EXPLANATORY STATEMENT
STATUTORY RULES 1983 NO.87
ISSUED BY THE AUTHORITY OF THE MINISTER FOR FINANCE
INCOME TAX REGULATIONS (AMENDMENT)
This regulation amends regulation 54DB of the Income Tax Regulations to withdraw from employee taxpayers, after 30 June 1983, the option to reduce their tax instalment deductions under the PAYE (pay-as-you-earn) scheme in anticipation of an entitlement to a rebate of tax on home loan interest in excess of 10 per cent per annum.
The Treasurer announced in his Economic Statement on 19 May 1983 that the rebate would not be available for interest payments made on or after 1 July 1983. The Income Tax Assessment Amendment Act (No. 2) 1983 (Act No. 25 of 1983), assented to on 19 June 1983, gives effect to the Treasurer’s announcement.
The Income Tax Assessment Act 1936 contains two schemes which provide for a rebate of tax, in end-of-year assessments, for certain home loan interest payments made on or after 1 July 1932 by resident taxpayers in respect of a sole or principal residence in Australia. The first scheme applies during the first five years of owner-occupancy of the residence commencing on or after 1 July 1977 and before 1 July 1985. The now terminated second or “universal” scheme allowed a rebate of tax for interest payments on a home loan to the extent that they were attributable to such part of the interest rate as exceeded 10 per cent per annum (calculated on a reducing balance basis) in respect of the first $60,000 of a loan or loans on a taxpayer’s sole or principal residence.
Under the Income Tax Regulations an employee who wishes to have the benefit of a reduction in PAYE deductions to reflect his anticipated entitlement to a home loan interest rebate under either scheme must lodge a declaration with his employer or the Commissioner of Taxation. The declaration requires the employee, using information provided by the lender, to furnish an estimate,
for the relevant scheme or schemes, of home loan interest he will be required to pay and which will attract a rebate. The employer or Commissioner then determines the appropriate reduction in PAYE deductions. Where an employee provides information in respect of both rebate schemes the employer or Commissioner determines the instalment reduction appropriate to the scheme which provides the greater rebate.
The amending regulation withdraws the availability of the universal scheme rebate through the PAYE system by making an amendment to the definition of “estimated excess home loan interest” in sub-regulation 54DB(1), so that interest paid or payable after 30 June 1983 does not come within the meaning of that term. The option of reduced PAYE instalment deductions on account of a rebate entitlement under the other home loan interest rebate scheme remains in place.
Overview
The Income Tax Regulations (Amendment) Statutory Rules 1983, issued by the authority of the Minister for Finance, was enacted to address the problem of taxpayers reducing their tax instalment deductions under the PAYE scheme in anticipation of receiving a rebate on home loan interest exceeding 10 per cent per annum. This was in response to the Treasurer's announcement on 19 May 1983 that such rebates would not be available for interest payments made on or after 1 July 1983. The policy objective of this amendment was to withdraw the option for employee taxpayers to reduce their tax instalment deductions in anticipation of an entitlement to a rebate of tax on home loan interest, which was to be achieved by amending regulation 54DB of the Income Tax Regulations. The Income Tax Assessment Amendment Act (No. 2) 1983, assented to on 19 June 1983, gave effect to this announcement.
Scope and Application
The Income Tax Regulations (Amendment) Statutory Rules 1983 No. 87, issued under the authority of the Minister for Finance, specifically targets employee taxpayers in relation to their tax instalment deductions under the PAYE scheme concerning home loan interest rebates. This amendment, which came into effect after 30 June 1983, withdraws the option for employees to reduce their PAYE deductions in anticipation of a rebate on home loan interest exceeding 10 per cent per annum. This change aligns with the Income Tax Assessment Amendment Act (No. 2) 1983, which implemented the Treasurer's announcement on 19 May 1983, terminating the rebate for interest payments made on or after 1 July 1983. The regulation modifies the definition of "estimated excess home loan interest" in sub-regulation 54DB(1) of the Income Tax Regulations, ensuring that interest paid or payable after 30 June 1983 is excluded from the rebate calculation. Despite this amendment, the rebate option under the first home loan interest scheme remains available, allowing employees to still benefit from reduced PAYE deductions based on their entitlement under this scheme.
Key Provisions
The Income Tax Regulations (Amendment) Statutory Rules 1983 (No. 87) primarily amend regulation 54DB of the Income Tax Regulations, affecting the method through which taxpayers can claim rebates on home loan interest. Specifically, section 1 of the amending regulation removes the ability for employee taxpayers to reduce their tax instalment deductions under the PAYE scheme for home loan interest paid or payable after 30 June 1983 (section 54DB). This amendment follows the announcement by the Treasurer that the rebate on home loan interest exceeding 10 per cent per annum would cease for interest payments made after 1 July 1983, a decision formalised by the Income Tax Assessment Amendment Act (No. 2) 1983. The amendment aligns with the new legislative framework, ensuring that the PAYE system does not account for interest rebates after the specified date.
The obligations imposed by the amendment on taxpayers and employers are relatively straightforward. Employees who had previously used the PAYE system to claim rebates on home loan interest must now cease using this method for interest payments made after 30 June 1983. Employers, who previously played a role in determining the appropriate PAYE reductions based on employee declarations, are no longer required to adjust PAYE deductions for home loan interest rebates beyond this date. This change ensures that the PAYE system accurately reflects the current legislative framework regarding home loan interest rebates.
In terms of penalties and consequences for non-compliance, the amending regulation does not explicitly state any penalties for breaching these provisions. However, taxpayers who fail to comply with the amended regulations by incorrectly claiming rebates through the PAYE system after 30 June 1983 may face scrutiny from the Australian Taxation Office (ATO). The ATO may require taxpayers to repay any overpaid tax and may impose interest and penalties for late payment or underpayment of tax, as per the general provisions of the Income Tax Assessment Act 1936. The maximum penalties for such breaches can vary but may include financial penalties and interest charges calculated on the amount of tax underpaid or overpaid. It is important for taxpayers to ensure they are compliant with the current regulations to avoid potential ATO actions.