EXPLANATORY STATEMENT
STATUTORY RULES 1990 No. 151
Issued by the Authority of the Treasurer
INCOME TAX ASSESSMENT ACT 1936
INCOME TAX REGULATIONS (AMENDMENT)
The purpose of these regulations which amended the Income Tax Regulations is to make changes to the reporting requirements in relation to investments covered by the tax file number quotation arrangements of the Income Tax Assessment Act 1936 (the Act). The reporting arrangements are contained in Part VA of the Income Tax Regulations and are to apply in respect of investments in investment bodies (as defined in section 202D of the Act) for the 1991-92 and subsequent financial years.
The tax file number quotation provisions of the Act in relation to investments apply to persons (investors) who enter into certain transactions with investment bodies after 1 July 1991 or who already have such investments as at that date.
Returns by companies
Regulation 1 of the amending Regulations omits subregulation 11(3) of the Income Tax Regulations and inserts a new subregulation (3).
New subregulation 11(3) provides that paragraph (1)(ab) and subregulation (2) of regulation 11 do not apply in relation to a company where the company has given a report to the Commissioner of Taxation under regulation 43C of the Income Tax Regulations. Regulation 43C sets down the requirements under the tax file number reporting arrangements for an investment body to give the Commissioner a written report in relation to all investments held. The requirements are to apply in respect of the 1991-92 and subsequent financial years.
Paragraph 11(1)(ab) requires a company to provide in an income tax return a statement of dividends and interest paid to non-residents. Subregulation 11(2) sets out the information to be provided by a company in relation to dividends and interest. When reporting is made in accordance with regulation 43C for the 1991-92 and subsequent financial years the continued provision of information under paragraph 11(1)(ab) and subregulation 11(2) would be a duplication.
File number reports
Regulation 43B of the Income Tax Regulations requires each investment body to provide reports to the Commissioner of Taxation of all tax file numbers (TFNs) quoted to the investment body during a period. However, the Australian Taxation Office
(the ATO) will be providing to certain investment bodies an algorithm that enables the verification of TFNs at the point of entry into the relevant computer systems. As such, those investment bodies need only provide reports of TFNs which do not meet the algorithm.
The investment bodies which accept the algorithm will be entering into an agreement with the Commonwealth through the ATO. Part of that agreement allows for the reporting under regulation 43B of only those TFNs which do not meet the algorithm.
Regulation 2 of the amending Regulations inserts a new subregulation (1A) in regulation 43B to ensure that the requirement under subregulation 43B(1) - to report all TFNs quoted to an investment body during a period - does not apply to those investment bodies complying with the terms of the algorithm agreement.
Annual investment income reports
As indicated above, regulation 43C of the Income Tax Regulations requires investment bodies to provide reports to the Commissioner of Taxation. In particular, subregulation 43C(4) requires investment bodies to report the full name, TFN and income earned in respect of a person who has quoted a TFN. Additional information is required for investors who do not quote a TFN.
For the purpose of more efficient income matching a number of minor changes are to be made to the reporting requirements. To make those changes, and to clarify the requirements of the subregulation, paragraph 3(a) of the amending Regulations omits existing subregulation 43C(4) and replaces it with new subregulation (4).
New subregulation 43C(4) will require an investment body to report, in relation to each investment -
• the full name of the person (the investor) holding the investment, or the full name of two investors where the investment is held jointly by two or more investors (paragraph (a));
• the address of the investor or, where there is more than one investor, the address of one of the investors (paragraph (b));
• whether there are more than two investors (paragraph (c)) and the tax file number of the investor, or the tax file numbers of two investors where the investment is held jointly by two or more investors (paragraph (d));
• a code approved by the Commissioner where an investor is taken to have quoted a TFN because one of the exemption provisions under Division 5 of Part VA of the the Act applies to the investor (paragraph (e)) (the codes are to be specified by the Commissioner in the Commonwealth Gazette);
• the total amount of income paid in respect of the investment by the investment body during the financial year (paragraph (f));
• the total amount of any deductions made under Division 3B of Part VI of the Act (paragraph (g)) (under Division 3B, investment bodies are obliged to deduct an amount from investment income where a TFN has not been quoted);
• where an amount of income is paid to non-resident investors (paragraph (h)) -
(i) the overseas address of the investor;
(ii) the overseas address code approved by the Commissioner for the purpose (to be specified in the Commonwealth Gazette); and
(iii) the amount of non-residents’ withholding tax (if any) deducted under the provisions of Division 4 of Part VI of the Act; and
• the investment reference number (if any) used by the investment body to identify the investment (paragraph (j)).
Subregulation 43C(5) of the Income Tax Regulations stipulates two thresholds for the reporting of income from accounts or deposits with financial institutions that are banks, building societies or credit unions. Reports are to be provided in respect of such investments for a financial year as follows :
• for investments made prior to 1 July 1991, where the investment income exceeds $120 for the financial year,
• for investments entered into on or after 1 July 1991, where the investment income exceeds $1 for the financial year.
Also, under the deduction provision of the Act (section 221YHZC), tax is to be deducted if a tax file number has not been quoted and the income is not less than $120 or $1, as the case requires, for the above investments.
Paragraph 3(b) of the amending Regulations omits existing paragraph 43C(5) of the Income Tax Regulations and inserts a new paragraph (5)(b). The new paragraph will, in effect, make two changes to the operation of the provision:
(a) it will introduce a common threshold of $120 in a financial year for the reporting of income from institutions without regard to when the investment was made; and
(b) consistent with the deduction provision of the Act (section 221YHZC), provide that reports are to be given in respect of investments in the institutions referred to for a financial year where the investment income of the year is not less than $120.
Paragraph 3(c) of the amending Regulations omits the reference to paragraph (4)(d) in subregulation 43C(6) of the Income Tax Regulations and inserts references to paragraph (4)(f) and (4)(h), as a consequence of the re-drafting of subregulation 43C(4) (refer regulation 3 of the amending Regulations).
Paragraph 3(d) of the amending Regulations inserts a new subregulation (9) in regulation 43C of the Income Tax Regulations. The new subregulation defines for the purposes of new subregulation 43C(4), an “investor” to mean a person who was at any time during a financial year, an investor, as defined by section 202D of the Act, in relation to an investment. Under section 202D an investor is a person who -
• holds an account with a financial institution;
• holds a deposit with a financial institution;
• lends money to a government body or body corporate;
• has money invested or lent by a solicitor on the person’s behalf;
• holds units in a unit trust; or
• holds shares in a public company.
New subregulation 43C(9), operating in conjunction with new subregulation 43C(4), will ensure that investment bodies are required to provide reports in relation to certain people who were investors during a financial year in relation to a particular investment.
Employee may quote tax file number
Regulation 4 changes regulation 54DAR of the Income Tax Regulations providing for the quoting of a tax file number by an
employee before he or she receives an eligible termination payment. The term eligible termination payment includes certain payments which arise in consequence of the termination of an employee’s employment.
A person in receipt of an eligible termination payment who wishes to quote a tax file number may do so on an approved form. Subregulation 54DAR(3) requires the employer to retain the form until the second 1 July after the payment of the eligible termination payment.
Regulation 4 of the amending Regulations omits subregulation 54DAR(3), thus removing the requirement for an employer to retain the form on which the tax file number is quoted. The requirement to keep the form has been shown to be unnecessary.