EXPLANATORY STATEMENT
STATUTORY RULES 1988 NO. 384
ISSUED BY THE AUTHORITY OF THE TREASURER
INCOME TAX REGULATIONS (AMENDMENT)
These regulations amending the Income Tax Regulations will increase the rate of deduction from prescribed payments from 15 to 20 per cent, with effect from 1 July 1989.
The regulations will also increase the minimum values that are prescribed as the cost price for natural increases in live stock.
A number of redundant provisions will also be repealed and changes of a minor nature to update drafting are being made.
Notes on each of the amending regulations are set out below:
By regulation 1, the increase in the deduction rate from prescribed payments by regulation 13 of the amending regulations will take effect on 1 July 1989.
Regulation 2 facilitates references to the Income Tax Regulations which, in the amending regulations, are referred to as the “Principal Regulations”.
Regulation 4 will amend regulation 4AA of the Principal Regulations. That regulation prescribes certain minerals and metals for the purposes of paragraph 23(p) and section 23A of the Income Tax Assessment Act 1936 (the Act), both of which have been repealed. The amendment will reflect the fact that regulation 4AA applies to paragraph 23(pa) of the Act.
Section 23A was repealed by Act No.126 of 1974. Prior to its repeal, the section gave an exemption of 20% of the net income attributable to the production, or derived from the sale or from the deemed sale, of a metal or mineral prescribed for the purposes of the section. The concession was originally a wartime measure to offset the high rate of taxation on mining at a time when the government was asking such companies to increase their output for war purposes.
Paragraph 23(p) was omitted by Act No 165 of 1973. This provision gave an exemption from tax on income derived by a bona fide prospector from the sale, transfer or assignment of rights to mine in Australia or Papua New Guinea for gold or prescribed metals. The concession was withdrawn along with several other taxation concessions for the mining industry.
However, Act No. 127 of 1977 enacted paragraph 23(pa) to provide a similar exemption as was previously provided for by paragraph 23(p). No regulations were prescribed for purposes of paragraph 23 (pa) and reliance was placed on regulation 4AA. This amendment will now specifically prescribe metals and minerals for purposes of paragraph 23(pa).
Regulation 5 will repeal regulation 4B of the Principal Regulations. Until the repeal of section 31A of the Act by Act No. 165 of 1973, winemakers were given a concessional basis for valuation of wine and brandy stocks, which allowed them to value their stocks at fixed values that were below cost. Paragraph 31A(2) gave the producer a right to elect (in the prescribed manner) the value of each prescribed unit of a class of trading stock. Regulation 4B of the Principal Regulations provided the form in which the election could be made. This regulation is now redundant, and the general valuation of trading stock provisions in the Income Tax Assessment Act apply.
Regulation 5 of the Principal Regulations prescribes minimum cost prices that may be adopted for the purposes of calculating the cost price of natural increase of certain classes of live stock. Regulation 6 will amend regulation 5 of the Principal Regulations by, first, making minor drafting changes (paragraphs (a) and (b)) and, secondly, by substituting a new table of minimum cost prices (paragraph (c)).
The effect of the new table will be that the minimum cost prices prescribed will be increased from $1 to $4 for sheep, $5 to $20 for cattle, $5 to $20 for horses and $4 to $12 for pigs. Minimum cost prices of $4 and $20 respectively will be prescribed in respect of goats and deer.
The new prescribed values will apply to natural increase of the specified classes of live stock occurring after 30 June 1988.
Regulation 9 will omit paragraph 24(a) of the Principal Regulations. This paragraph deems the Territory of Papua and New Guinea to be a part of Queensland for the purposes of income tax returns and assessments. Papua New Guinea became an independent country on 16 September 1975 and, as a consequence, section 7 of the Act was repealed by Act No. 80 of 1975. Section 7 extended the Act to Papua New Guinea residents in respect of income sourced in Australia and treated them for that purpose as residents of Australia. With repeal of section 7, residents of Papua New Guinea are treated in the same manner as residents of other countries with income sourced in Australia. Paragraph 24(a) now has no application.
Regulation 10 will repeal regulation 26A of the Principal Regulations which includes the Territory of Papua and New Guinea in the term ‘Australia’ for the purposes of furnishing an address for service for purposes of regulations 27, 28, 30 and 31. Regulation 26A now has no application. See notes on Regulation 9.
Regulation 12 will repeal regulation 54ZE of the Principal Regulations which provides for increases in provisional tax in a given year. It is now the practice to include the provisional tax calculation uplift factor for the coming year in Budget legislation. This regulation is therefore redundant.
Regulation 13 will amend regulation 54ZED of the Principal Regulations to increase, from 15 to 20 per cent, the rate of deduction to be made from prescribed payments made to persons who do not hold a deduction exemption certificate or a deduction variation certificate. By the operation of regulation 1, the higher rate of deduction will apply to prescribed payments made on or after 1 July 1989.
Under the prescribed payments system, a person making a prescribed payment is required to deduct tax at the rate specified in regulation 54ZED of the Principal Regulations and to remit the tax deducted to the Commissioner of Taxation. The amount deducted is credited against the tax payable by the taxpayer on assessment. The Commissioner may, on application by a taxpayer, issue a deduction exemption certificate or a deduction variation certificate with the effect that the holder of the certificate will be either exempt from the operation of the prescribed payments system or subject to a lower rate of deduction than that specified in regulation 54ZED.
Regulation 16 will ensure that the values prescribed by the table that is being omitted from subregulation 5(3) of the Principal Regulations by regulation 6 will continue to apply in respect of natural increase of live stock occurring before 1 July 1988.
Minor Drafting Amendments
Regulations (3, 7, 8, 11, 14, 15, and Schedule)
The opportunity has been taken to make amendments of a minor nature so that the drafting is in modern style. The regulations have not otherwise been altered.