Senate

Revised Explanatory Memorandum

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

Chapter 6 PAYG withholding where no ABN is quoted

Outline of chapter

6.1 Schedule 6 to this bill amends the ITAA 1997 and the TAA 1953 to ensure that the PAYG no ABN withholding event will apply to enterprise-to-enterprise transactions in Australia.

Context of amendments

6.2 At present, the PAYG no ABN withholding provision, section 12-190 of Schedule 1 to the TAA 1953, only applies to supplies that a supplier makes 'in the course or furtherance of an enterprise carried on in Australia' (paragraph 12-190(1)(a)). In addition, there is an exemption for 'payments made otherwise than in the course or furtherance of an enterprise carried on in Australia by the payer' (paragraph 12-190(4)(a)).

6.3 The PAYG no ABN withholding is intended to complement the GST and ABN arrangements and apply to enterprise-to-enterprise transactions. However, the definition of 'carried on in Australia' in the ITAA 1997 only covers businesses. This is because this definition links to the definition of 'permanent establishment', which is a place where a person carries on a business . This means that it is arguable that section 12-190 only applies to business-to-business transactions. As a result of this unintentionally narrow definition non-business enterprises, such as governments and non-profit organisations, are not required (or able) to withhold from their payments when a supplier fails to quote its ABN. This is contrary to the policy intention of the PAYG no ABN withholding event.

6.4 The geographical application of the no ABN withholding rules is currently inconsistent with the concept of 'Australia' as defined in the ABN Act. The ABN Act definition is narrower as it does not include any external Territory, but does include certain installations. Section 12-190 needs to be amended to have the same geographical operation as the ABN Act.

6.5 The amendments will ensure that the original objectives of the no ABN withholding provisions are fully implemented.

Summary of new law

6.6 The amendments will remove the definition of 'carried on in Australia' from the ITAA 1997. This will mean the expression will have its ordinary meaning and the operation of the no ABN withholding event will not be restricted in its operation to just business-to-business transactions.

6.7 The no ABN withholding event will have the same geographical application as the ABN law.

Detailed explanation of new law

6.8 The amendments remove the definition of 'carried on in Australia' from section 995-1 of the ITAA 1996. Section 12-190 is the only provision in which this definition is used. The expression will then have its ordinary meaning. [Schedule 6, item 1]

6.9 Section 12-190 is amended to have the same geographical operation as the ABN Act by inserting new subsection 12-190(7). The new subsection provides that in working out whether an enterprise is carried on in Australia for the purposes of applying section 12-190, external Territories of Australia are ignored. Installations that are deemed to be part of Australia by section 5C of the Customs Act 1901 will be part of Australia for the purposes of the no ABN rules. This amendment will ensure that an enterprise is to be treated as carried on in Australia only where it would be treated as carried on in Australia under the ABN Act. [Schedule 6, item 2, subsection 12-190(7)]

Application and transitional provisions

6.10 The amendments will apply to payments made after Royal Assent. [Schedule 6, item 3]