EXPLANATORY STATEMENT
STATUTORY RULES 1987 No. 120
ISSUED BY THE AUTHORITY OF THE TREASURER
INCOME TAX REGULATIONS (AMENDMENT)
The purpose of the amending regulations is to ensure that instalments of company tax in respect of income of the 1986-87 year, and notified to companies and payable by them after 1 July 1987, are calculated having regard to the new 49 per cent company rate of tax that is to apply in calculating the tax payable by companies On incomes of the 1986-87 year. The company rate of tax is declared by the Income Tax Rates Act 1986. That Act was amended by the Income Tax Rates Amendment Act 1987 to increase the company rate of tax from 46 per cent to 49 per cent in respect of the incomes of companies for the 1986-87 and subsequent years.
Under the provisions of Division 1A of Part VI of the Income Tax Assessment Act 1936 (the Assessment Act) companies may be required to pay during a financial year three instalments of company tax in respect of the income of the preceding financial year, “the income year”, or the accounting period
adopted in lieu of that year. The balance of the tax in respect of the income year is payable following the receipt of a notice of assessment. The instalments generally are equal to one quarter of the company’s notional tax - an amount that is the income tax assessed in respect of the company’s taxable income (other than any capital gain) of the year preceding the income year. For example, the notional tax of a company in respect of income of the 1986-87 income year (tax on which will be payable at the new 49 per cent rate) would be the tax payable on the company’s 1985-86 taxable income - that is, tax calculated at the rate of 46 per cent.
Subsection 221AD(2) of the Assessment Act provides that, where the rate of income tax payable by companies for an income year is changed, the notional tax amount used for the purposes of calculating tax instalments may be varied by regulation to reflect the new rate of tax.
The amending regulations vary the notional tax of most companies and prescribed unit trusts (trusts that are taxed as companies) in respect of the 1986-87 income year. The notional tax will not be varied for registered organizations or for non-profit companies, not being registered organizations, whose income tax assessed in respect of the 1985-86 income year is less than $1753.98.
Notes on each of the amending regulations are set out below:
Principal Regulations
Regulation 1 facilitates reference to the Income Tax Regulations, which are referred to as the “Principal Regulations” in the amending regulations.
Heading to Division 3 of Part VI
By regulation 2, the existing heading to Division 3 of Part VI of the Principal Regulations is to be replaced with a new heading - “Division 3 - Notional Tax and Provisional Tax”.
Variation of amount of notional tax of companies
Regulation 3 will insert new regulation 54ZA into the Principal Regulations.
Subregulation (1) of regulation 54ZA sets out, as authorised by subsection 221AD(2) of the Assessment Act, the basis by which the amount that would otherwise be the notional tax of a company for the 1986-87 year of income is to be varied to ascertain the amount that is to be the notional tax for that year of income.
By subregulation (1), the notional tax for the 1986-87 year of income is to be the amount otherwise applying in accordance with subsection 221AD(1) multiplied by the factor 49/46. That is, the income tax assessed in respect of the taxable income of a company for the 1985-86 year of income multiplied by 49/46.
Subsection 221AD(2) of the Assessment Act stipulates that the notional tax of a company, calculated by a provision made by regulations, is to apply on and after the date that is prescribed. By subregulation (2) the notional tax of the company for the 1986-87 income year, as a consequence of the operation of subregulation (1), is to apply in respect of instalments of tax notified on or after 1 July 1987.
Subregulation (3) of regulation 54ZA specifies that for the purposes of regulation 54ZA, the term “company” includes a corporate unit trust and a public trading trust (terms used in the Income Tax Rates Act 1986 and the Assessment Act), but does not include -
a registered organization, that is, a trade union and any other registered employee organization, and a friendly society (other than a friendly society dispensary) that is not carried on for the purpose of profit or gain to individual members (paragraph (a)); or
a non-profit company, not being a registered organization, where the notional tax that would otherwise apply in respect of the 1986-87 income year does not exceed $1753.98 (paragraph (b)).
The exclusion of registered organizations by paragraph (3)(a) applies because there has been no increase in the rate of tax, 20 per cent, payable by such organizations. The exclusion by paragraph (3)(b) of non-profit companies operates to ensure that such a company’s notional tax will not be varied unless, having regard to the tax assessed on the company’s 1985-86 taxable income, it is likely that the company would be required to pay tax at the 49 per cent rate on its 1986-87 taxable income - that is, where its 1986-87 taxable income exceeds $3,813.
Subregulation (4) of regulation 54ZA is a drafting measure to ensure that a reference to the taxable income of a company includes a reference, where appropriate, to the net income of a corporate unit trust or the net income of a public trading trust.