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INCOME TAX REGULATIONS (AMENDMENT) 1991 NO. 240
EXPLANATORY STATEMENTSTATUTORY RULES 1991 No. 240
Issued by the Authority of the Treasurer
INCOME TAX ASSESSMENT ACT 1936
INCOME TAX REGULATIONS (AMENDMENT)
Background
The tax file number (TFN) quotation provisions of the Act for investments apply to a person who makes investments on or after 1 July 1991, or who already has investments in existence at that date.
Investments with investment bodies, such as financial institutions, government bodies, public companies, unit trusts and investments made via solicitors or nominee companies are covered by the TFN arrangements.
Where an investment body pays or credits income in respect of an investment for which no TFN has been quoted (or exemption claimed) the investment body must deduct 48.25 per cent of the amount paid. Amounts deducted must be remitted to the Commissioner of Taxation. The investor concerned can claim credit for amounts withheld in his or her annual income tax return.
Income Tax Regulation 56 requires investment bodies to report to the Commissioner information, including the names and tax file numbers of investors, the amount of income payments made or credited and amounts withheld.
The Taxation Laws Amendment Act (No. 2) 1991 contained provisions to streamline the TFN arrangements applying to certain investments to reduce the administrative burden of complying with the TFN requirements. The provisions apply where an investor, termed a primary investor, invests money with either a solicitor or a nominee company, termed the interposed entity, which in turn invests the money with a secondary investment body such as a bank.
Before the amendments were enacted such a transaction would place investment body obligations on both the interposed entity and secondary investment body.
This result was inefficient as the information relating to the same investment would be compiled by both investment bodies and collected twice by the Australian Taxation Office. In addition many interposed entities were reluctant to quote their personal TFNs in respect of investments made using the primary investor's money which derived income to which the interposed entity was not entitled.
These arrangements were streamlined by providing that where an interposed entity receives money from a primary investor, and invests that money with a secondary investment body:
(a) the interposed entity may quote its investment body remitter number in place of its TFN, (new section 202DDA); or
(b) if a condition prescribed in the Income Tax Regulations is satisfied, the primary investor may quote his or her TFN directly to the secondary investment body thereby relieving the interposed entity of its obligations as an investment body under the TFN laws, (new section 202DDB).
Purpose of the Amendments to the Regulations
Investment body remitter numbers.
The amendments to the regulations give effect to new subsection 202DDA. The regulations authorise the Commissioner to issue, alter and cancel investment body remitter numbers. The regulations also make it clear that interposed entities may quote the investment body remitter number the same way as they would quote a tax file number.
Streamlining the Arrangements.
Before new section 202DDB can apply to an investment made through an interposed entity, the condition prescribed in the regulations must be satisfied.
These amendments prescribe a condition that requires all of the primary investors to be identified in the title of the investment made by the interposed entity. Accordingly, the interposed entity will not be relieved of his or her obligations as an investment body unless the title of the investment made by the interposed entity clearly identifies all the names of the primary investors.
TFN Reports
The regulations originally required investment bodies to annually report details of investors to the Commissioner. These regulations amended the form and content of the report to be lodged so as to reflect new section 202DDB. The investment body the interposed entity invested with is required to advise the Commissioner of all the names of the primary investors associated with investments to which new section 202DDB applies.
The original regulations also provided that investment bodies having less than 10 investors were not required to lodge reports with the Commissioner. Similarly, investments earning less than the annual threshold (under which no tax need be deducted if a TFN is not quoted) were not required to be reported.
The regulations removed an anomaly in the reporting requirements so that these exclusions from the reporting requirements would not apply to an investment body which has withheld tax from an income payment because no TFN has been quoted, irrespective of the number of investors and the amount of income paid.
Consequential Amendments.
The regulations also made a number of consequential amendments of a drafting nature to facilitate the amendments outlined above.
Details of the amending regulations are attached (refer Attachment A)
ATTACHMENT A
Details of Amendments to the Income Tax Regulations
Commencement
Subregulation 1.1 provided that amending regulation 5 commenced on 1 July 1990. Regulation 5 (see note below) prescribed the condition which must be satisfied before subsection 202DDB of the Act can apply to an investment. Subsection 202DDB has a commencement date of 1 July 1990, and it is therefore necessary for the regulation to have the same commencement date.
Amendment
Subregulation 2.1 provided that the Income Tax Regulations are amended by these regulations.
Regulation 55 (File number reports)
Subregulation 3.1 amended Income Tax Subregulation 55(1) to allow the Commissioner to approve the form of the quarterly report, containing details of investors, which investment bodies are to make. Income Tax Subregulation 55(1) states that investment bodies are required to furnish a quarterly written report to the Commissioner. Subregulation 55(5) states the report should detail the name, address, investment reference number and TFN of all investors who have quoted a TFN to the investment body in the quarter in question.
Regulation 56 (Annual Investment Income reports)
Old Income Tax Subregulation 56(1) required investment bodies to furnish a written report, entitled the "Annual Investment Income Report", to the Commissioner. The requirement to lodge the report was subject to the operation of subregulation 56(7) which excused investment bodies which accepted less than 10 investments during the year from the reporting requirement.
Subregulation 4.1 omitted old Income Tax Subregulation 56(1) and replaced it with new Subregulation 56(1) which requires the report to be furnished by all investment bodies that accepted any investments mentioned in Section 202D of the Act. The exemption for investment bodies with less than 10 investments is contained in subregulation 56(5A) (see below). Subregulation 4.1 also altered the effect of old Subregulation 56(1) by allowing the Commissioner of Taxation to approve the form of the report.
Subregulation 4.2 amended Income Tax Subregulation 56(4) by making its operation subject to new Subregulation 56(4A) (see below). Subregulation 56(4) prescribes the information to be included in the annual investment income report furnished with the Commissioner by investment bodies. Subregulation 56(4) requires Investment bodies to report, for each investment, information including:
• the name and address of the investor(s);
• details of TFNs quoted or exemptions claimed;
• total income paid to the investor(s); and
• any amounts withheld from the income payment(s).
Subregulation 4.3 omitted old subregulation 56(5) and inserted subregulations 56(4A), 56(5), 56(5A) and 56(5B) into the Income Tax Regulations to remove an anomaly in the regulations.
Subregulation 56(5) originally exempted investment bodies from reporting details of investments earning less than $120 income per annum in relation to accounts on deposit with financial institutions, or $1 for other investments. Subregulation 56(7) exempted any investment body with less than 10 investors from the reporting requirements. These subregulations were inadvertently drafted so that they would apply even though an amount of tax was deducted because an investor did not quote a TFN.
Subregulation 56(4A) accommodates section 202DDB. Where section 202DDB applies to an investment, the investment body is required to report in accordance with the reporting requirements contained in proposed subregulation (4A) (see below) rather than subregulation (4).
New subregulation 56(4A) requires the investment body to report:
• the name of the interposed entity;
• the full name of each primary investor;
• the address of the interposed entity;
• the TFN quoted (if any) or taken to be quoted;
• where a TFN is taken to be quoted because the primary investor is exempt, the exemption code approved by the Commissioner;
• total amount of income paid to the investor(s);
• total amount (if any) of deductions made from income of the investor;
• the investment reference number if any.
New subregulation 56(5) exempts investment bodies from reporting details of investments earning less than $120 per annum in respect of accounts or deposits with financial institutions or $1 for other investments. Subregulation (5) operates subject to subregulation 56(5B) which requires reports on any investment from which tax has been withheld.
Subregulation 56(5A) exempts investment bodies from reporting requirements where the investment body has accepted less than 10 investments in the financial year concerned. Similar to subregulation 56(5), subregulation 56(5A) is subject to subregulation 56(5B) which requires reports on any investment from which tax has been withheld.
Subregulation 56(5B) requires investment bodies to lodge reports in respect of any investment which has amounts deducted because a TFN or exemption was not quoted.
Subregulation 4.4 amended old subregulation 56(6) by replacing the reference to paragraph 5(b) with "(4A)(f) and subregulation (5)". This amendment was consequential to the amendments effected by subregulations 4.2 and 4.3.
Subregulation 4.5 amended paragraph 56(6)(b) by omitting the word "and". This amendment was consequential to the amendments effected by subregulation 4.6.
Subsection 221YHZA(2B) of the Act included in the definition of income to which the TFN arrangements apply, amounts that become returnable as a result of section 159GQ. This subsection was repealed by section 70 of the Taxation Laws Amendment Act (No. 2) 1991.
Subregulation 4.6 omitted paragraph 56(6)(c). The repeal of subsection 221YHZA(2B) of the Act makes paragraph 56(6)(c) redundant.
Subregulation 4.7 omitted subregulation 56(7). This amendment was consequential to the insertion of subregulation 56(5A) by subregulation 4.3 of these regulations.
Subregulation 4.8 amended subregulation 56(8) by substituting a reference to subregulation (7) with a reference to subregulation (5A).
This amendment was consequential to the insertion of subregulation 56(5A) by subregulation 4.3 of these regulations.
Subregulation 4.9 amended subregulation 56(9) by omitting a reference to subregulation (4) and substituting "this regulation". This amendment is a drafting amendment and did not affect the substance of the regulations.
New Regulation 56A
Before section 202DDB can apply to an investment, paragraph 202DDB(1)(b) requires the conditions set out in the regulations be satisfied.
Subregulation 5.1 inserted the condition required to be met before section 202DDB of the Act can apply to an investment. The subregulation inserted new regulation 56A which states that to fall within paragraph 202DDB(1)(b) of the Act an investment made by an interposed entity with a secondary investment body must have a descriptive title which identifies all the primary investors.
New Part 6A
Subregulation 6.1 inserted, after Part 6 of the Income Tax Regulations, Part 6A. This new Part is titled "Part 6A Investment Body Remitter Numbers".
New Part 6A allows the Commissioner of Taxation to issue, alter and cancel investment body remitter numbers. It also gives the circumstances in which an investment body remitter number will be taken to be quoted.
New regulation 57A authorises the Commissioner to issue investment body remitter numbers to investment bodies.
New regulation 57B authorises the Commissioner to withdraw a remitter number and to replace the withdrawn one. The Commissioner may do this at any time by issuing a written notice to the investment body.
New subregulation 57C(1) authorises the Commissioner to cancel a remitter number issued to a body that is not an investment body. This could occur when the person who was issued the investment body remitter number ceases to be an investment body. The subregulation requires the Commissioner to advise the investment body concerned of the cancellation in writing.
If the Commissioner cancels an investment body remitter number, new subregulation 57C(2) requires the Commissioner to give the investment body concerned a statement of reasons for the cancellation, in the notice provided under subregulation 57C(1).
Under paragraph 202DDA(2)(b) of the Act an interposed entity will be taken to have quoted its TFN to a secondary investment body if it quotes an investment body remitter number to the secondary investment body in accordance with the regulations made for the purposes of that paragraph.
Regulation 57D provides that the investment body remitter number may be quoted as if it were a TFN.
Accordingly any method of quotation approved by the Commissioner as being acceptable for the quotation of a TFN, under section 202DC of the Act, will be acceptable for the quotation of an investment body remitter number.