House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 9 - Provisional tax - technical correction

Overview

9.1 The amendment in Schedule 17 to this Bill will make a technical correction to the provisional tax provisions of the ITAA 6. The correction will ensure that the savings rebate, which was abolished with effect from (and including) the 1999-2000 income year, is not taken into account in the calculation of provisional tax for that income year.

9.2 Abbreviations used throughout this Chapter are summarised in the glossary following the Table of contents for this Explanatory Memorandum.

Purpose of the amendment

9.3 The correction will ensure that, in the 1999-2000 income year, there is no reduction in the amount of provisional tax payable on account of the savings rebate. The rebate was abolished and does not apply in that, and later, income years.

Background

9.4 The A New Tax System (Income Tax Laws Amendment) Act 1999 abolished the savings rebate (technically known as the savings tax offset ) with effect from, and including, the 1999-2000 income year. The Act also sought to amend the provisional tax provisions of the ITAA 6 to ensure that the savings rebate was not taken into account in calculating provisional tax in the 1999-2000 year. The amendments of the provisional tax provisions were not fully effective.

9.5 Provisional tax is generally calculated by applying current tax rates and Medicare levy to an amount worked out using the formula:

Adjusted preceding year's tax - qualifying reductions


9.6 Qualifying reductions include a rebate or offset that was available in the preceding year (unless specifically excluded). While the savings rebate was available in the 1998-1999 income year, it was not specifically excluded from the meaning of qualifying reductions for the purpose of calculating provisional tax for the following income year. Thus, provisional tax for 1999-2000 would be reduced by the amount of the savings rebate even though the rebate is not available in that year. That was not intended.

9.7 Schedule 17 to this Bill will amend the definition of qualifying reductions in subsection 221YCAA(2) of the ITAA 6 to exclude the rebate from that definition [Item 1] . The amendment will apply for working out amounts of provisional tax for the 1999-2000 and later income years [Item 2] .