Income Tax Regulations (Amendment)

Administered by Department of the Treasury

Legislation au F1997B00363 Regulations Not in force Legislative Instrument

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EXPLANATORY STATEMENT

STATUTORY RULES 1989 NO. 141

ISSUED BY THE AUTHORITY OF THE TREASURER

The Minute proposes the making of Income Tax Regulations to provide for an alernative method of quoting a tax file number in respect of certain payments and to make other minor changes to the Income Tax Regulations (the Principal Regulations) relating to the tax file number system.

Regulation 1 provides for the commencement of regulation 3 on 1 July 1989.

Regulation 2 facilitates references to the Income Tax Regulations which are referred to as the “Principal Regulations”.

Regulation 3 extends the period for which employers are to retain copies of declaration forms, given to the employer under regulation 54DAC of the Principal Regulations, from the 1 July after the forms cease to have effect to the second 1 July after the forms cease to have effect. The declaration forms are used by employees to claim the general exemption and any rebates. The extended retention period will allow the Australian Taxation Office to have access to the copies of the forms during the financial year following the financial year during which a declaration ceases to have effect.

This amendment will not apply to declarations that ceased to have effect prior to 1 July 1989.

Background notes for regulations 4, 5 and 6

The provisions relating to the quoting of tax file numbers in respect of eligible termination payments were linked to regulation 54DAQ by the Taxation Laws Amendment (Tax File Numbers) Act 1988. Generally, regulation 54DAQ provides that before an employer, superannuation fund or rollover institution (the payer) makes an eligible termination payment to an employee the payer must, on a Statement of Termination Payment form, prepare details of the eligible termination payment showing all of its components. The payer must give this statement to the employee who fills in the rollover nomination and tax file number and returns it to the payer. The payer can then make the payment and issue a group certificate.

As this method of quoting tax file numbers has been found to be administratively cumbersome, the following amendments have been proposed.

Regulation 4 amends regulation 54DAP of the Principal Regulations. Regulation 54DAP prescribes the rate of deduction to be made from an eligible termination payment where an employer has not quoted, or is not taken to have quoted, a tax file number on in a statement under regulation 54DAQ. The amendments to be made by regulation 4 will -

(a) provide that quotation may be made in a statement under new regulation 54DAR of the Principal Regulations (see regulation 6 below);


(b) remove the reference in subregulation 54DAP(1B) to a statement made under regulation 54DAQ as the statements are to be made under new regulation 54DAR (see notes on regulation 6 below); and

(c) remove the concession that allows a recipient of an eligible termination payment to be taken to have quoted a tax file number for a period of 28 days if he or she has applied for a tax file number or for notification of his or her tax file number from the Commissioner of Taxation. As eligible termination payments are generally paid immediately upon termination of employment the effect of the concession was to enable a payer to make the payment and tax it at normal rates without a tax file number. As a person in a position to receive an eligible termination payment will have had opportunity to obtain a tax file number, this provision is not required. As a safeguarding measure the removal of the 28 day concessional period has been proposed.

Regulation 5 removes subregulation 54DAQ(2A) under which an employee in receipt of an eligible termination payment quoted his or her number on a statement of termination payment form prior to the payment being made. New regulation 54DAR (see notes on regulation 6 below) provides for the means of quoting a tax file number for an eligible termination payment.

Regulation 6 inserts new regulation 54DAR to provide alternate methods by which an employee may quote his or her tax file number to the payer of an eligible termination payment.

Paragraph 54DAR(1)(a) permits an employee to quote his or her tax file number on a statement of termination payment form relating to an eligible termination payment. Under paragraph 54DAR(1)(b) a new form may be used by an employee to quote a tax file number on termination of employment or withdrawal of an eligible termination payment from a rollover institution. The new form will be approved by and available from the Commissioner of Taxation.

New subregulation 54DAR(2) enables the form to be made available to the payer of the eligible termination payment. The form may be given directly to the payer or may be used to authorise an employer to transfer the tax file number to the payer on the termination of the employee’s employment.

The form is to be retained until the second 1 July after the payment of the eligible termination payment (subregulation 54DAR(3)). This requirement will allow the Australian Taxation Office to have access to the copies of the forms for up to 2 years.

Overview

The Income Tax Regulations 1989, issued by the authority of the Treasurer, were enacted to streamline the process of quoting tax file numbers in respect of certain payments, particularly eligible termination payments. The regulations aim to address the administrative burdens associated with the existing process, which required employers to quote tax file numbers on Statements of Termination Payment forms. Regulation 4 amends the Principal Regulations by allowing quotation of tax file numbers through a new statement under regulation 54DAR instead of the Statement of Termination Payment form. This change simplifies the process by removing the requirement for employees to quote their tax file numbers prior to the payment being made and eliminating a 28-day concessional period for quoting a tax file number. Regulation 6 introduces a new form for quoting tax file numbers, which can be used by employees upon termination of employment or withdrawal of an eligible termination payment from a rollover institution. The extended retention period for these forms ensures that the Australian Taxation Office has access to them for up to two years, facilitating compliance and enforcement.

Scope and Application

The Income Tax Regulations 1989, as amended by the Statutory Rules 1989 No. 141, apply to employers, superannuation funds, rollover institutions, and employees in Australia. These regulations govern the tax file number (TFN) system, particularly in relation to eligible termination payments. Employers and other payers must comply with the regulations when making eligible termination payments, ensuring the appropriate quoting and retention of TFNs. The regulations also mandate the retention of declaration forms used by employees to claim exemptions and rebates, extending the retention period to the second 1 July after the forms cease to have effect. This amendment does not apply to declarations that ceased to have effect prior to 1 July 1989. The regulations provide alternative methods for quoting a TFN for eligible termination payments, facilitating a more streamlined process and removing previous administrative burdens. The changes include removing the 28-day concessional period for quoting a TFN and introducing new forms for quoting a TFN directly to the payer. These forms must be retained by the payer until the second 1 July after the payment of the eligible termination payment to allow the Australian Taxation Office access during the relevant financial years.

Key Provisions

The key provisions of this piece of legislation focus on the regulation of tax file numbers (TFN) and the processes associated with quoting a TFN for eligible termination payments. Regulation 1 specifies the commencement date of the regulation on 1 July 1989. Regulation 2 clarifies that the Income Tax Regulations being referred to are the "Principal Regulations". Regulation 3 extends the retention period for employer-held copies of declaration forms from one to two years post the cessation of their effect, allowing the Australian Taxation Office (ATO) continued access for compliance purposes. These regulations impose specific obligations on employers, superannuation funds, and rollover institutions. Employers and other payers must ensure that eligible termination payments are accompanied by a correctly quoted TFN. They must provide the appropriate forms to employees, who must fill in and return these forms before the payment is made. The new regulation 54DAR specifies that the TFN can be quoted either on a statement of termination payment form or on a new form that will be approved by and available from the Commissioner of Taxation. Employers can then either receive the completed form directly or be authorised by the employee to access the TFN from the form. Breaching the regulations may result in significant consequences. If employers or other payers fail to obtain a correctly quoted TFN before making an eligible termination payment, they must deduct tax at a higher rate. This is outlined in regulation 4, which revises the deduction rate in regulation 54DAP. Additionally, removing the 28-day concessional period for quoting a TFN means that failure to provide a TFN immediately results in higher withholding tax rates. Employers retaining declaration forms for less than the prescribed period may also face scrutiny from the ATO, potentially leading to fines or other penalties for non-compliance with record-keeping requirements. The specific penalties for non-compliance are not detailed in the explanatory statement, but typically, breaches of tax regulations can result in substantial fines and legal action. Employers may face financial penalties for incorrect tax deductions, while failure to retain required documents can lead to administrative penalties. These consequences underscore the importance of adhering to the regulations to avoid financial and legal repercussions.

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.