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A New Tax System (Ultimate Beneficiary Non-disclosure Tax) Bill (No. 1) 1999
A New Tax System (Ultimate
Bills Digest No. 190 1998-99
A New Tax System (Ultimate
Non-disclosure Tax) Bill (No.1) 1999
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest doe s not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
A New Tax System (Ultimate Beneficiary Non-disclosure Tax) Bill (No.1) 1999
The purpose of the A New Tax System (Ultimate beneficiary Non-disclosure Tax) Bill (No.1) 1999 is to impose the tax liabilities arising under the A New Tax System (Closely Held Trusts) Bill 1999 where th e trustee fails to identify the ultimate beneficiaries of the whole or the part of a share of the net income of a trust.
On 13 August 1998 the Federal Government released proposals for reform of the Australian tax system(1) of which, a goods and services tax (GST) was the centrepiece.
The tax reform plan proposes to:
- Introduce a GST which eliminates sales tax and a range of nine other indirect taxes
- Change Commonwealth-State financial relations by providing States and Territories with an independent revenue base
- Implement significant changes to individual marginal tax rates
- Implement a major rationalisation of family assistance
- Replace the various existing taxation payment and reporting systems of company tax, provisional tax, PAYE,(2) PPS(3) and RPS(4) by one quarterly tax payment system, PAYG(5)
- Introduce a new universal business number system
- Move toward an entity taxation system which is directed toward the elimination of tax advantages between different business structures, and
- Simplify the imputation system and introduce refunds for excess franking credits.
Included in the proposal to reform the taxation of business entities, the issue of tax minimisation through complex trust structures is addressed by the introduction of a special anti-avoidance rule.
On 25 November 1998, the Senate referred issues relating to the GST and the new tax system to a Select Committee and three of its Reference Committees.(6) In February 1999 the Senate Select Committee produced its First Report.(7) The three Reference Committees produced their reports in March 1999.(8) In April 1999 the Senate Select Committee released its second report(9) and shortly thereafter, its report on Commonwealth-State financial arrangements, luxury car tax and wine equalisation tax.(10)
The A New Tax System (Closely Held Trusts) Bill 1999 (the Bill) and the two associated imposition Bills(11):
- impose an obligation on the trustees of closely held trusts (in cluding all discretionary trusts) to disclose the identity and tax file numbers (TFN) of the ultimate beneficiaries of net income and tax preferred amounts, and
- if the trustee fails to do so, or there is no ultimate beneficiary, provide for taxation at a penalty rate (in the case of net income) or offences under the Taxation Administration Act 1953 (in the case of tax-preferred amounts).
This will allow the Commissioner of Taxation to check whether the assessable income of the ultimate beneficiaries correc tly includes any required share of net income and whether the net assets of the ultimate beneficiaries reflect the receipt of the tax-preferred amounts.
The amendments apply to present entitlements to net income or tax-preferred amounts arising after 4-00 pm on 13 August 1998 AEST.
Please refer to the Bills Digest for the A New Tax System (Closely Held Trusts) Bill 1999 for additional information.
Item 3 imposes ultimate beneficiary non-disclosure tax to the extent that is payable on the whole or the part of the share of the net income of a trust under paragraph 102UK(2)(a) of the Income Tax Assessment Act 1936 .
That is, it imposes tax in the case of failure by the trustee to disclose the identity of ultimate beneficiaries to the net income of a closely held trust.
Item 4 sets the rate of tax at 48.5 per cent.
The Explanatory Memorandum indicates that the government has chosen to impose the tax liabilities arising under subsections 102UK(2) (where the trustee fails to disclose the identities of the ultimate beneficiaries) and 102UM(2) (where there are no ultimate beneficiaries) separately.(12)
This is for reasons of caution to avoid contravening section 55 of the Constitution . If the two types of liability were considered to be separate subjects of taxation to income tax generally and to each other, it would contravene section 55 if they were not separately imposed.(13)
- Treasurer, Tax Reform: not a new tax - a new tax system ; Tax Reform Plan, 13 August 1998, Commonwealth of Australia.
- Pay As You Earn
- Prescribed Payments System
- Reportable Payments System
- Pay As You Go
- Senate Select Committee on A New Tax System; Senate Community Affairs References Committee; Senate Employment, Workplace Relations, Small Business and Education References Committee and Senate Environment, Communications, Information Technology and the Arts References Committee.
- Senate Select Committee on A New Tax System, First Report , February 1999.
- Senate Community Affairs References Committee, The Lucky Country Goes Begging, Report on the GST and a New Tax System, March 1999; Senate Employment, Workplace Relations, Small Business and Education References Committee, Report of the Inquiry into the GST and A New Tax System, March 1999 and Senate Environment, Communications, Information Technology and the Arts References Committee, Inquiry into the GST and a New Tax System, March 1999.
- Senate Select Committee on A New Tax System, Main Report , April 1999.
- Senate Select Committee on A New Tax System, Report on Commonwealth-State Financial Arrangements Bills, Luxury Car Tax Bills and Wine Equ alisation Tax Bills , April 1999.
- The A New Tax System (Ultimate Beneficiary Non-disclosure Tax) Bill (No.1) 1999 and the A New Tax System (Ultimate Beneficiary Non-disclosure Tax) Bill (No.2) 1999.
- Explanatory Memorandum to the A New Tax System (Closely He ld Trusts) package , p 18.
- Hanks P, Constitutional Law in Australia , Second Edition, Butterworths,
The fact that the first clause of the second paragraph of section 55, which requires that '[l]aws imposing taxation … shall deal with one subject of taxation only', has had rather limited impact can be ascribed to the High Court's refusal 'to give the words "one subject of taxation" any narrow or inflexible application', as Dixon J expressed it in Resch v Federal Commissioner of Taxation , (1942) 66 CLR 198, 222.
Because section 55 'is concerned with political relations, [it] must be taken as contemplating broad distinctions between possible subjects of taxation based on common understanding and general conceptions, rather than on any analytical or logical classification' (id,223)
In this context, the High Court is prepared to give some deference to Parliament's decision to include taxation measures in a single Act.
The fact that section 55 is concerned with political relations and that is for the legislature to choose its own subject matter, a choice fettered neither by existing nomenclature nor by categories that have been adopted for other purposes, is the reason perhaps that the government is of the view that ultimate beneficiary non-disclosure tax does not need to be separately imposed.
As stated in the Explanatory Memorandum at page 18 'The scope of the income tax as a single subject of taxation is wide and not technical, but for the avoidance of doubt in any future judicial proceedings they have been separately imposed.'
17 May 1999
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document. IRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.