EXPLANATORY STATEMENT
Select Legislative Instrument 2007 No. 176
Issued by authority of the Minister for Revenue
and Assistant Treasurer
Income Tax Assessment Act 1997
Income Tax Assessment Amendment Regulations 2007 (No. 5)
Income Tax Assessment Act 1936
Income Tax Amendment Regulations 2007 (No. 2)
Section 909-1 of the Income Tax Assessment Act 1997 (the 1997 Act) and section 266 of the Income Tax Assessment Act 1936 (the 1936 Act) provide, in part, that the Governor-General may make regulations prescribing matters required or permitted by those Acts to be prescribed, or necessary or convenient to be prescribed, for carrying out or giving effect to those Acts.
The 1997 Act provides for cases where taxable income is to be worked out in a special way. Division 328 of that Act deals with entities who are carrying on a business with a small turnover and low amounts of depreciating assets (simplified tax system (STS) taxpayers). Subsection 328-375(4) of the 1997 Act allows the regulations to provide a different calculation of STS group turnover from that in the Act. Under subsection 170(1) of the 1936 Act, STS taxpayers have a two-year period for amendments of assessments unless otherwise prescribed in the regulations, or other exceptions apply.
The Tax Laws Amendment (Small Business) Bill 2007 (the Bill) proposes to repeal the STS and the concept of an STS taxpayer, and replace them with the concept of a small business entity. A small business entity will be eligible for a range of small business concessions, including those previously available to STS taxpayers.
The Regulations have made make minor changes to the Income Tax Assessment Regulations 1997 and Income Tax Regulations 1936 as a consequence of these proposed changes.
The Bill proposes to repeal the regulation-making authority of subsection 328-375(4) of the 1997 Act and replace it with a new subsection 328-120(3) which will have a similar effect. As a result, the Regulations have removed Division 328 of Part 2, made under subsection 328-375(4) from the Income Tax Assessment Regulations 1997 because it will be redundant.
The regulations made under subsection 170(1) of the 1936 Act contain a reference to ‘an STS taxpayer’. Since the Bill proposes to repeal the STS taxpayer concept and replace it with the concept of a small business entity, the Regulations have made one minor update to the terminology in the Income Tax Regulations 1936.
Application
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
The Regulations will commence on the commencement of the Tax Laws Amendment (Small Business) Act 2007 if they are registered before Schedule 1 to 8 of that Act commences, or on the day after they are registered on the Federal Register of Legislative Instruments if they are registered after that Act commences.
The Regulations also include transitional arrangements so that the changes only apply from the 2007-08 income year and later income years.
The Regulations are of a minor or machinery of government nature. Accordingly, the Office of Best Practice Regulation has advised that a Regulation Impact Statement is not mandatory, and has not been prepared.Delete RIS if not required.
Overview
The Income Tax Assessment Amendment Regulations 2007 (No. 5) were enacted to address the transitional changes required by the Tax Laws Amendment (Small Business) Bill 2007, which sought to replace the existing simplified tax system (STS) with the concept of a small business entity. These regulations were issued under the authority of the Minister for Revenue and Assistant Treasurer, in accordance with sections 909-1 of the Income Tax Assessment Act 1997 and section 266 of the Income Tax Assessment Act 1936, which allow the Governor-General to make regulations necessary or convenient for carrying out or giving effect to these Acts. The primary policy objective of these regulations was to ensure a smooth transition from the STS framework to the new small business entity framework, including updating relevant terminology and removing redundant regulatory provisions.
These regulations make minor amendments to the Income Tax Assessment Regulations 1997 and Income Tax Regulations 1936, primarily to reflect the legislative changes proposed by the Bill. For example, they remove the redundant Division 328 from the Income Tax Assessment Regulations 1997 and update references to 'STS taxpayer' in the Income Tax Regulations 1936 to 'small business entity'. The Regulations also include transitional arrangements to ensure that the changes apply only from the 2007-08 income year onwards. Given their minor nature and focus on machinery of government, a Regulation Impact Statement was deemed unnecessary.
Scope and Application
The Income Tax Assessment Amendment Regulations 2007 (No. 5) pertain to the Income Tax Assessment Act 1997 and the Income Tax Assessment Act 1936, affecting entities and individuals that were previously classified as small turnover and low amounts of depreciating assets (simplified tax system or STS taxpayers). These regulations are enacted to facilitate the transition from the STS framework to the new small business entity framework proposed by the Tax Laws Amendment (Small Business) Bill 2007. The changes are designed to streamline the tax treatment of small businesses by aligning the regulatory language with the new legislative provisions. The amendments include the removal of outdated references to STS taxpayers and the introduction of terminology consistent with the new small business entity concept. The regulations have a national reach across Australia, impacting the way taxable income is calculated for small businesses from the 2007-08 income year onwards. The regulations do not specify exclusions or thresholds but are integral in implementing the broader legislative intent to provide tax relief and simplify compliance for small businesses.
Key Provisions
The Income Tax Assessment Amendment Regulations 2007 (No. 5) introduce a set of minor amendments to the Income Tax Assessment Regulations 1997 and the Income Tax Regulations 1936. These amendments are made to align the regulations with the proposed changes in the Tax Laws Amendment (Small Business) Bill 2007, which aims to repeal the existing simplified tax system (STS) and replace it with the concept of a small business entity. The primary changes include the removal of Division 328 from the Income Tax Assessment Regulations 1997, as the STS regulations will become redundant following the introduction of the new small business entity regulations. Additionally, the Income Tax Regulations 1936 have been updated to reflect the new terminology by replacing references to "STS taxpayer" with "small business entity". These amendments ensure that the regulations remain consistent with the forthcoming legislative changes.
The Income Tax Assessment Amendment Regulations 2007 (No. 5) impose several obligations on taxpayers and entities governed by the regulations. STS taxpayers, who will transition to being small business entities, must now comply with the new regulations and any associated concessions or requirements specific to small business entities. This includes adhering to the updated calculation methods for business turnover and any other amendments outlined in the new regulations. Moreover, these taxpayers must ensure their records and financial reporting align with the new legislative framework to avoid any discrepancies or non-compliance issues. The regulations also require taxpayers to update their understanding of the new small business entity concept, including eligibility criteria and the range of available concessions.
Breach of the provisions set forth in the Income Tax Assessment Amendment Regulations 2007 (No. 5) can lead to several consequences, both civil and criminal. Non-compliance with the regulations may result in penalties for individuals and entities. For instance, failure to accurately report turnover or other relevant financial information could lead to financial penalties, which may vary depending on the severity and intent of the breach. In cases of deliberate non-compliance or fraud, more severe penalties may be imposed, including fines that could be substantial under both the Income Tax Assessment Act 1997 and the Income Tax Assessment Act 1936. Additionally, repeated or serious breaches could result in criminal charges, leading to prosecution and potential imprisonment. The exact penalties depend on the nature and extent of the breach, but the regulations underscore the importance of compliance to avoid these adverse outcomes.