House of Representatives

Explanatory Memorandum

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

Exclusion of low income rebate from provisional tax arrangements

Overview

12.1 This Bill will exclude the low income rebate from provisional tax calculations. The rebate will be provided, where applicable, on assessment.

Summary of the amendments

Purpose of the amendment

12.2 To remove the low income rebate from the provisional tax arrangements so that the rebate is provided only on assessment.

Date of effect:

12.3 The amendments will apply in relation to:

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calculations of provisional tax (including instalments) payable for the 1994-95 and later income years; and

•

requests to vary provisional tax, for the 1993-94 and later income years, which are received on or after introduction of the Bill.

Background to the legislation

12.4 The Taxation (Deficit Reduction) Act (No.3) 1993 , which received the Royal Assent on 27 October 1993, inserted new section 159N in the Act. Section 159N provides a rebate of up to $150, in the 1993-94 and later income years, for taxpayers whose taxable income is less than $24,450.

12.5 The 1993-94 Budget statement indicated that the rebate will be provided on assessment in respect of the 1993-94 and subsequent income years. These amendments to the provisional tax arrangements are necessary to achieve that result. They supplement the measures contained in the Budget legislation which introduced the rebate.

12.6 Application of the existing provisional tax legislation will result in provisional taxpayers benefiting from the low income rebate in the year the taxable income is received, whereas Pay-As-You-Earn taxpayers will not benefit from the rebate until the following income year (on assessment). This is because:

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the calculation of provisional tax for 1994-95 and later years would be reduced having regard to rebates to which the taxpayer was entitled to on assessment in the preceding year of income [paragraph 221YCAA(2)(m)]; and

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provisional taxpayers can elect to vary down their provisional tax to reflect their rebate entitlements for a particular year of income [section 221YDA].

12.7 Allowing the rebate on assessment will result in PAYE and provisional taxpayers being treated in a similar manner. However, provisional taxpayers who have requested a variation before the date of introduction of these amendments will not be disadvantaged as the amendments will apply in respect of variation requests received on or after introduction of the amendments.

Explanation of the amendments

12.8 The Bill proposes to amend paragraph 221YCAA(2)(m) of the Act so that the low income rebate provided under section 159N will not be treated as a "qualifying reduction" in the calculation of provisional tax in respect of the 1994-95 and later income years [Clause 68 and subclause 70(1)] .

12.9 The Bill also proposes to amend paragraph 221YDA(1)(da) and subparagraph 221YDA(2)(a)(ii) to exclude the low income rebate entitlement from requests to vary provisional tax down and subsequent calculations of provisional tax in respect of the 1993-94 and later years of income [Paragraphs (a) and (b) of clause 69 and subclause 70(3)] . However, estimates included in statements furnished to the Commissioner before introduction of this Bill will not be affected by the amendments [Subclause 70(2)] .