EXPLANATORY STATEMENT
Select Legislative Instrument 2006 No. 59
Issued by authority of the Minister for Revenue
and Assistant Treasurer
Income Tax Assessment Act 1936
Income Tax Amendment Regulations 2006 (No. 1)
Section 266 of the Income Tax Assessment Act 1936 (the Act) provides in part, that the Governor-General may make regulations not inconsistent with the Act, prescribing all matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.
Subsection 23AD(1) of the Act exempts the pay and allowances earned by Australian Defence Force (ADF) members from income tax where there is a certificate in force, issued in writing by the Chief of the Defence Force, to the effect that the members are on eligible duty. The certificate comes into force at the later of either the time specified in the certificate or the time the person arrives for duty in the specified area. The certificate continues to be in force until the earliest of the time of departure from the specified area, the date of revocation of the certificate or a time prescribed by regulation and is in force during any period of hospital treatment during the person’s eligible duty (subsection 23AD(3) of the Act).
Subsection 23AD(2) of the Act provides that the regulations may declare that duty with a specified organisation in a specified area outside Australia and after a specified day is eligible duty for the purposes of section 23AD of the Act.
Prior to the Chief of the Defence Force issuing the certificate, the Minister for Defence declares service on an operation to commence or cease to be ‘warlike’ or ‘non-warlike’ service and sets out the area of operations.
The purpose of the Regulations is to close off the period of eligible duty with Operation PALATE within the area of operations (generally in Afghanistan) so that the period of eligible duty is 18 April 2003 to 5 July 2004. This is necessary because the Minister for Defence has declared service with these operations in the specified areas of operation to no longer be ‘warlike’ service for the purposes of section 23AD of the Act. Whilst the effective date of the Regulation is retrospective, ADF members will not be adversely affected because no ADF members were in the area of operations on or after 5 July 2004.
The Regulations also declare duty on Operation PALATE II to be eligible duty to enable the pay and allowances received by ADF members deployed on Operation PALATE II to be exempt from income tax under section 23AD from 27 June 2005. Whilst the effective date of the Regulation is retrospective, ADF members will not be adversely affected because the Regulations benefit ADF members serving on Operation PALATE II by providing them with a tax exemption.
The Regulations also make consistent the specified area of operations for Operation PALATE and Operation PALATE II, and specify the name of the organisation with which the duty is performed, the United Nations Assistance Mission in Afghanistan, to ensure compliance with section 23AD.
Subsection 12(2) of the Legislative Instruments Act 2003 prohibits the retrospective operation of regulations, or a provision of regulations, which adversely affect the rights of, or impose liabilities on, a person other than the Commonwealth in respect of anything done or omitted to be done before the date of notification. The Office of Legislative Drafting and Publishing has advised that the Regulations do not contravene subsection 12(2).
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
Consultation was not undertaken in relation to this instrument because it is a minor in nature and does not substantially change the law.
The Regulations commenced on the day after registration.
Overview
The Income Tax Amendment Regulations 2006 (No. 1) were introduced to address the need for precise regulation of tax exemptions for Australian Defence Force (ADF) members under the Income Tax Assessment Act 1936. These regulations were enacted by the Parliament of Australia to ensure that the tax exemption provisions for ADF members on eligible duty are clearly defined and properly enforced. The regulations specify the eligible duty period for Operation PALATE as from 18 April 2003 to 5 July 2004 and for Operation PALATE II as from 27 June 2005, ensuring that ADF members serving in these operations receive the appropriate tax exemptions. The policy objective of these regulations is to provide certainty and compliance with the Act, ensuring that ADF members are not adversely affected by retrospective changes. The regulations also ensure consistency in the specified areas of operations and the organisations with which duty is performed, thereby maintaining the integrity of the tax exemption provisions.
Scope and Application
The Income Tax Amendment Regulations 2006 (No. 1) amends the Income Tax Assessment Act 1936 to provide for the taxation of pay and allowances earned by Australian Defence Force (ADF) members serving in specific operational areas. These Regulations apply to ADF members who have served in the specified areas during the period declared eligible for tax exemption. The geographic reach of these Regulations is focused on operations within Afghanistan, particularly in relation to Operation PALATE and Operation PALATE II. The Regulations determine the period during which ADF members' service is considered 'eligible duty' for income tax exemption purposes, thereby ensuring that their pay and allowances are exempt from income tax under section 23AD of the Act. The Minister for Defence's declaration of the operational areas and the Chief of the Defence Force's issuance of certificates are key components in determining the eligibility of these members for tax exemptions. The Regulations also address the retrospective nature of the effective dates, ensuring that ADF members are not adversely affected by the changes, as they pertain to periods before the Regulations' commencement.
Key Provisions
The Income Tax Amendment Regulations 2006 (No. 1) under the Income Tax Assessment Act 1936 establish certain conditions and periods for Australian Defence Force (ADF) members to be exempt from income tax when on eligible duty. Specifically, section 23AD of the Act provides that pay and allowances for ADF members are exempt from income tax if they are on eligible duty, as certified by the Chief of the Defence Force. The regulations, therefore, play a crucial role in determining when duty qualifies as 'eligible duty' and for which operations. For example, the regulations specify that the period of eligible duty for Operation PALATE is from 18 April 2003 to 5 July 2004, and for Operation PALATE II, it is from 27 June 2005 onwards. This ensures that ADF members deployed in these specific operations during the specified periods receive the tax exemption.
The obligations imposed by the Act and these regulations primarily rest with the Chief of the Defence Force, who must issue certificates confirming the eligibility of duty for tax exemption purposes. Additionally, the Minister for Defence must declare whether operations are 'warlike' or 'non-warlike' and specify the operational areas. This certification process ensures that ADF members can be accurately identified as eligible for tax exemptions. The regulations also require that these certificates remain in effect during any hospital treatment the ADF members receive while on duty. Furthermore, the regulations stipulate the consistency of the operational areas and the organisations involved to ensure compliance with the Act.
There are no explicit offences, penalties, or consequences outlined in the Explanatory Statement for breaching these regulations. However, any failure to comply with the requirements of the Act and these regulations could potentially result in ADF members being incorrectly taxed on their pay and allowances, which might lead to administrative reviews or audits by the Australian Taxation Office. The statement does confirm that the regulations do not contravene the prohibition on retrospective operation adversely affecting rights or imposing liabilities, as outlined in subsection 12(2) of the Legislative Instruments Act 2003. This means that ADF members who qualify under these regulations are protected from any adverse tax consequences arising from the retrospective nature of the regulations.