references are no longer applicable as the relevant judgment provisions in those Divisions have been repealed and replaced by a generic judgment provision in section 8AAH of the TAA 1953. The amendment to subsection 222AJB(3) refers to that generic judgment provision. [Schedule 4, item 15, subsection 222AJB(3)]

Application provisions

4.18 The amendments made by Part 1 of Schedule 4 will apply to PAYG withholding amounts that are due and payable in the year ended 30 June 2002 and in subsequent years. [Schedule 4, item 19]