PAYG Withholding - Special tax table for payments to individuals performing work or services in the Joint Petroleum Development Area (JPDA) as defined in the Timor Sea Treaty (10/10/2006)

PAYG withholding – Special tax table for payments to individuals performing work or services in the Joint Petroleum Development Area (JPDA) as defined in the Timor Sea Treaty

Explanatory Statement

General Outline of Instrument

1. This instrument is made by the Commissioner of Taxation (the Commissioner) pursuant to section 15-25 of Schedule 1 of the Taxation Administration Act 1953.
2. The instrument makes publicly available the withholding schedule, which the Commissioner is empowered to make, specifying the formulas and procedures to be used when working out the amount required to be withheld by an entity in accordance with the Pay As You Go (PAYG) system.
3. It also revokes the previous legislative instrument that enacted this withholding schedule which was registered on the Federal Register of Legislative Instruments on Tuesday 30 August 2005.
4. In making the instrument, the Commissioner has had regard to the Income Tax Rates Act 1986 and the proposed amendments in the Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Act 2006. The Act provides reductions of the income tax rates in the 2006-2007 and future income years.
5. The instrument contains one (1) Schedule that provides information for calculating the withholding amount taking into account the particular circumstances presented in that Schedule.
6. This is a legislative instrument for the purposes of the Legislative Instruments Act 2003.

Date of effect

7.      The instrument applies from 1 January 2007.

What is this instrument about:

8.      To help taxpayers meet the annual income liability, they are required to pay amounts of their income at regular intervals as it is earned during the year. The system for collecting these amounts is called the “Pay As You Go” system.

9.      This instrument provides information on how to work out the amount an entity must withhold from the income of individual taxpayers. The information is contained in the Schedule to the instrument, also known as the withholding schedule.

What is the effect of this instrument:

10.  The effect of this instrument is to support the PAYG withholding system, which provides a simple and convenient way for most people to meet their annual tax obligations as income is earned.

11.  The people who find the information most useful are employers, professional advisers, software developers, the Australian Taxation Office (ATO) and any other party that may be involved in engaging workers in the Joint Petroleum Development Area (JPDA).

Background:

12.  Each withholding schedule is tailored to meet the circumstances of a particular class of employees. The version of the Schedule to the instrument has been developed to:

• more accurately reflect the credit available on an Australian income tax assessment of an Australian resident  for the tax paid to Timor-Leste, and
• update the examples to reflect these changes.

Consultation:

Due to a change in the ATO view as a result of issuing two Class Rulings to payers that operate in the JPDA, no consultation with external agencies or entities was considered necessary. The change in view provides the most accurate withholding calculation relating to affected payees’ end of year income tax requirements and therefore should be implemented to cover all payers operating in the JPDA.

Legislative references:

Taxation Administration Act 1953

Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Act 2006

Legislative Instruments Act 2003