EXPLANATORY STATEMENT
Select Legislative Instrument 2007 No. 178
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 legislative changes proposed by the Tax Laws Amendment (Small Business) Bill 2007, which sought to replace the existing simplified tax system (STS) for small businesses with a new system that introduces the concept of a small business entity. This change was aimed at providing a more streamlined and efficient tax framework for small businesses, ensuring that they receive appropriate concessions and benefits. The regulations were issued by authority of the Minister for Revenue and Assistant Treasurer under the Income Tax Assessment Act 1997 and the Income Tax Assessment Act 1936, reflecting the policy objective of modernising and simplifying the tax system to better support small business operations and growth.
These regulations made minor adjustments to the existing tax regulations to align with the proposed legislative changes, including the removal of provisions related to STS taxpayers and the introduction of terminology referring to small business entities. The changes were designed to ensure a smooth transition for small businesses as they adapt to the new legislative framework, with specific transitional arrangements to apply from the 2007-08 income year onwards. The Office of Best Practice Regulation determined that a Regulation Impact Statement was not mandatory for these minor and machinery of government nature regulations.
Scope and Application
The Income Tax Assessment Amendment Regulations 2007 (No. 5) are instrumental in updating the Income Tax Assessment Regulations 1997 and Income Tax Regulations 1936 to align with the proposed changes introduced by the Tax Laws Amendment (Small Business) Bill 2007. These regulations specifically address the transition from the existing simplified tax system (STS) to the new concept of small business entities, ensuring that the tax laws continue to operate effectively and efficiently. The regulations apply to small businesses, particularly those with a small turnover and low amounts of depreciating assets, and modify their tax obligations to reflect the new legislative framework. Geographically, these regulations have a national reach, applying across Australia as they are subordinate to Commonwealth legislation. The regulations exclude any entities that do not qualify as small business entities under the new system. Furthermore, the regulations include transitional provisions to ensure a smooth implementation, with changes taking effect from the 2007-08 income year onwards. This legislative instrument operates under the authority granted by the Income Tax Assessment Act 1997 and the Income Tax Assessment Act 1936, with the regulations themselves providing necessary details and adjustments to align with the forthcoming legislative changes.
Key Provisions
The key operative sections of the Income Tax Assessment Amendment Regulations 2007 (No. 5) pertain to changes necessitated by the Tax Laws Amendment (Small Business) Bill 2007. These amendments are designed to replace the existing Simplified Tax System (STS) with a new concept of a small business entity, which will be eligible for various small business concessions. Specifically, the regulations under section 328-375(4) of the Income Tax Assessment Act 1997 have been modified to reflect this change. The regulations also update the terminology in the Income Tax Regulations 1936 to reflect the new concept of small business entities rather than STS taxpayers. These changes are made to ensure consistency and clarity in the application of tax laws to small businesses.
The obligations imposed by the regulations on the parties governed by these Acts primarily involve ensuring that the updated terminology and calculation methods are correctly applied in tax assessments. For STS taxpayers transitioning to small business entities, it is crucial to understand and comply with the new provisions to benefit from the available concessions. The regulations also mandate that these changes take effect from the 2007-08 income year, requiring taxpayers to adjust their tax reporting and calculations accordingly.
There are no specific offences or penalties outlined in the explanatory statement for breach of these regulations. However, non-compliance with the updated tax laws and regulations could result in the loss of eligibility for small business concessions, potential audits, and subsequent penalties if discrepancies are found. Taxpayers must ensure they are aware of and adhere to the new regulations to avoid any adverse tax implications.