Supplementary Explanatory Memorandum
(Circulated by the authority of the Acting Treasurer, the Hon J.S. Dawkins, M.P.)INTRODUCTORY NOTE
This supplementary explanatory memorandum explains two amendments proposed to the Taxation Laws Amendment Bill (No. 5) 1989 as introduced into the House of Representatives.
GENERAL OUTLINE
The amendments will amend the operation of clause 36 of the Bill to give effect to an announcement by the Acting Treasurer on 22 November 1989.
Clause 36 of the Bill inserts a new Division - Division 1B - in Part VI of the Income Tax Assessment Act 1936 introducing a new system for the collection of tax from companies, superannuation funds and other retirement benefit funds (called "relevant entities").
Amendments (1)-(7) will apply in respect of a relevant entity that has a liability to make an initial payment of tax in respect of income of a year of income, being 85 per cent of notional tax or (if a lesser amount) the estimated total liability, and will change the date by which the entity will be required to make the initial payment from 15 July to 28 July following the end of the relevant year (or the equivalent date for entities with a substituted accounting period).
The second amendment - amendment (8) - is a transitional measure applicable for income tax payable in respect of income of the year of income ending on 30 June 1990, or a substituted accounting period in lieu of that year.
As a consequence of the amendment, a relevant entity which has a notional tax of more than $1,000 but less than $400,000, or which has a notional tax of $400,000 or more but estimates its tax to be in the range $1,000 to $400,000, will be able to elect to make a single final payment on 15 December (or the equivalent date for entities with a substituted accounting period). In the absence of an election, an entity in this situation must make an initial payment of 85 per cent of its notional tax, or estimated liability, on 28 July and pay the balance on 15 March (or the equivalent dates).
FINANCIAL IMPACT
The amendments are estimated to cost $25 million in 1989-90.
NOTES ON AMENDMENTS
Clause 36 of the Bill inserts a new Division - Division 1B - in Part VI of the Income Tax Assessment Act 1936 to replace the present tax collection arrangements for companies. The new system also operates for collection of tax from superannuation funds and other retirement benefit funds. The companies and funds to which the Division applies are called "relevant entities".
A detailed explanation of the new collection system is contained in the notes on clause 36 in the explanatory memorandum to the Bill.
The amendments to clause 36 will modify the proposed collection system in two ways. Amendments (1)-(7) will amend proposed section 221AP in clause 36 of the Bill by specifying 28 July next following the year of income as the date by which an initial payment of tax must be made. The initial payment of tax is the instalment of tax, being 85 per cent of the entity's notional tax or, if a lesser amount, the estimated liability in respect of income of a year of income, certain entities will be required to pay on income of the 1989-90 and subsequent income years.
These amendments will also make consequential amendments to proposed section 221AN which modifies the dates on which certain payments of tax are due for relevant entities with substituted accounting periods. For relevant entities using a substituted accounting period the initial payment will be required on the 28th day of the first month following the end of the accounting period, subject to no initial payment being due before 28 January for entities that balance on or before 31 December in lieu of the succeeding 30 June.
Payments of tax must be made with consequential amendment to proposed new section 221AN which modifies the dates on which certain payments of tax are due for relevant entities with substituted accounting period.
Amendment (8) will amend proposed section 221AU in clause 36 of the Bill to allow a relevant entity with a notional tax, or an estimated actual liability for the income year, of $1,000 or more and less than $400,000, to elect to pay the total liability on the 15th day of the sixth month after the year of income or substituted accounting period. In the absence of an election, affected entities will be required to make an initial and final payment of tax on the basis outlined earlier.
This amendment is of a transitional nature and has effect only for the year of income ending on 30 June 1990.