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]
Overview
The instrument, titled "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," was enacted in 2005 and serves to address the administrative burden on trustees of bankrupt estates arising from PAYG withholding obligations for payments made to employees prior to their appointment. This legislative instrument was created under section 15-15 of Schedule 1 to the Taxation Administration Act 1953 and applies from 1 July 2005. It aims to provide trustees with a uniform rate of withholding for historical payments, thereby streamlining the process and reducing the complexity associated with these obligations. The decision in Deputy Commissioner of Taxation v Applied Design Development Pty Ltd (2002) necessitated that trustees of bankrupt estates adhere to PAYG withholding requirements, which had not previously applied to such payments. Following consultations with the Insolvency Practitioners Association of Australia, the Australian Taxation Office agreed to a standard withholding rate of 31.5% for payments accrued before the trustee's appointment, easing the administrative load on trustees.
Scope and Application
The instrument F2005L01216, made under section 15-15 of Schedule 1 to the Taxation Administration Act 1953, applies specifically to trustees of bankrupt estates who are responsible for making payments that accrued prior to their appointment. The legislative instrument is effective from 1 July 2005 and aims to adjust the PAYG withholding obligations for trustees in relation to certain payments. It facilitates a uniform rate of withholding, reducing the administrative burden on trustees by setting a standard rate of 31.5% for payments that predate their appointment. This change alleviates the trustees’ obligations regarding the collection of Tax File Number (TFN) declarations, Withholding declarations, and the issuance of payment summaries for these payments, thereby streamlining the process and making it less onerous. The instrument does not extend beyond trustees of bankrupt estates or the specific context of payments that accrued prior to their appointment, maintaining its focus on addressing the new PAYG withholding obligations arising from the decision in Deputy Commissioner of Taxation v Applied Design Development Pty Ltd (in Liq.).
Key Provisions
The main operative sections of the legislation (section 15-15 of Schedule 1 to the Taxation Administration Act 1953) provide for a variation to the amount that must be withheld from certain payments made by trustees of bankrupt estates. This variation applies specifically to payments that accrued prior to the trustees' appointment. The notice details the nature of the payments affected by the variation and specifies the rate of withholding that applies. The primary purpose of this variation is to facilitate a uniform rate of withholding for these historical payments, thereby easing the administrative burden on the trustees.
The obligations imposed by the Act on trustees of bankrupt estates include obtaining Tax File Number (TFN) Declarations and Withholding declarations from all payees, withholding an amount from the payment in accordance with the PAYG withholding tax table, issuing payment summaries by 14 July following the financial year of payment, and providing an annual report to the Commissioner. However, for payments that accrued before the trustees' appointment, the Act now allows for a standard rate of withholding of 31.5%, reducing the need for detailed individual calculations and compliance steps for these specific payments.
The legislation does not explicitly state any specific offences, penalties, or civil/criminal consequences for non-compliance with the withholding variation. However, it is important to note that failure to comply with the general PAYG withholding obligations could lead to penalties under the Taxation Administration Act 1953. These penalties can include fines and interest on unpaid amounts, with the specifics depending on the nature and extent of the non-compliance. Trustees must still ensure they adhere to all other PAYG withholding requirements to avoid these potential penalties.