EXPLANATORY STATEMENT
STATUTORY RULES 1988 NO. 381
ISSUED BY THE AUTHORITY OF THE TREASURER INCOME TAX REGULATIONS (AMENDMENT)
The amending regulation will ensure that instalments of company tax in respect of income of the 1988-89 year, and notified to companies and payable by them on or after 1 January 1989, are calculated having regard to the new 39 per cent company rate of tax that is to apply in calculating the tax payable by companies on incomes of the 1988-89 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 1988 to reduce the company rate of tax from 49 per cent to 39 per cent in respect of the incomes of companies for the 1988-89 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 1988-89 income year (tax on which will be payable at the new 39 per cent rate) would be the tax payable on the company’s 1987-88 taxable income - that is, tax calculated at a rate of 49 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 regulation varies the notional tax of most companies and prescribed unit trusts (trusts that are taxed as companies) in respect of the 1988-89 income year.
Notes on the amending regulation are set out below:
Variation of amount of notional tax of companies
Regulation 54ZA of the Income Tax Regulations has been repealed and a new regulation 54ZA substituted.
Subregulation (1) of regulation 54ZA sets out, as authorised by subsection 221AD(2) of the Income Tax Assessment Act 1936 (the Assessment Act), the basis by which the amount of notional tax of a company for the year of income commencing 1 July 1988 is to be varied to ascertain the amount that is to be the notional tax for that year of income.
The notional tax for the 1988-89 year of income is the amount otherwise applying in accordance with subsection 221AD(1) of the Act multiplied by the factor 39/49. That is, the income tax assessed in respect of the taxable income of a company for the 1987-88 year multiplied by 39/49.
Subsection 221AD(2) of the Act provides 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 a company for the 1988-89 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 January 1989.
Subregulation (3) of regulation 54ZA specifies that for the purposes of this regulation, 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). It does not include a registered organisation to which subsection 23(4) of the Income Tax Rates Act 1986 applies.
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