House of Representatives

Supplementary Explanatory Memorandum

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

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum

General outline and financial impact

Input tax credits for motor vehicles

Amendments 1 and 2 amend the Bill to allow GST registered businesses that are entitled to claim input tax credits, to claim full input tax credits for motor vehicles, trailers and vehicle bodies acquired or imported by them on or after 23 May 2001.

Date of effect : The amendments apply to acquisitions or importations of motor vehicles, trailers and vehicle bodies made on or after 23 May 2001.

Proposal announced : 2001-2002 Federal Budget announcement and Treasurers Press Release No. 34 of 22 May 2001.

Financial impact : $20 million in 2000-2001, $570 million in 2001-2002 and $80 million in 2002-2003.

Compliance cost impact : Minimal.

PAYG instalments

Amendments 3, 4 and 9amend Schedule 1 to the TAA 1953 and the ITAA 1936 to:

•

provide the basis of calculation of the GIC payable when there is a shortfall in instalments following a variation by a taxpayer who pays 2 PAYG instalments annually using the GDP-adjusted notional tax method (a 2-instalment payer2 instalment payer);

•

allow Part IIIAA, Franking of Dividends, to have its intended operation consequential upon the PAYG instalments measures in this Bill; and

•

make technical corrections to ensure that PAYG instalment variation credits are correctly taken into account on assessment.

Date of effect :Amendments to the TAA 1953 and ITAA 1936 made by amendments 3 and 4 will apply for the 2001-2002 income year and later income years. Amendments to the ITAA 1936 made by amendment 4 will also apply for transitional quarters for the 2000-2001 income year. Amendments to the TAA 1953 made by amendment 9 apply for the 2000-2001 income year and later income years.

Proposal announced : Not previously announced.

Financial impact :Nil.

Compliance cost impact : Nil.

PAYG monthly withholding for non-standard quarters

Amendments 5 to 7 amend the Bill to allow PAYYG medium withholders to paywithholding amounts withheld during a month on the 28th of the nexta month (or 28 February for amounts withheld in December) if another BAS amount is due on that day.

Underthe original amendments to the Bill as introduced, the deferral for PAYG medium withholders is limited to March, June, September and December, the end of standard quarters. Taxpayers with substituted accounting periods for income tax may have quarterly obligations for quarters that end in other months. This results in PAYG withholding being due on the 21st of a month, and PAYG instalments or deferred COIN being due on the 28th of a month. These amendments will allow all amounts due in a particular month to be paid on the same day, the 28th.

Date of effect : The amendments will apply to amounts that are due and notifications required on or after 1 April 2001.

Proposal announced : The original deferral proposal was announced in Treasurers Press Release No. 7 of 22 February 2001.

Financial impact : The financial impact of the deferral of due dates is outlined in the eexplanatory mmemorandum to the Bill. These amendments will have no additional financial impact.

Compliance cost impact : The compliance cost impact of the deferral of due dates is outlined in the explanatory memorandum to the Bill. These amendments will have no additional compliance cost impact.

Changes to the GIC and the benchmark interest rate

Amendment 8 amends the Bill to replace the benchmark rate applied in the calculation of the GIC and some interest amounts paid by the Commissioner. The amendment also reduces the margin that is added to the benchmark rate in order to determine the GIC rate, from 8 percentage points to 7 percentage points.

It is necessary to replace the current benchmark rate, the average yield of 13-week Treasury Notes tenders, because those notes are no longer issued. The replacement benchmark rate is the monthly average yield of 90-day Bank Accepted Bills published by the RBA.

The margin that is added to this benchmark rate, in calculating the GIC rate, is being reduced in response to concerns that the GIC rate is excessive.

Date of effect : The amendments will apply from the first full quarter following Royal Assent.

Proposal announced : Not previously announced.

Financial impact : The amendment to the benchmark rate will cost the revenue approximately $1 million per annum. The amendment to the loading for determining the GIC rate will cost the revenue $14 million in the 2001-2002 income year (assuming Royal Assent is granted on or before 1 July 2001) and $10 million per annum thereafter.

Compliance cost impact : Nil.

Chapter 1 - Input tax credits for motor vehicles

Outline of chapter

1.1 Part 5 of Schedule 1 amends section 20 of the GST Transition Act to remove the phasing-in rules for input tax credits that apply in relation to the acquisition or importation of motor vehicles, trailers and vehicle bodies.

Context of reform

1.2 Under the New Tax System, the availability of input tax credits for the GST on new motor vehicles, certain trailers and vehicle bodies was subject to a phasing-in arrangement. Input tax credits were denied in full for the first year of the GST and a 50% denial was to be applied for the year commencing 1 July 2001. Full input tax credits were to be available from 1 July 2002. These phasing-in rules were designed to minimise the disruption to the market that could have occurred if businesses were to defer their purchases of motor vehicles in the months preceding the GST.

Detailed explanation of new law

1.3 Section 20 of the GST Transition Act applies to:

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motor vehicles (including cars, trucks and motor cycles);

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detachable trailers for heavy prime movers such as semi-trailers; and

•

bodies for motor vehicles (e.g. refrigerated bodies).

1.4 Amendment 2 amends section 20 to effectively end the input tax credit phasing-in rules on and from 23 May 2001. The effect of these changes is that entities entitled to claim input tax credits will be able to claim full input tax credits for new motor vehicles, trailers and vehicle bodies acquired or imported on or after 23 May 2001. For the purposes of these amendments, a motor vehicle, trailer or body will be taken to be acquired when it is physically removed by the entity acquiring the motor vehicle, trailer or body. Where the entity claiming the input tax credit has imported the motor vehicle, trailer or body, the time of importation is taken to be the time the taxable importation occurs. The changes to achieve these outcomes are discussed in paragraphs 10 to 1.10.

1.5 Subsection 20(2) is amended to change the date on which the denial of input tax credits ends. Currently, the denial of input tax credits relates to acquisitions or importations made before 1 July 2001. This date is amended to 23 May 2001 [Schedule 1, item 70] . Subsection 20(4C), which is about eligible short-term lease agreements, is also amended to reflect this change [Schedule 1, item 75] .

1.6 Subsection 20(3) provided a 50% denial of input tax credits for acquisitions or importations made on or after 1 July 2001 but before 1 July 2002. As full input tax credits will be available on and from 23 May 2001, this subsection is no longer relevant and is repealed [Schedule 1, item 71] . Subsections 20(3A) and 20(4B) are amended to remove redundant references to subsection 20(3) [Schedule 1, items 72 to 74] . Subsection 20(6) is also repealed as it referred only to the 50% reduction in input tax credits in subsection 20(3) [Schedule 1, item 76] .

1.7 Section 6 of the GST Transition Act provides rules for determining when an acquisition occurs and refers to when the goods are removed. To clarify the time of supply, section 20 is amended to provide rules for determining when motor vehicles, trailers and bodies are removed. Subsection 6(2) is amended by adding a note referring to the rules in new subsection 20(8) for when goods are taken to be removed. [Schedule 1, item 69]

1.8 New subsection 20(8) provides that the time motor vehicles, trailers and bodies are taken to be removed is when they are physically removed:

•

by the entity acquiring the motor vehicle, trailer or body; or

•

by the lessee where the motor vehicle, trailer or body is leased if this occurs before the lessor removes them.

[Schedule 1, item 77]

Example 1.1

Ray orders and pays for a vehicle on 21 May 2001 but does not take delivery of the vehicle until 23 May 2001. The vehicle is delivered on or after 23 May 2001 and therefore section 20 will not prevent Ray from claiming an input tax credit for the acquisition of the vehicle. Ray will still need to satisfy the normal rules for claiming input tax credits in Division 11 of the A New Tax System (Goods and Services Tax) Act 1999.

Example 1.2

Bruno orders and pays for a new refrigerated body for his delivery truck on 10 May 2001. The manufacturer phones Bruno on 21 May 2001 to say that the refrigerated body is complete and ready to be fitted. Bruno does not take his truck to have the new body fitted until 24 May 2001. The refrigerated body is physically removed on or after 23 May 2001. As Bruno has not acquired the refrigerated body before 23 May 2001, section 20 will not prevent Bruno from claiming an input tax credit in relation to the acquisition of the refrigerated body.

Example 1.3

AGP Finance enters into an agreement with MG Company for the lease of a motor vehicle. AGP Finance orders the vehicle on 21 May 2001. The vehicle is available on 22 May 2001 but AGP Finance does not take delivery of the vehicle. The vehicle is taken from the motor vehicle dealer by MG Company on 24 May 2001. The vehicle is physically removed by the lessee on or after 23 May 2001 and therefore section 20 will not prevent AGP Finance from claiming an input tax credit in relation to the acquisition of the vehicle.

1.9 The rule in new subsection 20(8) only applies in relation to acquisitions covered by section 20. [Schedule 1, item 77, subsection 20(9)]

1.10 New subsection 20(10) provides a rule for determining the time an importation takes place. A motor vehicle, trailer or vehicle body will be taken to be imported when it becomes a taxable importation. In the majority of cases the importation of a motor vehicle will become a taxable importation when it is entered for home consumption. [Schedule 1, item 77]

Application and transitional provisions

1.11 The amendments apply in relation to motor vehicles, trailers and vehicle bodies acquired or imported on or after 23 May 2001 [Schedule 1, item 78] . The amendments in Part 5 of Schedule 1 are taken to have commenced on 23 May 2001.

Chapter 2 - PAYG instalments

Outline of chapter

2.1 This chapter explains amendments to Schedule 2 to the Bill concerning amendments to Schedule 1 to the TAA 1953 that relate to the PAYG instalments regime. The amendments will insert provisions to provide the basis of calculation of the GIC payable when there is a shortfall in instalments following a variation by a taxpayer who pays 2 instalments annually on the basis of GDP-adjusted notional tax (a 2-instalment payer2 instalment payer).

2.2 Consequential amendments additional to those in the Bill will be made to Schedule 1 to the TAA 1953 and also to the ITAA 1936 to take account of the amendments described in Chapter 5 of the explanatory memorandum to the Bill.

2.3 The Bill is also amended by the insertion of new Schedule 5 which makes 2 technical corrections to subsection 45-30(2) of Schedule 1 to the TAA 1953. They ensure that the correct amount of PAYG instalments is credited against the payers assessment when a taxpayer using the GDP-adjusted notional tax method varies their instalment(s).

2.4 Finally, a cross-referencing error in one of the measures contained in Schedule 2 to the Bill will be corrected.

Summary of new law

2.5 These amendments make consequential amendments that are additional to those already contained in Schedule 2 to the Bill. They will make amendments to Schedule 1 to the TAA 1953 to provide for the calculation of the GIC payable by a 2-instalment payer2 instalment payer when there is a shortfall in PAYG instalments following a variation. They will also make amendments to the ITAA 1936 to allow Part IIIAA, Franking of Dividends, to have its intended operation consequential upon the PAYG instalments measures in the Bill.

2.6 Two technical amendments are also being made. They ensure that the correct amount of PAYG instalments is credited against the payers assessment when a taxpayer using the GDP-adjusted notional tax method varies their instalment(s). Both amendments are consequential upon the PAYG instalments measures contained in A New Tax System (Tax Administration) Act 1999 and were omitted in error from it. They will apply with effect for the 2000-2001 income year and later income years as do the amendments made by that Act.

Detailed explanation of new law

GDP-adjusted notional tax payers who pay 2 instalments annually

Amount on which GIC is payable under section 45-232

2.7 New provisions will be inserted in the Bill as amendments to Schedule 1 to the TAA 1953 to ensure that the GIC is calculated on the correct amount where a 2-instalment payer2 instalment payer becomes liable to pay GIC under section 45-232. That section imposes GIC on a shortfall in a quarterly instalment worked out on the basis of estimated benchmark tax. The GIC is payable separately in relation to each instalment for which there is a shortfall.

2.8 Existing subsection 45-232(2) provides the formula for working out the amount of the GIC payable by a taxpayer and that calculation is based, in part, on the existing definition of an acceptable amount in subsection 45-232(3). The definition of acceptable amount contained in existing subsection 45-232(3) will be amended to provide that it only applies for a 4-instalment payer4 instalment payer. [Amendment 4, item 89, subsection 45-232(3)]

2.9 New subsections will be inserted into section 45-232 which define acceptable amount for the purposes of working out the amount on which GIC is payable by a 2-instalment payer2 instalment payer. They take account of the fact that a 2-instalment payer2 instalment payer only pays instalments after the end of the third and fourth instalment quarters. [Amendment 4, items 88 and 90, subsections 45-232(2) and (3A) to 3(D)]

2.10 When a 2-instalment payer2 instalment payer does not vary the instalment payable for the third instalment quarter of an income year, the acceptable amount of that instalment will be the amount notified by the Commissioner as the amount of the instalment for that quarter. [Amendment 4, item 90, paragraphs 45-232(3A)(b), (3B)(d) and (3C)(d)]

2.11 If a 2-instalment payer2 instalment payer varies the amount of the instalment that would otherwise be payable for the third instalment quarter, the acceptable amount of the instalment for that instalment quarter is the lower of:

•

the amount notified to the instalment payer under paragraph 45-112(1)(a) as the amount for that instalment; and

•

75% of the benchmark tax for the income year.

[Amendment 4, item 90, paragraph 45-232(3A)(a) and table item 1]

01 If a 2-instalment payer2 instalment payer varies the amount of the instalment for either the third or fourth instalment quarter, the acceptable amount of the instalment for the fourth instalment quarter is the lower of:

•

the amount that the Commissioner would have notified to the instalment payer under paragraph 45-112(1)(a) as the amount for that instalment (i.e. as if no variation(s) had been made); and

•

100% of the benchmark tax for the income year less the amount that is the acceptable amount for the third instalment quarter.

[Amendment 4, item 90, paragraph 45-232(3A)(a) and table item 2]

2.13 However, special rules will be used to work out the acceptable amount of an instalment for an instalment quarter of an income year in which the Commissioner first notifies a taxpayer of its instalment rate in a quarter other than the first instalment quarter. These special rules operate as exceptions to new subsection 45-232(3A), but will work in essentially similar ways to that subsection. The only difference that will arise will occur when it is necessary to work out the acceptable amount of the instalment by reference to the percentage of a taxpayers benchmark tax.

2.14 The percentages of benchmark tax used in working out the acceptable amount depend on when a taxpayer is first given a PAYG instalment rate by the Commissioner. If the taxpayer gets an instalment rate for the first time during the second instalment quarter, the percentage of benchmark tax used to work out the acceptable amount of the third instalment quarter is 50% [amendment 4, item 90, subsection 45-232(3B), table item 1] . The percentage of benchmark tax used in the calculation of the acceptable amount of the fourth instalment quarter is 75% [amendment 4, item 90, subsection 45-232(3B), table item 2] .

2.15 Similarly, if the taxpayer is first given an instalment rate during the third quarter, the percentages of benchmark tax are 25% and 50% for the third and fourth instalment quarters respectively [amendment 4, item 90, subsection 45-232(3C), table items 1 and 2] . If the instalment rate is first notified to the taxpayer during the fourth instalment quarter, the benchmark tax percentage for that quarter is 25% [amendment 4, item 90, paragraph 45-232(3D)(d)] .

2.16 The amendments align the benchmark tax percentages used in working out the acceptable amount with the percentages of the GDP-adjusted notional tax that are used by the Commissioner in working out the amount of the instalment payable by a 2-instalment payer2 instalment payer under section 45-402. This has the effect of ensuring that a 2-instalment payer2 instalment payer is not disadvantaged in relation to a 4-instalment payer4 instalment payer.

Credit for instalments payable

2.17 Amendment 9 inserts Schedule 5 to the Bill which makes 2 minor technical corrections to subsection 45-30(2) of Schedule 1 to the TAA 1953. The first amendment prevents a taxpayer who has varied their benchmark tax from obtaining a double benefit from a credit arising as a result of that variation. It does this by providing that a credit claimed under section 45-420 of Schedule 1 to the TAA 1953 because of a variation of a quarterly GDP-adjusted notional tax instalment, is properly taken into account in working out the amount of the credit for PAYG instalments against assessed tax under section 45-30(2). [Amendment 9, item 1, subsection 45-30(2)]

2.18 The second amendment is consequential upon the first and repeals a non-operative note to subsection 45-30(2). [Amendment 9, item 2, subsection 45-30(2)]

2.19 Both of these corrections are consequential upon the amendments to PAYG instalments made by A New Tax System (Tax Administration) Act 1999 but were omitted from that Act in error. They will be retrospective to the date of effect of those amendments and will apply for the 2000-2001 income year and later income years.

2.20 Few (if any) PAYG instalment payers have so far been affected by the anomalous situation arising as a result of the unintended omission of these consequential amendments. The only group of taxpayers who could have been affected prior to introduction of the Bill is the limited class of individuals who are currently entitled to use the GDP-adjusted notional tax basis of paying PAYG instalments and who:

•

balance earlier than 30 June;

•

have already varied their benchmark tax for the 2000-2001 income year; and

•

whose assessments for the 2000-2001 income year have been issued and a credit applied against that assessment as a result of that variation.

2.21 Schedule 2 to the Bill extends the class of taxpayers who have access to the GDP-adjusted notional tax method. The amendment will also ensure that taxpayers within this extended class will have the correct amount credited against their assessed tax.

Correction of an error

01 Item 8 of Schedule 2 to the Bill will amend the note to subsection 45-90(1). The amendment as drafted refers to subsection 45-50(5). As there is no subsection 45-50(5), the Bill will be amended to correctly refer to subsection 45-50(4). [Amendment 3]

Application and transitional provisions

2.23 Part 3 of Schedule 2 to the Bill, which will be inserted by amendment 4, will apply for the 2001-2002 income year and later income years. In addition, the amendments made to the ITAA 1936 by Part 3 of Schedule 2 apply in respect of instalments payable for an instalment quarter of the 2000-2001 income year that is a transitional quarter within the meaning of item 49 in Part 2 of Schedule 2 to the Bill. [Amendment 4, item 95]

2.24 The amendments made by Schedule 5 to the Bill apply for the 2000-2001 income year and later income years. [Amendment 9, item 3]

Consequential amendments

2.25 Additional consequential amendments will be made to Schedule 1 to the TAA 1953 to take account of the amendments described in Chapter 5 of the explanatory memorandum to the Bill. These amendments are described in Table 2.2.

2.26 Consequential amendments will also be made to the ITAA 1936 (Table 2.1) to state how an entity that is liable to keep a dividend franking account must take account of a variation credit which arises when that entity pays instalments using the GDP-adjusted notional tax method.

Chapter 3 - PAYG monthly withholding for non-standard quarters

Outline of chapter

3.1 30 This chapter explains amendments to the Bill to allowalign due dates for PAYG medium withholders to pay amounts withheld during a month on the 28th of the next month (or 28 February for amounts withheld in December) if another BAS amount is due on that day. who have substituted accounting periods.

3.2 Medium withholders are required to remit to the Commissioner on a monthly basis the amounts they withhold.

Context of reform

3.3 30 The Bill as introduced allows medium monthly PAYG withholders to pay amounts withheld during a month on the 28th of the next month (or 28 February for amounts withheld in December) defer a PAYG withholding payment to the 28th of a month where there is a quarterly obligation payable on the same activity statement. This enables all amounts due in a particular month to be paid on the same date. The current Bill limits thisis deferralis currently limited to March, June, September and December, the end of standard quarters.

3.4 For income tax purposes, some taxpayers have an income year known as a substituted accounting period that is not the standard period of 1 July to 30 June.

3.5 A small number of mMonthly withholders withon substituted accounting periods have non-standard quarters (which do not end on 30 September, 31 December, 31 March and 30 June) for PAYG instalments or deferred COIN, and standard quarters for FBT or GST. The current Bill does not allow the deferral for non-standard quarters, resulting in amounts that are payable in the same month being due on different dates.

Summary of new law

3.6 The proposed amendment to the Bill will allow a monthly withholder to pay and notify amounts withheld on the 28th of the next month (or 28 February for amounts withheld in December) for any month if it isin which it is a deferred BAS payer at that time.

3.7 An entity will only be a deferred BAS payer for a month in which it has a quarterly obligation. For example, if the only obligation payable on an activity statement is a PAYG monthly withholding obligation, the entity will not be a deferred BAS payer for that month, and will notify and pay on the 21st. However, if the entity also has a quarterly obligation payable in a month, for example, GST or a PAYG instalment, the entity will be a deferred BAS payer for that month. An entity with a monthly GST obligation will never be a deferred BAS payer.

Date of effect

3.8 The amendments will have effect from 1 April 2001.

Detailed explanation of new law

Amendments 5 3 and 4

3.9 Proposed sSubsection 13-5(5) in (item 20 of Schedule 3 to the Bill) outlines the due dates for payment by a deferred BAS payer of PAYG withholding from alienated personal services income. It allows taxpayers with PAYG monthly withholding who are deferred BAS payers to defer monthly obligations for March, June, September and December. This enables these payments to be aligned with quarterly obligations due on the same activity statement. The current subsection does not give a deferral to PAYG medium withholders who have substituted accounting periods for income tax, and may have PAYG instalments or deferred COIN for months other than March, June, September or December. This results in their PAYG withholding amount being due on the 21st of the month and their PAYG instalment or deferred COIN being due on the 28th of the month.

3.10 This subsection will be amended to align the payment of all BAS amounts due in the same month in which the monthly withholder is a deferred BAS payer to the 28th day of the month.

Amendments 6 and 75 and 6

3.11 Proposed sSubsection 16-75(2A) (item 24 ofin Schedule3 to the Bill) is the general provision allowing deferral to the 28th for monthly PAYG withholders who are deferred BAS payers for March, June, September and December.

3.12 30 This subsection will be amended to align the payment of all BAS amounts due in the same month in which the monthly withholder is a deferred BAS payer, to the 28th day of the month.

3.13 Table 30 outlines the due dates for PAYG medium withholders.

Clarification to explanatory memorandum

Definition of a deferred BAS payer

Chapter 4 - Changes to the GIC and the benchmark interest rate

Outline of chapter

4.1 This chapter explains the amendments to the TAA 1953 and necessary consequential amendments to replace the benchmark rate used for the GIC and certain interest payments by the Commissioner, and to reduce the margin that is added to the benchmark rate in determining the GIC.

Context of reform

4.2 The GIC, provided for in Division 1 of Part IIA to the TAA 1953, is applied to relevant penalties and tax debts that are not paid on time. The rate at which the GIC is charged each day in a quarter is determined by adding 8 percentage points to a benchmark rate, presently described as the weighted average yield set at the last weekly tender for the 13-week Treasury Note before the end of the second month before the quarter commences. For example, the rate for November is used as the benchmark rate for the quarter commencing 1 January.

4.3 The Treasury Note yield rate is also used as the benchmark for interest payable by the Commissioner, such as interest on early payments, interest on overpayments and delayed refund interest, pursuant to the Taxation (Interest on Overpayments and Early Payments) Act 1983.

4.4 On 26 June 2000, the Australian Office of Financial Management in conjunction with the RBA announced that it would no longer issue fixed term Treasury Notes. As such the benchmark rate, upon which interest rates charged and paid by the Commissioner are calculated, continues to be fixed at the yield set at the last tender of 13-week Treasury Notes in June 2000.

Summary of new law

4.5 The amendments provide for the necessary change of the benchmark rate that is applied for the purpose of calculating interest amounts charged by and paid to the Commissioner, to the monthly average yield of 90-day Bank Accepted Bills, as published by the RBA.

4.6 The amendments also provide for a reduction in the margin added to the benchmark rate for the purposes of the GIC from 8 to 7 percentage points. The Government considers that a 7 percentage point margin is sufficient to support the policy objective that taxpayers should pay their tax liabilities on time.

4.7 The amendments do not alter the manner in which an interest amount (whether chargeable or payable) is calculated, nor the determination of whether this amount will in fact be charged or paid.

Detailed explanation of new law

Amendment to the benchmark rate applied for the purposes of the GIC and some interest payment regimes

4.8 The 90-day Bank Accepted Bill rate replaces the Treasury Note yield rate in providing a benchmark for formulating the GIC and amounts of interest paid by the Commissioner. This rate correlates closely to the Treasury Note yield rate, is of similar maturity length and is determined by the RBA on a regular basis using a consistent methodology.

4.9 New subsection 8AAD(2) of the TAA 1953 provides a definition for the term base interest rate, replacing the former Treasury Note yield rate. This is defined as the monthly average yield of 90-day Bank Accepted Bills. The replacement rate is published by the RBA in Table F1 of the Reserve Bank of Australia Bulletin. This subsection also provides a table identifying the appropriate monthly average to be used for each quarter. [Schedule 4, item 1]

4.10 Where the RBA has not published the specified rate by the start of a quarter, new subsection 8AAD(3) substitutes the last published monthly average. [Schedule 4, item 1]

4.11 New subsection 8AAD(1) of the TAA 1953 determines the GIC rate applicable to relevant penalties and tax debts that remain to be paid to the Commissioner. It currently refers to the Treasury Note yield rate. Amendment of this label to base interest rate will give effect to the intended change. [Schedule 4, item 1]

4.12 Similarly, new subsection 8AAD(4) of the TAA 1953 provides for the rounding of the base interest rate to the second decimal place, as was previously the case with the Treasury Note yield rate. [Schedule 4, item 1]

Amendment to the margin added to the benchmark rate for the purposes of the GIC

4.13 New subsection 8AAD(1) reduces the margin added to the base rate in calculating the GIC to 7 percentage points. [Schedule 4, item 1]

Application and transitional provisions

4.14 The amendments will have effect from the first full quarter following Royal Assent [Schedule 4, item 10] . Consequently, there are no transitional provisions required.

Consequential amendments

4.15 Consequential amendments are also necessary to provisions in other Acts which refer to the Treasury Note yield rate. These amendments, which replace Treasury Note yield rate with the new term base interest rate, are listed in Table 4.1.

[Schedule 4, items 2 to 9]