House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon Wayne Swan MP)

Chapter 6 Miscellaneous amendments

Outline of chapter

6.1 Schedule 6 to this Bill makes miscellaneous amendments to the taxation laws. Most of them are of a minor nature.

Context of amendments

6.2 The amendments seek to ensure the taxation law operates as intended, by correcting technical or drafting defects, removing anomalies and addressing unintended outcomes. These amendments are part of the Government's commitment to the care and maintenance of the taxation laws.

6.3 The package of amendments includes addressing issues raised through the Tax Issues Entry System (TIES). The TIES website (www.ties.gov.au), which the Australian Taxation Office (ATO) and the Treasury jointly operate, provides a vehicle for tax professionals and the general public to raise issues relating to the care and maintenance of the tax system. The relevant part of the explanatory memorandum identifies TIES issues.

Summary of new law

6.4 The issues these amendments deal with include:

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rectifying incorrect terminology;

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correcting grammatical and spelling errors;

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repealing inoperative material;

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clarifying ambiguities; and

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ensuring that provisions are consistent with their original policy intent.

6.5 Part 1 of this Schedule concerns the capital gains tax (CGT) main residence exemption for a replacement dwelling; Part 2 concerns the CGT small business retirement exemption; Part 3 concerns a waiver connected with proceeds of crime proceedings; Part 4 has amendments relating to higher education; Part 5 concerns pay as you go (PAYG) withholding from delayed payments for termination of employment; Part 6 concerns administrative penalties because of false or misleading statements; Part 7 concerns offsets against the superannuation charge; Part 8 concerns the status of certain superannuation funds; Part 9 makes technical corrections; Part 10 repeals redundant material; and Part 11 makes other minor amendments.

6.6 The more significant amendments are:

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ensuring that a replacement dwelling that is eligible for the compulsory acquisition roll-over is also treated as a continuation of the original dwelling for CGT main residence exemption purposes (this issue was identified through TIES 0007-2009) (see Part 1, items 1 to 6);

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correcting an unintended effect on the operation of the small business CGT retirement exemption made by the Superannuation Legislation Amendment (Simplification) Act 2007 which inadvertently exposed payments a trust makes to a CGT concession stakeholder under the retirement exemption to CGT event E4 (this issue was identified through TIES 0045-009) (see Part 2, items 7 to 11);

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enabling the Commissioner of Taxation (Commissioner) to waive tax-related liabilities in appropriate cases to facilitate proceedings under the Proceeds of Crime Act 2002 (see Part 3, items 12 to 14);

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extending the administrative penalty for making a false or misleading statement to cover statements that do not produce a shortfall amount (see Part 6, items 58 to 105); and

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clarifying the operation of an anti-avoidance provision that applies to certain capital benefits paid by a company (see Part 11, items 124 and 125).

6.7 All of the amendments in this Schedule commence from Royal Assent unless otherwise stated.

Detailed explanation of new law

Part 1 - Main residence exemption for replacement dwelling

Part 2 - Small business retirement exemption

Part 3 - Waiver connected with proceeds of crime proceedings

Part 4 - Amendments relating to higher education

Part 5 - PAYG withholding from delayed payments for termination of employment

Part 6 - Administrative penalties for false or misleading statements

6.8 Subdivision 284-B in Schedule 1 to the TAA 1953 provides an administrative penalty for making a false or misleading statement to the Commissioner (or to another entity exercising a power or performing a function under a taxation law). That administrative penalty regime provides a simpler and more cost effective approach to penalties than prosecuting all offences.

6.9 The penalty is set to take account of the extent of the taxpayer's culpability and any behaviour that helps or frustrates the Commissioner's investigation after the statement is made.

6.10 The penalty is also based on the shortfall amount caused by the statement being false or misleading. That ensures that the penalty increases as the consequences become more serious. However, it also means that a statement that does not produce any shortfall amount is not penalised, even though it is false or misleading. For such a statement, prosecuting an offence is generally the only remedy currently available.

6.11 The amendments extend the existing administrative penalty regime to cover false or misleading statements that do not directly produce a shortfall amount.

6.12 They also extend the regime to cover some false or misleading statements made to entities other than the Commissioner.

6.13 All references in this part are to provisions in Schedule 1 to the TAA 1953 unless otherwise indicated.

Liability for the penalty (Division 284)

6.14 Section 284-75 creates a liability for a penalty for making a false or misleading statement. It is amended to remove the need for the statement to lead to a shortfall amount. It is also amended to extend it to cover some statements that are made neither to the Commissioner nor to another entity exercising a power or performing a function under a taxation law. Those statements must be statements that the tax law either requires be made or permits to be made. So, for instance, they would include the statements the tax law requires the trustee of a super fund to provide to the fund's members and they would also include declarations that employees may opt to give to their employers to reduce the amount of tax withheld from their wages. [Schedule 6, items 60, 61, 66, 67, 70 and 72, paragraphs 274-75(1)(b) and (c) and (2)(c), subsection 284-75(4) and items 1 to 4 in the table in subsection 284-90(1)]

6.15 The penalty applies if a taxpayer makes a false or misleading statement or if the taxpayer's agent makes the statement for the taxpayer. The amendments make it clear that outcome applies even if a statement an agent makes is not made in an approved form. [Schedule 6, items 58, 59 and 62 to 65, paragraphs 284-75(2)(a) and (b), subsection 284-75(1) and section 284-25]

The amount of the penalty

6.16 Currently, the penalty starts with the 'base penalty amount', which is calculated by reference to the shortfall amount and the taxpayer's culpability - it is 25 per cent of the shortfall if the taxpayer merely fails to take reasonable care, 50 per cent if the shortfall is caused by recklessness, and 75 per cent if the shortfall is caused by an intentional disregard of the law. The amendments provide a base penalty amount for false or misleading statements that do not cause any shortfall amount. The amount is 20, 40 or 60 penalty units depending on whether the taxpayer did not take reasonable care, was reckless, or intentionally disregarded the law. Under section 4AA of the Crimes Act 1914 , a penalty unit is currently $110. [Schedule 6, item 71, items 3A to 3C in the table in subsection 284-90(1)]

6.17 The amendments also ensure that there can be only one base penalty amount for each false or misleading statement. [Schedule 6, item 74, subsection 284-90(2)]

6.18 Those base penalty amounts are set to provide a sufficient incentive for taxpayers to take care in the taxation statements they make. Where the statement merely involves a failure to take reasonable care, the amount reflects the existing penalty imposed by section 288-85 on trustees of self-managed super funds. The increase in the amount for more serious cases follows the proportions that apply under the existing base penalty amount rules.

6.19 Section 284-220 provides for a base penalty amount to be increased by 20 per cent if the taxpayer takes steps to prevent the Commissioner learning that a statement was false or misleading or if the taxpayer has been subject to a previous penalty for making a false or misleading statement.

6.20 Section 284-225 provides for the penalty to be reduced by 20 per cent if the taxpayer informs the Commissioner about a false or misleading statement after the Commissioner announces an audit. If the taxpayer informs the Commissioner before an audit is announced, and before any public request from the Commissioner to disclose a relevant scheme or transaction, the reduction is 80 percent (or 100 per cent if the shortfall amount is $1,000 or less).

6.21 The amendments ensure those provisions also apply to statements that do not produce a shortfall amount.

6.22 Under the amendments, the increase in a base penalty amount under section 284-220 applies if the taxpayer has a previous penalty of the same sort. This is a minor change from the current law (which increases the base penalty amount if there was a similar penalty for a previous accounting period ). The change is necessary because false or misleading statements that do not lead to a shortfall amount will not always be related to an accounting period. [Schedule 6, items 83 to 87, paragraphs 284-220(1)(c) to (e)]

6.23 If there is no shortfall amount, the 100 per cent reduction for a shortfall amount under $1,000 could not apply. Therefore, the amendments reduce the penalty in those cases to nil if the taxpayer informs the Commissioner before an audit is announced. [Schedule 6, item 91, subsection 284-225(4A)]

6.24 The Commissioner can also exercise his existing power under section 298-20 to remit some or all of the penalty.

6.25 Directors of a corporate trustee of a self-managed super fund that becomes liable for the penalty are themselves jointly and severally liable to pay that penalty. That preserves the existing outcome provided for by section 288-85, which is repealed by the amendments. [Schedule 6, item 75, section 284-95]

Exclusion from liability

6.26 Section 284-215 does two things. First, it reduces the penalty to the extent that the shortfall amount is caused by the taxpayer treating the law as applying in a way that was consistent with the Commissioner's advice or general practice. Second, it reduces the penalty to nil if the taxpayer takes reasonable care in making a false or misleading statement.

6.27 The amendments split section 284-215 into two parts so that each can be located in its proper place in Division 284. They also ensure that the reduction in penalty for relying on the Commissioner's advice or general practice also applies in cases where there is no shortfall amount. For example, if a taxpayer makes a statement that is false or misleading but is consistent with the Commissioner's published view, the penalty is reduced accordingly. [Schedule 6, items 67, 79 and 88, subsection 284-225(5) and sections 284-215 and 284-224]

6.28 The provision that reproduces the effect of the existing subsection 284-215(2) is slightly changed to ensure that it extends to all false or misleading statements rather than just to those that produce a shortfall amount. It excludes taxpayers from liability for any penalty if they take reasonable care in making the statement. If their agent makes the statement, both the taxpayer and the agent need to take reasonable care before the exclusion from liability applies. [Schedule 6, item 67, subsection 284-75(5)]

Consequential amendments

6.29 A number of consequential amendments deal with section 284-215's change in location. [Schedule 6, items 68, 69, 73, 76 to 78 and 95 to 97, subsections 284-80(1) ( note), 284-90(1), 284-150(2) ( note) and 361-5(1) ( notes) and (3) and section 284-160]

6.30 A number of other minor amendments are also made as a consequence of the main amendments. [Schedule 6, items 80 to 87, 89 to 93 and 98, subsections 284-220(1) and 284-225(1) , ( 2) , ( 4A) and (5) and section 284-225 (heading) in Schedule 1 to the TAA 1953 and paragraph 35(1)(b) of the Product Grants and Benefits Administration Act 2000]

6.31 The amendments repeal section 288-85, which penalises trustees for statements that do not directly produce a shortfall amount. This is because the general extension of the penalty regime now covers that case. [Schedule 6, item 94, section 288-85, Division 288]

6.32 Consequential amendments reflect the fact that section 288-85 is replaced by the general penalty regime. [Schedule 6, items 99 and 100, subsection 39(1B) and section 38A (subparagraph (ab)(i) of the definition of 'regulatory provision') of the Superannuation Industry (Supervision) Act 1993]

6.33 The Tax Agent Services (Transitional Provisions and Consequential Amendments) Act 2009 introduced a safe harbour for taxpayers who use the services of a tax agent. As long as the taxpayer provides the agent with all relevant information and the agent takes reasonable care, the taxpayer will not incur a penalty for making a false or misleading statement that produces a shortfall amount.

6.34 After the safe harbour commences on 1 March 2010, the amendments in this Act extend the safe harbour to also cover cases where the statement does not produce a shortfall amount. [Schedule 6, items 102 to 105, subsections 284-75(1A) , ( 1B) , ( 5) ( heading) , ( 6) and (7), and item 3 in the table in clause 2]

Application

6.35 The amendments apply in relation to things done (such as statements being made) after the amendments commence (which is the start of the day following Royal Assent). [Schedule 6, item 101 and item 2 in the table in clause 2]

Part 7 - Offset against superannuation guarantee charge

Part 8 - Status of certain superannuation funds

Part 9 - Technical corrections

Part 10 - Repeal of redundant material

Part 11 - Other minor changes