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Pay As You Go Withholding Non-compliance Tax Bill 2012



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ISSN 1328-8091

Parliamentof Australia Departmentof Parliamentary Services

Contents

Purpose .................................................................................................................................................... 2

Background .............................................................................................................................................. 2

Committee consideration ................................................................................................................... 3

Financial implications ............................................................................................................................... 3

Key provisions .......................................................................................................................................... 4

BILLS DIGEST NO. 156, 2011-12 18 June 2012

Pay As You Go Withholding Non-compliance Tax Bill 2012

Christos Kyrgios Law and Bills Digest Section

2 Pay As You Go Withholding Non-compliance Tax Bill 2012

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Pay As You Go Withholding Non-compliance Tax Bill 2012

Date introduced: 24 May 2012

House: House of Representatives

Portfolio: Treasury

Commencement: Sections 1 and 2 on Royal Assent; sections 3 and 4 commence at the same time as Part 2 of Schedule 1 of the Tax Laws Amendment (2012 Measures No. 2) Act 2012.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose

The purpose of the Pay As You Go Withholding Non-compliance Tax Bill 2012 (the Bill) is to impose a tax on directors and associates of directors of companies that do not comply with the Pay As You Go withholding obligations. It is one in a suite of Bills that also includes:

• Tax Laws Amendment (2012 Measures No. 2) Bill 2012 1 and

• Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012. 2

In particular, this Bill is a conjunct to Schedule 1 of the Tax Laws Amendment (2012 Measures No. 2) Bill 2012.

Background

The Pay As You Go (PAYG) tax system was introduced through the A New Tax System (Pay As You Go) Act 1999 (PAYG Act). Section 10-1 of the PAYG Act specifies that:

Under PAYG withholding, amounts are collected in respect of particular kinds of payments or transactions. Usually, someone who makes a payment to you is required to withhold an amount from the payment, and then to pay the amount to the Commissioner.

1. C Kyrgios, Tax Laws Amendment (2012 Measures No. 2) Bill 2012, Bills Digest, no. 155, 2011-12, Parliamentary Library, Canberra, 2012, viewed 18 June 2012, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillsdgs%2F1720391 %22

2. C Kyrgios, Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012, Bills Digest, no. 157, 2011-2012, Parliamentary Library, Canberra, 2012.

Pay As You Go Withholding Non-compliance Tax Bill 2012 3

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In the event that a company goes into liquidation, the amount which is to be paid by the company to the Commissioner for Taxation (the Commissioner) to satisfy its PAYG obligations by a will be a debt of the company that is dissolved if there are no assets to satisfy the debt. This leaves a liability to the Commissioner unpaid.

This Bill will impose a tax on directors and associates of directors where PAYG amounts have not been paid.

Committee consideration

All three of the Bills in the suite of Bills were referred to the House of Representatives Standing Committee on Economics (the Economics Committee) for inquiry and report.3

The Economics Committee published its final report on 18 June 2012.4 The majority recommended that the House of Representatives pass the Bills.5

However, in a dissenting opinion, the members of the Economics Committee representing the Liberal Party were not convinced that the Bill appropriately targeted ‘phoenix’ activity, and expressed concerns that liability would apply indiscriminately to all directors, including those of charities and not-for-profits that are limited by guarantee. In addition, the Liberal Party members of the Economics Committee did not consider that questions which they had raised about whether directors of a company may be liable to pay these measures if they join a board after the fact had been adequately answered.6

Financial implications

The combined application of this Bill and the relevant companion amendments in Schedule 1 to the Tax Laws Amendment (2012 Measures No. 2) Bill will form a portion of $10 million revenue savings for the 2011-12 period (this is the estimated revenue impact of Schedule 1 of the Tax Amendment Bill). It is also estimated that it will provide a segment of the forecasted revenue impact of $290 million between 2012-16.7

3. Details of the terms of reference, submissions to the inquiry and the final report can be viewed at: http://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=economi cs/7billsreferred/index.htm

4. Standing Committee on Economics, Advisory report on the Tax Laws Amendment (2012 Measures No. 2) Bill 2012, Pay As You Go Withholding Non-compliance Tax Bill 2012, Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012 and Passenger Movement Charge Amendment Bill 2012, House of Representatives, Canberra, 18 June 2012, viewed 18 June 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=economi cs/7billsreferred/index.htm

5. Ibid., recommendation 1. 6. Ibid., p. 61.

7. Explanatory Memorandum, Tax Laws Amendment (2012 Measures No. 2) Bill 2012, Pay As You Go Withholding Non-compliance Tax Bill 2012 and income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012, p. 3.

4 Pay As You Go Withholding Non-compliance Tax Bill 2012

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Key provisions

Item 14 of Part 2 to Schedule 1 of the Tax Laws Amendment (2012 Measures No. 2) Bill inserts new Subdivision 18-D into Division 18 into Schedule 1 of the Taxation Administration Act 1953 (TAA). The object of new Subdivision 18-D is the reversal of any economic benefit gained through tax credits for recipients of withholding payments if the company does not comply with its obligation to pay withheld amounts of PAYG to the Commissioner. The director will generally be eligible to a credit in the personal tax realm if the company has withheld an amount. Proposed section 18-125 provides that any individual is liable to pay PAYG withholding non-compliance tax if:

• they were a director of a company within the meaning of the Corporations Act 2001

• the company was required to pay the Commissioner and

• the company failed to pay these amounts to the commissioner before the last day (or the day of

non-compliance).

Item 3 of this Bill imposes the withholding non-compliance tax proposed in Subdivision 18D as set out above. Item 4 specifies that the amount of tax payable under this Bill is the amount calculated in accordance with Subdivision 18-D (when enacted).

Pay As You Go Withholding Non-compliance Tax Bill 2012 5

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