Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX REGULATIONS (AMENDMENT) 1995 NO. 316

STATUTORY RULES 1995 No. 316

Issued by authority of the Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Regulations (Amendment)

Section 266 of the Income Tax Assessment Act 1936 (the Act) provides that the GovernorGeneral may make regulations prescribing matters required to give effect to the Act. Section 220AC of the Act defines a reportable payment, inter alia, to be a payment that is declared in the regulations to be a reportable payment for the purposes of the new provisions. The regulations specify the transactions to which the RPS applies and these regulations describe certain payments in the smash repair industry.

These regulations propose to insert new Division 11A into Part 7 of the Income Tax Regulations that supplement Division 1AA of Part VI of the Act and which came into effect on 1 December 1994. Division 1AA of Part VI of the Act contains provisions to implement the Reportable Payments System (RPS). The RPS commences in the smash repair industry from 1 November 1995.

The RPS was foreshadowed in the Government's "Statement on Tax Policy" released by the Treasurer on 16 September 1992 in which it was announced that a Tax File Number (TFN) based payment reporting system to increase the level of compliance with the taxation laws would be implemented for specific transactions called "reportable payments".

The RPS was implemented in the clothing and fishing industries from 1 December 1994. It was intended, at that time, that other industries would be introduced if they were considered suitable. The structure of the RPS enables the extension to other suitable industries by way of regulations. The smash repair industry has been identified as suitable for RPS purposes.

Under the RPS, a payee may choose to quote or not to quote their TFN to a particular payer in relation to a "reportable payment". A payee who elects not to quote their TFN will suffer a financial consequence. Payers will be required to withhold 48.5% of a reportable payment. A credit in relation to amounts withheld may be claimed on assessment at the end of the year of income.

Subject to certain limitations, the payee will be taken to have quoted their TFN in respect of all subsequent "reportable payments" made by the payer to whom the TFN was quoted. Payers will be required to complete, sign and forward payee TFN information to the Commissioner, along with an end of year summary of all "reportable payments" made. This information will then be used by the ATO to confirm the identity of payees and the income earned for income matching purposes.

To be a "reportable payment" as defined in section 220AC a payment must be declared in the regulations to be a reportable payment for the purposes of Division 11A. The regulations to be inserted will describe certain payments in the smash repair industry that are to represent "reportable payments".

A "reportable payment" in the smash repair industry includes a payment by an insurer to a smash repairer in relation to the repair of a motor vehicle. A motor vehicle is not defined and will have its normal meaning. It includes as reportable payments all those payments an insurer makes to a smash repairer in respect of the repair of a motor vehicle and is not limited to payments made under policies of insurance. Consequently, payments made by an insurer who administers claims on behalf of a motor vehicle owner who self insures will be included. Payments made by an insurer to a factor and payments made by a factor to a smash repairer in consideration for the sale of debts owed to a smash repairer are also reportable payments.

The following is an example of a reportable payment in the smash repair industry. A smash repairer completes work on an insured vehicle and sells the debt due to a factor. The payment made by the factor to the smash repairer is a reportable payment. The insurer then pays the factor the amount due. That payment is also a reportable payment.

Payments made directly to smash repairers by car owners, for example excess amounts under a policy of insurance, are not reportable. Nor are payments made by a smash repairer to other motor vehicle repairers, such as auto electricians, reportable payments.

To enable those affected by the new arrangements to become familiar with the system and allow time for payees to lodge their Reportable Payments Declarations with all their payers, the regulations provide that no tax is to be deducted from payments made before 1 March 1996.

Details of the regulations are as follows:

Regulation 1 provides that the new Income Tax Regulations commence on 1 November 1995.

Regulation 2 amends the Income Tax Regulations as set out in these Regulations.

Regulation 3 inserts new 11A of Part 7 incorporating new regulations 147FA and 147FB to provide the necessary provisions for a reportable payments system for the smash repair industry.

New regulation 147FA is an interpretative provision and describes the terms used in new regulation 147FB. The terms are 'factor', 'insurer' and 'smash repairer'.

A factor is defined as a person who makes or is liable to make a payment to a smash repairer in consideration for the transfer of a debt due to the smash repairer.

An insurer means a person who carries on insurance business within the meaning of the Insurance Act 1973.

A smash repairer means a person who carries on the business of repairing the structural components, frames or panel work of motor vehicles, or of carrying out panel beating or spray painting on damaged motor vehicles.

No definition of motor vehicle has been inserted and it will take its normal meaning. This means it will include such things as motor cycles, buses and trucks.

New regulation 147FB contains the operative provisions necessary to describe which payments in the smash repair industry are to be subject to the RPS.

New paragraph 147FB(a) provides that a reportable payment will include payments that an insurer makes or is liable to make to a smash repairer and is wholly or partly in relation to the repair of a motor vehicle. This will cover the majority of payments made to smash repairers. For example, this will include payments made by insurers under a policy of insurance, payments made as a self insurer of its own motor vehicle fleet and payments made as a manager of the claims of a self insurer.

New paragraph 147FB(b) provides that a reportable payment will include payments that an insurer makes or is liable to make to a factor wholly or partly in relation to the repair by a smash repairer of a motor vehicle. All payments by an insurer in relation to smash repairs will therefore be within the system.

New paragraph 147FB(c) provides that a reportable payment will include payments that a factor makes or is liable to make to a smash repairer wholly or partly in relation to the transfer of a debt due to the smash repairer. That is, payments made by a factor to a smash repairer are to be reportable payments where they are made in respect of any debt that was owed to a smash repairer and that has been sold to the factor by the smash repairer.

Regulation 4 provides for transitional arrangements for the smash repair industry for the period 1 November 1995 to 29 February 1996. In respect of the relevant payments, it specifies that for the purposes of paragraph 220AF(2)(b) of the Act, the specified percentage is 0%. Section 220AF specifies the rate of deduction to be made from a reportable payment where a TFN has not been quoted. Regulations previously made for the purposes of this section set the rate of deduction at 48.5%.

The purpose of this regulation is to give participants who are in the smash repair industry the opportunity to become familiar with the RPS and allow payers to set up the necessary systems to cope with the requirements of the RPS. Where a payee does not quote a TFN to a payer there will be no deduction from payments made between 1 November 1995 and 29 February 1996.