Commonwealth Numbered Regulations - Explanatory Statements

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Income Tax Assessment Act 1936

Income Tax Regulations (Amendment)

These regulations will make amendments of the Income Tax Regulations that are consequential on amendments made to the Income Assessment Act 1936 (the Assessment Act) by the Taxation Laws Amendment (Self Assessment) Act 1992 (the Self Assessment Act).

There are instances in the Assessment Act where a taxpayer may make an election or exercise an option to override the ordinary operation of the law. In the past nearly all of the elections and options available to taxpayers under the Assessment Act have had to be in writing and lodged with the Commissioner. This put the Commissioner on notice so that he would take the taxpayer's decision into account when making an assessment of the taxpayer's taxable income and tax payable.

The Self Assessment Act generally removed the requirements under the Assessment Act for elections to be made in writing and lodged with the Commissioner of Taxation. Under the self assessment system the requirement for written notices to be given to the Commissioner has become redundant, as a taxpayer's decision to make an election or exercise an option available under the law is simply reflected in the taxable income returned by the taxpayer, which is in turn accepted by the Commissioner as a correct statement of taxable income.

There are two instances, involving an option under subsection 32(5) and a selection under paragraph 34(1)(b) of the Assessment Act, where the Income Tax Regulations prescribe (in subregulations 10(1) and (2)) that the option under subsection 32(5) and the selection under paragraph 34(1)(b) must be made by giving a written notice to the Commissioner. Consistent with the amendments to the Assessment Act made by the Self Assessment Act, those requirements are being removed by the regulations.

Section 32 allows a taxpayer to choose the basis for valuing live stock on hand at the end of a year of income. Section 33 of the Act prevents a taxpayer from changing the basis of valuation of live stock from year to year. This means that the relevant year for exercising an option under subsection 32(5) is the year in which the particular live stock is first taken into account for tax purposes. Paragraph 34(1)(b) allows a taxpayer to select a particular cost price for the natural increase of a class of live stock, e.g. horses, but only if there has never been another cost price allocated to natural increase of that class. For practical purposes this means that a selection under paragraph 34(1)(b) may only be made for the first year in which natural increase of a class of live stock is taken into account.

Regulation 2 omits the existing subregulations 10(1) and (2) and inserts two new subregulations in their place. New subregulations 10(1) and (2) retain the conditions in the former subregulations concerning the timing of the exercise of options under subsection 32(5) and selections under paragraph 34(1)(b) of the Assessment Act but do not require them to be in writing. By virtue of subsection 32(7), a subsection 32(5) option that is not exercised within the time prescribed in the regulations will be ignored. Similarly, paragraph 34(2)(a) allows a time limit to be prescribed for the making of selections under paragraph 34(1)(b). The new subregulations require an option under subsection 32(5) to be exercised, for the purposes of subsection 32(7), on or before the day of lodgment of a tax return for the relevant year of income, unless the Commissioner extends the time. The same time limit applies, for the purposes of paragraph 34(2)(a), to a selection to be made under paragraph 34(1)(b).

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