Senate

Explanatory Memorandum

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

Chapter 3 - Group certificates for employees ceasing employment

Overview

3.1 Schedule 3 of the Bill will amend the Income Tax Assessment Act 1936 (ITAA) to remove the general requirement that employers must provide an employee with a group certificate within seven days of that employee's termination of employment.

Summary of the amendments

Purpose of the amendments

3.2 The legislation relating to group certificates is to be amended to generally allow employers to issue group certificates by 14 July after the end of the relevant year of income unless an employee who leaves employment during the year makes a written request for their group certificate at an earlier date. Employers making an eligible termination payment will be required to issue a group certificate within 14 days of making a payment rather than seven days as is presently required.

Date of effect

3.3 The amendments will apply from the 28th day after the day on which the Bill receives Royal Assent.

Background to the legislation

3.4 Subsection 221F(5C) of the ITAA currently requires employers to provide an employee with a group certificate within seven days of the employee ceasing to be employed by the employer. The Prime Minister's statement of 24 March 1997, 'More Time for Business', identified an advantage for small business if they could avoid the costs of having to issue group certificates during the year to employees who terminate employment.

3.5 There will be occasions, however, when employees will require a group certificate at the time they leave an employer. These include, for example, the situation where an employee doesn't know where he or she will be living at the end of the year. For these reasons employers will be required to provide group certificates to employees in those cases where an employee leaving employment requests a group certificate.

Explanation of the amendments

3.6 The amendments are contained in Schedule 3 of the Bill.

3.7 Existing subsection 221F(5C) of the ITAA is to be repealed and replaced with new subsections 221F(5C), (5CA) and (5CB) [Item 1 of Schedule 3] .

3.8 New subsection 221F(5C) contains a requirement that, subject to subsections (5E) and (5H) (see paragraphs 3.13 and 3.14 below), employers must issue a group certificate in respect of any employee who ceases to be employed in a 12 month period ending on 30 June. The issue of the certificate must take place no later than the day determined in accordance with new subsections 221F(5CA) and 221F(5CB), whichever is applicable.

3.9 New subsection 221F(5CA) provides that where an employer receives a written request for a group certificate, the employer is required to provide the certificate no later than 14 days after the employee ceases employment or 14 days after receiving the request, whichever is the later.

3.10 The request can be made by the employee after he or she ceases to be employed (new paragraph (5CA)(a)), or while still employed. Where employment has not ceased, the request can be made either if the employer has notified the employee that employment will cease (new paragraph (5CA)(b)) or where the employee has notified the employer that he or she will be ceasing employment (new paragraph (5CA)(c)).

3.11 The day by which the employer must comply with the request depends on whether the employee makes the request before or after ceasing employment. Where the request is made before ceasing employment, new paragraph (5CA)(d) applies and the employer has until the 14th day after employment ceases to provide the certificate. Where the request is made after ceasing employment, new paragraph (5CA)(e) applies and the employer must comply by the 14th day after receiving the request.

3.12 New subsection 221F(5CB) applies in cases where an employee does not make a request for a group certificate. These are cases to which new subsection 221F(5CA) does not apply. Where the employee has not made a request for a group certificate the employer is required to issue a group certificate to a former employee no later than 14 July after the end of the relevant year. This accords with the requirement in subsection 221F(5A) that annual group certificates for continuing employees must be issued by 14 July after the relevant year.

3.13 Subsection 221F(5E) remains unchanged. It removes the requirement to issue a group certificate where the payment is made;

(i)

to a resident employee;

(ii)

in relation to casual domestic employment (e.g., child minding); and

(iii)

is not of an amount in respect of which the employer is obliged to make deductions.

3.14 Subsection 221F(5H) currently requires an employer to issue a group certificate within seven days after making an eligible termination payment. The seven day period is to be extended to 14 days to be consistent with the time frame in new subsection 221F(5CA) [Item 2 of Schedule 3] .