Senate

Explanatory Memorandum

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

Chapter 12 - Civil penalties and taxation offences

Overview

12.1 These amendments to section 8ZE of the Taxation Administration Act 1953 (TAA) by Part 1 of Schedule 2 are primarily a consequence of recent changes to the penalty tax and offence provisions of the Income Tax Assessment Act 1936 (the Act). The amendments will also give effect to a recommendation of the Joint Parliamentary Committee of Public Accounts (JCPA) Inquiry into the Australian Taxation Office (ATO). [Item 1]

Summary of the amendments

Purpose of the amendments

12.2 The amendments will ensure that taxpayers are not subject to an administrative penalty under taxation laws for an act or omission which gives rise to a prosecution of the taxpayer under these laws. The amendments restore the full effect of the complementary relationship between the administrative penalty provisions in the Act and the prosecution provisions which had been partly nullified by recent changes to the penalty provisions. [Item 1]

12.3 The amendments also give effect to the JCPA recommendation that an administrative penalty should not be reimposed where a prosecution is withdrawn.

Date of effect

12.4 The amendments will apply where a prosecution is either instituted or withdrawn on or after the day on which Royal Assent is received. [Item 7]

Background to the legislation

12.5 The then Treasurer circulated an Information Paper in August 1991 titled 'Improvements to Self Assessment - Priority Tasks' in which he stated that the prosecution provisions would be reviewed to ensure that they are supportive of a self assessment environment. The proposed amendments are the result of that review.

12.6 Prior to the introduction of the self assessment system of taxation in 1986, taxpayers were required to make a full and complete statement of all relevant details in their return forms so that the Commissioner could make an assessment of their taxable income. Full factual disclosures by taxpayers were fundamental to the Commissioner making a correct assessment and the administrative penalties in the Act and the taxation offence provisions reflected this. Taxpayers were exposed to a penalty and possible prosecution where they made a false or misleading statement.

12.7 Since the introduction of self assessment, tax return forms have required taxpayers to provide less information. Taxpayers are able to apply for private binding rulings under Part IVAA of the TAA where they are in doubt about the way the law applies. Effectively taxpayers are required to consider how the law applies to their facts and to record only this conclusion on the return form. Since the Commissioner generally accepts the statements made in the return, the taxpayer effectively self assesses.

12.8 The administrative penalty provisions in Part VII and the record keeping prosecution provisions of the Act have been amended with effect from the 1992-1993 year of income to better reflect the behaviour expected of taxpayers under self assessment (see Taxation Laws Amendment (Self Assessment) Act 1992). The penalty for false or misleading statements, section 223 of the Act, has been removed. In its place the new administrative penalties focus generally on the effort a taxpayer has made to try to get their taxable income right, which includes reaching correct conclusions of law based on the complete facts, rather than on whether the taxpayer has made a false or misleading statement.

12.9 A taxpayer could now be subject to an administrative penalty through the manner in which records have been kept. In order to ensure that taxpayers are not exposed to both an administrative penalty and a prosecution for the same act or omission it is proposed to amend section 8ZE of the TAA to reflect the new penalty tax regime. The proposed amendments, rather than simply inserting in section 8ZE references to the new administrative penalty provisions, will rewrite the section so that it protects taxpayers in every instance where a taxpayer may be subject to both administrative penalty and prosecution for the same act or omission. The amendments will render certain of the administrative penalty provisions in the Act redundant. These provisions will be repealed.

12.10 The JCPA Report No. 326 'An Assessment of Tax - A Report on an Inquiry into the Australian Taxation Office' was released in November 1993. One of the recommendations of the JCPA was to amend the TAA to remove the power of the Commissioner to reimpose an administrative penalty in circumstances where a prosecution is withdrawn. That recommendation was accepted by the Government and these amendments give effect to the recommendation.

12.11 The effect of the existing section 8ZE is that an administrative penalty is not payable where a prosecution is instituted against the person for an offence against section 8C (failure to comply with a requirement of a taxation law), subsection 8K(1), sections 8N or 8P (false or misleading statements) of the TAA, or section 262A (record keeping) of the Act in relation to the same act or omission, unless and until the prosecution is withdrawn.

12.12 Subsection 8ZE(1) applies to the situation where a person has not paid the penalty, in which case the penalty is not payable unless and until the prosecution is withdrawn. Subsection 8ZE(2) applies to the situation where the person has paid some or all of the penalty amount. The amount paid must be refunded or applied against a tax liability where a prosecution is instituted. Under both subsections, where a prosecution is withdrawn the person becomes liable again for the penalty amount.

Explanation of the amendments

12.13 New section 8ZE will be amended to reinstate statutory protection against civil penalty where a prosecution is instituted. Rather than referring to specific provisions the new wording effectively includes all provisions in Acts administered by the Commissioner where a taxpayer may be subject to penalty and prosecution for the same act or omission. [Item 2]

12.14 The amendment maintains the principle that a penalty is to be refunded if a prosecution is instituted for an offence constituted by the act or omission that gave rise to the penalty. [New paragraph 8ZE(d)]

12.15 The amendment removes the power given the Commissioner by the existing subsections (1) and (2) to impose or reimpose administrative penalty where a prosecution is withdrawn. The new section does this by stating that, whether or not the prosecution is withdrawn, the civil penalty is not payable if a prosecution is instituted against a person for the same act or omission. [New paragraph 8ZE(c)]

12.16 The amendments also repeal certain administrative penalty provisions which are no longer needed because of the scope of the new section 8ZE. [Items 3-6]