New Business Tax System (Former Subsidiary Tax Imposition) Act 1999

Overview

The New Business Tax System (Former Subsidiary Tax Imposition) Act 1999 was enacted by the Commonwealth Parliament to address the issue of tax avoidance by wholly-owned company groups, particularly in relation to subsidiary tax impositions. This Act aims to ensure that when a parent company acquires direct or indirect beneficial ownership of a subsidiary, it becomes liable for any outstanding income tax owed by that subsidiary prior to the acquisition. The policy objective of the Act is to prevent tax avoidance strategies that exploit the subsidiary tax provisions within the Income Tax Assessment Act 1997. The tax imposed under this Act is calculated as the lesser of the outstanding income tax of the former subsidiary, including associated interest and penalties, or the income tax that would have been payable by the subsidiary for the income year if it had not been entitled to any tax offsets. The amount is further reduced by any payments made by other group members.

Scope and Application

The New Business Tax System (Former Subsidiary Tax Imposition) Act 1999 applies to companies that were members of a wholly-owned group before the acquisition of direct or indirect beneficial ownership as defined in the Income Tax Assessment Act 1997. This legislation imposes a tax on such companies, which is payable under the Income Tax Assessment Act 1997. The tax amount is determined based on either the outstanding income tax payable by the former subsidiary or the income tax that would have been payable for the income year if the amount was the taxable income, reduced by any payments made by other members of the former subsidiary’s former wholly-owned group. The Act applies nationally across Australia and is a Commonwealth legislation, thus extending its reach to entities and individuals subject to the Income Tax Assessment Act 1997. There are no specific exclusions or exemptions stated in the Act; however, the application of the tax is contingent on the conditions outlined in the Income Tax Assessment Act 1997. The Act may be further refined or extended through subordinate instruments, which are not detailed in this compilation but can be found in the endnotes.

Key Provisions

The New Business Tax System (Former Subsidiary Tax Imposition) Act 1999 (the Act) is primarily concerned with the imposition of a tax on companies that were previously members of a wholly-owned group. The key sections of the Act are section 3, which imposes the tax, and section 4, which specifies the amount of the tax. According to section 3, the tax is imposed on a company that was part of a wholly-owned group before the acquisition of direct or indirect beneficial ownership as outlined in the Income Tax Assessment Act 1997. Section 4 further defines the amount of the tax, stating that it is the lesser of the outstanding income tax payable by the former subsidiary or the amount of income tax that would have been payable if the former subsidiary's assessable income for a specific income year included the amount in question, subject to certain conditions. The Act imposes several obligations on the entities it governs. Firstly, it requires companies that were previously part of a wholly-owned group to pay a specified amount of tax, as detailed in section 4. This tax is calculated based on the outstanding income tax or the hypothetical income tax for the relevant income year. Additionally, the Act mandates that any amount paid by other companies that were members of the former subsidiary's former wholly-owned group be deducted from the amount of income tax determined under section 4(2)(b). These obligations ensure that the tax is levied accurately and fairly, taking into account the financial circumstances of the former subsidiary and any contributions made by other group members. Breach of the provisions of this Act can lead to several consequences. While the Act does not explicitly outline offences or penalties within its text, the tax imposed is payable under section 45-25 of the Income Tax Assessment Act 1997. This implies that non-compliance with the tax obligations could result in penalties as specified under the Income Tax Assessment Act 1997. Given that the Act references the Income Tax Assessment Act 1997 for the imposition and calculation of the tax, it is likely that penalties for non-compliance would align with those outlined in the latter Act, which may include fines and interest charges on the unpaid tax. The exact penalties would depend on the specific provisions of the Income Tax Assessment Act 1997.