Explanatory Statement
PAYG Withholding Variation: Insurance and Compensation
General Outline of Instrument
- This instrument is made under section 15-15 and 16-180 of Schedule 1 to the Taxation Administration Act 1953.
- This instrument varies the amount of withholding to nil in certain classes of cases described below.
- This instrument also removes the requirement to provide payment summaries for those payments.
- The instrument is a legislative instrument for the purposes of the Legislation Act 2003.
Date of effect
5. The instrument commences on 1 April 2016.
What is this instrument about
6. Legislative Instrument No. F2006B00211, provided a variation to the rate of withholding to NIL for any payment made by:
- An insurer to another entity in settlement of a claim under an insurance policy, or
- An entity operating a statutory compensation scheme to another entity in settlement of a claim for compensation under that scheme, or
- An entity operating a compulsory third party scheme to another entity in settlement of a claim for compensation under that scheme.
7. This instrument repeals and replaces Legislative Instrument No. F2006B00211 Tax Administration Act 1953 – PAYG Withholding Variation: Insurance and Compensation (17/11/2003).
What is the effect of this instrument
8. This instrument reduces compliance costs for insurers and their insured clients when settling a claim or paying compensation to another entity by not requiring an ABN to be supplied.
9. The variation provides a NIL withholding amount for payments made by an insurer in settlement of a claim under an insurance policy, an entity operating a compensation scheme settling a compensation claim under that scheme and a compulsory third party scheme to another entity in settlement of a claim.
10. This provides for more efficient processing of claims where it may be unclear whether an amount is being received by the insured party in circumstances where an ABN may ordinarily be required to be quoted.
11. A withholding rate of NIL will apply to these payments.
12. Because the withholding rate is reduced to NIL, the requirement to provide payment summaries in respect of these payments is removed.
13. An assessment of the compliance cost indicates that the impact will be minor for both implementation and on-going compliance costs. The new instrument is of a minor or machinery nature.
Background
14. The variation is created to lessen the compliance burden on insurers, other relevant payers and recipients of the relevant payments.
Consultation:
15. The Insurance Council of Australia were consulted in updating this instrument and they have confirmed that they want the arrangements to continue
16. Wider consultation was not considered to be necessary because the instrument merely preserves a concession that would otherwise be removed as a consequence of the impending repeal of the existing instrument.
Steve Vesperman
Deputy Commissioner of Taxation
23 March 2016
Legislative references:
Taxation Administration Act 1953
Legislation Act 2003
Statement of Compatibility with Human Rights
This Statement is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
PAYG Withholding Variation: Insurance and Compensation
This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
The variation provides a NIL withholding amount for payments made by an insurer in settlement of a claim under an insurance policy, an entity operating a compensation scheme settling a compensation claim under that scheme and a compulsory third party scheme to another entity in settlement of a claim.
This provides for more efficient processing of claims where it may be unclear whether an amount is being received by the insured party in circumstances where an ABN may ordinarily be required to be quoted.
Human rights implications
This legislative instrument does not engage any of the applicable rights or freedoms because the new instrument is of a minor or machinery nature.
Conclusion
This legislative instrument does not raise any human rights issues.
Overview
The PAYG Withholding Variation: Insurance and Compensation legislative instrument, enacted in 2016, addresses the problem of unnecessary compliance costs and administrative burdens associated with the withholding and reporting requirements for certain payments made by insurers and entities operating statutory or compulsory compensation schemes. This legislative instrument was introduced under the authority of the Taxation Administration Act 1953 and is intended to streamline the processing of claims by removing the need for an Australian Business Number (ABN) and the associated withholding and payment summary requirements for specific payments. The instrument aims to facilitate more efficient handling of claims, particularly in cases where the recipient's ABN may not be readily available. The instrument was developed following consultation with the Insurance Council of Australia, which supports the continuation of these arrangements, and it is deemed to be compatible with human rights as it does not engage any of the applicable rights or freedoms.
Scope and Application
The legislative instrument, F2016L00433, made under sections 15-15 and 16-180 of Schedule 1 to the Taxation Administration Act 1953, modifies the withholding amount to nil for specific payments made by insurers, entities operating statutory compensation schemes, and entities operating compulsory third-party schemes. It applies to payments made to another entity in settlement of a claim under an insurance policy or a compensation scheme. This instrument replaces the earlier Legislative Instrument No. F2006B00211 and takes effect from 1 April 2016. By setting the withholding amount to zero, the legislation also eliminates the requirement to provide payment summaries for these payments, thereby easing compliance burdens for the involved parties. The instrument is intended to streamline the processing of claims, particularly in cases where it is uncertain whether the recipient of the payment is the insured party. No significant human rights issues arise from this legislative instrument, which is deemed to be of a minor or machinery nature.
Key Provisions
The key provisions of the legislative instrument, F2016L00433, made under section 15-15 and 16-180 of the Taxation Administration Act 1953, primarily address the variation of the Pay As You Go (PAYG) withholding rate to nil for certain payments. Specifically, section 6 of the instrument states that a withholding rate of NIL will apply to payments made by an insurer in settlement of a claim under an insurance policy, by an entity operating a compensation scheme settling a compensation claim under that scheme, and by an entity operating a compulsory third party scheme settling a claim. This change is intended to streamline the processing of claims and reduce compliance costs for both insurers and recipients of these payments by removing the need to supply an Australian Business Number (ABN). Moreover, section 12 of the instrument removes the requirement to provide payment summaries for these payments.
The obligations imposed by this legislation on the parties involved are primarily centred around the simplification of claim settlements. Insurers and entities operating statutory or compulsory compensation schemes must adhere to the new withholding rates and no longer need to provide payment summaries for payments that fall under the specified categories (sections 6 and 12). This change is aimed at reducing administrative burdens and improving the efficiency of claim settlements.
In terms of consequences for non-compliance, the instrument does not explicitly outline specific offences or penalties for breaching its provisions. However, general principles under the Taxation Administration Act 1953 and other relevant Australian tax legislation would apply. For instance, failure to comply with withholding obligations could result in penalties, which may include fines or other civil or criminal sanctions as prescribed by the Act. The exact penalties would depend on the nature and severity of the non-compliance, but they could potentially include substantial fines and other enforcement actions. The instrument's compatibility with human rights, as affirmed in the Statement of Compatibility with Human Rights, suggests that it does not impose significant burdens on the rights of individuals involved in these transactions.