Senate

Explanatory Memorandum

(Circulated by the authority of the Treasurer the Hon Ralph Willis, M.P.)

CHAPTER 6 - PROVISIONAL TAX

Overview

6.1 This chapter explains provisions in the Bill proposing to amend the definition of 'provisional tax uplift factor' in the Income Tax Assessment Act 1936 (the Act) so that the factor will be maintained at 8% for the 1994-95 year of income and will revert to 10% for later income years unless the Parliament otherwise provides.

Summary of the amendments

Purpose of the amendments

6.2 The amendments will amend the Act so that the provisional tax uplift factor is 8% for the 1994-95 year of income and 10% for later income years. [Clause 65]

Date of effect

6.3 The amendments will apply in relation to the calculation of provisional tax (including instalments) payable for the 1994-95 year of income and later years of income. [Clause 67]

Background to the legislation

6.4 Income subject to provisional tax for a year of income is obtained by uplifting the preceding year's taxable income by the provisional tax uplift factor. Provisional tax is then calculated by applying the tax rates and Medicare levy to the uplifted income and allowing for rebate and credit entitlements (such as tax instalments deducted) which are expected to be claimed or allowed in the provisional year of income [section 221YCAA].

6.5 The provisional tax uplift factor reflects the effects of inflation and other relevant factors in ascertaining the amount of income subject to provisional tax. The uplift factor for the calculation of 1994-95 provisional tax currently stands at 10% [subsection 221YA(1)].

6.6 In the 1994-95 Budget statement, the Treasurer announced that the uplift factor of 8% used to calculate 1993-94 provisional tax would be retained for the purpose of calculating 1994-95 provisional tax.

Explanation of the amendments

6.7 The Bill proposes to amend subsection 221YA(1) of the Act so that a provisional tax uplift factor of 8% will be used in ascertaining provisional tax payable (including instalments) for the 1994-95 year of income and, unless the Parliament otherwise provides, 10% for later years of income. [Clause 66]