Variation of amount to be withheld from certain payments made by trustees of bankrupt estates in accordance with Section 15-15 of Schedule 1 to the Taxation Administration Act 1953
Explanatory Statement
General Outline of Instrument
This instrument is notice to specific PAYG withholding payers of a variation to the amount required to be withheld from particular payments made to certain payees.
The instrument is made under section 15-15 of Schedule 1 to the Taxation Administration Act 1953.
The proposed instrument would be a legislative instrument for the purposes of the Legislative Instruments Act 2003.
Date of effect
This instrument applies from 1 July 2005.
What is this instrument about:
The principle purpose of the notice is to provide trustees of bankrupt estates with a varied amount that is required to be withheld from certain payments to payees, where the amount being paid has accrued prior to their appointment. The Gazettal notice provides the nature of the payments that are affected by the variation and also details the rate of withholding that applies to these payments.
What is the effect of this instrument:
The effect of the instrument is that trustees of bankrupt estates can apply a uniform rate of withholding to payments that accrued prior to their appointment. This provides a less onerous process for these payers in addressing the historical payment obligations of the bankrupt entity.
Background:
As a result of the decision in Deputy Commissioner of Taxation v Applied Design Development Pty Ltd (in Liq.) (Case ref: 2002 ATC 4193; (2002) 49 ATR 196) which ruled that a priority payment made to an employee who had proved a debt for wages retained its character as salary or wages for the purposes of the PAYG withholding system, trustees of bankrupt estates have had new PAYG withholding obligations arise.
Previously, these payments were simply treated as a distribution of the entities and there were no PAYG withholding obligations. As the payments retain their character as salary or wages, there are standard PAYG withholding obligations on the trustee to:
- obtain Tax File Number (TFN) Declarations from all payees;
- obtain Withholding declarations from payees where applicable;
- withhold an amount from the payment based upon the information provided on the TFN declaration and Withholding declaration, and in accordance with the applicable PAYG withholding tax table;
- issue payment summaries to all payees by 14July following the end of the financial year in which the payments were made (Subsection 16-155 (1)(a) of Schedule 1 to the Taxation Administration Act 1953); and
- give an annual report to the Commissioner (Subsection 16-153 (2)(a) of Schedule 1 to the Taxation Administration Act 1953).
As the payments of salary and wages give rise to these obligations the Insolvency Practitioners Association of Australia (IPAA) approached the Australian Taxation Office (ATO) to provide a variation of these obligations to remove some of this new administrative burden. The ATO agreed to provide a standard rate of withholding (31.5%) for those payments that have accrued prior to acquisition of the bankrupt entity by the trustee.
Consultation:
The ATO has consulted extensively with the IPAA in relation to this matter. Following the decision in Deputy Commissioner of Taxation v Applied Design Development Pty Ltd (in Liq.) (Case ref: 2002 ATC 4193; (2002) 49 ATR 196) the IPAA requested from the ATO a product that provided a detailed summary of their new obligations under the PAYG withholding legislation. Upon producing this document, PAYG withholding for trustees of bankrupt estates, the IPAA indicated that they wished for the ATO to provide some relief for trustees where they were making payments that had accrued prior to their appointment. After consulting with the IPAA personally, the ATO pledged to provide such relief by way of a ‘variation’ to their withholding requirements with respect to these payments.
Deputy Commissioner of Taxation
[13 May 2005]