House of Representatives

Explanatory Memorandum

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

General Outline and Financial Impact

General Outline

Amendment of assessments

Schedule 1 to this Bill amends the Income Tax Assessment Act 1936 to make a number of changes to reduce the periods during which the Commissioner of Taxation (Commissioner) may amend income tax assessments in a range of circumstances.

The period in which the Commissioner can amend an assessment for most individuals or very small business taxpayers will be standardised at 2 years. A 4-year amendment period will apply for taxpayers with more complex affairs.

Date of effect : These amendments will apply to amendments of assessments for the 2004-05 income year and later years.

Proposal announced : These amendments were announced in the Treasurer's Press Release No. 106 of 16 December 2004 as part of the Government's response to the Report on Aspects of Income Tax Self Assessment .

Financial impact : The revenue impact of the amendments is expected to be:

Compliance cost impact : This measure will bring earlier finality to the tax affairs of a large number of taxpayers.

ATO advice

Schedule 2 to this Bill amends the Income Tax Assessment Act 1936 and the Taxation Administration Act 1953 to implement a new framework for Australian Taxation Office (ATO) advice.

This Bill replaces the existing provisions on rulings entirely. It expands the circumstances in which the Commissioner can give legally binding advice (a ruling) to cover matters of administration, collection, and ultimate conclusions of fact, and establishes a procedure for taxpayers to obtain private rulings about valuation issues.

This Bill also ensures that taxpayers will obtain protection from interest charges (similar to current penalty protection) where they rely on ATO advice that is not a ruling or administrative practice.

Date of effect : These amendments will apply from 1 January 2006 or Royal Assent, whichever is the later.

Proposal announced : These amendments were announced in the Treasurer's Press Release No. 106 of 16 December 2004 as part of the Government's response to the Report on Aspects of Income Tax Self Assessment .

Financial impact : The revenue impact for the measure is unquantifiable, but expected to be minimal.

Compliance cost impact : This measure will have a positive affect on the responsiveness and confidence in the reliability of ATO advice. Taxpayers are not expected to incur additional compliance costs as a result of the proposed changes, except in circumstances where they apply for private rulings involving a valuation issue.

Summary of regulation impact statement

Regulation impact on business

Impact : The amendments to the existing law reduce the periods allowed for the Australian Taxation Office (ATO) to amend a taxpayer's liability in a wide range of situations and provide a better framework for the provision of ATO advice by introducing ways to make that advice more accessible, timely, and binding in a wider range of cases.

Main points :

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This measure introduces a standard amendment period of 2 years for taxpayers with simple affairs, including most individuals and very small business taxpayers. The amendment period for other taxpayers, such as taxpayers with complex affairs and large businesses, generally remains at 4 years. The amendment period for loss and nil liability returns will be made the same as for a return incurring a positive liability.

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The amendment period for assessments where a taxpayer has sought a scheme benefit in relation to income tax (including where Part IVA of the Income Tax Assessment Act 1936 is invoked) will be 4 years.

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The unlimited amendment period for cases of fraud or evasion will continue to apply.

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The new law will provide improved ways for taxpayers to find out the Commissioner of Taxation's (Commissioner's) view on how certain laws apply, so that the risks of uncertainty when self assessing, or working out their tax obligations or entitlements, are reduced. This is achieved by:

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making rulings available to many taxpayers on a wide range of matters;

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ensuring that the Commissioner provides rulings in a timely manner;

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enabling the Commissioner to obtain, and make rulings based on, relevant information;

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protecting taxpayers from increases in tax and from penalties and interest where they rely on rulings;

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limiting the ways the Commissioner can alter rulings to a taxpayer's detriment; and

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giving protection from interest charges where a taxpayer relies on other advice from the Commissioner, or on the Commissioner's general administrative practice.