Senate

Explanatory Memorandum

(Circulated by the authority of the Treasurer,the Hon John Dawkins, M.P.)

Clauses involved in the proposed amendments

Preliminary

Clause 1: stipulates the short title of the Act as being the Insolvency (Tax Priorities) Legislation Amendment Act 1993.

Clause 2: stipulates the commencement date of the provisions of the Bill.

Income Tax Assessment Act 1936

Clause 3: defines "Principal Act" as being the Income Tax Assessment Act 1936.

Clause 4: extends the meaning of "tax" in section 215 of the Principal Act to refer to liabilities in relation to unremitted amounts.

Clause 5: extends the meaning of "tax" and "taxpayer" in section 218 of the Principal Act to refer to liabilities in relation to unremitted amounts.

Clause 6: relocates the liability of an employer under subsection 221P(1) when deductions made are not applied in the appropriate manner in relation to purchasing tax stamps. The liability is relocated to new subsection 221G(2D) .

Clause 7 : will insert new subsection 221P(1A) into the Principal Act to ensure the Commissioner's priority will not apply to amounts deducted under Division 2 of Part VI which become payable after 30 June 1993.

Clause 8 : inserts four new subsections into section 221R in Division 2 of the Principal Act. The first subsection extends the meaning of amounts payable under Division 2 to include amounts and penalties in respect of unpaid estimates under new Division 8 and penalties payable in relation to those amounts under new Division 9. The second subsection covers the application of those amounts when recovered and the third subsection deals with statements in recovery proceedings. The fourth ensures the new terms referred to in Division 2 have the meaning given to those terms in New Division 8.

Clauses 9 and 10 : are comparable to clauses 7 and 8 and relate to deductions under Division 3A of Part VI.

Clauses 11 and 12 : are comparable to clauses 7 and 8 and relate to deductions under Division 3B of Part VI

Clauses 13 : preserves the current operation of the priority provision in subsection 221YHZD(3) in Division 3B in respect of TFN withholding tax payable before 1 July 1993.

Clauses 14 and 15 : are comparable to clauses 7 and 8 and relate to deductions under Division 4 of Part VI.

Clause 16: insert new Divisions 8, 9 and 10 into the Principal Act. The sections in the new Divisions are summarised below.

Division 8 - Prompt recovery, through estimates and payment agreements, of amounts not remitted under Divisions 2, 3A, 3B and 4.

Subdivision A - Object and Interpretation

Section 222AFA: explains the purpose of new Division 8 as enabling the Commissioner to take prompt and effective action to recover unremitted amounts. The action will be facilitated through the making of an estimate of the amounts deducted and commencing recovery proceedings based on the estimate.

Section 222AFB: introduces new terminology for the proposed arrangements whereby the Commissioner will be able to commence recovery proceedings based on an estimate.

Section 222AFC: explains the concepts of unpaid amount of a liability and unpaid amount of an estimate.

Subdivision B - Making, reducing and revoking estimates

Section 222AGA: describes the circumstances when the Commissioner may make an estimate of the unpaid amount of a liability as well as the basis for the estimate.

Section 222AGB: explains the details of the estimate notice which the Commissioner must send to the person or the person's trustee (if applicable), when the Commissioner makes an estimate. The estimate notice will invite the person liable to make a statutory declaration setting out the actual liability. Where a declaration is made, the estimated liability will be reduced to the actual amount.

Section 222AGC: explains that an estimate is to be reduced if the person liable, or the person's trustee, gives a statutory declaration to the effect that the actual amount is less than the estimate. The section also provides that the Commissioner can reduce an estimate at any time. Where the estimate is reduced for a reason other than the receipt of a statutory declaration, the Commissioner must notify the person liable of the underlying liability and the reduced amount of that liability.

Section 222AGD: is similar to section 222AGC and explains that an estimate is revoked if the person liable, or the person's trustee, gives a statutory declaration to the effect that no deductions were made.

Section 222AGE: details the matters for the Commissioner to consider when exercising a power under sections 222AGC and 222AGD.

Section 222AGF: details the requirements for statutory declarations made for proposed arrangements dealing with reducing and revoking estimates.

Section 222AGG: provides that only one estimate can be in force at any one time in relation to the same liability.

Subdivision C - Recovering unpaid amount of estimate

Section 222AHA: specifies that the liability to pay an estimate is separate and distinct, but parallel to the underlying liability and the judgment debt in respect of that amount. The section also explains that payment of one parallel liability will reduce other parallel liabilities to the same extent.

Section 222AHB: is necessary to address the situation where an amount paid to discharge an estimate of an underlying liability exceeds that liability. The section provides for the excess to be used to discharge other existing liabilities and any balance remaining to be refunded.

Section 222AHC : details the available defences in recovery proceedings. The section entitles the person liable (or trustee if appropriate) to file an affidavit to verify facts sufficient to prove the actual amount of underlying liability.

Section 222AHD : states the effect of an affidavit on an estimate when there are sufficient facts to prove that the underlying liability never existed or has been discharged in full.

Section 222AHE : specifies the requirements for an affidavit under section 222AHC to be used as a defence in recovery proceedings.

Subdivision D - Insolvency Proceedings

Section 222AIA : states that a statutory demand issued on an estimate basis is changed accordingly, or set aside, if the estimate is later reduced or revoked respectively.

Section 222AIB : ensures that failure to comply with a statutory demand based on an estimate would not be evidence of insolvency if the underlying liability is less than $2,000.

Section 222AIC : states that the estimate would be reduced by the excess if the unpaid amount of an estimate is more than the sworn amount of liability under section 222AIB.

Section 222AID : specifies the requirements for an affidavit under section 222AIB in terms of time, facts to verify, and who it must be sworn by.

Section 222AIE : states the grounds on which a statutory demand is not to be set aside or varied by a court in recovery proceedings.

Section 222AIF : provides for an estimate to be admitted as proof in a bankruptcy or winding up.

Section 222AIG: enables a trustee, who controls the property of a person liable for an estimate of unpaid liability, to reject the proof of the liability on the grounds that the liability never existed or has been discharged in full.

Section 222AIH : sets out the requirements for a statutory declaration for the purposes of section 222AIG.

Section 222AII : specifies that Subdivision D has effect regardless of any provision of the Corporations Law of a State or Territory.

Subdivision E - Penalty for late payment of estimate

Section 222AJA : imposes a late payment penalty when the amount of estimate remains undischarged after 7 days from when the Commissioner sends the notice of estimate to the person liable.

Section 222AJB : provides that the penalties for the estimated and underlying liabilities are parallel liabilities.

Section 222AJC : provides the Commissioner with powers to remit the late payment penalties.

Subdivision F - Effect on liabilities under this Division and other Divisions if estimate reduced or revoked

Section 222AKA : states that a reduced amount of estimate and an estimate that has been revoked are taken to have effect as if the original amount of the estimate had been the reduced estimate or never been made.

Section 222AKB: provides that an estimate being reduced or revoked will not affect the Commissioner's right in relation to the underlying liability.

Subdivision G - Payment agreements

Section 222ALA: enables the Commissioner to agree to accept payment of a liability over a period of time by instalments.

Section 222ALB: enables the Commissioner to apply the payments under an agreement in whatever way he or she thinks appropriate.

Subdivision H - Miscellaneous

Section 222AMA: provides that the liability for an unpaid amount of estimate or underlying liability remain payable despite judgment being entered by court.

Section 222AMB: provides that estimate notices given to persons liable for unremitted amounts are to be given to a person's trustee by the person when the person's property has become vested in, or the control of the person's property has passed to, the trustee.

Division 9 - Penalties for directors of non-remitting companies

Subdivision A - Object and Interpretation

Section 222ANA: explains the purpose of Division 9 as being to ensure that a company either meets its obligations under Division 2, 3A, 3B, 4 or 8, or goes promptly into voluntary administration under Part 5.3A of the Corporations Law or into liquidation.

Section 222ANB: introduces the new terminology used in Division 9.

Subdivision B - Company failing to remit under Division 2, 3A, 3B or 4

Section 222AOA: specifies that the provisions will apply to a company incorporated under the Corporations Law.

Section 222AOB: details what directors of company must do in the period from when deductions have been made until the date those deductions are due to be paid to the Commissioner.

Section 222AOC: imposes a liability on directors for an amount equal to the company's unremitted deductions if the requirements of section 222AOB are not met.

Section 222AOD: imposes a liability on new directors if the requirements of section 222AOB are not complied with within 14 days of becoming a director.

Section 222AOE: provides that the Commissioner is not entitled to recover a penalty until 14 days after giving notice to the person liable. The section also describes the information to be contained in the notice and explains what has to be done for the penalty to be remitted.

Section 222AOF: provides that the notice to the directors is to be sent to the director's address as notified to the Australian Securities Commission.

Section 222AOG: remits the penalty imposed on directors if they meet the stipulated requirements.

Section 222AOH: states that a penalty for which a director is liable is a parallel liability to penalties imposed on other directors and the company's liability. The section explains the treatment of a parallel liability when a payment is made.

Section 222AOI: provides that a director is entitled to be indemnified by the company or anyone else for any payments he or she makes by way of penalty under these provisions.

Section 222AOJ: details defences available to directors when the Commissioner seeks to recover the penalty from a director.

Subdivision C - Company failing to pay estimate under Division 8

Section 222APA: specifies that the provisions will apply to a company incorporated under the Corporations Law.

Sections 222APB to 222API: are similar provisions to sections 222AOB to 222AOJ except that they relate to directors who fail to ensure their company pays the estimated liability.

Subdivision D - Company contravening payment agreements under Division 8

Section 222AQA: requires the directors to ensure the company complies with the terms of any payment agreement.

Section 222AQB: explains the effects on parallel liabilities of a director making a payment under an agreement.

Section 222AQC: provides a director is entitled to be indemnified by the company or anyone else for any payments he or she makes under the payment agreements.

Section 222AQD: describes the defences available to a director in recovery proceedings when an agreement has been contravened.

Division 10 - Miscellaneous

Section 222ARA: specifies that Part VI as amended is not intended to limit or exclude the operation of Chapter 5 of the Corporations Law.

Clause 17: contains the application provisions for certain amendments.

Administrative Decision (Judicial Review) Act 1977

Clause 18: defines "Principal Act" as being the Administrative Decisions (Judicial Review) Act 1977.

Clause 19: inserts into Schedule 1 of the Principal Act a paragraph to describe the decisions of the Commissioner which are not reviewable.

Corporations Law

Clause 20: defines "Corporations Law" to mean the Corporations Law set out in section 82 of the Corporations Act 1989.

Clause 21: inserts new section 443BA to provide that an administrator will be personally liable for amounts of tax due under a remittance provision during the period of administration.

Clause 22: amends section 443C by omitting "section 443A or 443B" and substituting "this subdivision".

Clause 23: amends section 443D by omitting "section 443A or 443B" and substituting "Subdivision A or a remittance provision as defined in subsection 443BA(3)".

Clause 24: amends section 459E to enable the Commissioner to serve a demand based on estimates of the liabilities under the remittance provisions.

Clause 25: inserts new section 588F which expressly provides that the liabilities of a company under a remittance provision will be debts.

Clause 26: amends section 588FG to deem tax debts to be for valuable consideration to enable the Commissioner to avail of the defence in the voidable transactions provisions.

Clause 27: inserts new section 588FGA and 588FGB. New section 588FGA enables the Commissioner to be indemnified by the directors if any tax debts are declared void by the court. New section 588FGB provides defences for directors who may be required to indemnify the Commissioner.

Clause 28: amends section 588Y to exclude debts due to the Commissioner under the remittance provisions from the application of subsection 588Y(2).

Consequential Amendments of other Acts

Clause 29 : contains consequential amendments to other Acts resulting from the removal of the Commissioner's priority. The amendments to these Acts are set out in the Schedule of this amending Act.

Clause 30 : is a transitional provision relating to the amendments to section 122 of the Bankruptcy Act. It provides that section 122 applies on or after the date the Act gets Royal Assent, even if the tax became payable before that day; and despite the repeal of subsection 123(5). The subsection continues to apply in relation to a deduction to which section 221P of the Assessment Act applies.