Senate

Explanatory Memorandum

(Circulated by authority of the Minister representing the Treasurer, Senator the Hon. Peter Walsh)

FOREWORD

The essential purpose of this Bill is to improve the efficiency and effectiveness of the Australian Taxation Office's income matching system as a means of furthering the attack on tax evasion. Under that matching system income reports (eg, interest and dividends paid by companies) supplied to the Taxation Office are matched with details disclosed by recipients in their tax returns to identify any omissions or understatements of income.

Under measures proposed by the Bill a person involved in a relevant transaction will have the option of providing his or her tax file number for inclusion in income information reports made to the Taxation Office. Use of file numbers in this way will substantially enhance the efficiency of the income matching system.

A decision not to quote a person's file number will result in an amount being withheld from any payments of relevant income at the maximum marginal rate plus Medicare levy (currently 50.25%). (Any excess tax withheld would be refunded on assessment of the taxpayer's annual income tax return.)

These arrangements will apply, broadly, to the principal areas in which income reports are currently obtained by the Taxation Office and will extend to entities as well as individuals. As such, the measures proposed by this Bill will apply to salary and wage income, dividends, interest and unit trust distribution entitlements. To ensure comprehensive coverage within these areas, some additional reports will be required. Interest reports, which are presently limited to interest paid by companies, will be extended to all interest bearing investments including payments of interest by Government and semi-government bodies and out of solicitor's trust accounts.

The following table summarises how tax file numbers will be used:

GENERAL OUTLINE

This Bill provides for a system of information reporting based on the use of tax file numbers (TFN's) and specifies the circumstances in which TFN's are to be quoted (or, alternatively, tax withheld).

The Bill will amend:

•

the Income Tax Assessment Act 1936 -

•.

to enable a person to apply for, and be issued with, a TFN;

•.

to enable persons who take up employment with an employer on or after a date to be proclaimed to quote - where they choose that option - their TFN on an employment declaration to be given to their employer;

•.

to enable persons who are in employment on or after 1 April 1989 (or such later date as is proclaimed) to quote - where they choose that option - their TFN on an employment declaration to be given to their employer;

•.

to ensure employers include their employees' TFN's on group certificates and tax stamp sheets sent to the Tax Office;

•.

to ensure that group certificates in respect of salary and wages will be issued to employees irrespective of whether or not tax instalment deductions have been made from the payments;

•.

to enable persons who enter into certain investments on or after 1 July 1991 to quote - where they choose that option - their TFN to the person with whom they have made the investment (the investment body);

•.

to enable persons who hold certain investments from 1 July 1991 to quote - where they choose that option - their TFN to the investment body;

•.

to facilitate the use of a person's TFN in respect of any legislation enacted by the Parliament concerning the funding of higher education;

•.

to exclude from the need to quote a TFN, certain categories of persons (e.g., certain children and pensioners);

•.

to require organisations to provide information reports to the Australian Taxation Office by magnetic or electronic media where that information is stored on a data processing device; and

•.

to increase the penalties for a breach of the secrecy provisions of the law from $5,000 or imprisonment for 12 months to $10,000 or imprisonment for 2 years.

•

the Taxation Administration Act 1953 -

•.

to create a range of offences relating to the unauthorised use of a TFN, primarily to safeguard taxpayer confidentiality;

•.

to create an offence for conducting a person's affairs so as to avoid the TFN requirements;

•.

to increase the existing penalties for a breach by a Tax Office employee of the secrecy provisions of the law consistent with those proposed for the Income Tax Assessment Act;

•.

to introduce an equivalent offence to that which will apply to the disclosure of tax information by Tax Office employees to the disclosure of information obtained in unauthorised circumstances by non-employees; and

•.

to enable the Commissioner to be granted a Federal Court injunction against a person disclosing taxation information obtained in unauthorised circumstances.

•

the Crimes (Taxation Offences) Act 1980 -

•.

as a consequence of amendments being made to provisions of the Income Tax Assessment Act 1936 dealing with the collection of tax in respect of certain payments.

•

the Income Tax Regulations -

•.

to prescribe a tax deduction rate equal to the maximum marginal rate plus Medicare levy (50.25%) on employees who choose not to quote their TFN to their employer;

•.

to increase, from 30 per cent to the maximum marginal rate plus Medicare levy (currently 50.25 per cent), the rate of deduction from payments under the Prescribed Payments System (PPS) where a TFN has not been quoted on a PPS deduction form;

•.

to prescribe the rate of deduction (50.25%) to be deducted from certain investment income in respect of which a person has chosen not to quote their TFN;

•.

to require all investment bodies to prepare and give to the Commissioner quarterly reports of TFN quotations;

•.

to require investment bodies to include TFN's in annual reports of investment income paid to investors during any financial year; and

•.

to make a number of amendments in consequence of the amendments to be made of the Income Tax Assessment Act 1936.

•

also amend the following laws to increase the existing penalties for unauthorised release of taxpayer information by employees of the Tax Office from $5,000 and/or one year's imprisonment to $10,000 and/or 2 years' imprisonment -

•.

Fringe Benefits Tax Assessment Act 1986;

•.

Gift Duty Assessment Act 1941;

•.

Petroleum Resource Rent Tax Assessment Act 1987;

•.

Sales Tax Assessment Act (No. 1) 1930;

•.

Sales Tax Procedure Act 1934;

•.

Tobacco Charges Assessment Act 1955;

•.

Wool Tax (Administration) Act 1964;

•.

Debits Tax Administration Act 1982;

•.

Taxation (Interest on Overpayments) Act 1983.

FINANCIAL IMPACT

The revenue gain from the detection of unreported income and voluntary compliance due to the increased risk of detecting income omissions made possible by the measures proposed in this Bill is estimated to increase to $337 million annually by 1993-94 as follows -

MAIN FEATURES

The main features of this Bill are as follows -

Amendments of the Income Tax Assessment Act 1936 (Part III)

A new Part - Part VA - will be inserted into the Principal Act to facilitate the administration of a reliable system of tax file numbers for persons and entities and to specify the circumstances in which the option of quoting a TFN or having tax withheld is to apply.

Issue of tax file numbers

The Bill will enable a person (including a company, partnership or trustee of a trust estate) who does not have a tax file number to apply for one. For convenience, it is intended that applications made by natural persons will be able to be lodged at official post offices as well as any Tax Office. On lodging an application a person will be required to produce for inspection documents proving the person's identity. Where the Commissioner of Taxation is satisfied with the applicant's identity a TFN will be issued to the applicant by the Tax Office.

A TFN may be cancelled where the identity under which the TFN was issued is found not to be the person's true identity.

Quotation of TFN to employers

Persons who commence new employment on or after a date to be proclaimed will have the option of completing an employment declaration to be lodged with their employer. Those who are in employment as at 1 April 1989 (or a later date as proclaimed) will have the option of completing an employment declaration to be lodged with their employer. TFN's will be able to be quoted on each declaration. Declarations will remain in force until the Commissioner, by notice in the Gazette, calls for their renewal. Employees will also be required to complete a new instalment declaration on 1 April 1989.

In the case of a person who chooses not to quote, at the relevant date, his or her employer will be required to deduct tax at the top marginal rate plus Medicare levy (currently 50.25%). A person will be taken to have quoted a TFN if he or she states on an employment declaration that an application for a TFN has been lodged or states that a request has been made for re-notification of his or her TFN.

A person will be taken not to have quoted a TFN where -

•

the Commissioner advises the employer that an incorrect TFN has been quoted;

•

a TFN is not quoted within 28 days of the employee declaring that a TFN application or re-notification request has been lodged and the Commissioner has not granted an extension of the 28-day period; or

•

the declaration ceases to have effect without the lodgment of another employment declaration in which the TFN is quoted or taken to have been quoted.

Obligations of employers

The obligation to issue a group certificate or to keep a tax deduction sheet will now arise by reason of the payment of salary or wages irrespective of whether tax instalments are deducted from the payment. Such an obligation will not, however, arise in respect of casual domestic wages from which tax instalments are not required to be deducted. The TFN - where it is quoted - is to be included on group certificates issued to employees.

The provisions contained in the Income Tax Assessment Act in relation to obligations of employers to deduct and remit tax instalment deductions will remain unchanged.

Quotation of TFN - investments

The quotation provisions in relation to investments will apply to persons (investors) who enter into certain transactions with investment bodies after 1 July 1991 or who already have such investments as at that date. A phasing-in period will enable investors with existing investments to quote their TFN from 1 July 1990.

The investments in respect of which the option of quoting or having tax withheld is to apply are -

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interest-bearing accounts or deposits with financial institutions;

•

money invested with a government or semi-government body or with a company;

•

money deposited in a solicitor's trust account;

•

units in a cash management or property trust; and

•

shares held in a public company.

Duties of investment body

Where an investment body pays or credits income (or in the case of a unit trust a beneficiary becomes presently entitled to a distribution from the trust) after 1 July 1991, and a TFN has not been quoted in respect of the account or investment, the investment body will be required to deduct 50.25 per cent from any amount paid or credited. Where an unfranked or partly-franked dividend is paid or payable, the amount to be deducted will be calculated on the basis of the unfranked portion of the dividend.

An investment body who refuses or fails to withhold the amounts prescribed in the circumstances described in the preceding paragraph, or who remits withheld amounts after the time by which they are required to be remitted, will be liable to penalties similar to those that currently apply for non-deduction and late remittance of tax instalment deductions and deductions under the Prescribed Payments System.

Credits in respect of amounts deducted

Deductions in respect of investment income will not be a final tax. A person will be required to include the total amount of investment income in his or her income tax return and credit will be allowed for any amounts deducted from that income.

Exemptions

Division 5 of new Part VA to be inserted by this Bill will exempt certain categories of investors from the quotation arrangements in respect of certain investments.

The first of these exemptions applies to children under the age of 16 years in respect of investments with -

•

a financial institution;

•

a government body or a corporation;

•

a solicitor; or

•

a property or cash management trust,

provided the income from the investment is payable at a rate less than $420 per annum.

The child's parent or guardian will be required to lodge a declaration claiming the exemption with the investment body and the exemption will remain in force until the commencement of the calendar year following that in which the child turns 16.

The Bill also exempts from the quotation arrangements all categories of investments by recipients of any part of an age, service, widows', wives', carers' or invalid pension or a special or supporting parents' benefit. As with children, a pensioner claiming exemption will be required to complete a declaration and lodge it with an investment body. The exemption will remain in force until the pensioner ceases to be entitled to any part of a pension and the Commissioner of Taxation advises of the withdrawal of the exemption. There will also be no need for recipients of any part of the above pensions or benefits to quote a TFN in respect of either their pension/benefit income or their non-pension/benefit income. With respect to the latter, however, the pensioner/beneficiary will be required to indicate on an employment declaration lodged with their employer that they are in receipt of a qualifying pension or benefit.

Other persons to be exempted include -

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entities not required to lodge income tax returns;

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recently-arrived visitors to Australia;

•

non-residents; and

•

residents of Norfolk Island and Cocos (Keeling) Islands in respect of salary or wages earned or investments in those Territories.

Manner of providing information

The Bill will also amend the law to require organisations that store information on a data processing device to supply the information to the Commissioner of Taxation in a form suitable for processing by the Tax Office computer system. The Bill will authorise the Commissioner by notice published in the Gazette to set out the Tax Office requirements. Organisations will not be required to establish computer systems to store information. In addition, organisations that currently store information on a data processing device will be exempted from the transmission requirements where there are substantial difficulties in meeting the Commissioner's specifications.

Amendment of the Taxation Administration Act 1953 (Part IV)

Privacy Sanctions

The Taxation Administration Act 1953 is to be amended to make it an offence (punishable by a penalty of up to $10,000 and/or 2 years' imprisonment) for a person to:

•

require or request another person to quote that person's TFN;

•

to record another person's TFN;

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to disclose another person's TFN; or

•

use another person's TFN as an identity link,

in unauthorised circumstances.

A further amendment of the Administration Act will be made to enable the Commissioner to be granted a Federal Court injunction against any person disclosing taxation information obtained in unauthorised circumstances.

Amendments to Secrecy Provisions (Part V)

The existing penalties for unauthorised release of taxpayer information by employees of the Tax Office under the various Taxation Acts are to be increased from $5,000 and/or one year's imprisonment to $10,000 and/or 2 years' imprisonment.

Avoidance Safeguards

The Administration Act is also to be amended to prevent arrangements intended to exploit interest thresholds proposed for certain pre-existing accounts ($120) and accounts of children under 16 ($420) through the use of multiple accounts.

Amendment of the Income Tax Regulations (PART VI)

Employment

The Income Tax Regulations (the Regulations) are to be amended by this Bill to set the rate of deduction from a resident employee's salary or wages at 50.25 per cent where the employee has chosen not to quote his or her TFN on an employment declaration. For non-resident employees (who are not required to pay the Medicare Levy) the rate of deduction is to be 49 per cent.

The Regulations do not presently require tax instalment deductions to be deducted from small amounts of casual domestic salary or wages (e.g., child minding). Currently, this provision applies to amounts of salary or wages of not more than $40 per week. This Bill will increase the amount of salary or wages to which this provision applies from $40 to $60 per week.

The Bill will also exempt children under the age of 16 from the need to quote a TFN on an employment declaration where the amount of income earned is such that it does not attract tax instalment deductions under the present law.

Prescribed Payments System

The sanctions in relation to the Prescribed Payments System will be brought into line with the sanctions proposed for employment uses. At present, where a payee fails to quote a TFN to a payer under the Prescribed Payments System, the rate of deduction is calculated at 30 per cent, double the applicable deduction where a TFN is quoted. From a date to be proclaimed, non-quotation of a TFN by a payee on a deduction form will result in a deduction of 50.25 per cent being made from the prescribed payment.

Investment Income

Amendments to the Regulations will prescribe the rate of tax to be deducted from investment income in circumstances where a TFN has not been quoted. The rate is to be the maximum marginal rate of tax, plus the Medicare levy. Accordingly, the rate is 50.25 per cent.

Reporting by investment bodies

The Regulations will also require investment bodies to forward quarterly reports of TFN quotations received during the quarter to the Commissioner of Taxation. The reports are due within one month of the close of the quarter.

Annual income reports incorporating the investors' TFNs are required to be forwarded to the Commissioner of Taxation within 4 months of the close of the income year in which the income entitlement arose.

Amendment of the Crimes (Taxation Offences) Act 1980

A consequential amendment is to be made to the Crimes (Taxation Offences) Act 1980 to reflect changes being made to the provisions of the Income Tax Assessment Act 1936 dealing with the collection of tax in respect of certain payments, including payments of investment income from investments in respect of which a TFN is to be quoted.

A more detailed explanation of the provisions of the Bill follows.

Notes on Clauses

TAXATION LAWS AMENDMENT (TAX FILE NUMBERS) BILL 1988

PART I - PRELIMINARY

Clause 1: Short title

This clause provides for the amending Act to be cited as the Taxation Laws Amendment (Tax File Numbers) Act 1988.

Clause 2: Commencement

Subject to subclause 2(2), the amending Act is, by subclause 2(1), to commence on the day on which the Privacy Act 1988 commences.

By subclause 2(2), clause 12 which will amend paragraph 221YHD(5)(b) of the Income Tax Assessment Act 1936 and the associated amendments to regulation 54ZED of the Income Tax Regulations in Schedule 2 will come into operation on a date to be proclaimed, not being a day earlier than the day on which the Privacy Act 1988 commences.

But for this clause, the amending Act would, by reason of subsection 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after the date of Assent.

PART II - AMENDMENT OF THE CRIMES (TAXATION OFFENCES) ACT 1980

Clause 3: Principal Act

This clause facilitates reference to the Crimes (Taxation Offences) Act 1980 which, in Part II, is referred to as the "Principal Act".

Clause 4: Interpretation

The amendment of section 3 of the Principal Act being made by this clause is consequential upon amendments to be made by clause 16 of this Bill to section 221YHZD of the Income Tax Assessment Act 1936. By clause 4, the definition of "income tax" in subsection 3(1) of the Principal Act is to be amended by omitting the reference to "221YHZD(1)" in paragraph (g) of the definition and substituting "221YHZD(1), (1A) or (1B)".

PART III - AMENDMENTS OF THE INCOME TAX ASSESSMENT ACT 1936

Clause 5: Principal Act

This clause facilitates reference to the Income Tax Assessment Act 1936 which, in Part III, is referred to as the "Principal Act".

Clause 6: Part VA - Tax File Numbers

Clause 6 will insert new Part VA - "Tax File Numbers" - after Part V of the Principal Act. The provisions in new Part VA will facilitate the administration of a reliable system of TFN's and specify circumstances in which the choice of quoting a TFN or having tax withheld is to apply.

Division 1 - Preliminary

Section 202 : Objects of this Part

New section 202 states the objects of new Part VA as being -

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to increase the effectiveness and efficiency of the matching of information reports given to the Commissioner with information disclosed in returns by taxpayers (paragraph (a)); and

•

through that improved information matching, to prevent evasion of tax (paragraph (b)).

These objects are to be achieved, broadly, by providing the mechanism for income reports to incorporate the file numbers of recipients (thereby removing reliance on name and address matching procedures) and by the introduction of new arrangements for the transmission of information stored in a data processing device.

Paragraph (c) of section 202 specifies a further object of Part VA. It acknowledges that the arrangements for obtaining file numbers introduced by this Part may apply to facilitate administration of any legislation enacted by the Parliament under which benefits are provided by the Commonwealth in relation to contributions payable by students to institutions of higher education towards the cost of providing courses of study.

The sanctions proposed by clause 26 of the Bill against unauthorised use of file numbers similarly apply to permit the use of file numbers in connection with the administration of any legislation enacted relating to higher education contributions.

Section 202A : Interpretation

Section 202A contains the definitions of several terms used throughout new Part VA. The following terms are defined:

"applicant" means the person applying for a tax file number under new section 202B (see notes on that section below).

"bank" is defined as the Reserve Bank of Australia (paragraph (a)), a bank within the meaning of the Banking Act 1959 (paragraph (b)), or a person who carries on State banking within the meaning of paragraph 51(xiii) of the Constitution (paragraph (c)). In turn, the Banking Act 1959 defines the term "bank" to mean a body corporate authorised under Part II of that Act to carry on banking business in Australia. Paragraph 51(xiii) of the Constitution gives the Parliament power to make laws for the peace, order and good government of the Commonwealth with respect to, inter alia, State banking. The term is relevant to the definition of "financial institution" (see notes on the meaning of that term below) which includes a bank.

"building society" is defined to mean a building society, co-operative housing society or similar society registered or incorporated under a law of a State or Territory. The term is relevant to the definition of "financial institution" (see notes on the meaning of that term below) which includes a building society.

"child" means a person under 16 years of age. Provided they comply with the conditions in new subsection 202E (see notes below) and new regulation 54DAAB (see notes on clause 30), there will be no need for children under the age of 16 years to quote a TFN in relation to certain investments or in relation to small payments of salary or wages which they may receive.

"credit union" is defined as a society or other body of persons that is registered or incorporated as such under a State or Territory law. The term is relevant to the definition of "financial institution" (see notes below) which includes a credit union.

"data processing device" is defined consistently with the Taxation Administration Act 1953 to mean any article or material from which information can be reproduced with or without the aid of any other article or device. The term is relevant to new section 202G (see notes on that section be low) which requires a person to give information to the Commissioner in a manner and form specified in the Gazette where, broadly, the information is kept by or on behalf of the person by means of a data processing device.

"employee" is defined to have the same meaning as that word has in section 221A of the Principal Act. Essentially, an employee is someone who receives "salary or wages" (see notes on that expression below) and includes persons in receipt of certain pensions, allowances or benefits.

"employer" is also defined to have the same meaning as that word has in section 221A of the Principal Act. Put simply, an employer is a person (including a company, a partnership and a government body) that pays "salary or wages".

"employment declaration" is defined to mean a declaration made for the purposes of new section 202C (see notes below). An employment declaration is the form used to facilitate the quotation of a person's file number to his or her employer.

"entity" means a body corporate or an unincorporated association. However it does not include a natural person or a partnership. The term is relevant to new section 202EC (see notes on that section below) which exempts entities that are not required to lodge income tax returns from the need to quote a tax file number in relation to certain investments.

"financial institution" is defined to mean a bank, building society or a credit union (all defined terms which are explained earlier in these notes). Interest-bearing accounts (see notes on that expression below) and deposits with financial institutions will constitute investments within the terms of new subsection 202D(1) of the Principal Act and will be subject to the TFN quotation procedures in Division 4 (see notes below).

"government body" is defined to mean the Commonwealth and its authorities as well as a State or Territory or an authority of a State or Territory. Lending money to a government body will constitute an investment within the terms of new subsection 202D(1) of the Principal Act and will be subject to the new TFN requirements in Division 4 (see notes below).

"interest-bearing account" is defined, broadly, to mean any account in respect of which a financial institution (see notes on that expression above) pays or credits interest, or amounts in the natu re of interest. "Interest-bearing accounts" with financial institutions constitute investments in terms of new subsection 202D(1) and will be subject to the TFN quotation procedures in Division 4 (see notes below).

"interest-bearing deposit" is defined as a deposit of money with a bank, building society or credit union (i.e., a financial institution), in return for which the institution credits a person with interest or amounts in the nature of interest;

"investment body", is defined to mean a person who is an investment body within the meaning of new section 202D. Under that section the following are investment bodies:

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a financial institution (see also notes on that expression above);

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a government body (a defined term explained earlier in these notes) or a body corporate;

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a solicitor (see notes on that expression below) who accepts money for the purpose of investment on behalf of the depositor or to be lent under an agreement to be arranged by or on behalf of the solicitor;

•

the manager of a unit trust;

•

a public company.

"investment to which this Part applies" is defined to mean an investment of a kind mentioned in section 202D. Column 1 of the table in that section lists the following kinds of investments which are the investments to which new Part VA are to apply:

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Interest-bearing account with a financial institution (item 1);

•

Interest-bearing deposit (other than a deposit to the credit of an account) with a financial institution (item 2);

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Loan of money to a government body or to a body corporate (other than a deposit referred to in item 1 or item 2 and other than a loan by a financial institution) (item 3);

•

Deposit of money with a solicitor for the purpose of:

•.

being invested by the solicitor; or

•.

being lent under an agreement to be arranged by or on behalf of the solicitor (item 4);

•

Units in a unit trust (item 5);

•

Shares in a public company (item 6).

"investor" is defined to mean a person (including a partnership, company or trustee of a trust estate) who is to be taken to be an investor under new section 202D of the Principal Act. Under that section the following are to be taken to be investors:

•

the person in whose name an interest-bearing account or deposit with a financial institution is held;

•

the person in whose name money has been lent to a government body or to a body corporate;

•

the person for whose benefit money is to be invested or lent by a legal practitioner;

•

the person in whose name units in a unit trust are held;

•

the shareholder of a public company.

"passport", in relation to a person, is defined to include another official travel document where the person does not hold a passport. A recently-arrived visitor (a defined term - see notes below) may be required to produce a passport for examination by an investment body (also a defined term - see notes above) in order for the person to be exempted from the quotation arrangements in respect of an investment with the investment body.

"person" is to be taken to include a company, a partnership and the trustee of a trust estate acting in that capacity.

"public company" is given the same meaning as that term has for the purposes of the Companies Act 1981 and corresponding State or Territory laws.

"recently-arrived visitor to Australia" is defined as a natural person who:

•

is not an Australian resident (paragraph (a));

•

is in Australia (paragraph (b)); and

•

has been in Australia for a total of less than 6 weeks during the immediately preceding 12 months (paragraph (c)).

Such persons will be exempt from the TFN quotation arrangements in respect of investments with investment bodies provided they satisfy the criteria in new section 202ED (see notes on that section below).

"salary or wages" is defined to mean salary or wages for the purposes of section 221A of the Principal Act. Essentially, the definition of salary or wages can cover all payments made by an employer to an employee (see earlier notes) and includes commissions, bonuses, allowances, superannuation payments and pensions.

"securities dealer" means a person who is a dealer for the purposes of the Securities Industry Act 1980 or for the purposes of a law of a State or Territory that corresponds to that Act. That Act, and corresponding State and Territory laws, defines "dealer" to mean:

(a)

a person who carries on a business of dealing in securities; or

(b)

2 or more persons who together carry on a business of dealing in securities,

whether or not that business is part of, or is carried out in conjunction with, any other business.

"solicitor" means a solicitor, barrister and solicitor or legal practitioner of the High Court or a State or Territory Supreme Court. The term is relevant to Division 4 which relates to the quotation of TFN's in connection with investments by solicitors on behalf of clients (see notes on that Division below).

"tax file number" is defined to mean a number issued to a person by the Commissioner being a number that is either notified to the person as the person's income tax file number before the commencement of the amending Act (paragraph (b)), or issued under Division 2 of new Part VA of the Principal Act (paragraph (a)).

"unit trust" is defined in a similar manner to the way that term is defined in the Cash Transaction Reports Act 1988 and means a trust to which a unit trust scheme (see notes on that expression below) relates and includes a cash management trust (paragraph (a)) and a property trust (paragraph (b)). The Minister may also by notice in the Gazette declare an arrangement to be a unit trust for the purposes of the definition of unit trust (paragraph (c)). However, the expression does not include any arrangement declared by the Minister in the Gazette not to be a unit trust. Unit trusts are to be taken to be investment bodies under new subsection 202D(1) (see notes on that subsection below).

"unit trust scheme" is also defined in a similar manner to the way that term is defined in the Cash Transaction Reports Act 1988 and means, broadly, an arrangement which provides a person with facilities for participating, as a beneficiary under a trust, in any profit or income arising from the acquisition, holding, management or disposal of property under the trust. The term is relevant for the definition of "unit trust" (see notes above for an explanation of that term).

Division 2 - Issuing of tax file numbers

New Division 2 provides the mechanism for a person (including a company, partnership and a trustee of a trust estate) to apply for, and be issued with, a tax file number.

Section 202B : Application for tax file numbers

Section 202B deals with the application for a TFN. Under subsection (1), a person may apply to the Commissioner for a TFN.

The application must be in a form approved by the Commissioner and accompanied by evidence of the applicant's identity (subsection (2)). The Commissioner of Taxation has indicated his intention that, for the purposes of this section, a natural person would be asked to provide from the following lists, two different category A documents or one category A document plus one category B document or three different category B documents. An applicant under 21 years of age would only be required to provide one category A document.

Category A documents include:

•

Australian birth certificate - certified copy or extract issued by a Registrar;

•

a degree, school examination certificate or report that is less than 2 years old, from an Australian school, college or university;

•

current Australian passport;

•

overseas passport with current entry permit;

•

certificate of Australian citizenship or citizenship papers;

•

title or deed to real estate, or registered mortgage papers on a house or real estate; or

•

identification documents from the Department of Foreign Affairs and Trade.

Category B documents include:

•

motor vehicle registration papers (showing current name and address that matches the application form);

•

a degree, school examination certificate or report more than 2 years old, from an Australian school, college or university;

•

electricity, telephone or gas account with cash register imprint or other evidence of payment (showing matching current name and address);

•

Australian marriage certificate;

•

life assurance policies;

•

rates notices (showing matching current name and address);

•

house and contents insurance policies (showing matching current name and address);

•

notices or advices of unemployment or sickness benefits, job search allowance or pension (showing matching name and address);

•

driver's licence with photograph;

•

employer ID card with photograph;

•

change of name by deed poll, more than 12 months old; or

•

overseas birth certificate, education certificate, degree, bank book or drivers licence. An applicant must also provide an overseas passport with a current entry permit; or

•

bank, building society or credit union pass book or card.

The Commissioner has also indicated that, as necessary, these requirements will be reviewed to ensure their practicable operation.

Under subsections (3) and (4) an application can be handed in at, or posted to, a Tax Office or, alternatively, handed in to a facility approved by the Commissioner.

For convenience, the Commissioner has advised that applications from natural persons will be able to be lodged at official Post Offices as well as Taxation Offices.

Section 202BA : Issuing of tax file numbers

New section 202BA will give the Commissioner the power to issue tax file numbers.

Under subsection (1) a tax file number will be issued to an applicant if the Commissioner is satisfied that the applicant's identity has been established. As this subsection is subject to subsection (3), the Commissioner must also be satisfied that the applicant does not already have a tax file number or an interim notice in force under section 202BD (see later notes on that section).

By subsection (2) the Commissioner may, if not satisfied as to the applicant's true identity, refuse the application.

Subsection (3) requires the Commissioner to refuse an application if satisfied that either the applicant already has a tax file number (paragraph (a)) or a notice under section 202BD in relation to the applicant has been given to the applicant's employer and the notice is still in force (paragraph (b)). The effect of a section 202BD notice is to enable the applicant's employer to treat the applicant as if he or she had quoted a TFN on an employment declaration in circumstances where there are reasons to expect a delay in the issue of the person's tax file number.

Subsection (4) allows the Commissioner to issue a TFN, notwithstanding that an application has not been made, where necessary for the purposes of administering a taxation law. Examples would include certain cases where it is necessary to raise a default assessment under section 167 of the Principal Act.

Subsection (5) requires the Commissioner to issue applicants with their TFN's by giving them written notice.

By subsection (6), a decision by the Commissioner to refuse an application for a TFN must be given to the applicant by notice in writing. The notice must include reasons for the decision. Paragraph 202F(1)(a) (see notes on that paragraph below) provides for a right of review by the Administrative Appeals Tribunal against a decision by the Commissioner to refuse to issue an applicant with a TFN.

Section 202BB : Current tax file number

Section 202BB makes it clear that once a person has been issued with a tax file number any previous tax file number issued and not cancelled or withdrawn ceases to have effect.

Section 202BC : Deemed refusal by Commissioner

By the operation of subsection 202BC(1), where the Commissioner has not decided an application for a TFN within 28 days, the applicant may give the Commissioner written notice advising that the applicant wishes to treat the application as having been refused.

Subsection (2) makes it clear that an applicant may not give the Commissioner a notice under subsection (1) where a notice issued to the applicant's employer or employers under section 202BD is still in force. (Broadly, the effect of a notice under section 202BD is that the employee is to be taken to have quoted his or her TFN on an employment declaration (a defined term - see notes on section 202A) for the period that the notice is in force).

Subsection (3) provides that for the purposes of review by the Administrative Appeals Tribunal under Division 6 of new Part VA, the Commissioner will be taken to have refused the application for a TFN on the day on which any notice is given by an applicant under subsection 202BC(1).

An applicant may apply, under new paragraph 202F(1)(a), to the Administrative Appeals Tribunal for review of a decision that is to be taken to have been made by virtue of section 202BC.

Section 202BD : Interim notices

Subsection 202BD(1) enables the Commissioner to give a notice under section 202BD to the employer (or employers) of an applicant for a TFN where the employer's name and address is shown on the application. By the operation of new subsection 202CB(4) (see notes on that subsection below), the effect of a notice under subsection 202BD(1) is that, for the purposes of new Part VA of the Principal Act, an employee will be taken to have quoted his or her TFN on an employment declaration in relation to an employer for as long as the notice is in force. This means that the employer is authorised to deduct tax instalments at normal rates rather than the higher rate to be applied (50.25 per cent for resident employers) where a TFN is not quoted on an employment declaration (see notes on new regulation 54DAAB of the Income Tax Regulations to be inserted by clause 30).

Circumstances in which a notice under subsection (1) may be given could include where an applicant does not have sufficient means of identification readily available (e.g., he or she may have to apply for documents from overseas or interstate), or where for some reason there is a delay in the Tax Office processing the application. By subsection (2), a notice under subsection 202BD(1) will remain in force for 28 days from the day specified in the notice.

Subsection (3) specifies the information to be included in a notice under subsection (1). The notice must include:

•

the name shown in the application (paragraph (a)); and

•

the last day that the notice remains in force (paragraph (b)).

Subsection (4) requires the Commissioner to inform the applicant that the notice has been given to the applicant's employer.

A notice under subsection (1) may, by the operation of subsection (5), be given to an applicant's employer to commence from the expiration of a notice previously issued. Thus, for example, applicants who have particular difficulties in obtaining the necessary documents to prove their identity may be given a further period of time in which tax instalments would be deducted at the normal rates.

Subsection (6) provides the facility for an applicant for a TFN who did not originally include the name of his or her employer on an application for a TFN to notify the Commissioner of the name and address of the person's employer. The employer's name and address is to be taken to have been stated on the application at the end of 7 days after the notification.

Section 202BE : Cancellation of tax file numbers

Subsection 202BE (1) enables the Commissioner to cancel a tax file number if the Commissioner concludes that the number has been issued to a person under a false identity. The person must be given written notice of the cancellation.

By subsection (2), a notice cancelling a person's TFN must include the reasons for the Commissioner reaching the conclusion that the number was issued to the person under an identity that was not the person's true identity. Paragraph 202F(1)(b) (see notes on that paragraph below) provides for a right of review by the Administrative Appeals Tribunal against a decision to cancel a TFN under section 202BE.

Section 202BF : Alteration of tax file numbers

Section 202BF gives the Commissioner power to withdraw a tax file number and issue a new number to replace the withdrawn one. A notice under this section must be in writing.

Division 3 - Quotation of tax file numbers by employees

Division 3 of new Part VA sets out the procedures for employees in relation to the making of employment declarations and the quoting of tax file numbers on such declarations.

Section 202C : Employment declarations by employees

The quotation procedures will apply to employees in two stages. To achieve this the section establishes the points in time at which an employee may choose to quote his or her TFN. A decision not to quote will result in tax being held at the maximum marginal rate, plus Medicare levy.

Under subsection 202C(1), all employees who start in new employment, on or after a day to be proclaimed as the first day of the phasing-in period for Division 3, may make an employment declaration, quoting their TFN, to that employer.

By subsection (2), all employees who are in employment on 1 April 1989 (or such later date fixed by Proclamation) may make an employment declaration, quoting their TFN, regardless of whether one was made during the phasing-in period (defined in subsection (4) as the day fixed by Proclamation as the first day of the phasing-in period for Division 3 to 31 March 1989 or such later date fixed by Proclamation). Where an employee has more than one employer employment declarations may be made for each employer.

Where the Commissioner makes a determination under new subsection 202CA(3) with the result that an employment declaration ceases to have effect by virtue of subsection (2) of that section (see following notes) an employee is entitled, by the operation of subsection 202C(3), to make a new employment declaration to replace the expired one.

Subsection (4) defines the phasing-in period for the purposes of new Division 3 as commencing on the date fixed by Proclamation as the first day of the phasing in period for this Division and ending on 31 March 1989 (or such later date to be proclaimed). During this period all employees taking up new employment with an employer may make an employment declaration to that employer.

Subsection (5) provides that an employment declaration must be in a form approved by the Commissioner.

Section 202CA : Operation of employment declaration

Subsection 202CA(1) provides that an employment declaration will cease to have effect upon the ceasing of the employee's employment with the employer to whom the declaration was made.

An employment declaration also ceases to have effect by virtue of subsection (2) if the Commissioner makes a determination under subsection (3) that all employment declarations or a specified class of employment declarations will cease to have effect as at a specified day. A determination under subsection (3) may, for example, require that all declarations made in respect of a particular type of employment are to cease to have effect as at the end of a particular day.

The Commissioner is, by subsection (4), required to publish any determination under subsection (3) in the Gazette.

Section 202CB : Quotation of tax file number in employment declaration

New subsection 202CB(1), which is made subject to subsections (2) and (4) and subsection 202CE(2) (see later notes), provides that an employment declaration is not effective for the purposes of Part VA if it does not have the employee's TFN stated on it. The effect of an employee not quoting a TFN on an employment declaration is that an employer will, by the combined operation of new regulation 54DAAB and amended subregulation 54AB(3) (see notes on clause 30), be required to deduct tax instalments from the payment of any salary or wages at the highest marginal rate plus Medicare levy (currently 50.25 per cent).

Under subsection (2), a TFN will be taken for the purposes of Part VA to have been quoted if the employee includes a statement on the declaration that either -

•

an application for the issue of a TFN has been made to the Commissioner (see notes on new subsection 202B) (paragraph(a)); or

•

the employee has applied to the Commissioner for re-notification of his or her TFN as the employee already has a number but does not know what it is (paragraph (b)).

The purpose of subsection 202CB(2) is to allow an employee time to get a TFN from the Commissioner or, if the person already has a number, to be told what that number is before tax instalments are deducted at the higher rate.

An employee who has included a statement on his or her employment declaration in accordance with subsection (2) may quote his or her TFN within 28 days. If a TFN is not quoted within this time, the employee will no longer be taken to have quoted a TFN (subsection (3)) with the result that the employment declaration will no longer be effective for the purposes of Part VA and tax instalment deductions are to be made from the employee's salary or wages at the higher rate described above.

An employee will also be taken to have quoted a TFN on an employment declaration if the Commissioner has issued an interim notice under new section 202BD (see notes on that section above) to his or her employer and the notice has not expired (subsection (4)).

The Commissioner may at any time withdraw the file number of a person and issue that person with a new number (see notes above on section 202BF). In the event of this happening, the declaration of the person whose TFN is withdrawn under section 202BF will continue to be an effective employment declaration if the declaration contained that number (subsection (5)).

Section 202CC : Making of new employment declaration in place of ineffective declaration

By section 202CC, an employee is entitled to replace an ineffective employment declaration (one for which a TFN is taken not to have been quoted) with an employment declaration in which the person's correct number is quoted.

Section 202CD : Sending of employment declaration to Commissioner

Upon receipt of an employment declaration from an employee an employer will be required, under subsection 202CD(1), to countersign the original declaration, send the original to the office of a Deputy Commissioner within the "forwarding period" specified in subsection (3) (see below) and retain the copy of the declaration in accordance with subsection (6) (see notes below). The maximum penalty for not carrying out the requirements of subsection (1) is $1,000.

Subsection (2) defines the commencement of the "forwarding period" under subsection (3) as either:

•

the day on which the declaration was given to the employer if the tax file number has been quoted (paragraph (a)); or

•

where the person has made a statement under subsection 202CB(2) (see notes above) or an interim notice under new section 202BD (see notes on that section above) has been given to the employer in respect of an employee the earlier of -

•.

the day the employee tells the employer what his or her TFN is (subparagraph (b)(i)); or

•.

the date on which the period for supplying the TFN (generally 28 days) expires (subparagraph (b)(ii)).

Under subsection (3), the forwarding period for the purposes of subsection (1) is 28 days from the commencement day specified in subsection (2). In a particular case the Commissioner may, by written notice, extend the forwarding period.

Under subsection (4) an employer is required to write the TFN of an employee on a declaration if the employee quotes that number before the employer has sent the declaration to a Deputy Commissioner. This subsection will apply where, at the time of making the employment declaration, the employee did not have a number or did not know the number, but, within the forwarding period and prior to the employer forwarding the declaration, a TFN was issued or became known to the employee and the employee quoted the number to the employer. A maximum penalty of $1,000 applies where the employer does not comply with subsection 202CD(4).

Subsection (5) makes it clear that where an employer has written a TFN on a declaration in accordance with subsection (4), the declaration will be taken as stating the TFN of the employee who made the declaration.

By subsection (6), an employer is required to keep a copy of an employment declaration until:

•

the next time the employee gives an employment declaration to the employer (paragraph (a)); or

•

where a declaration ceases to have effect, the following 1 July.

Section 202CE : Effect of incorrect quotation of tax file number

New subsection 202CE(1) covers the situation where a TFN as stated in an employment declaration has either been cancelled (see notes on section 202BE), withdrawn (see notes on section 202BF) or the number is wrong, i.e., it has been incorrectly quoted. Where the Commissioner is satisfied that the tax file number on the declaration has either been cancelled, withdrawn, or is otherwise wrong, the Commissioner may write to the employer and advise the employer of the incorrect statement and inform the employer of the employee's correct number.

Where such a notice is issued to an employer, the employment declaration is to be regarded for the purposes of Part VA as always having stated the file number and will therefore be effective (subsection (2)).

Under subsection (3), where the Commissioner is satisfied that an employment declaration contains a cancelled TFN or a number that is not the employee's TFN and the Commissioner is not satisfied that the employee has a tax file number, the Commissioner may notify the employer in writing.

By subsection (6), the effect of a notice under subsection (3) will be to deem the employment declaration to not state a tax file number and the employer will be required to make tax instalment deductions from the salary or wages of the employee at the maximum marginal rate plus Medicare levy. Such a requirement will take effect on the day specified in the notice issued to the employer (subsection (4)). That day must not be earlier than the day on which a copy of the notice is given to the employee under subsection (5).

The Commissioner is also required by subsection (5) to give a copy of a notice issued under subsection (3) to the employee together with a written statement of the reasons for the decision to notify the employer of the cancelled or incorrect tax file number. By virtue of paragraph 202F(1)(c) (see later notes on that paragraph) a decision to give a notice under subsection 202CE(3) is subject to a right of review by the Administrative Appeals Tribunal.

By virtue of new section 202CC a person receiving a copy of notice under subsection (5) would be entitled to lodge a new declaration stating his or her TFN.

Division 4 - Quotation of tax file numbers in connection with certain investments

New Division 4 will specify the circumstances in which persons holding certain investments with investment bodies (a defined term - see notes on section 202A) will face the option of quoting their TFN or having tax withheld on income derived from the investment.

Section 202D : Explanation of terms : investment, investor, investment body

Subsection 202D(1) sets out in tabular form an explanation of the terms used in new Division 4 and in doing so provides details of the investments to which new Part VA will apply.

The types of investments, the investor and investment body in relation to those investments, to which the new Part applies are -

•

Interest-bearing accounts with financial institutions (item 1)

The table in subsection (1) draws a technical distinction between the expressions "interest bearing account with a financial institution" and an "interest-bearing deposit". The former investment type covers all interest-bearing accounts with banks, credit unions and building societies. The term "interest-bearing account" is defined in new section 202A to mean, broadly, any facility by which a financial institution accepts deposits of money and pays or credits interest on the money deposited. It includes savings and passbook accounts and interest-bearing cheque accounts and card accounts. The person in whose name the account is held is the investor and the financial institution is the investment body.

•

Interest-bearing deposits with financial institutions (other than a deposit to the credit of an account) (item 2)

Interest-bearing deposits made with banks, building societies or credit unions include term deposits and fixed deposits and usually represent the deposit of a sum of money for a certain period, during which time or at the end of which time interest (or an amount in the nature of interest) is credited in respect of the deposit. The person in whose name the deposit is made is the investor while the bank, building society or credit union is the investment body.

•

Loan of money to a government body or to a body corporate (item 3)

This investment type includes any loan of money, other than an interest-bearing deposit or account with a financial institution and other than a loan by a financial institution, made to a government body (defined in new section 202A to mean the Commonwealth, a State, Territory or an authority of the Commonwealth or of a State or Territory) or a body corporate and includes investments such as Treasury or other bonds, loans to companies, etc. The government body or body corporate to whom the loan is made is the investment body and the person in whose name the money is lent is the investor.

•

Deposit of money with a solicitor (item 4)

A deposit of money with a solicitor (a defined term - see notes on new section 202A) to be either invested by the solicitor or to be lent under an agreement to be arranged by or on behalf of the solicitor is included in the investments to which new Part VA applies. This investment only covers money deposited into solicitors' trust accounts for the above purposes and does not apply in relation to money borrowed by a solicitor for his or her own business or private use. The solicitor is the investment body in relation to this category of investment and the person for whose benefit the money is invested or lent is the investor.

•

Units in a unit trust

The holding of units in a unit trust, which includes cash and property management trusts (see notes on the definition of unit trust in proposed section 202A), is an investment for the purposes of new Part VA. The manager of the unit trust is the investment body while the person in whose name the units are held is the investor.

•

Shares in a public company

Shares in a company that is a public company within the meaning of the Companies Act 1981 or a State or Territory law that corresponds with that Act are investments to which new Part VA is to apply. The shareholder, being the person in whose name the shares are issued, is the investor while the public company is the investment body.

Subsection 202D(2) is an interpretative provision that makes it clear who the investor and investment body is in relation to each kind of investment mentioned in column 1 of the table in subsection 202D(1).

Subsections (3) and (4) apply to situations where nominee companies make investments on behalf of other persons. By subsection (3), where a nominee company is the investor in relation to an investment in accordance with subsection (2) and another person is entitled to the income or part of the income from the investment - that is the underlying beneficial owner - the person's right to receive that income will constitute an investment to which new part VA is to apply.

Subsection (4) makes it clear that, in relation to such an investment the beneficial owner is the investor and the company is the investment body. That is, the person's entitlement to the income will constitute an investment to which new Part VA is to apply.

Subsection (5) makes it clear that nothing in subsection (4) affects a person's status or obligations as an investor by virtue of subsection (2).

Section 202DA : Phasing-in period for Division

The broad effect of Division 4 is to enable the quotation of TFN's in respect of investments existing on and from 1 July 1991, i.e., investments current at that date and all new investments after that date.

New section 202DA allows investors who hold investments which are in existence prior to 1 July 1991 sufficient time to obtain (where they do not already have one) and quote tax file numbers to the investment bodies up to a year before the withholding sanction for failure to quote commences to apply.

Section 202DB : Quotation of tax file numbers in connection with investments

After 30 June 1990 persons who are investors will, by virtue of section 202DB, be able to quote their tax file number to the investment body. Where a person fails to quote a TFN in respect of relevant investments in existence on 1 July 1991 the investment body will be required, under new subsection 221YHZC(1A) (see notes on clause 15), to withhold 50.25 percent (at current rates) from any income arising from the investment on or after that date. This withholding requirement is subject to the operation of exemption arrangements for certain pensioners, children under 16 and in respect of small accounts pre-existing accounts with banks, building societies and credit unions.

The phasing-in period for Division 4 will allow investors who hold investments of a kind to which Part VA applies during the year before 1 July 1991 and who will still hold that investment on or after 1 July 1991, the opportunity to quote their tax file number at any time during that year to the investment body.

A person who becomes an investor at any time after 30 June 1991 may quote their tax file number to the investment body. Failure to quote by the time any income of $1 or more per annum becomes payable will result in the investment body deducting an amount from the payment at the rate of 50.25 per cent, subject to the operation of certain exemptions, as outlined in the notes above.

Section 202DC : Method of quoting tax file number

Subsection 202DC(1) provides that a person will be taken to have quoted a tax file number to an investment body by informing the body of the number in a manner approved by the Commissioner. The manner of informing a TFN may vary according to the nature of the investment and will be settled in discussions with the investment bodies concerned prior to commencement of the quotation arrangements.

The quotation need not necessarily be made personally; a person acting on the investor's behalf may inform the investment body of the investor's tax file number (subsection (2)).

By subsection (3) a person who invests through a securities dealer (see notes on definition in new 202A) will be entitled to quote their file number to the dealer (see also notes on new section 202DD).

Section 202DD : Investor excused from quoting tax file number in certain circumstances

By the combined operation of subsections 202DD(1) and (2), certain investors will be excused from having to repeatedly quote their TFN in relation to investments they enter into through an account maintained by either a solicitor or a securities dealer. To avoid an investor quoting a tax file number each time a transaction is entered into, the person will be regarded as having quoted his or her tax file number if the person has previously informed the solicitor or securities dealer of the number in connection with the same account and the solicitor or dealer has not, since being informed of the person's number, advised the person that the person's tax file number has been lost by the solicitor or dealer.

The investments to which the provision applies are -

•

the loan of money to a government body or to a body corporate (item 3 in new subsection 202D(1));

•

the deposit of money with a solicitor for investment by the solicitor or for lending under an agreement to be arranged by or on behalf of the solicitor (item 4);

•

units in a unit trust (item 5); and

•

shares in a public company (item 6).

A similar provision applies where an investor acquires shares in a public company (defined in section 202A). Under subsection (3) a person will not need to quote a tax file number to a public company from which that person is purchasing shares if the person has already quoted a number in relation to an existing investment with that company and the company has not, since the time that the person quoted the number, advised the person that the company has lost the number.

Section 202DE : Securities dealer to inform investment body of tax file number

Section 202DE will provide a mechanism whereby a securities dealer who has been informed of an investor's TFN under the arrangements discussed above will be required to quote the person's number to the investment body concerned. A securities dealer who fails to quote the person's tax file number to the investment body in these circumstances may be considered to have committed an offence under section 8C of the Taxation Administration Act 1953 and subject to the penalties provided for in section 8E of that Act.

Section 202DF : Effect of incorrect quotation of tax file number

Where a withdrawn, incorrect or cancelled tax file number has been quoted to an investment body, the Commissioner may, by virtue of subsection 202DF(1), if the Commissioner is satisfied that the investor has a tax file number, notify the investment body of the incorrect statement and the investor's correct number. This provision allows for the correction of numbers to be made directly to the investment body so that the investor will not need to requote his or her number to the investment body, with the possibility of any sanction being imposed in the meantime.

Where notification is made by the Commissioner to the investment body of the investor's correct tax file number, the investor is to be taken to have always quoted the correct number (subsection (2)). Because the number is taken to always have been quoted, no sanction will apply.

However, where an investor has quoted an incorrect or cancelled tax file number to an investment body, and the Commissioner is not satisfied that the investor has a tax file number, the Commissioner may, by written notice, advise the investment body accordingly (subsection (3)).

The result of a notice under subsection (3) will be that, from the date specified in the notice (not being earlier than the day the investor is advised in accordance with subsection (5)) (subsection (4)), the investor is to be taken not to have quoted a tax file number in connection with the investment (subsection (6)). The investment body will therefore be required to apply the withholding sanction to any amounts of income paid or credited in relation to the investment in accordance with new subsection 221YHZC(1A) (see notes on clause 15).

The Commissioner is required, under subsection 202DF(5), to provide to the investor a copy of any notice given to the investment body under subsection (3). By virtue of paragraph 202F(d) (see notes on that paragraph), a decision by the Commissioner to give a notice under subsection 202DF(3) is subject to a right of review by the Administrative Appeals Tribunal.

Where the Commissioner issues a notice as detailed above in respect of an investment held by a parent or guardian on behalf of a child, the parent or guardian will be taken not to have quoted a tax file number in relation to that investment (subsection (7)). (See notes on new section 202E whereby a parent or guardian will be entitled to give his or her TFN in respect of investments held on behalf of the child.)

Section 202DG : Investments held jointly

By subsection 202DG(1), neither party in respect of an investment held jointly by two persons will be taken to have quoted their TFN in connection with the investment unless both parties have quoted their TFN.

Where an investment is held in more than two names, subsection (2) provides that all of the persons in whose name the investment is held will then be taken to have quoted their tax file numbers where at least two persons have quoted their numbers.

These procedures do not apply to persons who hold joint investments through a partnership (subsection (3)). In this situation, the partnership tax file number is to be quoted in relation to the investment as, for the purposes of the new Part, a partnership is a person which is required to quote a tax file number.

Division 5 - Exemptions

Section 202E : Children

Provided certain conditions are satisfied, children (the term "child" is defined in new section 202A as a person who is less than 16 years of age) will not need to quote their TFN in accordance with Division 4 of new Part VA in respect of investments other than in shares.

Subsection 202E(1) provides that, for the purposes of Part VA, a child who does not have a TFN (paragraph (c)) will be taken to have quoted his or her number under new Division 4 where:

•

the child is an investor in relation to an investment to which Part VA applies (paragraph (a));

•

the investment is not shares in a public company (paragraph (b));

and if either of the following applies -

•.

the child's parent or guardian gives a written declaration under subsection 202E(2) (see notes below) to the investment body (paragraph (d)); or

•.

the investment is held by the child's parent or guardian on behalf of the child and the parent or guardian quotes his or her TFN to the investment body in connection with the investment (paragraph (e)).

Subsection (2) specifies the information to be included in any declaration that may be given by the parent or guardian. The declaration must be in a form approved by the Commissioner and:

•

state the child's full name and date of birth (paragraph (a)); and

•

be signed by the parent or guardian (paragraph (c)).

Subject to subsection (4), a child who has been taken to have quoted his or her tax file number in connection with an investment because of section 202E will, by the operation of subsection (3), be taken to have quoted the number until the end of the calendar year in which the child turns 16 years of age. Thus, a child born on 16 July 1981 will be taken to have quoted his or her TFN in connection with an investment to which Division 4 of Part VA applies until 31 December 1997.

By subsection (4), a child who has been taken to have quoted a TFN in connection with an investment because the child's parent or guardian had quoted their TFN in respect of an investment held on behalf of the child will cease to be entitled to the quotation exemption in the event that the Commissioner notifies the investment body under new subsection 202DG(3) that the number quoted is incorrect.

Section 202EA : Persons receiving certain pensions etc - employment

All assessable pensions, benefits and allowances come within the definition of "salary or wages" in existing subsection 221A(1) of the Principal Act for purposes of the tax instalment deductions system. As such, without a specific exemption, recipients of those payments would need to quote a TFN on an employment declaration in accordance with Division 3 of new Part VA (or have tax withheld at the top marginal rate, plus Medicare levy). Proposed section 202EA will exempt recipients of certain pensions and benefits payable under the Social Security Act 1947 and the Veterans' Entitlements Act 1986 from the quotation arrangements.

Under subsection 202EA(1), nothing in new Part VA is to be taken to provide for a person who is an employee for the purposes of the Income Tax Assessment Act by reason of being paid a pension or benefit of a kind stipulated in subsection (5) to make an employment declaration or to quote his or her TFN in connection with the payment of the pension or benefit to the Department from which the pension or benefit is received. The effect of subsection (1) is therefore to completely exempt recipients of the pensions and benefits of the kind mentioned in subsection (5) from any of the provisions of new Division 3 in relation to those pensions or benefits. Thus, such qualifying pensions or benefits will never be subject to deduction of tax instalments at the top marginal rate by virtue of the provisions contained in new Part VA.

By subsection (2A) people in receipt of any part of a qualifying pension or benefit will be taken to have quoted a TFN on an employment declaration in connection with any non-pension (or benefit) employment income. In these cases, pensioners will be required to indicate on an employment declaration lodged with their employer that they are in receipt of a qualifying pension or benefit.

Consistent with the proposals incorporated in the Bill in relation to investment income, a pensioner who is taken to have quoted a TFN to an employer on an employment declaration will continue to be so taken until the Commissioner advises in writing that the person is no longer entitled to the exemption under section 202EA (proposed new subsection (3)).

Only where the person ceases to be paid any part of any of the eligible pension or benefit, may the Commissioner give a notice under subsection (3) (proposed new subsection (4)).

Subsection (5) specifies the kinds of pensions and benefits to which the exemption under section 202EA is to apply. They are:

•

an age pension under Division 2 of Part IV of the Social Security Act 1947 (paragraph (a));

•

an invalid pension under Division 3 of Part IV of that Act (paragraph (b));

•

a wife's pension under Division 5 of Part IV of that Act (paragraph (c));

•

a carer's pension under Division 6 of Part IV of that Act (paragraph (d));

•

a widow's pension under Part V of that Act (paragraph (e));

•

a supporting parent's benefit under Part VI of that Act (paragraph (f));

•

a special benefit under Division 6 of Part XIII of that Act (paragraph (g)); and

•

a pension under Part III of the Veterans' Entitlements Act 1986 (paragraph (h)).

Section 202EB : Persons receiving certain pensions etc - investments

Section 202EB will exempt recipients of certain pensions and benefits from the quotation arrangements proposed by Division 4 of new Part VA in relation to certain investments.

By subsection (1), a person in receipt of any part of any of the pensions or benefits specified in subsection (5) will be taken to have quoted his or her TFN in relation to an investment of a kind mentioned in the table in subsection 202D(1) if he or she gives a declaration to the investment body.

Under subsection (2), a person to whom section 202EB applies may make a written declaration. The declaration is to be in a form approved by the Commissioner and:

•

state the person's full name (paragraph (a));

•

state the nature of the pension, benefit or allowance paid to the person (paragraph (b));

•

be signed by the person (paragraph (c)).

By virtue of new section 202EG (see notes on that section below), a person may complete a declaration on behalf of another person where that other person is unable to do so. Thus, if a pensioner is incapacitated to such an extent that he or she is unable to complete a declaration in accordance with section 202EB, another person may complete the declaration on the pensioner's behalf.

By subsection (3), a person who is taken to have quoted his or her TFN to an investment body in connection with an investment will continue to be so taken until:

•

the person ceases to be paid any part of a pension or benefit of the kind mentioned in subsection (5); and

•

the Commissioner advises the person in writing that the person is no longer entitled to the exemption under section 202EB.

Under subsection (4) the Commissioner is to be prohibited from giving a person a notice under subsection (3) until the person ceases to be eligible for the exemption under section 202EB, i.e., a pre-condition for the Commissioner giving a notice is that the person ceases to be in receipt of any part of a pension or benefit of a kind specified in subsection (5). The Commissioner is not obliged to issue a notice in the event that a person ceases to be in receipt of any part of a pension, etc. In deciding to issue a notice the Commissioner could be expected to have regard to such factors as the purpose of new Part VA and any information about the expected level of income of the person. Where a notice is issued the Commissioner would be entitled to notify an investment body of the withdrawal of the exemption.

Subsection (5) specifies the pensions and benefits to which section 202EB is to apply. They are the following pensions and benefits payable in part or in full:

•

an age pension under Division 2 of Part IV of the Social Security Act 1947 (subparagraph (a)(i));

•

an invalid pension under Division 3 of Part IV of that Act (subparagraph (a)(ii));

•

a wife's pension under Division 5 of Part IV of that Act (subparagraph (a)(iii));

•

a carer's pension under Division 6 of Part IV of that Act (subparagraph (a)(iv));

•

a widow's pension under Part V of that Act (subparagraph (a)(v));

•

a supporting parent's benefit under Part VI of that Act (subparagraph (a)(vi));

•

a special benefit under Division 6 of Part XIII of that Act (subparagraph (e)(vii));

•

a pension under Part III of the Veterans' Entitlements Act 1986 (paragraph (c); and

•

a rehabilitation allowance under Part XVI of the Social Security Act 1947 which is payable in substitution for any of the pensions or benefits in paragraph (a) (paragraph (b)).

Section 202EC : Entities not required to lodge income tax returns

By the operation of proposed section 202EC a body corporate and/or an unincorporated association (that is, an entity) that is not required to lodge income tax returns and that does not have a TFN will be taken to have quoted a TFN in relation to investments with investment bodies for the purposes of Division 4 where a written declaration under subsection (2) is completed by an eligible representative (defined in subsection (5) - see notes below) and given to the investment body (subsection (1)). Entities that would qualify for the exemption from quoting a TFN in respect of investments would include certain charitable, social and other non-profit organisations as well as non-profit companies earning small amounts of income.

Subsection (2) specifies the information to be included in any declaration that may be given by an eligible representative of an entity. The declaration must be in a form approved by the Commissioner, must be signed by the eligible representative (paragraph (b)), and provide the name and address of the entity and the reason why the entity does not have to lodge income tax returns (paragraph (a)).

Subsection (3) provides that an entity that is not required to lodge income tax returns will be taken to have quoted its TFN in connection with an investment for the purposes of Division 4 of new Part VA until 2 months after the end of any financial year in respect of which the entity becomes liable to lodge an income tax return.

Subsection (4) makes it an offence, subject to a maximum penalty of $1,000, if the public officer (within the terms of the Principal Act) of an entity that is a body corporate or an unincorporated association fails to inform an investment body within 2 months after the end of the year of income in respect of which the entity is obliged to furnish an income tax return and the entity is still an investor in relation to the investment at the end of that year of income.

Subsection (5) is an interpretative provision which defines the term "eligible representative" for the purposes of section 202EC. In the case of a body corporate, a person is, by paragraph (a), an eligible representative of the entity for as long as the person is any one or more of the following:

•

the public officer of the body corporate for the purposes of the Principal Act (section 252 of that Act requires a company to appoint, as its public officer, a natural person who has attained the age of 18 years, is ordinarily resident in Australia and is capable of understanding the nature of his or her appointment) (subparagraph (i));

•

an officer of the body corporate within the meaning of section 8Y of the Taxation Administration Act 1953 - that is, a director, secretary, official manager or deputy official manager of the corporation, a receiver and manager of property of the corporation, a liquidator of the corporation appointed in a voluntary winding up of the corporation or a trustee or other person administering a compromise or arrangement made between the corporation and another person or other persons (subparagraph (ii));

•

a receiver of property of the body corporate, whether appointed by a court or otherwise and whether or not also a manager (subparagraph (iii));

•

a liquidator of the body corporate appointed by a court (subparagraph (iv));

•

a person who is an agent of a foreign company for the purposes of section 510 of the Companies Act 1981 or of a corresponding State or Territory law (subparagraph (v));

•

a person who is authorised in writing by a person included in one of the above categories to act as an eligible representative of the body corporate (subparagraph (vi)).

By paragraph (b), a person who falls into one or more of the following categories is an eligible representative of an unincorporated association:

•

the public officer of the unincorporated association for the purposes of the Principal Act (subparagraph (i)). (Certain unincorporated associations are treated as companies for income tax purposes and are thus subject to the same requirements in relation to the appointment of a public officer as bodies corporate - see notes on subparagraph (1)(a)(i));

•

a director, secretary, office holder, liquidator, receiver or trustee of the association (subparagraph (ii));

•

a person who is authorised in writing by a person included in one of the above categories to act as an eligible representative of the association (subparagraph (iii)).

Section 202ED : Recently-arrived visitors to Australia

Proposed section 202ED provides the mechanism that will enable recently-arrived visitors to Australia to engage in certain transactions without being subject to the TFN quotation arrangements. A recently-arrived visitor to Australia is defined in new section 202A as a natural person who:

•

is not an Australian resident;

•

is in Australia; and

•

has been in Australia for a total of less than 6 weeks during the immediately preceding 12 months.

By subsection (1), a recently-arrived visitor to Australia who is an investor in relation to an investment to which Part VA applies is to be taken to have quoted his or her TFN if:

•

the visitor becomes liable under section 128B of the Principal Act to pay non-resident withholding tax in respect of any income derived from the investment (paragraph (a)); or

•

the visitor gives the investment body concerned a written declaration under subsection (2) (subparagraph (b)(1)) and the investment body is provided with the visitor's passport for examination (subparagraph (b)(ii)). (The term "passport" is given an extended meaning by being defined in new section 202A as including any other official travel document where a person does not hold a passport).

Subsection (2) specifies the information to be included in a declaration that the visitor may make. The declaration must be in a form approved by the Commissioner and contain:

•

the visitor's name (subparagraph (a)(i));

•

particulars of the visitor's passport (subparagraph (a)(ii));

•

the visitor's usual residential address (subparagraph (a)(iii));

•

the visitor's residential address during his or her stay in Australia (subparagraph (a)(iv)); and

•

the visitor's signature (paragraph (b)).

By subsection (3), a recently-arrived visitor will be taken to have quoted a TFN in connection with an investment until one month after the person ceases to be a recently-arrived visitor to Australia other than by reason of the person leaving Australia.

Subsection (4) will make it an offence, subject to a maximum penalty of $1,000, for a person, who has made a declaration under subsection 202ED(2) and who ceases to be a recently-arrived visitor to Australia, to fail to notify the investment body of that fact within the time specified in subsection (3) where the person is still an investor in relation to the investment at the time of ceasing to be a recently-arrived visitor.

Subsection (5) makes it clear that nothing in new section 202ED affects a person's liability to pay non-resident withholding tax.

Section 202EE : Non-residents

Proposed section 202EE provides the mechanism that will enable non-residents of Australia to engage in certain transactions without being subject to the TFN quotation arrangements.

By subsection (1), a non-resident who is an investor in relation to an investment to which new Part VA applies is to be taken to have quoted the non-resident's TFN if the non-resident becomes liable under section 128B of the Principal Act to pay non-resident withholding tax in respect of income from the investment.

Subsection (2) makes it clear that nothing in new section 202EE affects a person's liability to pay non-resident withholding tax.

Section 202EF : Territory residents etc

Division 1A of Part III of the Principal Act operates to exempt genuine residents of the Territories of Norfolk Island and Cocos (Keeling) Islands from Australian income tax on their Territory and ex-Australian source income. Exemption within the Division applies to:

•

individuals who reside or have their place of residence in either of the Territories and are not otherwise resident in Australia;

•

companies incorporated in one of the Territories and wholly owned and controlled by Territory residents; and

•

trustees of estates of deceased Territory residents during the period of administration, and deceased estates or inter vivos trusts created by instrument where the only possible income beneficiaries are Territory residents.

Territory residents, trusts and companies are exempt from Australian income tax on:

•

income from sources outside Australia;

•

income derived from Territory sources; and

•

income from an office or employment where the duties are wholly or principally performed in either of the Territories for 6 months or more by a non-Territory resident.

Proposed subsections 202EF(1) and (2) effectively exclude from the operation of new Part VA, persons to whom Division 1A of Part III applies in respect of income which is exempt from Australian income tax. By the operation of subsection (1) Territory employees who otherwise would need to quote their TFN on an employment declaration will be taken to have quoted their number in respect of salary or wages which is exempt from income tax by virtue of Division 1A of Part III of the Principal Act.

Similarly, subsection (2) operates to exclude from TFN quotation arrangements any investments the income from which would be exempt from income tax by virtue of Division 1A of Part III of the Principal Act. Of course, residents of the Territories of Norfolk Island and Cocos (Keeling) Islands would come within the scope of the new provisions in respect of any employment or investment income derived from mainland Australia.

Subsection (3) provides that a person taken to have quoted the person's TFN because of the operation of section 202EF will continue to be so taken until the end of one month after any salary or wages or income derived from investments would cease to be exempt from income tax. This provision would apply, for example, where a person who ceases to be a Territory resident still earns investment income from the Territory. Another example would be a person who ceases to be a Territory resident but continues to earn salary or wages from a Territory employer.

Under subsection (4), a person will be guilty of an offence, subject to a maximum penalty of $1,000, if the person is taken to have quoted a TFN because of section 202EF, the income from the employment or the investment ceases to be exempt from income tax and the person fails to notify the employer or investment body concerned within the period specified in subsection (2).

Section 202EG : Manner of completing declarations

Under section 202EG a person may make a declaration for the purposes of Division 5 on behalf of another person where that other person is unable to do so. Such a situation may occur, for example, where the person required to make the declaration is physically or mentally incapacitated, is overseas, in a remote locality or otherwise unable to make the declaration.

Section 202EH : Declarations under this Division to be sent to Commissioner

By subsection 202EH(1), an investment body will be required to send declarations given to it under Division 5 to the office of a Deputy Commissioner within 28 days of receipt. Failure on the part of an investment body to forward declarations to a Deputy Commissioner in accordance with subsection (1) may result in the investment body being guilty of an offence under section 8C of the Taxation Administration Act 1953.

Where a recently-arrived visitor to Australia has given an investment body a declaration under subsection 202ED(2) and produced a passport for examination, the investment body will be required, by subsection 202EH(2), to endorse that fact on the declaration prior to forwarding it to a Deputy Commissioner in accordance with subsection (1).

Division 6 - Review of Decisions

Section 202F : Review of decisions

Subsection 202F(1) specifies the decisions of the Commissioner in respect of which a right of review by the Administrative Appeals Tribunal is to be available to the person affected by the decision. An application may be made for review of a decision to:

•

refuse an application to issue a tax file number, including a deemed refusal under new section 202BC (paragraph (a));

•

cancel a tax file number under new section 202BE where the Commissioner concludes that the number was not issued to a person under that person's true identity (paragraph (b));

•

give a notice under new subsection 202CE(3) to an employer that a tax file number is cancelled or otherwise incorrect where the Commissioner is not satisfied that the person has a tax file number (paragraph (c));

•

give a notice under new subsection 202DG(3) to an investment body that a tax file number is cancelled or otherwise incorrect where the Commissioner is not satisfied that the person has a tax file number (paragraph (d));

•

give a notice under new subsection 202EB(3) to a person stating that the person is no longer entitled to exemption as a person receiving a certain pension (paragraph (e));

•

not exempt a person from complying with the transmission of information requirements or to vary or revoke a notice given in relation to those requirements under new section 202G (paragraph (f)).

In addition, paragraph 202F(1)(g) provides for applications to be made to the Tribunal for review of any decisions stated to be a reviewable decision in the Regulations. The reviewable decisions in the Regulations are (see notes on clause 30):-

•

a refusal to allow an investment body more than one month to give the Commissioner a file number report;

•

a refusal to allow an investment body an extended file number reporting period;

•

a refusal to allow an investment body more than 4 months to give the Commissioner an annual investment income report; and

•

a decision varying or revoking an allowance of:

•.

an extension of time to give file number reports;

•.

an extended file number reporting period; or

•.

more than 4 months to give an annual investment income report.

Subsection 202F(2) makes it clear that upon application for review by the Tribunal of a decision to refuse the application for the issue of a tax file number, the orders that may be made under subsection 41(2) of the Administrative Appeals Tribunal Act 1975 include an order that the Commissioner will be required to issue the appellant with a tax file number pending the determination of the review.

By the operation of subsection (3), the tax file number issued as above ceases to have effect upon the final disposal of the application for review.

Under subsection (4), other than for the purposes of section 202F, Part VA will apply when a TFN ceases to have effect under subsection (3) as if the number had been cancelled.

Section 202FA : Statements to accompany notification of decisions

Where the Commissioner makes a decision of a kind referred to in section 202F, the Commissioner is required to serve on the person affected by the decision notice in writing setting out the decision and giving the reasons for the decision. By subsection 202FA(1), the notice must include a statement advising that a person whose interests are affected by the decision may, subject to the Administrative Appeals Tribunal Act 1975, if dissatisfied with the decision, apply to the Administrative Appeals Tribunal for a review of the decision. The notice must also include, except where subsection 28(4) of the Administrative Appeals Tribunal Act 1975 applies, a statement to the effect that the person may request a statement under section 28 of that Act.

However, by virtue of subsection 202FA(2), a failure to include the statements as required by subsection (1) will not affect the validity of the Board's decision.

Division 7 : Manner of providing information

New section 202G is part of the measures designed to improve the efficiency of the income matching arrangements. Its broad purpose is to remove the use of paper reports in circumstances where relevant information is stored by the investment body or employer on a data processing device. In doing that it seeks to remove present inefficient processes whereby the investment body or employer converts information to paper form and forwards it to the Commissioner who is required, in turn, to input the paper information into the Tax Office's computer system.

Section 202G : Transmission of information in accordance with specifications

Subsection 202G(1) provides that the Commissioner may set out specifications for transmission of information by notice published in the Gazette. Under subsection (2) the information will be required to be provided in the specified form as of the date shown in the Gazette notice.

By subsection (3), where information of a kind that a person is obliged to give to the Commissioner is kept, in whole or in part, by or on behalf of the person, by means of a data processing device, the person will be required to give that information to the Commissioner in the manner and form specified in the notice under subsection (1). The specifications in a notice under subsection (1) may be altered from time to time.

Subsection (4) provides for the exemption of a person from the requirement in subsection (3) to supply information in accordance with specifications notified in subsection (1) if the person applies for exemption and the Commissioner, by written notice to the person, so exempts the person from compliance. Any exemption under subsection (4) has effect for the period specified in the notice (subsection (5)).

If an application for exemption under subsection (4) is refused, the Commissioner must notify the person of the refusal in writing (subsection (6)). By virtue of paragraph 202F(f) a decision under subsection 202G(4) not to exempt a person from compliance with section 202G or to vary or revoke any notice is reviewable by the Administrative Appeals Tribunal.

By subsection (7) the Commissioner, when deciding whether to exempt a person from the requirement to transmit information in accordance with specifications in a notice under subsection (1), will be required to consider -

•

the amount of information concerned. Thus, persons who are only required to provide a small amount of information to the Commissioner may be exempted;

•

any difficulties the person may encounter in providing the information in the required manner. For example, the data processing device maintained by the person may not be completely compatible with the specifications notified by the Commissioner and substantial difficulties may be experienced in transferring the information into a compatible form;

•

the purposes of Part VA. In balancing the above factors the Commissioner must consider the impact on the objective of increasing the effectiveness and efficiency of matching information contained in reports with information disclosed in income tax returns before exempting a person from the transmission of information requirement; and

•

any other matters that the Commissioner thinks relevant.

The Commissioner may, by notice published in the Gazette, exempt any class of persons from compliance with subsection (3) and any person coming within that class will not be required to comply (subsection (8)).

Under subsection (9) the information to be supplied in accordance with section 202G is information that a person is or will be obliged to give to the Commissioner under Part VA, under regulations made for the purposes of Part VA and under the Principal Act where the Principal Act provides for the inclusion of tax file numbers.

Such information would include -

•

file number reports to be provided by investment bodies during a particular reporting period (see notes on new regulation 43B);

•

annual investment income reports to be provided by investment bodies in relation to all investments (see notes on new regulation 43C);

•

copies of group certificates issued by a group employer to each employee and to be sent to the Commissioner as required by paragraph 221F(5)(f) of the Principal Act; and

•

Prescribed Payment System deduction forms required to be sent to the Commissioner in accordance with Division 3A of Part VI of the Principal Act.

Clause 7: Interpretation

This clause will amend section 221A of the Principal Act which contains definitions that apply for the purposes of Division 2 of Part VI of the Principal Act. The broad purpose of this and associated clauses 8 to 11 is to introduce a requirement to issue group certificates or tax stamp sheets in respect of salary and wages irrespective of whether or not tax instalments have been made and to include TFN's on the certificates or sheets, as appropriate. The tax stamp sheet system currently applies as an alternative to the group certificate system for employers with limited numbers of employees.

Paragraph (a) of clause 7 will omit the existing definition of "group certificate" and substitute the following definition which will reflect the functional change that will apply to group certificates by amendments to be made to section 221F of the Principal Act by clause 8 of this Bill (see later notes on that clause):

"group certificate" is defined to mean a certificate, in a form authorised by the Commissioner, issued by a group employer, or by or on behalf of an authority with which an arrangement has been entered into under section 221S of the Principal Act, to an employee in respect of the salary or wages of the employee. The most significant change to the definition is that it omits any reference made by the existing definition to deductions (i.e., tax instalment deductions). The reason for this is that, under amendments to be made to section 221F of the Principal Act by clause 8 of this Bill, a group employer will be required to issue a group certificate in respect of salary or wages paid to an employee irrespective of whether or not tax instalment deductions have been made.

Paragraph (b) of clause 7 will insert the following definitions in subsection 221A(1):

"employment declaration" is defined as an employment declaration under new section 202C of the Principal Act (see notes on clause 6 above).

"prescribed non-resident", a term used in new subsections 221F(5E) and 221G(2A), is defined in a similar manner to the definition in subregulation 54A(1) of the Regulations as a person who, at all times during any period during a year of income is a non-resident, not being a person to whom, at any time during that year of income, a pension, allowance or benefit in respect of which the person is liable to be assessed and to pay income tax is, or was, payable under:

•

the Veterans' Entitlements Act 1986 (paragraph (a));

•

subsection 4(6) of the Veterans' Entitlements (Transitional Provisions and Consequential Amendments) Act 1986 (paragraph (b));

•

a provision of the Social Security Act 1947 other than Part XIII of that Act (paragraph (c)); or

•

the Tuberculosis Act 1948 (paragraph (d));

"tax file number", in relation to an employee, is defined to mean the number that is the employee's tax file number for the purposes of Part VA (see notes on clause 6).

Clause 8: Group employers

Section 221F of the Principal Act provides for the registration and subsequent duties of group employers. Clause 8 will make a number of amendments to that section so that group employers will be required to issue group certificates to employees to whom they pay salary or wages irrespective of whether or not tax instalments have been deducted. A number of drafting measures have also been taken to modernise and improve the section which has remained relatively unchanged since it was first introduced.

The amendments to be made by clause 8 will also ensure a group employer includes a person's tax file number on group certificates where the employee has quoted his or her tax file number in an employment declaration given to the employer (new subsection 221F(5F)).

Where a TFN has not been quoted and the employee is to be taken, for the purposes of new Part VA of the Principal Act to have quoted his or her TFN, the employer is to be required to include on the group certificate, a notation approved by the Commissioner (new subsection 221F(5G)).

A further provision - proposed subsection 221F(5E) - will ensure that a group employer is not required to issue a group certificate to an employee (not being a prescribed non-resident) where the payment is, broadly, in relation to casual domestic employment (e.g., child minding) and is not of an amount in respect of which the employer is obliged to make deductions ($60 under amendments proposed by clause 30).

Clause 9: Employers other than group employers

Clause 9 will amend subsection 221G of the Principal Act in relation to employers other than group employers who use the tax stamp system. The amendments mirror those to be made by clause 8 of this Bill of section 221F of the Principal Act for group employers.

Clause 10: Application of deductions in payment of tax

The amendments to be made to section 221H of the Principal Act by clause 10 are also as a consequence of the requirement that a tax stamps sheet or group certificate be issued by an employer in respect of salary or wages paid to an employee irrespective of whether or not tax instalments have been deducted from the payments.

Clause 11: Employer failing to issue group certificate or deduction sheet

Paragraph (b) of clause 11 will amend subsection 221Q(1) of the Principal Act by omitting the words "those deductions" and substituting "the salary or wages" as part of the measures designed to ensure that the group certificate system applies irrespective of whether or not tax instalments are deducted.

The amendment to be made of subsection 221Q(2) of the Principal Act by paragraph (b) of clause 11 is also consequential upon the changed function that a group certificate or tax stamps sheet will take on.

Clause 12: Duties of eligible paying authorities

Amendments proposed by this clause will result in the sanction for non-quotation of a TFN under the Prescribed Payment System (PPS) being brought into line with the general sanction being introduced by the Bill in respect of employment and investment income.

Under that system, where a person who is an eligible paying authority (within the meaning of that term in subsection 221YHA(4) of the Principal Act) makes a payment of a kind declared by Income Tax Regulation 54ZEB to be a prescribed payment to a "payee" (defined in subsection 221YHA(1)), the eligible paying authority is required to complete a deduction form (also defined in subsection 221YHA(1) of the Principal Act). The duties of payees and eligible paying authorities in respect of deduction forms are specified in subsection 221YHC(1) and paragraph 221YHD(1)(b) respectively. In practical terms, the payee completes Part A of the deduction form and gives the form to the eligible paying authority who completes Part B of the form.

Part A of the deduction form calls for the quotation of the payee's TFN and, if a TFN is not quoted, the payee is treated as not having properly furnished a deduction form with the effect that the rate of deduction from the prescribed payment is calculated in accordance with paragraph 221YHD(5)(b). That rate is currently 30 per cent, being the 15 per cent rate prescribed by Income Tax Regulation 54ZED increased by an amount equal to 15 per cent of the prescribed payment.

To facilitate bringing this sanction into line with that proposed in respect of salary or wages, paragraph 221YHD(5)(b) of the Principal Act is to be amended by clause 12 so that the amount to be deducted from prescribed payments in respect of which a TFN has not been quoted is to be determined by the regulations. By proposed subregulation 54ZED(1A), that amount is to be the factor specified in column 3 of the last item in Table 4 in the Third Schedule (currently 50.25).

Clause 13: Division heading

Clause 13 will omit the heading to Division 3B of Part VI of the Principal Act and insert the new heading "Division 3B - Collection of tax in respect of certain payments." The amendments to be made to Division 3B of Part VI will introduce a system for the collection of amounts withheld by investment bodies (a defined term - see notes on new section 202A) from income from investments of the kinds in column 1 of the table in new subsection 202D(1) (see notes above) where a TFN has not been quoted in respect of the investment by adopting the existing collection arrangements that apply for certain natural resource and royalty payments.

Clause 14: Interpretation

This clause will amend section 221YHZA of the Principal Act which contains definitions that apply for the purposes of Division 3B of Part VI of the Principal Act. Paragraph (a) of Clause 14 will insert the following definitions in section 221YHZA:

"investment body" is defined to have the same meaning as that term is given in new section 202D.

"investor" is defined to have the same meaning as that term has in new section 202D (see notes on that section above).

"Part VA investment" is defined as an investment of a kind mentioned in section 202D (see notes on that section);

"share investment" is defined as a Part VA investment of a kind mentioned in item 6 in the table in subsection 202D(1). Item 6 in that table lists, as an investment, shares in a public company.

"unattributed income" means, broadly, income in respect of a Part VA investment (see notes above) that becomes payable to an investor at a time when the investor's TFN is not taken, for the purposes of new Part VA, to have been quoted. An investor will not be considered to be in receipt of "unattributed income" where a provision of Division 5 of Part VA - the exemption provisions - has ceased to apply and the investment body concerned has not been advised of that fact (e.g., where a person who remains in Australia and ceases to be entitled to the exemption for recently-arrived visitors fails to notify the investment body of that fact).

Paragraph (b) of clause 14 will omit existing subsection 221YHZA(2) of the Principal Act and insert a new subsection. New subsection 221YHZA(2) ensures that money, or income in a form other than money, which is not actually paid to a person but is dealt with on behalf of the person or as the person directs will come within the scope of Division 3B. Money which is reinvested, accumulated, capitalised or otherwise dealt with on behalf of the person or as the person directs is, by this subsection, deemed to have been paid to the person for the purposes of the Division.

Paragraph (b) will also insert new subsection (2A) into section 221YHZA. Proposed subsection (2A) provides that, for the purposes of Division 3B, where a person becomes presently entitled, as an investor in relation to a unit trust, to a share of income in respect of the investment, that share of the income is to be taken to be paid to the person as income at the time when the person becomes presently entitled.

New subsection (2B), also to be inserted by paragraph (b) of clause 14, provides that for the purposes of Division 3B, where a person becomes obliged under section 159GQ of the Principal Act to include in the person's assessable income an amount in respect of a Part VA investment (see notes above), that amount is to be taken to be paid to the person as income in respect of the investment when the person becomes obliged to include the amount as assessable income. Section 159GQ applies to assess the income of certain deferred securities on an accruals basis.

Clause 15: Duties of payers

Paragraph (a) of clause 15 will amend section 221YHZC of the Principal Act by inserting new subsections (1A), (1B), (1C), (1D) and (1E) after subsection 221YHZC(1).

Subsection 221YHZC(1A), which applies subject to subsections (1B) and (1E), is an important provision which imposes obligations and duties on investment bodies.

Provided each of the conditions in paragraphs (a), (b) and (c) is satisfied, an investment body is required by paragraph (d) of new subsection 221YHZC(1A) to deduct from any income paid or credited (including distributions from a unit trust to which a beneficiary becomes presently entitled) an amount in accordance with subsection (1C) or (1D) (see notes below). The conditions to be satisfied by paragraphs (a), (b) and (c) are that -

•

the investment body becomes liable to pay income to an investor in respect of a Part VA investment (paragraph (a));

•

that income is unattributed income (broadly, income in relation to a Part VA investment where the investor has failed to quote his or her TFN as required) (paragraph (b)); and

•

the amount of the income is not less than the amounts prescribed in the Regulations (paragraph (c)). New regulation 54ZEK, to be inserted by clause 30, prescribes the following per annum amounts for the purposes of paragraph 221YHZC(1A)(c) -

•.

if each investor in relation to a Part VA investment (other than shares) was, on 1 January preceding the payment, under 16 years of age - $420;

•.

where the investor is not a child under 16, the investment is an interest-bearing account or deposit with a financial institution and the investment was in existence prior to 1 July 1991 - $120;

•.

where the investor is not a child under 16 and the investment came into existence on or after 1 July 1991 - $1.

New paragraph (e) of subsection 221YHZC(1A) specifies the second of the principal requirements of investment bodies proposed by the amendments to be made to Division 3B. That paragraph requires an investment body to give an investor written notice of the amount deducted from any unattributed income at the time of notifying the investor of the payment or crediting of the income. In any event, where the investor asks to be told how much has been deducted, an investment body must give the notice within 21 days of being asked. The notice advising the amount deducted from any unattributed income does not have to be in any particular form and may be included in normal statement of accounts provided the entry is clearly stated.

Paragraph 221YHZC(1A)(f) requires an investment body to give to the Commissioner by 31 August each year (or such further time as the Commissioner allows) a statement reconciling the total deductions made by the body from unattributed income with the amounts paid to the Commissioner under subsection 221YHZD(1A) (see notes above). The statement must be in a form approved by the Commissioner and signed by the investment body.

Subsection 221YHZC(1B) makes it clear that no amount is to be deducted from income paid in respect of a share investment (a defined term - see notes above) where the income consists of the payment of a dividend that has been franked in accordance with section 160AQF of the Principal Act (paragraph (a)) to the extent of 100% (paragraph (b)).

Consistent with existing subsection 221YHZC(1) the penalty for failure to meet the requirements of new subsection (1A) is an amount up to $1000. Alternative statutory penalties of, broadly, 20 percent of the amount not deducted plus 20 percent p.a. may apply. The Commissioner is empowered to remit penalties in appropriate circumstances.

As stated above, the amount to be deducted from any payment of unattributed income is to be calculated in accordance with subsection 221YHZC(1C) or (1D).

Subsection 221YHZC(1C) provides that, subject to subsection (1D), the amount to be deducted from unattributed income paid in respect of a Part VA investment is the amount arrived at (being a multiple of 5 cents) that is, or is nearest to, the amount ascertained by multiplying the total of the unattributed income by the prescribed factor. Proposed regulation 54ZEL prescribes that factor as that specified in column 3 of the last item in Table 4 in the Third Schedule to the Regulations (currently .5025) or where there is no factor - .5025.

Example : Total unattributed income is $1,000. The amounts to be deducted would be $1,000 x .5025 cents = $502.50.

Subsection 221YHZC(1D) provides the formula for calculating the amount to be deducted in respect of unattributed income paid in respect of a share investment as a franked dividend under section 160AQF to the extent of less than 100%, i.e., as a partly-franked dividend. The formula contained in subsection (1D) is -

((I) - (FA)) * (PF))


where

I is the amount of unattributed income;

FA is the franked amount of the dividend within the meaning of section 160APA of the Principal Act; and

PF is the factor prescribed for the purposes of subsection (1C).

Example : Unattributed income of $5,000 is paid as a dividend that is franked to the extent of 50%. The amount to be deducted for the purposes of subsection 221YHZC(1A) is as follows -

((I) - (FA)) * (PF)


(($5,000) - (2,500)) * (.5025) = $1,256.25 .


Subsection 221YHZC(1E) provides that subsection 221YHZC(1A) does not apply in relation to income that is not paid in money. Special provision is made for income not paid in money in new subsection 221YHZD(1B) (see notes on clause 16).

Paragraph (b) of clause 15 will omit from subsections (2), (3) and (4) of section 221YHZC "subsection (1)" (wherever occurring) and substitute "subsection (1) or (1A)." The effect of this amendment is that those existing provisions - which relate to penalties for failure to make deductions - will apply equally for the purposes of new subsection 221YHZC(1A).

Clause 16: Duty of payer to pay deducted amount to Commissioner

Paragraph (a) of clause 16 will amend section 221YHZD of the Principal Act by inserting new subsections (1A), (1B) and (1C).

By subsection (1A), an investment body who deducts an amount, or purports to deduct an amount, under subsection 221YHZC(1A), from a payment of unattributed income is required within 21 days after the end of the month in which the investment body makes the payment to the investor, to pay the amount deducted from the payment to the Commissioner.

Consistent with equivalent provisions of the existing law the penalty for failing to remit is $5000 or 12 months imprisonment, or both. Ordinary statutory penalties for late payment also apply (see notes on paragraph (b) of clause 16).

Proposed subsection 221YHZD(1B) prohibits an investment body in relation to a Part VA investment from paying to an investor unattributed income that is not paid in money (e.g., by an issue of certain bonus shares) after 30 June 1991 until an amount equal to the amount that would have been deducted in respect of the income if the income had been paid in money has been paid to the Commissioner.

Under subsection (1C), any amount paid by an investment body under subsection (1B) may be treated by the investment body as recoverable as a debt payable by the investor concerned.

Paragraph (b) of clause 16 will amend subsection 221YHZD(2) by omitting "subsection (1)" and inserting "subsection (1), (1A) or (1B)". The effect of this amendment is that the provisions relating to late payment of deductions in existing subsections (2) will apply for the purposes of new subsections (1A) and (1B). Broadly, these are set at 20 percent of the principal amount (other than for government bodies) plus 20 percent p.a. for the period late. Under existing section 221YHZE of the Principal Act, the Commissioner is authorised to remit the late payment penalty in appropriate circumstances.

A similar amendment is to be made to subsection 221YHZD(3) by paragraph (c) of clause 16 so that existing subsection (3) will apply to amounts deducted under new subsections (1A) and (1B). That subsection extends duties to trustees.

Clause 17: Insertion of new sections

Clause 17 will insert two new sections - sections 221YHZDA and 221YHZDB - in Division 3B of Part VI of the Principal Act.

Section 221YHZDA : Refund of deductions in certain cases

Section 221YHZDA will provide a mechanism for an investor to obtain a refund from an investment body where a deduction purportedly made under Division 3B has been made in error. Such a situation would occur, for example, where an investor has quoted his or her tax file number to an investment body and that body fails to record the number, and subsequently treats a payment of income as unattributed income.

The conditions that must be satisfied under subsection (1) are that:

•

the investment body has made a deduction purportedly under Division 3B (paragraph (a));

•

the deducted amount has been paid to the Commissioner (paragraph (b)); and

•

some or all of the amount was deducted in error (paragraph (c)).

Where these conditions are satisfied the investment body is liable to pay to the investor the amount incorrectly deducted. In turn, the investment body may recover the amount from the Commissioner.

Subsection (2) ensures that a person cannot get a credit under section 221YHZK where an amount is refunded under subsection (1).

By subsection (3), an amount payable under subsection (1) to a person by an investment body is recoverable by the person as a debt.

Section 221YHZDB : Commissioner may refund amounts in certain cases

Section 221YHZDB will authorise the Commissioner to issue refunds of amounts paid to the Commissioner under subsection 221YHZD(1A) even though the amount was correctly deducted by an investment body under subsection 221YHZC(1A).

By subsection (1), the Commissioner will be required to issue a refund where a person has applied in writing for a refund and the Commissioner is satisfied of certain conditions. The conditions that the Commissioner must be satisfied of are that:

•

an investment body has deducted an amount from a payment of income to the applicant in respect of a Part VA investment (see notes on clause 6) under subsection 221YHZC(1A) (paragraph (a));

•

although entitled to give an exemption declaration to an investment body under Division 5 of Part VA in relation to the investment, the applicant didn't do so (paragraph (b)); and

•

having regard to the purposes of Division 3B and any other appropriate matters it would be fair and reasonable to refund the whole or part of the amount deducted.

Subsection (2) makes it clear that a person cannot get credit under section 221YHZK for any amount refunded.

Clause 18: Persons discharged from liability in respect of deducted amounts

Clause 18 will amend section 221YHZH of the Principal Act so that a person is discharged from all liability other than to the Commissioner where the person has made, or purportedly made, a deduction for the purposes of new subsection 221YHZC(1A).

Clause 19: Credits in respect of deducted amounts

This clause will amend section 221YHZK of the Principal Act which outlines the circumstances under which a person is entitled to credit in respect of amounts deducted from payments of a kind to which Division 3B applies. By the amendment to be made to subsections 221YHZK (1), (2) and (3) by paragraph (a), a person will be entitled to credit of an amount equal to the amounts deducted, or purported to be deducted, under new subsection 221YHZC(1A) in a year of income at the time when an assessment has been made by the Commissioner, or when the Commissioner is satisfied that no tax is payable by the person, in relation to the year of income.

Paragraph (b) of clause 19 will insert a new subsection - subsection (4) - into section 221YHZK. By subsection (4), a person will be entitled to credit in relation to a payment or payments made to the Commissioner under new subsection 221YHZD(1B) (i.e., in relation to amounts of unattributed income not paid in money - see notes on clause 16) as if the payment or payments under that subsection were an amount or amounts deducted under new subsection 221YHZC(1A).

Clause 20: Insertion of new section

Clause 20 will insert new section 221YHZO in Division 3B of the Principal Act. Section 221YHZO provides for the application of section 264 of the Principal Act as if the reference in paragraph (1)(b) of that section to a person's income or assessment were a reference to a matter relevant to the administration or operation of Division 3B. Paragraph 264(1)(b) empowers the Commissioner to require a person to produce documents. New section 221YHZO makes it clear that these powers may be exercised by the Commissioner for the administration or operation of Division 3B.

PART IV - AMENDMENTS OF THE TAXATION ADMINISTRATION ACT 1953

Clause 21: Principal Act

This clause facilitates reference to the Taxation Administration Act 1953 which in Part IV is referred to as the "Principal Act".

Clause 22: Provision of taxation information to National Crime Authority

The amendment of subsection 3D(21) of the Principal Act by clause 22 will bring the penalty for disclosure of any information communicated to a Royal Commission in the possession of the National Crimes Authority by a member of that Authority in line with the proposed penalties to be attached to other secrecy provisions of the tax law. The penalty is to be increased from $5000 or imprisonment for a period not exceeding 12 months or both to $10,000 or imprisonment for a period not exceeding 2 years, or both.

Clause 23: Interpretation

Clause 23 will insert the definition "tax file number" into section 8A of the Principal Act. The term will have the same meaning as it has in section 202A of the Income Tax Assessment Act 1936 where it is defined to mean a number issued by the Commissioner being a number that is either notified to the person as the person's income tax file number before the commencement of section 202A, or a number issued under new Division 2 of Part VA of that Act.

Clause 24: Failure to comply with requirements under taxation law

Paragraph (a) of clause 24 will insert new paragraph 8C(aa) into the Principal Act. The amendment will make it an offence to fail or refuse to give information to the Commissioner in the manner in which it is required under a taxation law to be given, to the extent to which the person is capable of doing so. Thus, a person who fails or refuses to transmit information to the Commissioner in accordance with specifications published by the Commissioner in the Gazette under proposed subsection 202G(1) of the Income Tax Assessment Act 1936 (see notes on clause 6) may be guilty of an offence by virtue of new paragraph 8C(aa) where the person has the capability of transmitting the information according to the specifications.

As with the existing provisions of section 8C in relation to a failure to comply with requirements under a Taxation law a first offence against new paragraph 8C(aa) is, under section 8E of the Principal Act, punishable on conviction by a fine not exceeding $2,000.

Paragraph (b) of clause 24 will insert a new subsection into section 8C of the Principal Act. Under new subsection (2) a person will not be guilty of an offence merely by reason of failing to quote the person's tax file number. No penalties or sanctions are to apply to the non-quotation of a tax file number other than those which will apply for the purposes of new Part VA of the Income Tax Assessment Act 1936 (see notes on clause 6). Broadly, this means that the only sanction for failing to quote a TFN will be withholding of tax at the maximum marginal rate, plus Medicare levy.

Clause 25: False or misleading statements

Clause 25 will insert new subsection (3) into section 8K of the Principal Act to ensure that the mere failure to quote a tax file number does not constitute the omission from a statement made to a taxation officer of any matter or thing. As stated above, penalties or sanctions other than those in respect or proposed Part VA will not apply for the non-quotation of a tax file number (see notes on clause 6).

Clause 26: Subdivision BA - offences relating to tax file numbers

Clause 26 will insert a new subdivision - Subdivision BA - into the Principal Act to create a number of offences in relation to the recording, requesting, disclosure and use of a person's tax file number by another person in unauthorised circumstances.

The principal purpose of this new subdivision is to ensure that investment bodies and employers who will be given TFN's under new Part VA of the Income Tax Assessment Act 1936 (see notes on clause 6 of this Bill) will be prevented from using that number otherwise than for the purpose of meeting the obligations imposed by the arrangements to be introduced in this Bill.

Section 8WA : Unauthorised requirement, etc. that tax file number be quoted

Subsection 8WA(1) creates an offence, punishable on conviction by a fine of $10,000 or imprisonment for 2 years or both, for a person to require or request the quotation of another person's tax file number for the purpose of establishing that person's identity or for any other purpose under unauthorised circumstances.

The situations under which a person will be permitted to require or request another person to quote their TFN will be -

•

where a taxation law makes provision for quotation of a tax file number in specified circumstances (paragraph (a)). This would include employers in respect of employment declarations (after the commencement of the relevant provisions in the Income Tax Assessment Act) (see notes on Clause 6, which include transitional arrangements for quotation in the year prior to 1 July 1991), investment bodies in respect of investments held with the investment body on and after 1 July 1991 (see also notes on Clause 6) and eligible paying authorities under the Prescribed Payments System (Division 3A of Part VI of the Income Tax Assessment Act 1936);

•

where the person requesting or requiring the quotation is exercising any power or performing functions under or in relation to a taxation law. This will enable the continued use of file numbers for ordinary administration of taxation laws. In addition, as explained in the notes on clause 6, new section 8WA will not prevent the use of TFN's for the purpose of administration of any legislation enacted by the Parliament under which benefits are provided by the Commonwealth to students in relation to contributions payable by students to institutions of higher education towards the cost of providing courses of study at those institutions (paragraph (b)); and

•

where the person requiring or requesting the quotation is acting on that person's behalf in the conduct of that person's affairs. Such an authorisation allows a tax agent or legal representative of a person to request, as necessary to act on that person's behalf, the person's tax file number (paragraph (c)).

Under subsection (2) a person may request the production of a document or a copy of a document on which the tax file number is recorded as long as the person to whom the number belongs is not prevented from removing that number if he or she so wishes. This will enable taxpayers, should they wish to do so, to, for example, evidence their income by showing a copy of a notice of assessment.

Subsection (3) provides that a person will be taken to have required or requested the tax file number, and to have committed an offence if the request was unauthorised, where another person could reasonably understand from a statement made by the first person that quotation is being required or requested.

Subsection (4) makes clear that section 8WA cannot operate to oblige any person to require or request another person's tax file number.

Section 8WB : Unauthorised recording etc. of tax file number

Section 8WB states, broadly, that a person shall not record or maintain a record of another person's tax file number or use another person's number as an identity link or divulge or communicate that number to a third person except in authorised circumstances.

The circumstances whereby a person may record, use or divulge another person's tax file number are as follows -

•

to the extent necessary to comply with an obligation imposed by a taxation law or any law that may be enacted relating to higher education of a kind referred to in proposed paragraph 202(c) of the Income Tax Assessment Act 1936 (see notes on clause 6) (paragraph (d));

•

where the person is exercising a power or performing a function under a law of a kind referred to in paragraph (d) above (paragraph (e)); or

•

where the person is acting on the other person's behalf in the conduct of the other person's affairs (paragraph (f)).

Subsection 8WB(2) applies in a similar manner to subsection 8WA(4) in making clear that section 8WB cannot operate to oblige a person to record, use or divulge another person's TFN. The section will, however, facilitate the recording, etc. of a TFN for authorised purposes, e.g., for the purpose of making required income reports to the Commissioner of Taxation where the investor, etc., chooses to quote a TFN rather than have tax withheld on the relevant income.

The penalty for conviction of an offence against new section 8WB is a fine not exceeding $10,000 or 2 years' imprisonment, or both.

Section 8WC : Conducting affairs so as to avoid file number requirements

The purpose of the offence to be created in proposed subsection 8WC(1) is to prohibit persons from structuring their investments to exploit interest thresholds proposed for pre-existing accounts with banks, building societies or credit unions ($120) and certain investments of children under 16 ($420) through the use of multiple accounts. For this purpose the subsection applies where it would be reasonable to conclude that a person had structured their investment with the sole or dominant purpose of ensuring or attempting to ensure, that:

•

amounts would not be deducted under Division 3B of Part VI of the Income Tax Assessment Act 1936 from income in respect of the investment although the person has not, under Part VA of the Act, quoted the person's tax file number in connection with the investment (subparagraph (b)(iii)); or

•

the investment is not referred to in a report under the regulations made under that Act (subparagraph (b)(iv)).

In deciding whether from a person's actions, it would be reasonable to conclude that the person was organising his or her investments for the sole or dominant purpose of ensuring or attempting to ensure that no amount would be deducted or reported as outlined above, regard would be had to:

•

the manner in which the person became an investor (subparagraph (b)(i)); and

•

any explanation given by the person (subparagraph (b)(ii)).

The penalty for each offence under subsection (1) is a fine not exceeding $10,000 or imprisonment for 2 years, or both.

Subsection (2) is an interpretative provision which defines "investment" as a kind mentioned in section 202D of the Income Tax Assessment Act 1936 and "investor" as an investor within the meaning of that section (see notes on clause 6).

Section 8WD : Application of Subdivision to Child Support Act 1986

Section 8WD provides that, for the purposes of Subdivision BA of the Principal Act only, the Child Support Act 1986 will be taken to be a taxation law, thereby ensuring that the Commissioner of Taxation in his capacity as Registrar of Child Support is able to use the file number of payers in the administration of the Child Support Act 1986.

Clause 27: Insertion of new sections

Clause 27 will insert new sections 8XA and 8XB into the Principal Act to establish new sanctions for unauthorised access to taxation records.

Section 8XA : Unauthorised access to taxation records

New section 8XA makes it an offence for a person, other than a person acting in the course of exercising powers or performing functions under a taxation law, to take action to gain access to information obtained or held by the Commissioner of Taxation.

The section will apply, for example, in the situation where an unauthorised person tries to gain access to the Tax Office computer records. The penalty for such an offence will be a fine not exceeding $10,000 or 2 years imprisonment, or both.

Section 8XB : Secrecy

Existing provisions apply, broadly, to make it an offence for a Tax Office employee to make a record of or disclose taxpayer information otherwise than in specified circumstances. New Section 8XB will introduce an equivalent offence for non-employees.

Under new subsection 8XB(1) it is to be an offence for a person to make a record of, or divulge, information about the affairs of a taxpayer that has been obtained in breach of a taxation law.

The penalty for breaching subsection (1) is $10,000 or 2 years imprisonment, or both.

New subsection 8XB(2) will ensure that subsection (1) is capable of applying in circumstances where, while it is not possible to identify a particular breach of a taxation law under which the information is obtained, it is clear that the information came from records of the Commissioner and had not been released in authorised circumstances.

Proposed subsection 8XB(3) ensures that information obtained in unauthorised circumstances in breach of subsection (1) can be returned to the Commissioner.

New subsection 8XB(4) mirrors other secrecy provisions in taxation laws by ensuring that information obtained in breach of subsection (1) cannot be produced or divulged in a court otherwise than for the purpose of carrying into effect the provisions of a taxation law.

New subsection 8XB(5) makes it clear that the provisions of the section apply to people other than officers (within the meaning of a taxation law).

Proposed subsection 8XB(6) defines two terms used in section 8XB. These are -

"taxation information" which means information about a person's affairs that has been in the possession of the Commissioner; and

"taxation secrecy provision" which is a provision of a taxation law that applies to prohibit the disclosure of information.

Clause 28:

Clause 28 will insert new section 17B in the Principal Act.

Section 17B : Injunctions to prevent contravention of secrecy provisions

New subsection 17B(1) will enable the Commissioner of Taxation to be granted a Federal Court injunction against any person disclosing or producing information in contravention of a taxation law (e.g., in contravention of new section 8XB or an existing secrecy provision).

The Federal Court is entitled to grant an interim injunction (subsection 17B(2)) or to discharge or vary an injunction (subsection 17B(3)).

In circumstances where an application has been made in relation to a person who has previously disclosed information in unauthorised circumstances, the court is to be entitled to grant an injunction whether or not it appears that the person is to disclose further information (paragraph 17B(4)(a)).

In all cases the court is to be entitled to grant an injunction where it appears likely that information will be disclosed in the absence of an injunction (paragraph 17B(4)(b)).

Under new subsection 17B(5) the power of a court to grant an injunction requiring a person to do something may be exercised if it appears likely to the court that the person will fail to do that thing in the absence of an injunction (paragraph (b)). This test need not be satisfied where the person has previously failed to act as required (paragraph (a)).

By new subsection 17B(6) the Commissioner is not required to give any undertakings as to damages when making an application for an injunction.

New subsection 17B(7) makes it clear that the powers conferred on the Federal Court under new section 17B are in addition to any other powers of the court.

PART V - AMENDMENTS OF TAXATION SECRECY PROVISIONS

Clause 29: Amendments of taxation secrecy provisions

Under clause 29 the penalty for the breach of the secrecy provisions of the following taxation laws is to be increased from $5,000 and/or imprisonment for 12 months to $10,000 and/or imprisonment for 2 years. The taxation laws to be amended in Schedule 1 to the Bill are:

•

Debits Tax Administration Act 1982

•

Fringe Benefits Tax Assessment Act 1986

•

Gift Duty Assessment Act 1941

•

Income Tax Assessment Act 1936

•

Petroleum Resource Rent Tax Assessment Act 1987

•

Sales Tax Assessment Act (No.1) 1930

•

Sales Tax Procedure Act 1934

•

Taxation Administration Act 1953

•

Taxation (Interest on Overpayments) Act 1983

•

Wool Tax (Administration) Act 1964

PART VI - AMENDMENTS OF THE INCOME TAX REGULATIONS

Clause 30: Amendments of the Income Tax Regulations

This clause provides for a number of amendments to be made to the Income Tax Regulations.

Subclause 30(1) formally refers to the "Income Tax Regulations" as meaning Statutory Rules No. 94 of 1936 as amended.

Subclause 30(2) provides that the Income Tax Regulations are to be amended as set out in Schedule 2 of the Bill.

Subclause 30(3) is a formal provision that makes it clear that the further amendment or the repeal, by regulation, of the Regulations as amended by Part VI of this Bill is not in any way prevented.

Schedule 2 : Amendments of the Income Tax Regulations

Subregulation 3(1)

Schedule 2 will amend subregulation 3(1), which defines a number of terms for the purposes of the Income Tax Regulations, by inserting two new definitions:

"employment declaration" means an employment declaration made by an employee to an employer for the purpose of section 202C of the Principal Act (see notes on clause 6).

"tax file number", in relation to an employee, is defined to mean the number issued to a person by the Commissioner either under new Division 2 of Part VA of the Principal Act or a number notified to a person, before the commencement of this Bill, as the person's income tax file number.

Subregulation 11(3)

Subregulation 11(2) of the Regulations requires every company that lodges income tax returns and which pays interest or dividends to provide statements in relation to those payments. The operation of this subregulation is to be replaced by the new tax file number reporting requirements embodied in proposed new regulation 43C (see later notes).

New subregulation 11(3) will ensure that subregulation 11(2) will not apply in relation to a period where a company is required to prepare and give the Commissioner a report under new regulation 43C. The effect of this amendment will be to ensure that the existing requirements continue until the commencement of the new financial institution reporting requirements.

Subregulation 12(1A)

New subregulation 12(1A) will require all employers, when furnishing a statement in respect of all labour employed by the employer, to include in the statement the employees' tax file numbers or a notice stating that the employees have been taken to have quoted their TFN.

Schedule 2 will also insert new Part VA in the Principal Regulations after Regulation 43.

PART VA - TAX FILE NUMBERS

Schedule 2 will insert four new regulations - regulations 43A, 43B, 43C and 43D - in new Part VA.

Regulation 43A : Interpretation

This regulation contains the following definitions of terms used in new Part VA of the Regulations.

"investment body" is defined to have the same meaning as in section 202D of the Act and will therefore include a financial institution, a government body or corporation, a solicitor, the manager of a unit trust and a public company.

"investment reference number" in relation to an investment of a kind mentioned in section 202D of the Act means a number which the investment body uses for identifying the investments of investors.

"investor" is defined to have the same meaning as in section 202D of the Act and will therefore include:

-

the person holding an account with a financial institution;

-

the person in whose name money is lent to a government body or a body corporate;

-

the person for whose benefit money deposited with a solicitor is to be invested or lent;

-

the person in whose name units in a unit trust are held; and

-

the holder of shares in a public company.

"phasing-in period" is defined to have the same meaning as in Section 202DA of the Principal Act and will therefore be the period of 12 months commencing on 1 July 1990.

"quarter" means a period of time commencing on the 1st of January, April, July and October each year.

Regulation 43B : File number reports

Under subregulation 43B(1), an investment body is required to provide to the Commissioner written reports of all investments where a tax file number has been quoted under Part VA of the Act during a particular reporting period.

By subregulation (2), the investments affected are those made in a reporting period after 30 June 1990.

Under subregulation (3) the investment body has one month after the end of a reporting period to give the reports to the Commissioner unless a request for an extension has been granted in writing.

Subregulation (4) sets out the information to be contained in the report:

•

the investor's full name and address (paragraph (a));

•

the investor's tax file number (paragraph (b)); and

•

the investment reference number, if any, in relation to the investment (paragraph (c)).

Subregulation (5) is an interpretation provision and defines "reporting period" as:

•

a quarter; or

•

such other longer period as allowed by the Commissioner and stated in a notice under subregulation (6).

Under subregulation (6), the Commissioner may inform an investment body that the body's reporting period is the period as specified in the notice. Such a period must be greater than 3 months. A decision refusing to give such a notice is reviewable by the Administrative Appeals Tribunal (see notes on regulation 43D).

A person who fails or refuses to provide the information required under new regulation 43B may be guilty of an offence by virtue of existing section 8C of the Taxation Administration Act and may be punishable, on conviction for a first offence, by a fine not exceeding $2000.

Regulation 43C : Annual investment income reports

Under subregulation 43C(1) an investment body is required to prepare and give to the Commissioner a yearly written report in relation to all investments. The purpose of the report is to match income received in respect of those investments to income returned by taxpayers.

Under subregulation (2) the requirement to provide annual reports does not apply to a financial year that ended on or before the end of the phasing-in period, i.e., the requirements apply for investments in existence from 1 July 1991.

Under subregulation (3) the report is required within 4 months after the end of the financial year unless the Commissioner has given written notice extending this. The refusal to give an extension of the reporting period is reviewable by the Administrative Appeals Tribunal (see notes on regulation 43D).

Under subregulation (4) the report shall contain, in respect of each investment:

(a)

the person's full name;

(b)

the person's tax file number (where the option to quote the number has been exercised);

(c)

where the person has not quoted the number -

(i)

the person's address; and

(ii)

if the person is to be taken to have quoted the number under Division 5 of Part VA of the Principal Act - a notation, in the manner approved by the Commissioner, to that effect;

(d)

the total amount of income paid or credited to the person by the investment body during the financial year;

(e)

the total amount of any deductions made because of non-quotation of a TFN in respect of the income; and

(f)

the investment reference number.

Under subregulation (5) the report is required to provide the information detailed above where the total amount of investment income in respect of the investment, paid or credited to the person by the investment body during the financial year exceeds $120 in relation to accounts or deposits with financial institutions in existence at 1 July 1991 or, where the investment was made on or after that date, $1.

Under subregulation (6) income is taken to have been paid to a person when it is reinvested, accumulated or capitalised (paragraph (a)) or when the person becomes presently entitled to a share of income from a unit trust (paragraph (b)) or when the person becomes obliged under section 159GQ of the Act to include the income in the person's assessable income (paragraph (c)).

Under subregulation (7) an investment body with less than 10 investors is not required to give a separate annual investment income report to the Commissioner. In such cases details as required by regulation 43C are to be included in the investment body's annual income tax return (subregulation 8).

A person who fails or refuses to provide the information required under new regulation 43C may be guilty of an offence by virtue of section 8C of the Taxation Administration Act and may be punishable, on conviction for a first offence, by a fine not exceeding $2000.

Regulation 43D : Reviewable decisions

New regulation 43D enables particular decisions made by the Commissioner to be reviewed by the Administrative Appeals Tribunal.

Under paragraph (a) the Commissioner can refuse to extend the time referred to in subregulation 43B(3). This subregulation requires quarterly file number reports to be given to the Commissioner within one month after the end of the quarter. The Commissioner may grant an extension of this time. In a case where it is refused the investment body can have the decision reviewed.

Paragraph (b) enables a decision to be reviewed where the Commissioner has refused to give notice under subregulation 43B(7). Under that subregulation the Commissioner can extend the period of a file number report to more than 3 months.

Paragraph (c) refers to subregulation 43C(3). An investment body has 4 months to give the Commissioner their annual investment income report. The Commissioner may give an extension of this period and where a decision has been made refusing to grant an extension the investment body may have the decision reviewed by the Tribunal.

A decision varying or revoking any of the notices given under subregulation 43B(3), 43B(7) or 43C(3) may also be subject to review by the Administrative Appeals Tribunal (paragraph (d)).

Subregulation 54AB(3)

Subregulation 54AB(3) prescribes the income tax instalment amount in relation to an employee in respect of a week or a part of a week.

Three new paragraphs - paragraphs (ea), (eb) and (m) - are to be inserted in subregulation 54AB(3) for the purpose of prescribing the income tax instalment amount in relation to an employee who has failed to quote a tax file number on an employment declaration as provided for in Division 3 of new Part VA of the Act. By the combined operation of new paragraphs (ea) and (m) of subregulation 54AB(3) the rate of deductions in such cases for a resident employee is 50.25 percent. For prescribed non-residents (a defined term), by the combined operation of paragraphs (eb) and (m), the rate of deduction is 49 percent.

Amendment of Regulations 54B, 54BA, 54C, 54CA, 54D, 54DA, 54DAA and 54DAAA

The above regulations are to be amended to exclude from their operation, employees to whom new regulation 54DAAB applies (see following notes). The new regulation is to apply to employees who are taken not to have quoted a tax file number on an employment declaration.

Regulation 54DAAB : Rate of deductions - employee who has failed to quote a tax file number

Under new subregulation 54DAAB(1) where an employee is taken to have not quoted a tax file number on an employment declaration, the prescribed rate of deductions to be made by the employer from weekly or part-weekly earnings for the purposes of section 221C of the Act calculated in accordance with regulation 54AB is the income tax instalment amount in respect of that week or part week (broadly, 50.25 percent of the relevant earnings - see notes on regulation 54AB).

Under subregulation (2) this regulation will not apply to:

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an employee under 16 years of age who receives a salary or wage of an amount from which the employer would not be obliged to make deductions (currently $94 per week where the general exemption applies)(paragraph (b)); or

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an employee in respect of whom Part VA of the Act does not provide for the making of an employment declaration to his or her employer, i.e., the recipients of certain pensions and benefits (paragraph (a)).

Paragraph 54DAB(b)

Where a salary or wage is paid to a resident employee for casual, domestic employment which is not in connection with the employer's trade, business or profession, income tax instalment deductions are not required to be made if the salary or wage does not exceed $40 per week.

The amount is to be increased from $40 per week to $60 per week to ensure that people in receipt of such incomes, in particular children under 16 undertaking casual babysitting or lawnmowing jobs, will be excluded from the quotation arrangements.

Subregulation 54DAC(2A)

Under subregulation 54DAC(2) an employee cannot furnish an instalment declaration to an employer while another declaration furnished to another employer is in force.

New subregulation 54DAC(2A) will ensure that this provision does not preclude the furnishing of employment declarations, by which an employee quotes a TFN, to more than one employer.

Regulation 54DACA

New subregulation 54DACA(6) provides that a Medicare declaration can be incorporated in the same form as an employment declaration.

Subregulation 54DAD(5)

New subregulation 54DAD(5) provides that an instalment declaration furnished by an employee to an employer, an instalment declaration furnished by an employee directly to the Commissioner and a Medicare levy variation declaration may be incorporated in the same form as an employment declaration.

Subregulations 54DAG(5), (6) and (7)

Substituted subregulations 54DAG(5), (6) and (7) and new subregulation (7A) will provide, in simpler terms than the current regulations, that a declaration will cease to have effect upon either the employee ceasing employment with the employer to whom the declaration was given or a determination made by the Commissioner as published in the Gazette in respect of all declarations or a specified class of declaration from the date fixed by the determination. The changed wording reflects that used for employment declarations.

Subregulation 54DAK(1)

By new paragraph (ab) regulation 54DAK is not to apply to employees who are taken not to have quoted a tax file number.

Regulation 54DAN

Substituted regulation 54DAN will, where an employee makes a declaration, require the employer to countersign an original instalment declaration, forward the declaration within the specified forwarding period and retain the copy of the declaration until a new declaration is given or until the 1 July following the day of cessation of the declaration. These requirements are consistent with existing regulation 54DAN.

The forwarding period will be 28 days or such longer period as notified by the Commissioner.

Because an employment declaration may be forwarded after more than 28 days in circumstances where an employee has applied for a TFN, subregulation 54DAN(4) permits an instalment declaration attached to the employment declaration to be forwarded at the later date.

Subregulation 54DAO(2)

The definition of "prescribed non-resident" is to be inserted into subregulation (2) and will mean a person who, at all relevant times is a non-resident, not being a person to whom a pension, allowance or benefit on which the person was liable to be assessed and pay tax is or was payable under -

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the Veterans Entitlements Act 1986;

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subsection 4(6) of the Veteran's Entitlements (Transitional Provisions and Consequential Amendments) Act 1986;

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a provision of the Social Security Act 1947 other than Part XIII of that Act; or

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the Tuberculosis Act 1948.

(See the definition in existing regulation 54A.)

Regulation 54DAP

New subregulation (1A) will provide that where an employee receives an eligible termination payment and the employee is not taken to have quoted a TFN, the prescribed rate of deductions to be made from that payment is -

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if the employee is a resident, the maximum marginal rate plus Medicare levy (currently 50.25 per cent) (paragraph (c)); or

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if the employee is a non-resident, the maximum marginal rate (currently 49 per cent)(paragraph (d)).

The rates are defined by reference to the Third Schedule.

New subregulation (1A) provides that an employee will be taken to have quoted a TFN in an eligible termination statement if:

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a TFN is quoted in relation to a statement of termination payment in the same manner as provided for under Part VA of the Principal Act for an employment declaration (paragraph (b)); or

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the employee is not an employee in respect of whom Part VA of the Act provides for the making of an employment declaration to his or her employer, i.e., the recipients of certain pensions or benefits (paragraph (a)).

Regulation 54DAQ

New subregulation (2A) provides for an employee in receipt of an eligible termination payment to quote his or her tax file number on a statement of termination payment prior to the payment being made. (Failure to quote will result in tax being withheld at the maximum marginal rate, plus Medicare levy)

Regulation 54ZED

The effect of new subregulation (1A) is that where a TFN is not quoted in respect of a prescribed payment, the amount to be deducted from the payment will be the maximum marginal rate plus Medicare levy (currently 50.25 per cent).

Division 3B - Collection of tax in respect of certain payments

Regulation 54ZEK : Minimum amounts of income from which deductions to be made for failure to quote tax file number

New subregulation 54ZEK(1) will prescribe the amounts of income from which deductions are to be made where a TFN is taken not to have been quoted in respect of income from investments, other than shares, held by a child under 16 years of age. Deductions are not to be made from the income if it is less than $420 per annum or less than a proportion of $420 in relation to the proportion of the year in respect of which the income is payable.

Under new subregulation (2) the minimum amount of income for which deductions are to be made if a TFN is not quoted in respect of investments (other than where subregulation (1) applies) in existence at 1 July 1991 will be $120 or a proportion of $120 in relation to the proportion of the year in respect of which the income is payable. This subregulation applies only to investments in interest bearing accounts and deposits with financial institutions.

Under subregulation (3) the minimum amount of income from which deductions are otherwise to be made where a TFN is not quoted is to be $1.

Regulation 54ZEL : Ascertaining amount to be deducted for failure to quote tax file number

Under new regulation 54ZEL the deduction to be made on all income in relation to investments where a tax file number has not been quoted, and no exemption applies, is the maximum marginal rate plus Medicare Levy (currently 50.25 per cent).

Regulation 65

Subregulation 65(2) is to be inserted into the Regulations to provide that regulation 65 is not to apply in relation to new regulation 43B or 43C. The effect of the amendment will be to bring the sanctions for a failure to comply with the reporting requirements provided for in these regulations within the scope of existing sections 8C and 8E of the Taxation Administration Act 1953.

Those sections, which apply generally in relation to circumstances where a person fails to comply with requirements of a taxation law, incorporate increased penalties for repeat offences. Broadly, the penalty for a first offence is a penalty not exceeding $2000. For second or subsequent offences the maximum penalty increases to $4000. In the most serious cases there is the option under existing sections 8C and 8E for a third or subsequent offence to attract a penalty not exceeding $5000 and/or 12 months imprisonment.