Bills Digest no. 46 2009–10
Tax Laws Amendment (2009 Measure No. 5) Bill 2009
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Contact officer & copyright details
Passage history
Date introduced: 16 September 2006
House: Representatives
Portfolio: Treasury
Commencement: Schedule 1 Part
1 commences on 1 July 2000, Schedule 1 Part 2 commences on 1 July 2006,[1] Schedule 1 Parts 3 and 4, Schedule 2 Part 1, Schedule 3, Schedule 6 Part 1 and
item 5 commence on Royal Assent, Schedule 4 commences on 1 July 2010, Schedule
5 commences the day after Royal Assent, and Schedule 6 items 6 and commence 30
June 2016.
Links: The relevant links to the Bill, Explanatory Memorandum
and second reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/. When Bills have been passed they can
be found at ComLaw, which is at http://www.comlaw.gov.au/.
The Tax Laws Amendment (2009 Measures No. 5)
Bill 2009 (the Bill) has six main purposes. It will:
- amend the A New Tax System (Goods and Services Tax) Act 1999 (the
GST Act) to respond to a decision of the Federal Court of Australia (Schedule
1)
- amend the Taxation Administration Act 1953 (TAA 1953) to
address unintended consequences of recent amendments to that Act by the Tax
Laws Amendment (Taxation of Financial Arrangements) Act 2009 (the TOFA Act)
in the area of PAYG instalment income (Schedule 2)
- exempt from income tax the Outer Regional and Remote payment made
under the Helping the Children with Autism package (Schedule 3)
- exempt from income tax, payments made under the Continence Aids
Payment Scheme (Schedule 4)
- amend the Income Tax Assessment Act 1936 (the ITAA 1936)
to ensure that Commonwealth issued debt will be exempt from interest
withholding tax (IWT) (Schedule 5)
- allow the Victorian Bushfire Appeal Fund Independent Advisory
Panel to use donations for a broader range of purposes currently considered
charitable in tax law, and without jeopardising the charitable status of the
Australian Red Cross Society (Schedule 6).
Schedule 1 amends the A New Tax System (Goods and
Services Tax) Act 1999 (the GST Act) to counter the Federal Court decision
in Deputy Commissioner of Taxation v PM Developments Pty Ltd (the PMD
decision).[2] The measure was announced in a Media Release by the then Assistant Treasurer on 6 February 2009[3].
In the PMD decision, Logan J held against the Deputy Commissioner
of Taxation and declared that the liquidator of a company being wound up (an
‘incapacitated entity’) was not personally liable to the Deputy Commissioner
for GST or any related general interest charge on the sale of a property. According
to the Parliamentary Secretary’s second reading speech:
The decision is contrary to the stated policy intention that
the representative of an incapacitated entity is liable for GST on transactions
with the scope of its appointment. It is also contrary to the Commissioner’s
administration of the law since the introduction of the GST[4].
Generally, under the Corporations Act 2001, all debts
and claims proved in a winding up are to be ranked equally, and if there are
insufficient funds, to be paid proportionally.[5] Section 556 then goes on to provide an order that certain creditors will be
paid ahead of others. In the PMD decision, Logan
J also declared that as the GST was a post- liquidation debt of the company
(PMD), it enjoys the payment priority set out in the Corporations Act 2001 for post- liquidation debts. That is, as a revenue debt, it does not get
separate or special priority over other (secured) creditors.
In commenting on the Government’s draft legislation,[6] lawyers Allens Arthur
Robinson explain the situation:
It would seem that the practical effect of the proposed
legislation is to give the Commissioner priority in relation to GST arising
from transactions following the appointment of a representative to an
incapacitated entity. This is at odds with the general position of the
Commissioner in relation to other GST liabilities and income tax law.[7]
In the course of his judgment in PMD decision, Logan J was
critical of the Explanatory Memorandum to the GST Act in its explanation of the
provisions relating to representatives for incapacitated entities. The
Commissioner’s submission was that the court could look to the Explanatory
Memorandum[8] (relying on the Acts Interpretation Act 1901(Cth)) to see that the Act
intended to make the representative personally liable for the GST payable. The
Explanatory Memorandum stated:
6.271 If you are registered and you become bankrupt, or go
into receivership or liquidation, the person who conducts your enterprise on your
behalf is, generally, personally carrying on the enterprise.[9]
In commenting on this Logan J said:
The statement in para 6.271 of the explanatory memorandum as
to who carries on an enterprise after bankruptcy, receivership or liquidation
is true only of bankruptcy. It is not true of corporations who are placed in
liquidation. Neither is it true of a privately appointed receiver. … Such
errors hardly, with respect, inspire confidence in the utility of the
explanatory memorandum. The description in the explanatory memorandum is not
matched by the language employed within Div 147 as enacted.[10]
In a recent decision of the High Court, Bruton Holdings
Pty Limited (in liquidation) v Commissioner of Taxation[11] the High Court unanimously ruled against the Commissioner of Taxation and held
he could not issue notices that had the effect of giving the ATO priority over
other unsecured creditors such as employees, insolvency practitioners and
liquidators in the event of a company being wound up. The High Court held that
the ATO could not issue such a notice once a company had gone into liquidation.
This means that the ATO will rank equally with other unsecured creditors. In a
report in the Australian Financial Review about the High Court decision,
the following comparison was noted:
While the Bruton case dealt with the ATO’s ability to access
income-tax debts, the situation could soon be different in relation to GST.
The federal government is to introduce a bill into parliament
in the spring sitting, which starts on September 7, that will give the ATO
priority over other creditors when it comes to GST.
Mr Wolfers [KMPG tax partner] said it was “anomalous that
while the High Court is confirming the abolition of the ATO’s priority in
income tax, the parliament is seeking to reinforce the tax commissioner’s
priority for GST”.[12]
Schedule 2 amends the Taxation Administration Act
1953 (TAA 1953) to change the basis on which a pay as you go (PAYG)
instalment liability is calculated. The amendments were announced in the
Assistant Treasurer’s Media Release No. 043 of 4 September 2009.[13] If a person or entity has business or investment income, the income tax
liability must be paid by instalments. Division 45 of the TAA 1953 governs PAYG
instalments. The amendments in this Bill are necessary to address previous
amendments made to the TAA 1953 contained in the recent Tax Laws Amendment
(Taxation of Financial Arrangements) Act 2009 (the TOFA Act). According to
the Explanatory Memorandum:
The effect of the PAYG amendments in the TOFA Act is arguably
to substantially change the basis on which a PAYG instalment liability is
calculated. The result of this change may be to decrease PAYG instalment
payments. Any decrease will result in a deferral of revenue, which will be
recouped after the relevant taxpayer lodges their income tax return.[14]
The amendments seek to reverse the changes made by the TOFA
Act in order to prevent the potential decrease in the amount of PAYG
instalments paid. Currently the net result of gains and losses is included in
an entity’s instalment income for PAYG instalments purposes, and according to
the Parliamentary Secretary ‘this could unintentionally lead to a reduction in
the PAYG instalments paid, because the net basis of calculation can produce a
reduction in PAYG instalment income’[15].
The PAYG instalments system facilitates the collection of
income tax on business and investment income in anticipation of a taxpayer’s
final income tax liability on assessment. Generally, instalment income is
calculated on a gross basis. The amendments made in the TOFA Act recognised the
gain or loss, or the part of the gain or loss on a financial arrangement,
meaning the net result of gains and losses is included in an entity’s
instalment income for PAYG instalment purposes.
In summary, Schedule 2 makes three amendments:
- it repeals the version of subsection 45-120(2B) that was inserted
by the TOFA Act
- it provides for a catch-up payment where an instalment is
underpaid as a result of subsection 45-120(2B) applying, and
- it reinserts the previous version of subsection 45-120(2B) that
was unintentionally repealed by the TOFA Act.
Schedule 3 is a beneficial measure which has not been
previously announced.[16] Its effect is to ensure that the remote and regional payment made under the Helping
Children with Autism package is not subject to income tax. In an answer to
questions in Estimates,[17] the Department of Families, Housing, Community Services and Indigenous Affairs
said that as at 30 April 2009 there were 262 children nationally that received
the payment.
Schedule 4 will ensure that payments made under the
Continence Aids Payment Scheme will be exempt from income tax. The Scheme is a
payment to assist persons with incontinence to meet some of the costs of their
products. It is by way of direct payment and will commence from 1 July 2010. It
is replacing the current Continence Aids Assistance Scheme, but the Department
of Health and Ageing Fact Sheet dated 1 June 2009 states that
there will be a transition from the existing scheme to the new one, and there
will be no disadvantage.
Schedule 5 concerns interest paid under a debenture
being exempt from interest withholding tax (IWT) if the issue of the debenture
satisfies a ‘public offer’ test (section 128F ITAA36). Subsection 128F(2)
states that tax is not payable in respect of interest to which the section
applies, but debentures or debt interest issued by the Commonwealth or a
Commonwealth authority will not be exempt. The amendments will make the
Commonwealth-issued debt exempt from the interest withholding tax. According to
the Parliamentary Secretary’s second reading speech:
This important measure will mean that Commonwealth debt,
state government debt and private sector debt will be afforded the same
treatment for interest withholding tax purposes. This will help improve the
neutrality of the tax system, and bring Australia’s tax treatment of
Commonwealth Government Securities into line with most other countries,
including the United States and the United Kingdom.[18]
This measure was announced in the Treasurer’s Media Release
No. 092 of 21 August 2009 where it was stated:
This will address the anomaly that has existed since IWT was
removed from publicly issued corporate bonds in 1999 and state government
securities in 2008.
Schedule 6 amends the Income Tax Assessment Act
1997 (the ITAA 1997) to allow donations received by the 2009 Victorian
Bushfire Appeal Trust Account to be used for a broader range of purposes to
assist communities and individuals affected by the bushfires in 2009. The
Victorian Bushfire Appeal Trust Account has been established under
section 19 of the Financial Management Act 1994 (Victoria). An
independent advisory panel oversights the expenditure of funds from the Trust
Account. The amendments expand the allowable purposes to target sections of
the community which have been specifically identified as in need of support as
a result of the bushfires.[19] Schedule 6 also will provide that when looking at the status of the Red
Cross Society (the charity that collected the donations) as a benevolent or
charitable institution, payments to the Trust Account are to be disregarded. This
will protect the charitable status of the Red Cross so long as the funds are
used for the allowable purposes.
The Bill has not been referred to Committee.
According to the Explanatory Memorandum:[20]
The main operative provisions of this Schedule will take
effect from 1 July 2000, which is the date of the introduction of the GST. The
consequential amendment to the Fuel Tax Act 2006 will take effect from 1
July 2006, which is the date of commencement of that Act. In commenting on this
retrospectivity, the Explanatory Memorandum gives a detailed explanation:
1.9 Retrospective amendment of the GST law is
considered appropriate as the proposed amendments will give effect to the
stated policy intention as at the commencement of the GST law on 1 July 2000.
The proposed amendments are also generally consistent with the way the law has
been administered by the Commissioner.
1.10 Consequently, retrospective application of the
law is not expected to adversely impact taxpayers with one exception. Supplies
by representatives to associates of incapacitated entities[21] for no consideration or inadequate consideration may have a different GST outcome
as a result of the retrospective amendments. A transitional provision will
apply to ensure that the amendments will not adversely impact those taxpayers
affected.
Schedule 1 Part 1 item 8 inserts new Division 58,
‘Representatives of incapacitated entities’, into the A New Tax System
(Goods and Services Tax) Act 1999 and inserts new subsections 58-5,
58-10, 58-15 and 58-40. New subsection 58-1 summarises that the Division
has the following effect:
This Division sets out how to ascribe activities of a representative
of an incapacitated entity between the representative and the incapacitated
entity for GST purposes.
In particular, supplies, acquisitions and importations, and
associated acts and omissions, by the representative are, in most cases treated
as having been by the incapacitated entity. This ensures that a transaction by
the representative has the same consequences under the GST law as if the
incapacitated entity had no representative.
However, in most cases, GST-related liabilities and
entitlements are allocated to the representative for transactions that are
within the scope of the representative’s responsibility or authority.
The new Division 58 replaces Division 147 of the GST
Act which currently contains the provisions relating to representatives of
incapacitated entities. (Division 147 is repealed by item 30.)
Part 1 item 10 repeals and substitutes subsection
147-20(1) to ensure that the subsection will apply only to increasing adjustments
for the period between 1 July 2000 and the date of Royal Assent, and also to
adjustments by the incapacitated entity. As to this latter aspect, the
Explanatory Memorandum states:
In addition, current section 147-20 is predicated on the
basis that the relevant adjustments are adjustments of the representative.
However due to the operation of new section 58-5 the adjustments to which this
section relates will always be adjustments that the incapacitated entity has.
Therefore, this section, as currently worded, would have no application.[22]
Full details of the other measures in this Schedule of the
Bill are contained in the Explanatory Memorandum.
Schedule 2 Part 1 item 1 repeals subsection
45-120(2B) of the Taxation Administration Act 1953 to clarify that the
TOFA Act was not intended to reduce the amount of instalments an entity is
liable to pay.
Part 1 item 3 addresses the possibility of a
decreased payment of PAYG instalments in the first and second instalment
quarters, and provides a ‘catch-up’ payment in the event of this occurring.[23] The amendment is explained the following way in the Explanatory Memorandum:
2.26 This catch-up payment provision only applies in a very
specific scenario. The amendment requires all of the below to occur in
order to apply:
The entity must make or have
made an election under item 103 of the TOFA Act to apply TOFA early (that is,
from income years starting on or after 1 July 2009) [Schedule 2, Part 1,
sub-subitem 3(1)(b)].
- Schedule 2 to this Bill commences
after 30 September 2009 [Schedule 2, Part 1, sub-subitem 3(1)(b)].
- The entity must be part of the
PAYG instalments system, and be a quarterly payer of instalments that pays on
the basis of instalment income [Schedule 2, Part 1, sub-subitem 3(1)(a)].
- The entity’s first instalment
quarter for the income year starting on or after 1 July 2009 must end before
the commencement of this Schedule. For example, assume that an entity has an
income year starting on 1 October 2009 and this Schedule commences on 15
December 2009. In that case, the amendment will not apply to the entity because
its
first instalment quarter
ends on 31 December 2009, which is after the commencement of Schedule 2 in
December 2009 [Schedule 2, Part 1, sub-subitem 3(1)(b)].
Part 2 item 4 reinserts subsection 45-120(2B) in its original form to provide for the working out the instalment income of
entities that have financial arrangements subject to Subdivision 250-E[24] of the ITAA 1997.[25]
Schedule 3 amends the Income Tax Assessment Act
1997 to insert the Helping
Children with Autism package, as part of the Outer Regional and Remote
payment, into the table of social security or like payments. It will insert new
section 52-170 into that Act to provide that such payments are exempt from
income tax. The amendments are to apply to payments made in the 2008-09 and
later income years (item 3).
Schedule 4 similarly amends the Income Tax
Assessment Act 1997 to insert new section 52-175 to exempt the
Continence Aids Payment Scheme payments from income tax. The amendments will
apply from the 2010-11 and later income years (item 3). However the
Explanatory Memorandum says the measure applies to amounts received in the
2009-10 income and later years:[26]
As clients do not pay any income tax on the value of benefits
received under the current subsidised products scheme and will not pay any
income tax on receiving the replacement income tax exempt cash payments, there
is no impact on the forward estimates.
Item 1 of Schedule 5 repeals subsection
128F(5A) of the Income Tax Assessment Act 1936 which currently has
the effect that the Commonwealth is liable to income withholding tax. The
repeal of the provision will mean that the Commonwealth issued debt will be
eligible for exemption. Currently subsection 128F(5B) states that State and Territory
bonds are exempt from interest withholding tax. This subsection is also being
repealed.
Item 2 repeals and substitutes subsection 128F(7) to clarify that the section applies not only to an authority of the
Commonwealth but also to the Commonwealth in its own right.
Schedule 6, item 2 expands the purposes for
the benefit of communities and individuals affected by the Victorian bushfires
to include matters such as ‘broad public benefits’ that are consistent with the
purposes of one or more exempt entities, reimbursing certain payments that have
been made, providing long-term assistance to child orphans, assisting
individuals whose houses were destroyed or who had to live in transitional
housing and the like. Item 3 ensures that the Red Cross Society does not
lose its charitable status as a consequence of the broadening of the purposes
that may or may not normally come within the meaning of what the tax law would
consider charitable. It provides that when determining whether the Red Cross
Society is a public benevolent or charitable institution, payments from the Red
Cross Society to the 2009 Victorian Bushfire Appeal Trust Account are
disregarded.
Members, Senators and
Parliamentary staff can obtain further information from the Parliamentary
Library on (02) 62772526.
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