Senate

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)

Chapter 10 - Deemed assessments of companies

Overview

10.1 Section 166A of the Income Tax Assessment Act 1936 (the Act) sets out when the Commissioner of Taxation is deemed to have made an assessment for a taxpayer to which either the existing or the new company tax instalment arrangements (Division 1B and Division 1C of Part VI of the Act) apply. Part 10 of Schedule 1 of the Bill will amend section 166A to deem such an assessment to be made on the day on which the taxpayer lodges a return.

Summary of the amendments

Purpose of the amendments

10.2 The purpose of the amendment is to ensure that where a refund is payable on assessment to a taxpayer to which Division 1B or 1C applies, the taxpayer will be entitled to be paid the refund on lodging its return early rather than having to wait until the due date for lodgement.

Date of effect

10.3 The amendment will apply to assessments for the 1994-95 and subsequent years of income where the return is lodged after this Bill has received Royal Assent. [Subitem 85(1)]

Background to the legislation

10.4 Section 166A deems the Commissioner of Taxation to have made an assessment of taxable income or net income, and of the tax payable on that income, being those respective amounts as specified in a taxpayer's return. Section 166A applies to companies and the trustees of certain funds who are liable to make payments of tax under Divisions 1B and 1C of Part VI of the Act.

10.5 Under the existing company tax instalment regime of Division 1B of Part VI, the taxpayers are known as 'relevant entities'. Under the new company tax instalment regime of Division 1C of Part VI, the taxpayers are known as 'instalment taxpayers'.

10.6 Under section 166A the earliest date an assessment can be deemed to have been made by the Commissioner for a relevant entity under Division 1B is the date the taxpayer is required to lodge its return and make a final payment of tax, which is, unless the entity has a substituted accounting period or has elected to make a single payment of tax, 15 March following the end of year of income.

10.7 Similarly, for instalment taxpayers under Division 1C, the earliest date upon which an assessment of an instalment taxpayer can be deemed to be made is the due date for lodgement of its return and payment of the final instalment. This is five months after the end of the year of income for small and large taxpayers and eight months after the end of the year of income for medium taxpayers.

10.8 Prior to the introduction of section 166A companies were assessed in the same way as other taxpayers. Refunds were sent with the notice of assessments. An early lodgement of a return would tend to result in the early receipt of a refund.

10.9 As a result of the wording of section 166A, taxpayers who are entitled to a refund of tax and lodge their return early cannot now receive this refund until the statutory date on which the assessment is deemed to have been made, five to nine months after the end of the year of income.

Explanation of the amendments

10.10 To enable relevant entities and instalment taxpayers to receive early refunds of excess credits when their returns are lodged early, section 166A is being amended to deem the Commissioner to have made an assessment on the day the return is lodged whether the lodgement is before, on or after the due date for lodgement and final payment of tax (Division 1B) or final instalment date (Division 1C). [Items 72 and 73]