EXPLANATORY STATEMENT
STATUTORY RULES 1982 NO. 280
ISSUED BY THE AUTHORITY OF THE TREASURER
The purpose of these regulations is to implement arrangements for employers to reduce tax instalment deductions under the PAYE (pay-as-you-earn) scheme from 1 November 1982 to allow for a rebate of tax on home loan interest payments of employees under the scheme announced by the Treasurer in his Budget Speech and to adjust the reduction of instalments now available under the existing home loan interest scheme to account for a change in the standard rate of tax.
Introductory note
The regulations will provide for tax instalment deductions to reflect the rebate of tax available under the further home loan interest rebate scheme which is to be inserted in the Income Tax Assessment Act 1936 (“the Act”). The Act already provides for a rebate of tax, in end-of-year assessments, for certain home loan interest payments made on or after 1 July 1982. That rebate is available to a resident taxpayer in respect of his sole or principal residence in Australia during the first 5 years of owner-occupancy of the residence where the owner-occupancy commences on or after 1 July 1977 and before 1 July 1985. The arrangement to allow for a reduction in tax instalments to account for that rebate was incorporated in the PAYE scheme by Statutory Rules 1982 No. 128, gazetted on 8 June 1982.
The new interest rebate scheme will allow a rebate of tax at the rate of 30 cents in the dollar for interest payments by a resident individual on a home loan to the extent that the interest payments are attributable to such part of the interest rate as exceeds 10 per cent per annum (calculated on a reducing balance basis) in respect of the first $60,000 of a loan or loans on his or her sole or principal residence. Under the amended PAYE arrangements, a reduction will be allowed in deductions from salary or wages paid in respect of a week or part of a week for the rebate expected under the new home loan interest scheme.
The new tax rebate - as does the existing rebate - will apply to interest paid by a taxpayer on loan moneys used to purchase, construct or extend a house, flat or home unit that is owned, wholly or partly, and occupied by the taxpayer as his or her sole or principal residence in Australia. As in the existing scheme, interest on money borrowed to acquire a caravan, or a holiday flat or cottage will not be eligible for the rebate. Nor will interest on loans for the purpose of constructing a garage, swimming pool, fences, etc., or to purchase furniture, carpets or other furnishings. Where a loan is used to acquire land, interest paid in respect of the loan will be first rebatable in the end-of-year assessment in respect of the income year in which a dwelling erected on the land is first used by the taxpayer as a sole or principal residence to the extent to which the interest accrues after occupation of the dwelling.
An employee who considers he or she will be entitled to the new tax rebate for home loan interest payments for the year of income and who desires to have this rebate entitlement reflected in his or her weekly or fortnightly tax instalments will need to lodge a declaration with his employer so that the appropriate reduction may be made in the tax instalment deductions otherwise applicable. An employee will be required to estimate how much of the amount of interest he or she will pay in the year will be attributable to such part of the interest rate as exceeds 10 per cent per annum and is in respect of the first $60,000 of the loan (or loans) on the dwelling.
Where an employee makes a declaration in respect of both the existing rebate scheme and the new scheme the employer will ascertain which scheme provides the greater rebate and will make a reduction in tax instalments in accordance with that scheme.
As an alternative to lodging a home loan interest declaration with his or her employer, an employee who for personal reasons may not wish to disclose relevant details to
the employer or who is likely to have several employers during the year may lodge the declaration with the Commissioner of Taxation. The Commissioner will determine the appropriate reduction to be made in tax instalments and issue a certificate on the basis which the employer will be authorised to act in making the reduction in tax instalments.
The reduction in tax instalment deductions for the existing rebate scheme is to be amended also to allow for a change in the rebate from 32 cents to 30 cents in the dollar as a consequence of an equivalent reduction in the standard rate of tax.
Notes on the amending regulations, which will adjust the PAYE scheme now in operation, to account for the new rebate and the adjusted rate of rebate under the existing scheme, are set out below.
Regulation 1 provides for the amending regulations to come into operation on 1 November 1982.
Regulation 2 will retain in force a declaration lodged by an employee under Subdivision AA of the Income Tax Regulations before the commencement of the proposed new Regulations. Thus, an employee who is receiving a reduction in tax instalment deductions under the existing home loan interest rebate scheme relating to the first 5 years of owner-occupation will continue to have instalments deducted on that basis for the balance of the 1982-83 year of income unless he or she lodges a further declaration or notification.
Regulation 3 will change the title of Subdivision AA of Division 2 of Part VI of the Income Tax Regulations which Subdivision, as amended, will provide for the making of tax instalment deductions so as to reflect the rebate available under either of the home loan interest rebate schemes.
Regulation 4 amends regulation 54DB. That regulation defines certain terms in Subdivision AA which, at present, governs
reductions in PAYE tax instalments to account for the home loan interest rebate in respect of the first 5 years of owner-occupation.
Paragraph (a) of regulation 4 inserts a definition of “estimated excess home loan interest”. It is the employee’s estimate of how much of interest on a home loan he or she will be required to pay in the year as will exceed 10 per cent per annum of the estimated average unpaid balance of the loan during the year. The definition will limit qualifying interest to interest on the first $60,000 of the loan.
Paragraph (b) inserts a definition of “relevant interest” and gives the term the same meaning as it has in sub-section 159ZB(2) of the Act. In effect, it describes the kinds of ownership interests in property which will be a prerequisite to entitlement to a rebate under the new scheme and, consequently, to a reduction in tax instalment deductions in accordance with these regulations.
Paragraph (c) omits sub-regulation 54DB(2) and inserts a new sub-regulation (2). Sub-regulation (2) applies in respect of the existing rebate scheme and has the effect of restricting reductions in instalments under the PAYE scheme to an employee making interest payments on a home loan that is used to purchase, construct or extend a house, flat or home unit that, at the time the declaration is made, is owned and occupied by the employee who is eligible for the rebate under the Act. New sub-regulation (2) will provide a similar restriction which will apply to declarations under both the existing rebate scheme and the new scheme.
Paragraph (d) restricts the operation of Subdivision AA to an employee who is a resident of Australia as defined in the Act. The rebates under both home loan interest rebate schemes are available only to an individual who is a resident.
Regulation 5 inserts new regulation 54DBA which specifies the tests to determine whether a person is a “prescribed occupier” of a dwelling at a particular time. The tests are that the person -
(a) occupied the dwelling as his sole or principal residence; and
(b) had a relevant interest in the dwelling (see paragraph (b) of regulation 4).
A person must be a prescribed occupier of a dwelling to be eligible under these regulations for a reduction in tax instalments on account of the new home loan interest rebate.
Regulation 6 amends regulation 54DC which requires an employee who desires to have his or her instalment deductions reduced on account of the existing home loan interest rebate to lodge with his employer, or with the Commissioner of Taxation, a declaration together with a statement from the lender.
The purpose of the amendment is to include a reference to the new rebate scheme so that the regulations will offer the same procedures under both schemes to persons wishing to claim the benefit of the rebate through tax instalment reductions.
Regulation 7 amends regulation 54DD which provides for an employee to lodge a further declaration under the existing rebate scheme relating to the first 5 years of owner-occupation where there has been a change in relevant circumstances during a financial year since lodging an earlier declaration, or to lodge a notification if he or she is no longer entitled to a rebate. This regulation is necessary to ensure that the appropriate adjustment for the changed circumstances is reflected in tax instalment deductions made from salary or wages paid to the employee during the remainder of the year.
Paragraphs 7(a) to (d) amend sub-regulations (1) and (2) of regulation 54DD so as to confine the operation of those provisions to cases where an employee lodges a declaration and declares information in relation to the existing scheme.
Paragraph (e) inserts two new sub-regulations in regulation 54DD. New sub-regulation (2A) deals with the situation where an employee has furnished to his employer or to the Commissioner a declaration and statement relating to the new rebate scheme, and relevant circumstances change. If an employee ceases to be a prescribed occupier of the dwelling to which the declaration relates, or ceases to make interest payments on the loan on the dwelling, the employee must notify the employer or the Commissioner in writing that he or she is no longer entitled to a reduction in tax instalments. The notification must be given by the employee within 14 days of becoming aware of the changed circumstances.
Sub-regulation (2B) will allow an employee who has lodged a declaration in relation to one of the rebate schemes to lodge a declaration in relation to the other scheme with his employer or the Commissioner in appropriate circumstances.
Paragraph 7(f) amends sub-regulation (3) which requires an employee to return any certificate previously issued by the Commissioner under regulation 54DG when he or she lodges a further declaration or a notification under regulation 54DD. This amendment will include in the sub-regulation a reference to a notification under sub-regulation (2A) or a further declaration under sub-regulation (2B).
Regulation 8 amends regulation 54DE, which provides that a declaration is to be in accordance with a form provided by the Commissioner, signed by the employee and dated on the day it is made.
Sub-regulation (2) of regulation 54DE prescribes the information that is required to be set out in a declaration. Paragraph (a) of regulation 8 amends sub-regulation 54DE(2) so that it will apply only to information required in respect of the existing rebate scheme relating to interest paid in the first 5 years of owner-occupation. Paragraph (b) inserts a new sub-regulation 54DE(2A) to prescribe the information that is
required to be set out in a declaration relating to the new rebate scheme. That information is:
• the financial year to which the declaration relates (paragraph (2)(a));
• the employee’s name, occupation and address (paragraph (2)(b));
• the name of the lender of the home loan to which the declaration relates, the amount of the loan (at a time within 3 months of the date on which the declaration is made) and the rate of interest at that date (paragraphs (2)(c), (d) and (e));
• the address of the dwelling to which the declaration relates (paragraph (2)(g)); and
• the estimated excess home loan interest (paragraph (2A)(b)).
Regulation 9 amends regulation 54DG which authorises the Commissioner to issue to an employee a certificate specifying, for the relevant financial year, the reduction in the employee’s tax instalment deductions that is to be made to account for eligibility under the existing rebate scheme. The Commissioner will issue a certificate where an employee prefers to lodge a declaration with the Commissioner rather than with the employer. The employee will then lodge the certificate from the Commissioner with his employer.
The amendment specifies that the Commissioner is also authorised to issue such a certificate in respect of the new rebate scheme when he receives a relevant declaration.
Regulation 10 amends regulation 54DJ, which contains provisions relating to the operation of a declaration or certificate lodged with an employer under the existing rebate scheme.
Where a declaration and statement (sub-regulation 54DC(1)) or a further declaration or notification (regulation 54DD) are lodged by an employee with an employer, or where the Commissioner issues an employee with a certificate and the certificate is lodged with an employer (regulations 54DG and 54DH), the employer is by regulation 54DJ required to vary the rate of tax instalments which would otherwise be deducted from the employee’s salary or wages.
The amendment to sub-regulation 54DJ(1) made by paragraph (b) authorises an employer to vary the rate of tax instalments to account for an employee’s entitlement to a rebate under the new scheme where the employer receives a relevant declaration.
The amendments made by paragraphs (a) and (c) are drafting measures consequent upon the inclusion by paragraph (d) of new sub-regulation (2). Sub-regulation (2) is a drafting measure intended to make it clear that where an employee furnishes a notification to his employer that he is no longer entitled to a reduction of tax instalments the employer must cease making the reduction.
Regulation 11 amends regulation 54DK which sets out the appropriate reduction that is to be made to an employee’s tax instalment deductions where the employee furnishes a home loan interest declaration to his employer in respect of the existing rebate scheme, that is, where he has provided information in accordance with sub-regulation 54DE(2).
Paragraphs (a) and (b) are drafting measures required as a consequence of the insertion of provisions to allow for the new rebate scheme. Paragraph (c) will amend sub-regulation 54DK(1) to change the calculation by which the employer is to ascertain the weekly reduction in tax instalments under the existing rebate scheme. The amended provision requires the
employer to calculate the weekly reduction in tax instalments by multiplying the employee’s estimated home loan interest in a declaration by the factor 0.0057. The factor has been decreased from 0.00608 as a consequence of a change in the standard rate of tax from 32 cents to 30 cents in the dollar as from 1 November 1982.
Regulation 12 inserts two new regulations to account for the operation of a declaration furnished under the new rebate scheme and for the basis of making a reduction in tax instalments when declarations have been lodged under both rebate schemes.
Regulation 54DKA operates where an employee has furnished a declaration to his employer and has provided information in accordance with sub-regulations 54DE(2A). The employer is to calculate the weekly reduction in tax instalments by multiplying the employee’s estimated excess home loan interest (sub-regulation 54DB) for the financial year as shown in the declaration by the factor 0.0057. This calculation determines the weekly rebate for the home loan interest attributable to the rate of interest on the loan exceeding 10 per cent per annum in respect of the first $60,000 of the home loan.
Regulation 54DKB specifies that where the tax instalments for an employee in a week would otherwise be reduced by an amount under regulation 54DK (the rebate in respect of the first 5 years of owner-occupation) and under regulation 54DKA (the rebate in respect of the new scheme) the reduction is to be by the greater of those amounts only.