Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 7 - Administration of BAS obligations
Overview
7.1 Schedules 12, 13 and 15 to this Bill will amend the TAA 1953 and other Acts for which the Commissioner has responsibility to further enhance the administration of the aligned business tax obligations of one return and one payment outlined in ANTS. The measures covered by the amendments will:
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- require an entity to notify the Commissioner of all BAS obligations for a period in the same manner, i.e. using a uniform format for notification of each tax debt or credit entitlement;
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- require an entity that either exceeds the GST electronic lodgment threshold or is defined as a large withholder under the PAYG withholding system to pay all their tax debts electronically;
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- require an entity with a PAYG withholding obligation to register with the Commissioner;
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- enable an entity to be entitled to interest where a refund of an RBA surplus or voluntary payment is not made within 14 days from the lodgment of a correct BAS or a request for refund of the voluntary payment or a remission of penalties; and
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- remove the GST and WET refund rules to the extent that they are covered by the new generic refund rules in Part IIB of the TAA 1953.
7.2 Abbreviations used throughout this Chapter are summarised in the glossary following the Table of contents for this Explanatory Memorandum.
7.3 The measures are explained in the following Sections:
Section 1 Electronic notification and payment of BAS amounts
Section 2 Delayed refund interest
Section 3 GST and WET refunds
SECTION 1 ELECTRONIC NOTIFICATION AND PAYMENT OF BAS AMOUNTS
Summary of the amendments
7.4 The amendments in Schedule 12 to this Bill will require an entity to notify the Commissioner of all BAS amounts for a period in the same manner.
7.5 The amendments will apply to BAS amounts notified from the commencement of the GSTA 1999. [Subclause 2(12) of this Bill]
Background
7.6 The Government announced in ANTS that most businesses would be able to complete a single tax compliance statement for reporting their periodic tax obligations and make one payment in respect of those debts. This is supported by aligning the due dates for payment of all business tax debts to the 21st day after the end of the reporting period.
7.7 Entities will report these tax debts and any entitlements to credits in a BAS. The BAS will be the approved form for notification of ITW, ITI, FBTI, and DCOIN. The BAS will also incorporate the GST return for reporting obligations about an entity's GST, WET and LCT obligations. The only exception to the reporting of these tax debts on a BAS will be ITW amounts payable by large withholders under section 16-125 of the PAYG Bill. Those amounts, which are due up to 9 times a month, will be notified separately as part of the process of making a mandatory electronic payment.
7.8 All the amounts reported in the BAS will be aggregated to form a net amount owing to the Commissioner which is due for payment on or before the 21st day after the end of the reporting period. Upon receipt of the BAS, the Commissioner will record the respective liability amounts on the entity's RBA. Any payments made in respect of those amounts for that period will also be recorded on the RBA. If there is a shortfall in the payment that results in a deficit balance on the RBA, the GIC will be payable on that deficit.
7.9 A net amount on the BAS that is a credit entitlement, may result in a surplus on the RBA when recorded to the entity's account. The Commissioner may either apply the surplus against any other tax debt of the entity or refund the amount. Where an amount is not refunded within 14 days the entity will be entitled to interest. This is explained in more detail in Section 2 of this Chapter.
7.10 To enable efficient recording of tax debts and credit entitlements to an RBA the Commissioner will be issuing every entity with a unique BAS for each reporting period. The BAS will be required to be lodged in a manner determined by the Commissioner, which may be as a paper document or electronic transmission. This aspect is covered by the definitions in subsection 995-1(1) of the ITAA 1997 and section 186-1 of the GSTA 1999.
7.11 While all businesses will be required to report their tax debts and credit entitlements in a BAS, a similar form will be used by entities that are not carrying on a business but have an obligation to report a tax debt. Non-business entities will report those amounts on an approved form from which the Commissioner will record liability amounts on the entity's RBA.
7.12 The efficient processing of notifying liability amounts for a reporting period would be affected by an entity notifying some of those liabilities on paper and other liabilities electronically. It is therefore necessary to have a one in all in approach by which an entity notifies the Commissioner of BAS obligations. An entity will be required to notify all amounts for a reporting period in the same way. This will generally be either on paper or electronically.
7.13 To enable timely processing of payments, large entities will be required to pay all tax debts electronically. This requirement will affect approximately 25,000 entities, being the largest payers of tax debts in Australia.
Explanation of the amendments
7.14 Unless otherwise stated, items referred to in this explanation are in Schedule 12 to this Bill.
7.15 Under section 31-25 of the GSTA 1999 an entity can choose to lodge a GST return electronically. However, an entity whose annual turnover exceeds the electronic lodgment turnover threshold must lodge the return electronically. The electronic lodgment turnover threshold is currently $20 million, or such higher amount as increased by regulation.
7.16 New Division 288 of Part 4-25 is being inserted into Schedule 1 to the TAA 1953 to provide rules for electronic notification and payment of amounts. It will require an entity that chooses or is required to lodge an electronic GST return to electronically notify the Commissioner of all other BAS amounts. The requirement will apply to any amount that is required to be notified on the BAS on the same day as a net amount of GST. That is, amounts with aligned due dates for payment of the 21st day after the end of the tax period to which the payment relates. [Item 24, new section 288-5]
7.17 The amounts covered by this requirement are defined as BAS amounts . These are defined as debits or credits that arise under a BAS provision . These 2 new definitions are being introduced in the dictionary in Chapter 6 of the ITAA 1997. A BAS provision is a provision in which the following type of tax debts or credits arise:
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- instalments of fringe benefits tax (FBTI);
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- indirect tax (GST, WET or LCT);
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- PAYG (ITI or ITW); and
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- deferred final tax instalments under Division 1C of Part VI of the ITAA 6 (DCOIN).
[Items 4 and 5 in Schedule 18]
7.18 With the exception of DCOIN, there is a requirement for debts arising under the BAS provisions to be notified to the Commissioner in an approved form. An amendment is being made to require DCOIN tax debts to be notified to the Commissioner in an approved form, as explained above. That means, where an entity chooses to defer the payment of a final instalment arising under Division 1C of Part VI of the ITAA 6, the Commissioner will be able to require the deferred tax debt for the relevant quarter to be notified in the BAS. [Item 3, new section 221AZKD]
7.19 Subsection 33-10(2) of the GSTA 1999 requires an entity whose annual turnover meets the electronic lodgment turnover threshold to pay any GST net amounts by electronic payment. An entity below the threshold can make a GST payment in any other manner determined by the Commissioner. That is cash, cheque or electronic transmission, although there are restrictions applying to where cash payments can be made and how much cash the collector will accept. For example, cash payments are not accepted by the ATO.
7.20 To facilitate electronic payment of tax debts, which is more efficient and timely than cheque payments, new Division 288 in Schedule 1 to the TAA 1953 will require all large businesses pay their tax debts electronically.
7.21 An entity that is required to pay, in any tax period, a net amount of GST by electronic payment will be required to pay all other tax debts that are due in that same tax period by electronic payment. [Item 24, new subsection 288-15(1)]
7.22 The tax period for an entity that is required to make an electronic payment, is one month. A tax debt is defined in section 8AAZA of the TAA 1953 as an amount due to the Commonwealth directly under a taxation law, including any such amount that is not yet payable. This definition is being inserted into the dictionary in Chapter 6 of the ITAA 1997. [Item 34 in Schedule 18]
7.23 The PAYG withholding provisions require electronic payment by all remitters. Subsection 16-85(1) of the PAYG Bill makes this mandatory for large remitters. Generally, a large withholder is a person, or company group, who has withheld more than $1 million in the previous year. Subsection 16-85(2) requires medium and small withholders to pay amounts by electronic payment unless the Commissioner has approved other means. As with payments of GST, the Commissioner will permit cash and cheque payments by medium and small withholders.
7.24 A large withholder that is required, in a particular month, to remit an ITW amount by electronic payment will be required to pay all other primary tax debts that are due in that month by electronic payment. [Item 24, new subsection 288-15(2)]
7.25 An entity that fails to comply with the requirement in new section 288-5 to make an electronic notification will be liable to a civil penalty of 5 penalty units. Similarly, an entity that fails to comply with the electronic payment requirement in new section 288-15 will also be liable to a civil penalty of 5 penalty units. Both these penalties are generic penalties and apply to all non-electronic notification and payment requirements law. [Item 24, new sections 288-10 and 288-20]
Machinery provisions for civil penalties
7.26 New Division 298 is being inserted into Schedule 1 to the TAA 1953 to provide generic machinery provisions for all civil penalties in the taxation law that are expressed as penalty units. A penalty unit is the common mechanism for expressing pecuniary penalties in the law. Its value is specified in section 4AA of the Crimes Act 1914 and it is currently $110. [Item 24, new section 298-5]
7.27 The civil penalties in the taxation law are imposed where an entity has failed to satisfy a particular requirement. The matter is not an offence and, as such, does not require prosecution. The Commissioner is obliged to serve a notice of the penalty on the entity and the notice can be included in any other notice that the Commissioner gives the entity under new section 298-10 . For example, if the penalty is imposed for failing to make an electronic notification, the Commissioner may choose to include the penalty notice in an RBA statement of the account to which the BAS amounts have been allocated. Under new section 298-15 ,the penalty will become due on the day specified in the notice which must be at least 14 days after service of the notice on the entity.
7.28 The Commissioner will be able to remit the penalty, in whole or in part. Where the Commissioner decides not to remit the penalty or to remit only part of the penalty he must give written notice of the remission decision to the entity. Where the entity is dissatisfied with the Commissioner's remission decision and the penalty payable after the remission decision is more than 2 penalty units, the entity can object against the decision under Part IVC of the TAA 1953. This objection threshold also applies to objections against GST penalty remission decisions. [Item 24, new section 298-20]
7.29 A civil penalty is a tax debt and is due for payment on the day specified in the notice of penalty. Any unpaid penalty will be subject to the imposition of GIC. [Item 24, new subsection 298-20(1)]
7.30 Subsection 16-90(1) in the PAYG Bill and section 41 of the TAA 1953 are existing penalty provisions for not complying with requirements to make an electronic payment. These penalty provisions are being repealed as their effect is achieved by the generic non-electronic payment penalty provisions. [Items 7 and 22]
7.31 Section 45-72 in the PAYG Bill requires a taxpayer to make an electronic payment of an income tax instalment debt if another tax debt due on the same day is required to be paid electronically. This provision is being repealed as it is made redundant by the generic non-electronic notification provision. [Item 23]
7.32 The new definition of BAS amount covers all the provisions in the table in paragraph 8AAZLG(1)(b) of the TAA 1953. As a consequence, the reference to the table in that provision and in subsection 8AAZLH(1) are being removed an replaced by a reference to BAS amount. [Items 8 and 9]
7.33 The creation of generic machinery provisions for civil penalties have made redundant the machinery provisions that applied to the GST and PAYG civil penalties expressed as penalty units. A number of amendments are being made remove these redundant provisions. [Items 12, 13, 16, 17, 18, 19 and 22]
7.34 A number of GST and PAYG provisions that impose a penalty are having notes added to them to advise that there are generic machinery provisions for civil penalties. The provisions requiring electronic payment by large withholders and GST entities are having notes added to advise that there is an obligation to pay other tax debts electronically and that a penalty applies for breaching the requirement. A similar note is being added to the GST electronic notification provision. [Items 1, 2, 10, 11, 14, 15, 20 and 21]
SECTION 2 DELAYED REFUND INTEREST
Summary of the amendments
7.35 These amendments in Schedule 13 to this Bill will create an entitlement to interest where a refund of an RBA surplus or voluntary payment is not made within 14 days from the lodgment of a correct BAS, a request for refund of the voluntary payment or the remission of a penalty.
7.36 The amendments will apply to RBA surpluses that arise on or after 1 July 2000. [Item 6]
Background
7.37 Section 35-5 of the GSTA 1999 provides that where an entity is entitled to a refund, the Commissioner must pay the amount within 14 days after an entity lodges a GST return for a tax period. The legislative note to the section says that interest is payable under the T(IOEP)A 1983 if the Commonwealth is late in making the payment. As the GST return will form part of a BAS and will include information about liabilities and payments in relation to all BAS provisions , the entitlement to interest must arise in respect of any refundable amount on an RBA.
7.38 This is necessary because the particular character of tax debts, credits and payments are merged when allocated to the RBA. The balance on the RBA can either be a deficit or a surplus that reflects movements in the account over a period of time. The entitlement to delayed refund interest will only apply where there is a surplus on an RBA in respect of BAS related amounts.
Explanation of the amendments
7.39 Unless otherwise specified, the sections and paragraphs referred to are in the T(IOEP)A 1983.
7.40 The entitlement to interest will arise where the following types of refunds are not paid within 14 days:
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- a surplus on an RBA reflecting the allocation of a BAS amount to the RBA following lodgment of the BAS. The surplus could be made up of one or more credit amounts notified in the BAS. For example, input tax credits that remain after off-setting amounts o f GST [new section 12AA] ;
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- a surplus on an RBA arising from the remission of a penalty relating to a BAS amount [new section 12AB] ; and
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- a surplus on an RBA reflecting a voluntary payment that arises because a payment is made in respect of an anticipated tax debt under a BAS provision [new section 12AC] .
7.41 Interest is payable for the period specified in new section 12AD which commences at the beginning of the day after the RBA interest day and ends on the day the refund is paid to the entity. The RBA interest day is the 14th day after the latest of either the day the RBA went into surplus, or the day the entity requested a remission of penalty or a refund of a voluntary payment. [Item 5, new paragraph 12AF(a) of the 'RBA interest day' definition]
7.42 However, if there is an outstanding BAS or inaccurate information which may affect the amount of the refund, the RBA interest day does not commence until the BAS or the correct information is given to the Commissioner. The RBA interest day will also be delayed until such day on which a taxpayer notifies the Commissioner of the details of the financial institution account to which the refund must be paid. [Item 5, new paragraphs 12AF(b) and (c) of the 'RBA interest day' definition]
7.43 The interest rate that will apply to amounts not refunded by the RBA interest day is the annual rate that applies under section 214A of the ITAA 6. This is the Treasury Note yield rate determined under subsection 8AAD(2) of the TAA 1953. At the date of introduction of this Bill the rate was 4.72% per annum. It is the same interest rate that applies under other provisions of the T(IOEP)A 1983. [New section 12AE] . id="S224">Consequential amendments
7.44 Early payment of instalments under Division 1C of Part VI of the ITAA 6 currently attracts interest under subparagraph 8A(1)(a)(x). Section 221AZKC of the PAYG Bill gives an entity the choice to defer some or all of the final instalment of tax for the 1999-2000 income year. This deferred amount is payable in equal instalments each quarter for a period up to 5 years. Choosing the deferral extends the due date for payment of the final instalment of tax.
7.45 An amendment is being made to prevent an entity that pays an amount of the deferred instalment early from being entitled to interest. Any amount paid after the original due date under section 221AZK of Division 1C will not be eligible for early payment interest. [Item 1, new subsection 8A(1A)]
7.46 Amendments are being made in Schedule 16 to this Bill to create an entitlement to interest on overpayments in respect of a request for either a PAYG instalment credit or a remission of GIC payable under the PAYG instalment provisions in the PAYG Bill. These amendments will apply to the 2000-2001 year of income. They will enable entities with substituted accounting periods to claim interest for any credits or remissions arising before 1 July 2000. As the delayed refund interest, explained above, will replace this interest entitlement, amendments are being made to remove the redundant provisions. [Items 2, 3 and 4]
SECTION 3 GST AND WET REFUNDS
Summary of the amendments
7.47 The amendments in Schedule 15 to this Bill will remove the GST and WET refund rules to the extent that they are covered by the new generic refund rules in Division 3A of Part IIB of the TAA 1953.
7.48 The amendments will apply from the commencement of the GSTA 1999. [Subclause 2(12) of this Bill]
Background
7.49 The commencement of generic refund amendments in the PAYG Bill will make most of the GST refund provisions unnecessary. The generic provisions provide rules for the treatment of refunds of RBA surpluses and credits arising under all taxation laws.
Explanation of the amendments
7.50 Unless otherwise specified, the Division, sections and paragraphs referred to are in the GSTA 1999.
7.51 Section 35-5 currently requires the Commissioner to refund a net amount for a tax period that is negative, (i.e. where input tax credits exceed the GST), to an entity within 14 days after the GST return is given under Division 31. This provision is being amended to subject the refund to the generic refund rules in subsection 8AAZLF(1) of the TAA 1953. Those rules allow the Commissioner to apply the amount owing as a credit against any other tax debt of the entity. A new definition of credit is being placed in section 8AAZA of the TAA 1953 which will define a credit as an amount the Commissioner must pay a taxpayer under a taxation law, which would include an amount under section 35-5. [Items 1 and 9]
7.52 Section 35-10 which makes it mandatory for refunds of GST to be paid electronically into an account at a financial institution is being repealed because this is a common requirement for all tax refunds under section 8AAZLH of the TAA 1953. Subsection 8AAZLH(2) is being amended to ensure that refunds can only be paid into an account of an institution which has a location or branch in Australia. [Items 2, 6 and 12]
7.53 There are special rules relating to refunds payable to joint venture operators and GST branches. Amendments are being made so that those refunds are treated the same as other GST refunds under section 35-5. That is, the Commissioner will be able to apply the amount owing as a credit against any other tax debt of the joint venture operator or the entity. [Items 4 and 5]
7.54 Section 17-20 of A New Tax System (Wine Equalisation Tax) Act 1999 requires wine tax credits to be applied against any other tax debts that an entity has under a taxation law. This is being amended so that the credits are subject to the generic credit and refund rules. [Items 7 and 8]
7.55 Sections 29, 38 and 39 of the TAA 1953 also provide special rules that apply to refunds of GST. Section 29 deals with multiple refunds and is no longer required because of the generic provisions. Section 38 allows the Commissioner to withhold a payment if a return is outstanding. As this is a generic requirement in section 8AAZLG of the TAA 1953, section 39 can also be repealed. However, the qualification in subsection 38(3) requiring the Commissioner to pay a refund if he has made an assessment is being inserted into the generic provisions. [Items 10, 11, 13 and 14]
7.56 Section 39 of the TAA 1953 deals with refunds of net amounts under section 35-5 and refunds of an amount of indirect tax (e.g. GST or LCT on an importation) arising because of an overpayment. Subsections 39(1) and (2) of the TAA 1953 require the Commissioner to refund an amount where it is not applied against another tax debt. These provisions are being amended because they are covered by the generic refund rule. Subsection 39(3) of the TAA 1953 is a special rule dealing with the reimbursement of an amount of tax to the recipient of the supply. The Commissioner is not obliged to refund or apply the amount against other tax debts where the reimbursement conditions are not satisfied. If the Commissioner is satisfied that the conditions have been met, he or she must refund the amount or apply it against another tax debt. This rule is being preserved. [Items 3, 15, 16, 17 and 18]