EXPLANATORY STATEMENT
Select Legislative Instrument 2010 No. 7
Income Tax Assessment Act 1936
Income Tax Amendment Regulations 2010 (No. 1)
Section 266 of the Income Tax Assessment Act 1936 (ITAA 1936) provides that the Governor‑General may make regulations, not inconsistent with the ITAA 1936 or the Income Tax Assessment Act 1997 (ITAA 1997) prescribing all 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.
Item 87 in Schedule 1 to the Tax Laws Amendment (2009 Budget Measures No. 2) Act 2009 (the Budget Measures Act) provides that regulations made for the purposes of or relating to Division 83A of the ITAA 1997 may take retrospective effect from any time on or after 1 July 2009, provided the regulations are made within three months of the commencement of the Budget Measures Act (14 December 2009).
The purpose of these Regulations is to preserve the effect of a table item in the Income Tax Regulations 1936 (the Principal Regulations), by updating references to reflect the terminology in the new employee share scheme legislation.
The Treasurer announced in the 2009 Budget that the Australian Government (the Government) would better target eligibility for the employee share scheme tax concessions and reduce opportunities for tax avoidance.
On 1 July 2009, the Government issued a policy statement setting out the final policy for the taxation of employee share schemes. On 14 December 2009, the Bills to give effect to this policy received Royal Assent – the Budget Measures Act and the Income Tax (TFN Withholding Tax (ESS)) Act 2009.
These Regulations preserve the effect of table item 4 in regulation 20 to the Principal Regulations. Table item 4 provides that the Commissioner of Taxation (the Commissioner) may amend an individual taxpayer’s income tax assessment for up to four years (rather than two), if an employee share scheme integrity rule about share trading and investment companies is not met (subsection 83A-35(5) of the ITAA 1997). This ensures that the period over which the Commissioner can amend the taxpayer’s income tax assessment is aligned with the period over which he can amend the taxpayer’s employer’s income tax assessment.
No consultation was required for these Regulations are they are mechanical in nature, required to preserve the effect of an existing item in the Principal Regulations.
These Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
These Regulations are taken to have commenced on 1 July 2009, and when read with the ITAA 1997 apply to employee share scheme interests in relation to which an amount must be included in a taxpayer’s assessable income on or after 1 July 2009. As noted above, item 87 in Schedule 1 to the Budget Measures Act provides that the Regulations may take retrospective effect, despite subsection 12(2) of the Legislative Instruments Act 2003.
Overview
The Income Tax Amendment Regulations 2010 (No. 1) were introduced as a legislative instrument to update and preserve the effect of certain regulations under the Income Tax Assessment Act 1936. Enacted by the Australian Parliament, these regulations respond to the need for alignment and clarity in the application of tax laws concerning employee share schemes, particularly to address issues of tax avoidance and ensure targeted eligibility for tax concessions. The regulations were made under the authority of the Tax Laws Amendment (2009 Budget Measures No. 2) Act 2009, which allows for retrospective effect, and aim to maintain consistency with the new employee share scheme legislation by updating references and terminology. The overarching policy objective is to refine the tax framework for employee share schemes, thereby better targeting concessions and reducing tax avoidance opportunities as announced in the 2009 Budget.
Scope and Application
The Income Tax Amendment Regulations 2010 (No. 1) apply to individuals and entities involved in employee share schemes, where an amount is included in a taxpayer's assessable income on or after 1 July 2009. These regulations preserve the effect of an existing regulation concerning the Commissioner's ability to amend an income tax assessment for up to four years if an employee share scheme integrity rule about share trading and investment companies is not met. The regulations have a Commonwealth jurisdictional reach, as they are made under the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997. The regulations may take retrospective effect from any time on or after 1 July 2009, as provided by Item 87 in Schedule 1 to the Tax Laws Amendment (2009 Budget Measures No. 2) Act 2009, and they are not subject to consultation due to their mechanical nature. The regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003 and are taken to have commenced on 1 July 2009.
Key Provisions
The Income Tax Amendment Regulations 2010 (No. 1) introduce several key provisions to align the regulatory framework with the new employee share scheme legislation. Section 266 of the Income Tax Assessment Act 1936 (ITAA 1936) empowers the Governor-General to make regulations necessary or convenient to carry out the Act. The explanatory statement specifies that these regulations aim to update terminology in the Principal Regulations to reflect changes in the employee share scheme legislation. Specifically, these regulations preserve the effect of table item 4 in regulation 20 of the Principal Regulations, which allows the Commissioner of Taxation to amend an individual taxpayer’s income tax assessment for up to four years if certain integrity rules about share trading and investment companies are not met.
These regulations impose specific obligations on the Commissioner of Taxation. They allow for the amendment of an individual taxpayer’s income tax assessment for up to four years if the integrity rules pertaining to employee share schemes are breached. This period of amendment is extended from the previous two years, ensuring alignment with the period during which the Commissioner can amend the employer’s income tax assessment. This change aims to better target eligibility for tax concessions and reduce tax avoidance opportunities, as announced by the Australian Government in the 2009 Budget.
Breach of the integrity rules outlined in these regulations can lead to serious consequences. The regulations permit retrospective amendments to income tax assessments, which means that if a taxpayer does not comply with the integrity rules, the Commissioner can amend their tax assessment within the specified period. This includes potentially significant financial repercussions for the taxpayer. While the specific penalties are not detailed in the explanatory statement, penalties for breaches of tax laws generally include fines and, in severe cases, criminal charges. The retrospective effect of these regulations underscores the importance of adhering to the integrity rules to avoid adverse tax consequences.