Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX REGULATIONS (AMENDMENT) 1996 NO. 320

STATUTORY RULES 1996 No. 320

Issued by the 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 Governor-General may make regulations prescribing matters required to give effect to the Act.

Subsection 221C(1) of the Act authorises the making of regulations to prescribe rates of deductions to be made by employers from the salary or wages of employees to enable collection of income tax from employees by instalment. This is known as the pay as you earn (PAYE) system. Subdivision 2 of Division 2 of Part 7 of the Income Tax Regulations (the Regulations) sets out the prescribed rates of tax instalment deductions to be deducted from salary or wages of employees.

The purpose of these regulations is to amend Subdivision 2 of Division 2 of Part 7 of the Regulations to give effect to the Family Tax Assistance (FTA). The FTA was inserted in the Income Tax Rates Act 1986 by the Income Tax Rates Amendment (Family Tax Initiative) Act 1996. The FTA increases the tax free threshold of a family member to help reduce the overall income tax payable by the family. The amendments make this reduction in tax available through the PAYE system by reducing the amount of tax instalment deductions (TIDs) deducted from salary or wages of eligible employee taxpayers.

Details of Income Tax Regulations Amendment

Commencement

Subregulation 1.1 proposes that the amending Regulations commence on 1 January 1997.

Subregulation 2.1 provides that the Income Tax Regulations are amended as set out in these amending regulations.

Amendments

Subregulation 3.1 inserts into subregulation 70(1) the definitions of "family tax assistance benefit", lowest marginal rate of tax" and "tax value of the family tax assistance benefit".

"Family tax assistance benefit" is defined as the total amount of the increase in the tax free threshold to which the employee would be entitled in that year under sections 20C and 20D of the Income Tax Rates Act 1986 (the Rates Act) or the amount of the increase the employee would have been entitled to if those sections had applied to them. This latter feature accommodates those employees whose tax is determined by a flat rate of tax rather that the marginal rates normally applied, such as a primary producers who also receive salary and wages. These employees do not receive an increase in their tax free threshold, Rather, they are entitled to an equivalent benefit under sections 20F, 20G or 20H of the Rates Act through an alteration in the rate of tax applied to their income.

"Lowest marginal rate of tax" is defined as having the same meaning as in Division 5 of Part 11 of the Rates Act. In that Division "lowest marginal rate of tax" is defined as the lowest percentage set out in column 2 of the table in clause 1 of Schedule 7 of that Act. This is the lowest percentage of tax raised on personal income. It is currently 20%.

"Tax value of the family tax assistance benefit" is defined as the family tax assistance benefit multiplied by the lowest marginal rate of tax. Employees are required to put their respective figures on their employment declaration so that employers can determine the amount of weekly FTA benefit and reduce TIDs accordingly.

Subregulation 4.1 inserts new regulation 83A. New subregulation 83A(1) provides that if an employee claims an FTA benefit in an employment declaration, and quotes his or her tax file number, the employer is to reduce the TIDs otherwise calculated under Subdivision 2 of Division 2 of Part 7 of the Regulations by a weekly FTA amount. The weekly FTA amount is the amount in dollars and cents worked out using the formula in new subregulation 83A(2). The formula provides that the weekly FTA amount is the tax value of the FTA benefit to which the taxpayer is entitled for that year of income multiplied by 1.9%. Multiplying by 1.9% approximates the result obtained by dividing the total benefit for the year by 52 weeks and is consistent with the existing method used in relation to concessional and zone rebates. New subregulation 83A(3) provides rounding rules for this formula so that the amount ends in a zero or a five. This aligns the amount with current tax instalment amounts.

Subregulation 5.1 amends subregulation 85(1) by inserting new paragraph 85(1)(da). This amendment has the effect that where employees desire to have their eligibility for the FTA reduce their TIDs, they must furnish their employer with an employment declaration to that effect. This is already the case for employees who desire to have their eligibility for the general exemption, concessional or zone rebates, or their status as a non-resident taken into account in the calculation of their TIDs.

Subregulations 6.1 and 6.2 amend subregulation 89(1) by inserting new subparagraph 89(1)(c)(iia) so that where an employee desires to have the FTA taken into account in his or her TIDs the employee must include in the declaration the amount of tax value of the FTA benefit for the year to which he or she claims to be entitled.

Subregulation 6.3 amends subparagraph 89(1)(c)(iii) to include the FTA benefit in the total of amounts that reduce TIDs otherwise included in the declaration.

Subregulation 7.1 amends paragraph 92(a) to permit the Commissioner to take an FTA benefit into account when issuing a certificate under regulation 92.

Subregulations 8.1 and 8,2 amend subregulation 93(1) to provide that the FTA is taken into account when TIDs are calculated for an employee who, rather than furnishing his or her employer with an employment declaration, has lodged with his or her employer a certificate issued by the Commissioner under regulation 92.

Subregulation 9.1 amends subregulation 95(1) to provide that employees are required to lodge a further employment declaration if there is a change in circumstances which reduces their entitlement to the FTA. Employees are already required under regulation 95 to lodge a further employment declaration if there is a change in circumstances which affects their entitlement to the general exemption, or a rebate, or relief from the medicare levy.