House of Representatives

Explanatory Memorandum

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

Chapter 2 - Commonwealth Places Windfall Tax (Collection) Bill 1998

Overview

2.1 The Commonwealth Places Windfall Tax (Collection) Bill 1998 provides the framework for the Commonwealth places windfall tax. The Bill provides for the determination of the liability for windfall tax as well as the collection and administration of the tax.

Summary of the provisions

Purpose of the provisions

2.2 The purpose of the provisions is to:

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establish the title, scope and commencement date of the Act;

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define terms used in the Bill;

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establish who is to administer the Bill:

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determine the amounts which are subject to the windfall tax:

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establish who is liable for the tax:

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describe the collection mechanism for the windfall tax;

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allow a credit for windfall tax deducted;

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provide for arrangements with the States;

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provide for payments by the Commonwealth to the States;

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provide for general regulation making powers.

Date of effect

2.3 The Bill will apply from 6 October 1997.

Background to the legislation

2.4 In Allders International Pty Ltd v Commissioner for State Revenue (1996)
140 ALR 189 the High Court held invalid the imposition of stamp duty on a lease covering part of a Commonwealth place on the grounds that section 52(i) of the Constitution gives the Commonwealth exclusive power to make laws with respect to Commonwealth places. The decision also cast doubt on other State taxes as they operate in respect of Commonwealth places.

2.5 The Government has been advised that, as well as stamp duty, payroll tax, financial institutions duty, and debits taxes may also be at risk of invalidity. The Commonwealth Places (Mirror Taxes) Bill 1998, when enacted, will protect those four State taxes collected in respect of Commonwealth places from 6 October 1997. The windfall tax aims to protect those four State taxes collected before 6 October 1997 in respect of Commonwealth places.

Explanation of the provisions

Title, commencement and scope of the Act

2.6 The Bill, when enacted, will be called the Commonwealth Places Windfall Tax (Collection) Act 1998 [Clause 1] .

2.7 The Act is taken to have commenced on 6 October 1997 [Clause 2] .

2.8 The Act will bind the Crown in each of its capacities [Clause 3] .

2.9 The Bill includes provisions which give meaning to a number of terms used in the Bill [Clause 4] . For the purposes of the Bill 'State taxing law' has the same meaning as in the Commonwealth Places (Mirror Taxes) Act 1998 . The effect of this is that if a State taxing law is applied under that Act in a Commonwealth place the windfall tax will potentially apply to applications for refunds of that tax.

Administration of the Act

2.10 The Commissioner of Taxation will be responsible for the general administration of the Bill [Clause 5 and the definition of 'Commissioner' in subclause 4(1)] . The Commissioner may make arrangements with the States about matters in connection with the administration of the Act [Clause 13] .

Determination of the taxable amount

2.11 A taxpayer will be liable for the windfall tax where the person is liable to be repaid a taxable amount by a State [Clause 7] . A taxable amount is an amount which meets three conditions:

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a State is liable to repay the amount to a person because a State taxing law is wholly or partly invalid because of paragraph 52(i) of the Constitution [paragraph 6(1)(a)] ;

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the amount is a repayment of an amount paid under the State taxing law before 6 October 1997 [paragraph 6(1)(b)] ; and

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the amount is claimed by the taxpayer from the State or a court orders the State to pay the amount to the taxpayer [paragraph 6(1)(c)] .

2.12 Effectively, a taxpayer will be liable for windfall tax whenever that person seeks to claim a refund from a State for one of the four State taxes paid before 6 October 1997.

2.13 The taxable amount to which the windfall tax applies will be reduced to reflect only that amount which was invalid under paragraph 52(i). Amounts which were invalidly collected for other reasons are netted off. This could include mistakenly overpaid amounts [Subclause 6(2)] .

Collection of windfall tax

2.14 A State will be required to deduct windfall tax from refunds of one of the four State taxes which it is liable to repay to a taxpayer. A refund cannot be paid until the windfall tax is deducted [Subclause 8(1)] . The State is required to notify the taxpayer (in writing) that the deduction has been made [Subclause 8(2)] .

2.15 The amount deducted must be paid to the Commonwealth [Subclause 8(3)] . The liability to make this payment to the Commonwealth creates a liability in the Commonwealth to pay an equal amount to the State [Clause 12] .

2.16 In order to protect the State from further claims for a refund, when a State makes (or purports to make) a deduction from a taxable amount, the State is discharged from liability to pay or account for the amount to any person other than the Commissioner of Taxation [Subclause 8(4)] .

Taxpayer credit for amount deducted

2.17 When a State makes (or purports to make) a deduction from a refund of one of the four State taxes, the taxpayer is entitled to a credit equal to the amount deducted. The credit is a debt due to the taxpayer by the Commissioner on behalf of the Commonwealth. The Commissioner may apply the credit against any liability the taxpayer has for windfall tax. If a portion of the credit is not so applied the Commissioner must refund that portion [Clause 9] .

Annual report, arrangements with the States and Regulations

2.18 The Commissioner of Taxation must prepare a report for the Minister, for presentation to Parliament, on the operation of the Act [Clause 10] .

2.19 Although it is proposed the Commissioner of Taxation will have the general administration of the Act, the Commissioner may enter into arrangements with the States about any matter for the administration of the Act. In particular, the arrangement may relate to the Commissioner's delegation of powers or functions under the Act or regulations. The Commissioner may use section 8 of the Taxation Administration Act 1953 to delegate some or all of his powers or functions under the Act or regulations to an officer or authority of a State [Clause 11] .

2.20 The Governor General is authorised to make regulations prescribing matters required or permitted to be prescribed, or necessary or convenient to be prescribed, for administering the Act [Subclause 13(1)] .

2.21 The Bill also provides for regulations to prescribe penalties by way of fines not exceeding 10 penalty points for offences against the regulations [Subclause 13(2)] .