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Regulation 54ZA of the Income Tax Regulations has been repealed and a new regulation 54ZA substituted.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
Overview
The Income Tax Regulations (Amendment) Statutory Rules 1988 No. 381, issued by the authority of the Treasurer, were enacted to address the need for adjusting company tax instalments in light of the reduced company tax rate introduced by the Income Tax Rates Amendment Act 1988. This legislation, enacted by the Australian Parliament, aims to ensure that the new 39 per cent company tax rate for the 1988-89 income year is correctly reflected in the calculation of tax instalments for companies. Under the Income Tax Assessment Act 1936, companies are required to pay tax instalments based on the notional tax of the previous year, which is calculated at the previous tax rate. To align with the reduced tax rate, the amending regulation modifies the notional tax for the 1988-89 income year, ensuring that instalments notified on or after 1 January 1989 are calculated appropriately. This amendment ensures that companies and prescribed unit trusts pay the correct amount of tax in accordance with the new rate, thereby addressing the gap created by the change in tax legislation.
Scope and Application
The Income Tax Regulations (Amendment) Statutory Rules 1988 No. 381 applies to companies and prescribed unit trusts, which include corporate unit trusts and public trading trusts, but exclude registered organisations to which subsection 23(4) of the Income Tax Rates Act 1986 applies. These regulations ensure that the calculation of company tax instalments for the 1988-89 income year reflects the new 39 per cent company tax rate, which was introduced by the Income Tax Rates Amendment Act 1988. This amendment affects the way notional tax is calculated for instalments notified on or after 1 January 1989. It involves modifying the notional tax by a factor of 39/49, effectively adjusting the tax liability for the income year based on the new rate. This regulation operates under the authority of the Treasurer and is applicable across the Commonwealth of Australia. While the primary focus is on adjusting tax instalments for the 1988-89 income year, the regulations do not explicitly exclude any particular entities or industries from this adjustment, ensuring a broad application within the specified scope.
Key Provisions
The Income Tax Regulations (Amendment) Statutory Rules 1998 No. 381, issued under the authority of the Treasurer, primarily amend the calculation of company tax instalments for the 1988-89 income year (section 1). This amendment ensures that the new company tax rate of 39 per cent, as declared by the Income Tax Rates Act 1986 and effective from the 1988-89 income year, is reflected in the instalments companies are required to pay. Under the Income Tax Assessment Act 1936 (Assessment Act), companies typically pay three instalments of company tax in respect of the income of the preceding financial year. These instalments are generally calculated based on one quarter of the notional tax, which is the tax on the company’s taxable income for the year prior to the income year, assessed at the previous tax rate of 49 per cent.
The amending regulation specifically varies the notional tax of most companies and prescribed unit trusts for the 1988-89 income year. Regulation 54ZA of the Income Tax Regulations has been repealed and replaced with a new regulation 54ZA (section 3). This new regulation sets out the basis for varying the notional tax to reflect the new 39 per cent company tax rate. The notional tax for the 1988-89 income year is calculated by multiplying the income tax assessed in respect of the taxable income of a company for the 1987-88 year by the factor 39/49. This variation applies to instalments of tax notified on or after 1 January 1989, as specified in subregulation (2). The term “company” in this context includes corporate unit trusts and public trading trusts, but excludes registered organisations to which subsection 23(4) of the Income Tax Rates Act 1986 applies.
The obligations imposed by the amending regulation require companies and prescribed unit trusts to adjust their calculations for company tax instalments for the 1988-89 income year to reflect the new 39 per cent tax rate. This adjustment is mandatory for instalments notified on or after 1 January 1989, ensuring compliance with the updated tax regulations. The regulation explicitly defines the scope of entities affected, including corporate unit trusts and public trading trusts, and excludes certain registered organisations.
Breach of these obligations could result in incorrect calculation and payment of company tax instalments, potentially leading to penalties and interest on underpaid tax. The consequences of non-compliance may include financial penalties and interest charges imposed by the Australian Taxation Office. The exact penalties and interest rates are not specified in the explanatory statement, but they are governed by the general provisions of the Income Tax Assessment Act 1936 and related regulations.