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:
| APPLICATION | WHO IS EXEMPT? | RESULT OF NON-QUOTATION |
|---|---|---|
| People commencing employment with an employer after a date to be proclaimed | Children under 16 years of age provided weekly earnings remain below the threshold for payment of tax instalment deductions. This is currently $94.00 per week where the general exemption is claimed. | Employer to deduct tax instalments from salary or wages at a rate equal to the maximum marginal rate of deductions plus Medicare Levy. This currently equates to 50.25 per cent. |
| ALL employees* on 1 April 1989 (a fresh instalment declaration will also be required at that date) | People in receipt of any parts of an age, invalid, wives', carers', service or widows' pension or recipients of supporting parents or special benefits. | Employer to deduct tax instalments from salary or wages at a rate equal to the maximum marginal rate of deductions plus Medicare Levy. This currently equates to 50.25 per cent. |
| *For tax purposes "employees" includes recipients of unemployment and sickness benefits. | ||
| CATEGORY OF INVESTMENT | APPLICATION DATES | WHO IS EXEMPT* |
|---|---|---|
| Interest Income | ||
| - Banks, building societies, credit unions | . Pre-existing interest-bearing accounts and deposits continuing beyond 30 June 1991 unless interest paid or credited is below $120 p.a. | . Children under 16 years of age to the extent that interest payable is below $420 p.a. |
| - Banks, building societies, credit unions | . Pre-existing interest-bearing accounts and deposits continuing beyond 30 June 1991 unless interest paid or credited is below $120 p.a. | . Pensioners in receipt of any part of an age, invalid, wives', carers', service or widows' pension and recipients of supporting parents or special benefit. |
| - Government and semi-government bodies | . All pre-existing interest-bearing accounts or deposits continuing beyond 30 June 1991. | . Pensioners in receipt of any part of an age, invalid, wives', carers', service or widows' pension and recipients of supporting parents or special benefit. |
| - Companies. | . All new interest-bearing accounts or deposits opened or made on or after 1 July 1991. | . Pensioners in receipt of any part of an age, invalid, wives', carers', service or widows' pension and recipients of supporting parents or special benefit. |
| - Solicitors' trust accounts | . All new interest-bearing accounts or deposits opened or made on or after 1 July 1991. | . Pensioners in receipt of any part of an age, invalid, wives', carers', service or widows' pension and recipients of supporting parents or special benefit. |
| SANCTION FOR NON-QUOTATION: | ||
| Interest payer to withhold from any interest paid or credited after 1 July 1991 an amount equal to 50.25 percent.** | ||
| Unit trust income | ||
| . Pre-existing investments continuing beyond 30 June 1991 irrespective of the amount of income derived from that investment. | . Children under 16 years of age to the extent that income payable on that investment remains below $420 p.a. | |
| . Pre-existing investments continuing beyond 30 June 1991 irrespective of the amount of income derived from that investment. | . Pensioners in receipt of any part of a pension/benefit, as above. | |
| . New investments made on or after 1 July 1991. | . Pensioners in receipt of any part of a pension/benefit, as above. | |
| SANCTION FOR NON-QUOTATION: | ||
| Unit trust to withhold from any income distribution entitlement after 1 July 1991 an amount equal to 50.25 percent.** | ||
| Dividend Income | ||
| . Pre-existing shareholders continuing beyond 30 June 1991. | . Pensioners in receipt of any part of a pension/benefit as above. | |
| . New purchase of shares on or after 1 July 1991. | ||
| SANCTION FOR NON-QUOTATION: | ||
| Public company to withhold from unfranked and partly-franked *** dividends an amount equal to 50.25 percent.** | ||
| * Arrangements under which exemption may be obtained are explained elsewhere in this Explanatory Memorandum. | ||
| ** The rate of 50.25 percent will apply irrespective of whether the investor is an individual, a company or otherwise. | ||
| *** A withholding from a partly-franked dividend will be limited on a pro-rata basis to that proportion of the dividend that is unfranked. | ||