Income Tax Regulations (Amendment) 1998 No. 129
EXPLANATORY STATEMENT
STATUTORY RULES 1998 NO. 129
Issued by authority of the Assistant Treasurer
Income Tax Assessment Act 1936
Income Tax Regulations (Amendment)
Section 266 of the Income Tax Assessment Act 1936 (the Act) provides that the GovernorGeneral may make regulations for the purposes of the Act.
Purpose of the regulations
The purpose of the regulations is to:
* ensure that the recently amended Medicare levy low income thresholds are reflected in the level of tax instalments (TIDs) that are deducted from employees' salary or wages; and
* insert a note providing a link between the Income Tax Regulations (the Principal Regulations) and the new Income Tax Assessment Regulations in respect of the rates to be used for the purposes of calculating car expenses on a cents per kilometre basis.
Background
i) Tax Instalment Deductions
Subsection 221C(1) of the Act authorises the making of regulations to prescribe rates of deductions to be made by employers from the salary or wages of employees. The object is to enable collection of income tax and Medicare levy from employees by instalments under the Pay-As-You-Earn system. Division 2 of Part 7 of the Principal Regulations sets out the method of calculation for the correct amount of TIDs.
The regulations prescribe the rates at which TIDs are to be deducted from weekly salary or wages paid to an employee on or after 1 July 1998. They give effect to the changes to the low income thresholds contained in the Medicare Levy Amendment Act (No. 1) 1998, as outlined in the following table.
Category of taxpayer Low income threshold Shading-out range Upper threshold
(figure for 96-97) (inclusive) (figure for 96-97)
Individual taxpayer $13,389 ($13,127) $13,390 - $14,474 $14,474 ($14,346)
Married taxpayer* with $22,594 ($22,152) $22,595 - $24,425 $24,425 ($24,209)
no** dependants
includes a taxpayer who is entitled to a sole parent child/housekeeper or housekeeper rebate; the low income threshold increases by $2100 for each dependent child or student.
The thresholds stated in the Medicare Levy Act 1986 are annual figures whereas the Principal Regulations provide for the determination of TIDs in respect of weekly salary or wages. The figures contained in the Principal Regulations are basically the weekly equivalents of the annual figures.
The new figures inserted into regulations 72 and 73 are the weekly equivalents of the new annual thresholds applicable from 1 July 1998 (regulations 3 and 4). Corresponding amendments to reflect the new low income thresholds are also required to Tables 1 and 3 in Schedule 3 of the Principal Regulations (regulation 6).
ii) "Cents Per Kilometre" Rates
For the 1996-97 and earlier income years, Schedule 2A of the Act prescribes the methods used to calculate car expense deductions. The "cents per kilometre" method applies different rates depending on the engine capacity of the car. These rates are prescribed by regulation 147 and Schedule 6 of the Principal Regulations.
For the 1997-98 and later income years, Division 28 of the Income Tax Assessment Act 1997 outlines the methods to be used by taxpayers for calculating the amount of deduction they can claim for car expenses. The rates to be used for the "cents per kilometre" method are prescribed in the Income Tax Assessment Regulations.
Regulation 5 inserts a note linking the Principal Regulation containing the "cents per kilometre" rates with the new Income Tax Assessment Regulation.
The amendments commence on 1 July 1998.
Overview
The Income Tax Regulations (Amendment) 1998 No. 129 was introduced to ensure the recently amended Medicare levy low income thresholds are reflected in the level of tax instalments (TIDs) deducted from employees' salary or wages. Additionally, it sought to insert a note providing a link between the Income Tax Regulations and the new Income Tax Assessment Regulations in respect of the rates to be used for calculating car expenses on a cents per kilometre basis. Enacted by the Parliament of Australia and issued by authority of the Assistant Treasurer, the policy objective of this amendment is to streamline the application of tax laws by ensuring consistency between the Principal Regulations and the new Income Tax Assessment Regulations. These amendments provide for the accurate calculation and deduction of TIDs from employees' weekly salaries or wages, reflecting updated low income thresholds, and establish a clear linkage for the calculation of car expenses based on new rates.
Scope and Application
The Income Tax Regulations (Amendment) 1998 No. 129 applies to employees and employers within the Commonwealth of Australia and aims to ensure compliance with the amended Medicare levy low income thresholds and the new "cents per kilometre" rates for car expenses. This regulation is an instrument made under the authority of the Assistant Treasurer and amends the Income Tax Assessment Act 1936, reflecting changes to the Medicare Levy Amendment Act (No. 1) 1998. The amendments to the tax instalment deductions (TIDs) ensure that the low income thresholds for individual and married taxpayers are correctly reflected in the weekly salary or wages from which TIDs are deducted. These thresholds have been adjusted to account for changes in the annual figures, providing the weekly equivalents necessary for accurate tax calculations. Additionally, the regulations include a note linking the Principal Regulations to the new Income Tax Assessment Regulations, specifically regarding the rates used for calculating car expenses based on kilometres driven. These changes are effective from 1 July 1998, and further adjustments to the relevant tables in the Principal Regulations have been made to align with the new thresholds and rates.
Key Provisions
The Income Tax Regulations (Amendment) 1998 No. 129 amends the Income Tax Regulations to reflect recent changes in the law. The regulations primarily serve to adjust the tax instalment deductions (TID) thresholds to align with new Medicare levy thresholds and to update the rates for calculating car expenses on a cents per kilometre basis. These amendments are crucial for ensuring that employees' tax instalments are calculated correctly under the Pay-As-You-Earn system.
Section 266 of the Income Tax Assessment Act 1936 allows the Governor-General to make regulations for the purposes of the Act, which is the authority under which these amendments are made. Specifically, regulation 72 and 73 update the weekly low income thresholds for individual and married taxpayers, ensuring that these thresholds are correctly reflected in the tax instalments deducted from their wages. Correspondingly, regulation 6 amends Tables 1 and 3 in Schedule 3 of the Principal Regulations to reflect the new annual thresholds. Regulation 5 inserts a note linking the Principal Regulation containing the "cents per kilometre" rates with the new Income Tax Assessment Regulation.
The amendments impose obligations on employers to ensure that they are deducting the correct amount of tax instalments from their employees' wages. Employers must adhere to the updated rates set forth in the regulations for calculating these deductions. Additionally, employers must ensure that the correct rates are used for calculating car expenses on a cents per kilometre basis, as per the updated reference in regulation 5.
Failure to comply with these regulations can result in significant consequences. While the explanatory statement does not explicitly detail penalties, it is reasonable to infer that breaches of these regulations could lead to financial penalties or corrective actions. Such breaches could involve incorrect tax calculations, leading to underpayment or overpayment of taxes, which might attract penalties under the relevant tax laws. Employers must ensure strict adherence to these regulations to avoid any legal or financial repercussions.