Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Collection of tax on companies, superannuation and other retirement benefit funds



Download PDFDownload PDF

TREASURER

PRESS RELEASE NO. / 0 4 -

EMBARGO Against introduction of Taxation Laws Amendment Bill (No.5) 198

STATEMENT BY THE TREASURER, THE HON. P.J. KEATING, MP

COLLECTION OF TAX ON COMPANIES, SUPERANNUATION AND OTHER RETIREMENT BENEFIT FUNDS

The Government has today introduced into Parliament a Bill to give effect to the 1989-90 Budget announcement to implement a new tax collection system for companies, complying superannuation funds, complying approved deposit funds and pooled superannuation trusts.

Broadly, the arrangements announced in August provided for:

- a payment of 85 per cent of a company's or fund's notional tax (ie tax determined with reference to a company's taxable income of the year prior to the year of income) or estimated tax within 15 days of the end of the income year. Late balancing companies were to continue to be treated as though they balanced in June;

and

- a final self-assessed payment by the 15th day of the 9th month following balance date (again with the above rule applying to late balancing companies).

In deciding to replace the current quarterly instalment basis for collections, the Government recognised the overwhelming need to improve the equity of the collection system - particularly in view of the relative treatment of companies

and the far greater number of small businesses which currently pay tax under the provisional tax system in the same year income is earned. Companies have enjoyed significant tax deferral benefits in the past as a result of

tax being collected during the year following the year of income, with the first three instalments being no greater than that attributable to income of the year prior to the relevant income year (thereby resulting in a tax deferral of up to two years).

COMMONWEALTH PARLIAMENTARY LIBRARY MIC AH

2

The Bill introduced into the Parliament today preserves the foundation of the measure announced in the Budget.

However, in view of concerns put to the Government regarding the possible impact of the new arrangements, two changes have been made to the announced measure.

Late balancing companies will no longer be treated as if they balance in June for collection purposes; such companies will forthwith be able to make their initial tax payment by the 15th day of the month following balance date, in the same · manner as early balancing companies. Late balancing

companies will, however, be required to meet their final self-assessed tax payment by the 15th day of June following balance date or by the 15th day of the 9th month following balance date where that falls sooner.

This change will overcome the circumstance where some companies may have been required to make an 85 per cent payment in advance of the end of the income year.

The other change to the announced arrangements will provide that companies whose notional tax amount (or estimated tax) is between $1000 and $20,000 will not be required under the new collection system to make an initial 85 per cent payment

by the 15th day of the month following balance date.

Rather, such companies (including early and late balancers) will be able to elect to defer payment until the 15th day of the 6th month following balance date - at which time the total self-assessed payment will fall due.

This change will provide relief to around one-third of all taxpaying companies - those companies most likely to be affected by the transition to the new arrangements.

With the current $1000 tax instalment threshold continuing to apply (meaning that around one third of tax-paying companies will not be affected by the new arrangements at all) some two-thirds of tax-paying companies will be relieved of the

initial 85 per cent instalment.

In making the above changes to the measure, the Government recognises that the arrangements as initially announced may have caused some transitional financial pressures for smaller companies in certain circumstances and considers that the

revised arrangements will adequately meet those concerns.

It nevertheless remains the case that companies continue to enjoy timing benefits under the new arrangements in comparison to both provisional and PAYE taxpayers.

3

The Bill introduced today also provides for some streamlining of other arrangements. It includes provisions which will:

. limit to four years from the due date of an assessment the powers of the Commissioner to amend an assessment to increase liability (except in the case of fraud or tax evasion and in other specific provisions already provided

for under the law, or where a court orders otherwise);

. increase from three to four years the period within which the Commissioner may amend an assessment to reduce liability;

. reduce from seven to five years the period for which taxpayers will generally be required to keep records; and

. provide for non-complying superannuation funds to pay tax in the same year as complying funds.

These measures are designed to improve the administration of the tax law and promote greater taxpayer certainty in this area.

The Attachment to this Statement outlines in detail the measures contained in the Bill introduced into Parliament today.

CANBERRA 2 NOVEMBER 1989

Contact Officers: David Walker 752221(W) 316787(H)

Geoff Campbell 751132(W) 316805(H)

COMPANIES & SUPERANNUATION FUNDS

A NEW SYSTEM

FOR PAYING INCOME TAX

1 .

INDEX

Paragraphs

A. INTRODUCTION * 1 - 4

B. AN OUTLINE OF THE PROPOSED SYSTEM

Payments affected 5 -6

Notional tax 7

Payments required 8- 11

Returns 12

Date returns required 1 3 - 1 4

C. CALCULATION AND PAYMENT OF THE INITIAL PAYMENT

Advice to ATO where estimate of tax liability less than $20,000 1 5

Overpayment of initial payment 1 6

Under estimation of initial payment 17

Calculation of penalty on underestimation of initial payment 18

Initial payment not made 19- 20

Information required when initial payment based on estimated tax 21

D. ASSESSMENT

Deemed assessment 22 - 23

Determination of foreign tax credits and offsets of franking deficits tax 24

Incorrect determination of final payment 25

Amendment of assessment 26 - 27

Extension to amendment period 28 - 29

E OTHER MATTERS

Franking deficits tax returns 30

Record keeping requirements 31 - 32

Non complying funds 33

F. A MORE EFFICIENT SYSTEM

For the taxpayer 34

For the tax aoent 35

For the Tax Office 36

2 .

COMPANIES AND SUPERANNUATION FUNDS - A NEW SYSTEM FOR PAYING INCOME TAX

(A ) INTRODUCTION

1. In the 1989-90 Budget, the Government announced that it was changing the way income tax was to be paid by companies, superannuation funds, approved deposit funds and pooled superannuation trusts. At present, companies with a tax liability of $1,000 or more pay their tax in four

instalments spread over the year following the income year. Those with a liability below $1,000 make just one payment.

2. Broadly, companies and funds with a tax liability of $20,000 or more will, in future, pay their tax in two instalments. Companies and funds with a tax liability of less than $1,000 will make just one payment. Companies with a tax liability between these limits will have the choice of the two

instalment system or the one payment system.

3. The new arrangements will incorporate a full self-assessment system.

4. All companies, superannuation funds and approved deposit funds (complying and non-complying), and pooled superannuation trusts will fall within the scope of these new arrangements.

(B) AN OUTLINE OF THE PROPOSED SYSTEM

Payments affected

5. The new arrangements will first affect payments made in 1990-91 (or substituted accounting period), on income of the 1989-90 year of income. The key dates are 15 July, 1o December and 15 March for companies and funds balancing on 30 June.

6. For early balancing companies and funds with substituted accounting periods ending on or before 31 May in lieu of the following 30 June, the key dates are the 15th day of the first, sixth and ninth months after the end of the accounting period with no payment earlier than 15 January. For companies balancing after 30 June in lieu of that date (late balancers), the key dates are the same as for early balancing companies, except that there is to be no payment later than 15 June following the end of the accounting period. (For ease of explanation, references in this paper are to companies and funds with a 30 June balance date.)

3 .

4 F -m . ·

Notional tax

7. Notional tax is relevant to the operation of the new system and is used to determine the amount of an initial payment of tax. Notional tax refers to the income tax assessed in respect of a company's or fund's taxable income

of the year prior to the year of income. The initial payment of tax is the amount an entity will be required to pay on 15 July and is either 85% of its notional tax or 85% of its estimated total actual tax liability on income of the year of income.

Payments required

Group 1 - Notional Tax is $20.000 nr nreater

8. Companies and funds which have a notional tax liability of $20,000 or more (and do not estimate their liability to be less than $20,000) will make two payments of tax in each year.

Payment 1 : Due 15 July

Am ount $ i 'r

85% of the Notional Tax

o r

85% of the tax the company or fund estimates will be its total liability on income of the 1989-90 income year.

Payment 2 : Due 15 March

Am ount : Total actual tax liability for the year less amounts

already paid.

iroup 2 - Notional Tax or estimated tax liability is between $1 OOP and 20.000

9. Companies and funds which have a Notional Tax of more than $1,000 but less than $20,000, or have a Notional Tax of $20,000 or more but estimate their tax to be in the range of $1,000 - $20,000, will be given the option of making a single payment of the total actual tax liability for the year or of

paying in the same way as Group 1 taxpayers.

Payment : Due 15 December

Amount : 100% of actual tax liability

o r

Payment :

Amount :

Two payments - the same as Group 1

4 .

Group 3 - All other taxable cases

10. Companies and funds will make a single payment of total actual tax liability for the year, where -. they have no Notional Tax (i.e., new companies and those previously non-taxable); or

. the Notional Tax is less than $1,000; or

. the final liability is estimated to be less than $1,000

Payment : Due 15 March

Amount ; 100% of tax liability

11. The following table and examples illustrate the new arrangements for the 1990-91 financial year:

Tax level Amount Date Due

Group 1 Notional or estim ated ta x

$20,000 or greater 85% of notional or estimated tax

lia b ilit y

balance of total actual lia b ility

15 July 1990

15 March 1991

Group 2 Notional o r estimated ta x

$1,000 but less than

$20,000

either, as for Group 1 OR

100% of total actual lia b ilit y 15 Dec. 1990

Group 3 Notional or estim ated ta x

less than $1,000 100% of total actual lia b ility

15 March 1991

No Notional tax

5 .

Example 1 (Group 1)

A company balancing on 30 June 1990,with Notional Tax of $20,000 or more (and not having an estimated liability of less than $20,000) will be required to pay an initial payment of tax on 15 July 1990. The initial payment will be 85% of the company's

Notional Tax (based on taxable income of the 1988-89 income year) or, 85% of the amount the company estimates as its tax payable on the income of the 1989-90 income year. The final payment of tax for that year, being the actual liability less any July instalment, will be payable on 15 March 1991.

Example 2 (Group 1 - early balancer)

A company with a substituted accounting period balancing on or before 31 May 1990, in lieu of 30 June 1990, and which has a Notional Tax of $20,000 or more (and not having an estimated liability of less than $20,000) will be required to pay its initial payment on the fifteenth day of the month following the close of its accounting period (but no earlier than 15 January 1990), and to pay the final payment of tax on the fifteenth day of the ninth month

following the close of the accounting period (but no earlier than 15 September 1990).

Example 3 (Group 1 - late balancer)

A company with a substituted accounting period balancing after 30 June in lieu of that date and which has a Notional Tax of $20,000 or more (and does not have an estimated liability of less than $20,000) will be required to pay its initial payment on the fifteenth day of the month following the close of its accounting period and to pay the final payment of tax on the fifteenth day of the ninth month following the close of the accounting period.

However, if the company balances later than 30 September, it will be required to make its final payment of tax by 15 June 1991.

Example 4 (Group 2)

A company balancing on 30 June 1990 with a Notional Tax of $1,000 or more but less than $20,000 (or where it estimates its final liability on income of the 1989-90 year to be in that range) may calculate and pay the full amount of tax on its 1989-90

income on 15 December 1990, or pay 85% of the Notional Tax or estimated tax on 15 July 1990 and the final payment of tax for that year, being actual liability less the July instalment, on 15 March 1991.

Early and late balancers in this category will be required to pay the full amount of tax by the fifteenth day of the sixth month following their balance date, if they select that option.

6 .

Example 5 (Group 3)

A company balancing on 30 June 1990 which derived taxable income in that year, but which was non-taxable in 1988-89 or commenced operating in 1989-90, will be required to calculate and pay the full amount of tax for its 1989-90 income on 15 March 1991.

Example 6 (Group 3)

A company balancing on 30 June 1990 which derived taxable income in that year but which has Notional Tax of less than $1000 will be requirea to calculate and pay the full amount of tax for its 1989-90 income on 15 March 1991.

Example 7 (Group 3)

A company balancing on 30 June 1990 with a Notional Tax of $1,000 or more, but which determines its liability for tax on income of the 1989-90 year to be less than $1,000, will not be required to make a payment in July or December 1990. The full

amount will be due on 15 March 1991. That company will need to advise the Tax Office that its estimate of the 1989-90 tax is below $1,000.

Returns

12. Companies and funds will still be required to lodge a return of income. However, consistent with changes for a system of full self-assessment the return will show the taxable income and the tax payable thereon. Only a limited amount of information from the accounts of the taxpayer will need to be in the return. The return will be lodged with the final payment. Other

information, including documents, certificates or notices previously required to be lodged on or before the last day for furnishing a return of income will still have to be prepared. These will generally now be required to be retained by the taxpayer for supply to the Taxation Office only if requested.

Date returns required

13. A company or fund with a taxable income will be required to lodge a return as follows:

. Group 1 taxpayers will be required to lodge a return by 15 March.

. Group 2 taxpayers will be required to lodge a return by 15 December where they make a single payment, or 15 March where they pay by instalm ent.

. Group 3 taxpayers will be required to lodge a return by 15 March.

7 .

14. A company or fund which has no taxable income will be required to lodge a return also containing limited information at a date which will be not earlier than 15 March.

(C) CALCULATION AND PAYMENT OF THE INITIAL PAYMENT

Advice to ATO where estimate of tax liability is less than $20, 0 0 0

15. Where Notional Tax is $20,000 or more but the company or fund estimates that it owes no tax or will have a liability less than $20,000 it may choose not to make an initial payment in July. Taxpayers in this category will need to advise the Tax Office to ensure that recovery action

is not taken for payment.

Overpayment of initial payment

16. A company or fund which pays too much in July can apply for a refund at any time prior to the due date for final liability. The taxpayer will provide the Tax Office with an estimate (or revised estimate) of its total tax

liability for the year and the Tax Office will then refund any excess. The refund can be sought regardless of whether the first payment was based upon the Notional lax or an estimate of liability. A company or fund will only have one opportunity (before its due date) to re-estimate its liability after 15 July.

Under-estimation of initial payment

17. Where a company or fund chooses to pay its initial payment on the basis of its own estimate of the tax liability and that estimate is more than 10% below the actual liability, a penalty of 20% p.a. for under-estimation may apply. However, in these circumstances a company or fund may make a

revised estimate of its actual tax and pay an amount equal to 85% of the difference between the revised and tne original estimate or make further voluntary payments of tax. In such cases tne payments will be taken into account in any calculation of additional tax for an incorrect estimate.

Calculation of penalty for underestimation of initial payment

18. A penalty will apply if the amount by which the initial payment (based on an estimate) falls snort of the lesser of the actual liability or the Notional Tax by more than 10 per cent and will be calculated from 15 July until the final liability is paid. Guidelines for remission of penalty will take account of the extent of the shortfall in the estimate, as well as any other relevant factors including any further payments. Late payment

penalty will apply to any late payments of tax.

8 .

Initial payment not made

19. Where a company or fund has a Notional Tax of $20,000 or more, the Tax Office will expect on 15 July -. a payment of 85% of that amount; or

. a payment of 85% of the company's or fund's estimate of total tax liability; or

. advice that an initial payment is not necessary (e.g., because it has no tax to pay), or is not being made (e.g., because the company or fund estimates its liability between $1000 and $20,000 and will be making a single payment in the sixth month).

20. Unless such a payment or advice is forthcoming late payment penalty will apply on the amount unpaid, for the time it remains outstanding. The amount unpaid will be deemed to be 85% of the Notional Tax unless and until

an estimate is lodged. The Tax Office may also take legal action to recover that amount.

Information required when initial payment based on estimated tax

21. Where a company or fund chooses to pay an initial payment based on estimated tax rather than Notional Tax it will simply advise the Tax Office of the estimated amount and pay 85% of that amount. The Commissioner may seek information as to tne basis of the estimate, where this is considered necessary to administer the anti-avoidance measures in the

le g isla tio n .

(D) ASSESSMENT

Deemed Assessment

22. The Tax Office will not issue any formal notice of assessment to the taxpayer after lodgment of a return. Under the new arrangements, where a return is lodged by a company or fund, and there is a taxable on which tax is payable, the Commissioner will be deemed to have made an assessment on the the date the entity is required to make the final payment of tax (e.g., 15

December or 15 March) or on the date the return is furnished when that return is late.

23. All of a taxpayer's existing rights relating to an assessment will continue to apply. This includes tne right to object against its own calculation where it wishes to challenge a view of the Commissioner which the taxpayer has nevertheless adopted in self assessing its own tax.

9.

Determination of foreign tax credits and offsets of franking deficit tax

24. The Commissioner will no longer make a determination as to whether a foreign tax credit or offset is allowable, or advise the taxpayer of the amount of the credit or offset. The taxpayer will be authorised to self- determine the tax credit or offset.

Incorrect determination of final payment

25. If a company or fund makes an error in determining its final payment it may be subject to interest on amendment of the assessment. Additional tax by way of penalty will apply to any false or misleading statements.

Amendment of assessments

26. The Commissioner may, under present law, amend an assessment for any reason to increase (or decrease ) the liability of the taxpayer within 3 years from the date the tax became due under the assessment. If there has not been a full and true disclosure and there has been an avoidance of tax,

an amendment increasing the taxpayer's liability can be made within 6 # years from the date the tax became due under the assessment. Where the Commissioner considers that there has been fraud or evasion, or where f other special provisions apply, an amended assessment may be made at any

” tim e.

27. The Commissioner's amendment powers are to be changed. Under the - new system the Commissioner will have the power to make amendments, increasing or decreasing the liability of the taxpayer within 4 years of the due date of the assessment. In the case of fraud or evasion or where the - law otherwise provides the Commissioner will still have the power to

amend an assessment at any time. (These changes will apply to all taxpayers, not just companies and funds subject to the new payment arrangements.)

Extensions to amendment period

28. Where, because of legal proceedings instigated by the taxpayer or because of other matters not within the Commissioner's control, it is not possible or appropriate to amend a particular taxpayer's assessment within the statutory period allowed, the Commissioner will 6e able to apply to the

Federal Court for an extension of time to make the amendment. The Commissioner must make the application prior to the end of the four year period and show why the extension of time is warranted. The Court would determine, having regard to the facts, whether an extension is justified and, if so, the period of the extension.

29. The Commissioner and the taxpayer may agree on an extended period for amendment of assessments without application to the Court.

10.

(E) OTHER MATTERS

Franking Deficit Tax (FDT) Return

30. There will be no change to the lodgment and payment rules for the FDT return. However, if a company that is liable for FDT, chooses to estimate its actual tax liability for the year on the 15th of July it will be entitled to

take into account the amount of FDT in calculating the estimated tax. The FDT liability will be payable only to the extent it exceeds the amount of the initial payment made.

Record Keeping Requirements

31. Records of the kind now required to compile returns will still have to be prepared and kept by taxpayers. Information which was previously furnished with the return, e.g., a profit and loss statement and a reconciliation of taxable income to published account details, will also

have to be prepared but will generally be required to be held by the taxpayer. Also some certificates ana notices e.g., notices of election previously required to be lodged with a return, will now be kept by the taxpayer. Where a return is selected for audit, the Commissioner may

request that these documents be furnished at that time.

32. Consistent with the changes to the time limits for amendments, records will need to be kept for a period of only five years instead of the current seven years, subject to an appropriate extension where the period for amendment has been extended (see above).

Non-complying funds

33. Non-complying superannuation funds and non-complying approved deposit funds will oe treated in the same way as complying funds and companies for collection purposes. Payments will be made in the year following the year of income.

11.

(F) A MORE EFFICIENT SYSTEM

34. For the taxpayer

. Generally will only need to deal with the Tax Office once or twice a

year rather than 5 times under the present system.

. Less detailed return.

. Opportunity for timely refunds on overpayments of initial payments.

. Time period for amendments increasing liability reduced.

Time period for amendments reducing liability increased.

35. For the tax agent

. No need to formally complete extensive details of existing type return form and schedules.

. Although there is still a need to complete taxpayer's accounts etc. during period 1 July to 15 March, about 35 per cent of the workload will s have to be completed prior to 15 December. The spread of this workload provides for greater flexibility for lodgment compared with

the present arrangements.

. As 1 or 2 payments will be made rather than 4, agents will, at most,

have to do half the number of calculations.

. Enhances move to Electronic Lodgment of returns. Less transmission time and costs.

36. For the Tax Office

. Generally maximum of 2 payments to process - less than half the current number of remittance transactions.

. Need for only limited information and not extensive return form details, results in less handling, storage and data capture requirem ents.

. Makes Electronic Lodgment of returns relatively easy.

. Opportunity for flexibility in Tax Agents’ lodgment programs.

. No need to calculate variations to instalments and to notify taxpayer.

. Fewer notices to be printed and despatched.