Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX REGULATIONS (AMENDMENT) 1994 NO. 219

STATUTORY RULES 1994 No. 219

Issued by authority of the Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Regulations (Amendment)

These regulations amend Part 7 of the Income Tax Regulations (the regulations) which deal with the collection and recovery of tax. The regulations provide for an accumulated Higher Education Contribution (HEC) debt to be collected through the pay-as-you-earn (PAYE) arrangements in the Assessment Act. HEC assessment debts for a taxpayer were previously treated as income tax assessed and collected in a lump sum on the taxpayer's assessment of income tax.

The regulations also make a minor change to the regulations dealing with the issue of group certificates. The change enables the group certificate to include the tax free amount of an approved early retirement scheme payment or a bona fide redundancy payment.

In the 1993 Budget of 17 August 1993, the Government announced that HEC assessment debts would be recovered through the PAYE and provisional tax arrangements from 1 July 1994. The Higher Education Funding Act 1988 (the HEC Act) was amended in 1993 and new subsection 106U(3) for PAYE and subsection 106U(4) for provisional tax were inserted.

New subsection 106U(3) of the HEC Act provides that Division 2 of Part VI of the Assessment Act (the PAYE provisions) will apply in relation to the collection by instalments of a HEC assessment debt of a person as if the HEC assessment debt were income tax.

Subsection 221C(1) of the Assessment Act authorises the making of regulations to prescribe the rate of PAYE tax instalment deductions to be made by an employer from the salary or wages received by an employee. The rates of PAYE deductions are prescribed in Division 2 of Part 7 of the regulations.

The PAYE deductions to be made depend on a number of factors. These factors are notified to an employer when an employee completes an 'employment declaration'. Factors which can be notified on a declaration include the employee's tax file number and whether the employee wishes to claim any rebates through the PAYE arrangements. For example, dependent spouse tax rebates or tax rebates for living in an isolated area can be received through reduced PAYE deductions rather than on assessment at the end of the year.

The amending regulations will provide that an employee completing an employment declaration shall declare whether he or she has an accumulated HEC debt For these taxpayers, the regulations prescribe the additional PAYE tax deductions to be made in order to collect the EEC assessment debt through the PAYE arrangements.

Regulation 1 provides that the amending regulations commence on 1 July 1994.

Regulation 2 provides that the Income Tax Regulations are amended as set out in the amending regulations.

Regulation 3 inserts a definition of 'accumulated HEC debt' into existing subregulation 70(1). The definition is the same as that described in subsection 106H(1) of the HEC Act.

Regulation 4 expands the existing operation of regulation 71 which currently prescribes the amount of PAYE deductions to be made from normal payments of salary or wages. The expansion will cover an employee who makes a declaration in an employment declaration that he or she has an accumulated HEC debt.

Regulation 5 inserts a safeguarding provision into regulation 81 to ensure that an employer is not penalised where an employment declaration becomes ineffective as a result of the employee having an accumulated HEC debt on a particular day and the employer continues to make PAYE deductions in accordance with that employment declaration. The protection afforded by this regulation shall continue until either the Commissioner advises the employer that the employment declaration is ineffective because of the existence of an accumulated HEC debt or the employee furnishes a new employment declaration, whichever occurs first.

Regulation 6 inserts new subregulations 82B(1) and (2) which provide that an employee must state whether he or she has an accumulated HEC debt when making an employment declaration to their employer. New subregulation 82B(3) prescribes the rate of PAYE tax to be deducted for an employee who has declared in an employment declaration that he or she has an accumulated HEC debt.

New subregulation 82B(3) prescribes the rate of deductions to be made by an employer from salary or wages as the sum of the amounts in paragraphs 82B(3)(a) and (b). Paragraph 82B(3)(a) is the amount of PAYE tax deducted from an employee's salary or wages at present, that is the amount which would be deducted if the employee did not have an accumulated HEC debt. Paragraph 82B(3)(b) prescribes the additional PAYE tax to be deducted in respect of an employee's HEC assessment debt.

Regulations 7 to 9 make minor drafting stylistic changes to regulations 85, 92 and 93 which will assist with the interpretation and readability of these regulations.

Regulation 10 amends existing regulation 119 which deals with the issue of group certificates by group employers. The amendment provides that group certificates issued to an employee on or after 1 July 1994 will include the tax-free amount of an approved early retirement scheme payment or a bona fide redundancy payment.

Regulation 11 makes consequential amendments to some of the regulations contained in Division 2 of Part 7 to make it clew that regulation 71, which prescribes the PAYE deductions to be made from normal payments of salary or wages, does not apply to lump sum amounts subject to regulation 80A. Regulation 80A prescribes the amount of PAYE tax to be deducted from certain lump sum payments of unused annual and long service leave which accrued after 17 August 1993.