Income Tax Amendment Regulations 2001 (No. 5) 2001 No. 163
EXPLANATORY STATEMENT
STATUTORY RULES 2001 No. 163
Issued by the authority of the Treasurer
Income Tax Assessment Act 1936
Income Tax Amendment Regulations 2001 (No 5)
The Governor-General may make regulations under section 266 of the Income Tax Assessment Act 1936 (the Act) for the purposes of the Act.
Currently, Regulation 152L of the Income Tax Regulations 1936 provides for a notional capital allowance for the amortisation of capital works (building and construction works) that are not plant, to be taken into account as reducing the notional income of foreign investment funds.
The Regulation ensures that the law maintains that notional capital allowance by amending the section reference contained in Regulation 152L from a reference to section 42-18 to a reference to section 45-40. This is required because the definition of plant is being transferred from one area of the Income Tax Assessment Act 1997 (ITAA 1997) to another area of that same Act.
The section will be relocated by the uniform capital allowance system contained in the New Business Tax System (Capital Allowances) Bill 2001 and New Business Tax System (Capital Allowances-Transitional and Consequential) Bill 2001, which upon commencement will repeal the current section containing the definition of plant and insert another section containing an equivalent definition of plant in the same Act. The change proposed by the New Business Tax System (Capital Allowances Transitional and Consequential) Bill 2001 will require a corresponding reference change to be made to the Regulations.
There were over 37 separate capital allowance regimes in the income tax law that have inconsistent features. The New Business Tax System (Capital Allowances) Bill 2001 is proposed to relieve this substantially by introducing a uniform capital allowance system that offers significant simplification benefits as well as improving neutrality.
As a result of implementing this system several definitions will be relocated from the existing capital allowance provisions into other Divisions or into the Dictionary as part of the New Business Tax System (Capital Allowances) Bill 2001 and the New Business Tax System (Capital Allowances-Transitional and Consequential) Bill 2001. The relocation of the definition of plant from Division 42 to Division 45 of the ITAA 1997 is the reason for the proposed Regulation.
Regulation 152L refers to the section that contains the definition of plant that will be repealed by the New Business Tax System (Capital Allowances-Transitional and Consequential) Bill 2001. The definition of plant is required as it limits the reduction in notional income associated with this notional capital allowance. The limitation is required because capital allowances associated directly with plant are allowable under the statute. Without the limitation in place it is possible for a double reduction in notional income to occur. The regulation therefore needs updating to reflect the corresponding reference to the new law.
The Regulation would commence to coincide with the commencement of Schedule 2 of the Bill, so in the event that the Bill does not become law or is deferred the regulations will not commence. The Bill as currently drafted would take effect generally on 1 July 2001. The commencement of the Regulation would coincide with that of the Bill as the Bill is responsible for relocating the definition of plant.
Overview
The Income Tax Amendment Regulations 2001 (No. 5) were enacted to address the need for a uniform capital allowance system in Australia's tax legislation, thereby improving the neutrality and simplifying the numerous existing capital allowance regimes. This regulation was introduced under the authority of the Treasurer and is a response to the complexity and inconsistency within the over 37 separate capital allowance regimes that existed at the time. The primary objective is to ensure that the law aligns with the new legislative changes introduced by the New Business Tax System (Capital Allowances) Bill 2001 and the New Business Tax System (Capital Allowances-Transitional and Consequential) Bill 2001, which aim to streamline the capital allowance provisions. The regulation specifically updates the reference in Regulation 152L of the Income Tax Regulations 1936 from section 42-18 to section 45-40, reflecting the relocation of the definition of plant within the Income Tax Assessment Act 1997, thereby preventing potential double reductions in notional income associated with capital allowances.
Scope and Application
The Income Tax Amendment Regulations 2001 (No. 5) apply to entities and individuals subject to the Income Tax Assessment Act 1936, primarily impacting foreign investment funds and taxpayers involved in capital works such as building and construction. The regulation is necessitated by changes in the definition of plant under the Income Tax Assessment Act 1997, which will be relocated from one section to another as part of the New Business Tax System reforms. This amendment is crucial to prevent double reductions in notional income by ensuring that the notional capital allowance for non-plant capital works is accurately calculated. The regulation's scope extends nationally, aligning with the Commonwealth's jurisdiction over income tax. The regulation will commence on the same day as Schedule 2 of the New Business Tax System (Capital Allowances-Transitional and Consequential) Bill 2001, which is expected to be 1 July 2001, contingent upon the Bill's enactment. The regulation itself does not specify exclusions or exemptions, but its application is inherently tied to the existing legislative framework of income tax regulations.
Key Provisions
The Income Tax Amendment Regulations 2001 (No. 5) primarily address the amendment of Regulation 152L under the Income Tax Regulations 1936, which deals with the notional capital allowance for the amortisation of capital works that are not considered plant. Specifically, Regulation 152L is updated to change the section reference from section 42-18 to section 45-40 (section 3). This adjustment is necessary due to the relocation of the definition of plant within the Income Tax Assessment Act 1997 (ITAA 1997), necessitated by the New Business Tax System (Capital Allowances) Bill 2001 and the New Business Tax System (Capital Allowances-Transitional and Consequential) Bill 2001. The change aims to prevent a potential double reduction in notional income by ensuring that the limitation on notional capital allowance aligns with the new statutory definition of plant.
The amendment imposes certain obligations on entities subject to the regulations, particularly foreign investment funds that may be affected by the notional capital allowance for capital works. These entities must ensure that their tax calculations correctly reflect the updated reference to the definition of plant as provided in the regulations. Additionally, they must be aware of the potential impact of this amendment on their tax liabilities and ensure compliance with the updated regulation once it comes into effect. The regulation's commencement is contingent upon the commencement of Schedule 2 of the New Business Tax System (Capital Allowances-Transitional and Consequential) Bill 2001, generally expected on 1 July 2001.
Failure to comply with the updated regulation could result in financial penalties and legal consequences. While the explanatory statement does not specify particular offences or penalties for non-compliance with this regulation, general provisions within the Income Tax Assessment Act 1936 may apply. These could include fines, interest on unpaid taxes, and potential legal action for non-compliance or fraudulent activities. The severity of the penalties would depend on the extent of non-compliance and whether it was deemed to be intentional or negligent. It is important for affected entities to understand and adhere to the updated regulation to avoid any adverse consequences.