EXPLANATORY STATEMENT
STATUTORY RULES 1989 NO. 115
ISSUED BY THE AUTHORITY OF THE TREASURER
INCOME TAX REGULATIONS (AMENDMENT)
The main purpose of these regulations which amended the Income Tax Regulations is to provide for new rates of tax instalment deductions (PAYE deductions) effective for payments of salary or wages received by employees on or after 1 July 1989 and 1 January 1990. The new rates of tax instalment deductions reflect the new personal income tax rates announced in the April 1989 Economic Statement to operate from those dates.
For resident taxpayers the changes to the rate scale comprise increases in the first rate step from $12,600 to $17,650 and in the second rate step from $19,500 to $20,600 and reductions in marginal rates as follows -
Taxable income range
| Exceeding | Not Exceeding | Existing rate | Rate from 1 July 1989 |
| $ | $ | $ | $ |
| 5,100 | 17,650 | * | 21 |
| 17,650 | 20,600 | * | 29 |
| 20,600 | 35,000 | * | 39 |
| 35,000 | 50,000 | 49 | 47 |
| 50,000 |
| 49 | 49# |
| * previously | $ 5,100 - $12,600: 24 per cent $12,600 - $19,500: 29 per cent $19,500 - $35,000: 40 per cent |
|
# this 49 per cent rate is to be reduced to 47 per cent from 1 January 1990 for tax instalment deduction purposes.
For non-resident taxpayers, the rate of 29 per cent will apply to taxable income up to $20,600 and the other reduced marginal rates will apply to income in the relevant ranges above $20,600.
The regulations also amended regulation 54DAAC of the Income Tax Regulations to reduce the rate of deduction from certain back payments of income received in a lump sum. The rate of deduction is reduced from 25.25 per cent to 22.25 per cent, for lump sums received on or after 1 July 1989.
In addition, some minor changes of a drafting nature were made.
Notes on the amending regulations are set out below:
Commencement
By subregulation 1(1), and subject to subregulation 1(2), the amending regulations are to come into operation on 1 July 1989.
Subregulation 1(2) provides that subregulation 9(2), dealing with the rate of deduction from salary or wages in excess of the weekly equivalent of $50,000 per annum, shall come into operation on 1 January 1990.
Principal Regulations
Regulation 2 facilitates reference to the Income Tax Regulations which, in the amending regulations, are referred to as the “Principal Regulations”.
Income tax instalment amounts
Regulation 54AB of the Principal Regulations calculates the PAYE tax instalment deductions to be made from an employee’s salary or wages by the use of a formula. In particular, paragraphs 54AB(3)(ea) and (3)(eb) apply to prescribe the amount of tax instalment deduction to be made from salary or wages where the employee fails to quote a tax file number on an employment declaration.
Regulation 3 amended paragraphs 54AB(3)(ea) and (3)(eb) to make changes of a drafting nature. In each case the necessary factor to be used in the formula to calculate the amount of deduction will continue to be provided by Tables 4 and 5 of the Third Schedule to the Principal Regulations, as required. That is, from 1 July 1989 the rate of deduction is to continue at 50.25 per cent and 49 per cent for residents and non-residents, respectively, and reduce to 48.25 per cent and 47 per cent from 1 January 1990 as a consequence of subregulation 9(2).
Rate of deductions - employee in receipt of retirement amounts, etc.
Regulation 4 made an amendment of a drafting nature to regulation 54DAAA of the Principal Regulations. Regulation 54DAAA prescribes the amount of deduction of tax to be made from certain retirement payments.
Rate of deductions where eligible lump sum is included
Regulation 54DAAC of the Principal Regulations prescribes the rate of deduction of tax required to be made by an employer from a payment to an employee that is an eligible
lump sum for the purposes of Subdivision AB of Division 17 of Part III of the Act.
Paragraphs (a) and (c) of regulation 5 made changes of a drafting nature to regulation 54DAAC. Paragraph (b) reduced the rate of deduction authorised by the regulation to 22.25 per cent. The new rate of deduction will apply for payments received by employees on or after 1 July 1989.
Rate of deductions
Regulation 54DAP of the Principal Regulations deals with the deduction of tax instalments from eligible termination payments and prescribes the amount of deductions to be made from those payments included in an employee’s earnings.
Regulation 6 amended regulation 54DAP to make a change of a drafting nature to paragraphs (1A)(c) and (1A)(d). The amount of a deduction will continue to be determined by the use of a factor specified in the Third Schedule to the Principal Regulations.
Deduction from prescribed payments
Regulation 54ZED of the Principal Regulations prescribes the amount of a deduction to be made from a payment subject to the Prescribed Payments System.
Regulation 7 amended subregulation 54ZED(1A) which stipulates the amount to be deducted from a payment where a tax file number is not quoted on a deduction form.
The amendment is of a drafting nature and will not change the amount of the deduction otherwise to be made, determined by the use of a factor specified in the Third Schedule to the Principal Regulations.
Ascertaining amounts to be deducted for failure to quote tax file number
Regulation 54ZEL states the factor to be used in calculating the amount of tax to be withheld on all income in relation to investments where a tax file number is not quoted.
Regulation 8 amended regulation 54ZEL to make a change of a drafting nature. The relevant factor to be used in ascertaining the amount to be withheld will continue to be found in the Third Schedule to the Principal Regulations.
Third Schedule
Subregulation 9(1) repealed the Third Schedule of the Principal Regulations and substituted a new Third Schedule
to take account of the new tax scales announced in the April 1989 Economic Statement.
The Third Schedule contains a series of tables specifying the values of components to be used in a formula from which an employee’s weekly tax instalment amounts are calculated. The formula is contained in regulation 54AB of the Principal Regulations.
The values of the new components to be used in the formula in regulation 54AB give effect to the changes from 1 July 1989 to the personal income tax scales. The instalment schedules issued by the Commissioner of Taxation to employers and the general public are compiled using the formula.
Subregulation 9(2) sets out changes to the Tables in the Third Schedule consequent on the rate of tax (exclusive of Medicare levy) on salary or wages in excess of the weekly equivalent of $50,000 per annum being reduced from 49 per cent to 47 per cent as from 1 January 1990.