House of Representatives

Explanatory Memorandum

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

General outline and financial impact

Pay as you go (PAYG) system of collecting income tax and other liabilities

Amends the Taxation Administration Act 1953 to introduce the new comprehensive pay as you go arrangements. The introduction of the new PAYG arrangements will enable 11 existing payment and reporting systems (pay as you earn (PAYE), prescribed payments system (PPS), reportable payments system (RPS) and other withholding systems) as well as the provisional tax and company instalments systems to be abolished or replaced. The new PAYG arrangements will incorporate the following 2 systems:

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a PAYG withholding system to replace the PPS and RPS systems and incorporate the main elements of the current PAYE system. The remaining withholding systems which cover various payments (eg. dividends, interest and royalties) will also be standardised and become part of the new PAYG withholding system; and

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a PAYG instalments system to replace the current provisional tax and company tax instalment systems. Broadly, under this system, taxpayers will make payments, generally on a quarterly basis, that reflect their current trading and investment conditions or are based on last years tax. Some taxpayers will be able to choose to pay an annual instalment.

The PAYG arrangements represent the most effective, simple and convenient way for most people to meet their annual tax obligations, either through instalments or withholding, as income is earned. They should eliminate large end-of-year tax bills and ensure that Government has the revenue it needs during the year to provide benefits and services.

Date of effect: The withholding system will apply to payments made on or after 1 July 2000. The instalment system will apply for the 2000-2001 income year and later income years.

Proposal Announced: These measures were announced in Tax reform: not a new tax, a new tax system .

Financial impact: The estimated revenue from the measures in this Bill is $210 million in 1999-2000; $700 million in 2000-2001; $2.54 billion in 2001-2002 and $1.39 billion in 2002-2003.

Compliance cost impact: . A separate Regulation Impact Statement is available for the measures in this Bill.

Running balance accounts, general interest charge and related matters

Amends the Taxation Administration Act 1953 and other Acts for which the Commissioner has the general administration to give effect to the aligned business tax obligations of one return and one payment outlined in the Governments tax reform document. The amendments will:

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extend the application of the current running balance account arrangements so that the Commissioner can establish accounting systems to record business tax debts which reflect administrative practice;

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align the payment dates for fringe benefits tax instalments with the quarterly remittance dates of other business taxes;

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facilitate the lodgment of a single compliance statement and corresponding net payment or refund claim;

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allow the Commissioner to accept voluntary payments from taxpayers on account of future taxation debts; and

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make technical amendments to the existing running balance account and general interest charge measures recently enacted.

Date of effect: The amendments will generally apply from 1 July 2000. Technical amendments to the existing arrangements will apply from 1 July 1999.

Proposal Announced: These measures were announced in Tax reform: not a new tax, a new tax system .

Financial impact: Nil.

Compliance cost impact: A separate Regulation Impact Statement is available for the measures in this Bill.