Shortened Document Retention Periods (Individuals with Simple Tax Affairs) Determination 2006

Shortened Document Periods (Individuals with Simple Tax Affairs) Determination 2006

Explanatory Statement

General Outline of Instrument

1. This instrument is made under:

• paragraph 251R(6F)(c) of the Income Tax Assessment Act 1936 (ITAA 1936); and
• paragraphs 18-100(1)(c) and 388-65(3)(c) of Schedule 1 to the Taxation Administration Act 1953 (TAA).

2.      The instrument reduces the period for which certain tax records of Australian resident individuals with simple tax affairs need to be retained. 

3.      The instrument is a legislative instrument for the purposes of the Legislative Instruments Act 2003.

Date of effect

4.      The instrument is taken to have commenced on 19 December 2005.  This is the date that the Tax Laws Amendment (Improvements to Self Assessment) Act (No.2) 2005, which contains the enabling provisions, received Royal Assent.

5.      However, the instrument will apply in relation to:

• a family agreement relating to the 2004-05 year of income or a later year of income;
• a copy of a payment summary that is given to an individual in the financial year beginning on 1 July 2004 or a later financial year; and
• a declaration, referred to in this Explanatory Statement as a ‘taxpayer declaration’, that is made on or after 1 April 2004.

6.      The instrument applies retrospectively to ensure that taxpayers will not be disadvantaged by the repeal of certain record retention concessions that applied to records relating to prior periods.

What is this instrument about:

7.      The purpose of this instrument is to identify a class of taxpayers who will be allowed to retain certain tax records for a shortened period and to prescribe what the shortened retention period for those records is.

What types of records does this legislative instrument apply to?

8.      This instrument applies to 3 types of tax records.  They are:

• A ‘family agreement’;
• A copy of a ‘payment summary’; and
• A declaration and a copy of a declaration to which subsection 388-65(1) of Schedule 1 to the TAA refers.  In this Explanatory Statement, these declarations are called ‘taxpayer declarations’.

Family agreements

9.      The term ‘family agreement’ is defined in paragraph 251R(6D)(f) of the ITAA 1936.  It refers to an agreement made by a taxpayer and their spouse (who would, but for their dependant child, be exempt from medicare levy) stating that their dependant child is, for medicare levy purposes, to be treated as a dependant of only one of them.  In the absence of the family agreement, both the taxpayer and their spouse would, as a consequence of the dependant child, be liable for one half of the levy that would have been payable by a non-exempt person. 

Payment summaries

10.  The term ‘payment summary’ is defined in section 16-170 of Schedule 1 to the TAA.  Broadly, a payment summary is a written statement made in the approved form that is required to be issued in a range of circumstances including where an employee has been paid salary and wages in an income year and tax has been withheld from their payments.   

Taxpayer declarations

11.  Broadly, taxpayer declarations are signed written declarations that a taxpayer is required to make where a return or other document is given to the Commissioner by an agent on behalf of a taxpayer.  These declarations must state that the agent is authorised to give the document to the Commissioner and declare that the information provided to the agent for the preparation of the document is true and correct.

What class of taxpayers does this legislative instrument apply to?

12.  In short, this instrument applies to Australian resident individuals (other than individuals in the capacity of a trustee) who have simple tax affairs in:

• in the case of a payment summary or family agreement – the income year to which the record relates; or
• in the case of a taxpayer declaration – the income year in which the declaration is made.

13.  A taxpayer is considered to have ‘simple tax affairs’ in an income year if a set of requirements relating to the following matters are met for the income year:

• the assessable income derived by the taxpayer;
• the deductions claimed by the taxpayer; and
• certain other matters.

14.  The requirements are substantially the same as the criteria contained in the (now repealed) definition of ‘Shorter Period of Review taxpayer’ or ‘SPOR taxpayer’ in section 6AD of the ITAA 1936.

Requirement 1: The assessable income derived by the taxpayer

15.  The first requirement is that, for the income year, the assessable income of the individual must have consisted of one or more of the following only:

• Salary or wages for the purposes of Subdivision AB of Division 17 of Part III of the ITAA 1936;
• Interest payable by a ‘financial institution’ or ‘government body’; or
• Dividends from an Australian resident, listed public company whose shares were listed for quotation in the official list of the Australian Stock Exchange Limited at the earliest of the following times:
  • when the dividend was declared, if liability to pay the dividend arose at the time;
  • when the dividend became due and payable; or
  • when the dividend was paid.

Meaning of ‘financial institution’, ‘government body’ and ‘listed public company’

16.  The terms ‘financial institution’ and ‘government body’ are defined in section 202A of the ITAA 1936.  A ‘financial institution’ is a bank or co-operative housing society.  A ‘government body’ is the Commonwealth, a State, a Territory or an authority of one of these.

17.  The term ‘listed public company’ is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997.   Broadly, a listed public company is a company in which shares (other than fixed rate dividend shares) are listed for quotation in the official list of an approved stock exchange.  A company is not a listed public company if, in general terms, 20 or less persons:

• control 75% or more of the voting power in the company; or
• have the right to receive 75% or more of the dividends or distributions of capital in the company.

Requirement 2: The deductions claimed by the taxpayer

18.  The second requirement is that the individual’s deductions claimed for the income year (if any) must consist only of one or more of the following:

• Expenditure incurred in managing tax affairs.  The expenditure must be of a kind to which paragraph 25-5(1)(a) of the ITAA 1936 applies and includes fees paid to a registered tax agent, barrister or solicitor concerning the individuals tax return;

• Certain gifts and donations of money, including to:
  • certain political parties;
  • a fund, authority or institution broadly in the following areas: health, education, research, welfare and rights, defence, environment, industry, trade and design, the family, international affairs, sports and recreation, philanthropic trusts and cultural organisations;
  • certain public funds established and maintained under a will or instrument of trust; or
• Account keeping fees charged by financial institutions or Government charges on account transactions (such as debits tax or a similar tax).

Requirement 3:  Other matters

19.  The final requirement is that none of the following circumstances exist in relation to the individual for the income year:

• The individual is not a resident of Australia (as defined in subsection 6(1) of the ITAA 1936) for any part of the income year;
• The individual is entitled to a foreign tax credit under Division 18 or 18A of Part III of the ITAA 1936;
• The individual claimed a deduction for expenditure incurred to an associate or derived income from an associate.  The term ‘associate’ takes the meaning from section 318 of the ITAA 1936.  An associate of an individual includes:
  • a relative, partner or a spouse or child of a partner;
  • a partnership in which the individual is a partner;
  • a trustee of a trust estate under which the individual or an associate benefits or has the potential to benefit; or
  • broadly, a company controlled by the taxpayer or associates of the individual;
• The individual made a capital gain or a capital loss and had to use the method statement in subsection 102-5(1) or 102-10(1) of the ITAA 1997 to work out their net capital gain or loss; or
• The individual derived an amount of income from employment in a foreign country or employment on an overseas project which is exempt from tax under section 23AF or 23AG of the ITAA 1936.

What is the shortened record retention period?

20.  Copies of payment summaries and family agreements must be retained until 2 years after the day on which the Commissioner gives notice of an assessment to the individual for an income year to which the relevant record relates. 

21.  Taxpayer declarations must be retained until 2 years after the day on which the declaration is made.

What is the effect of this instrument:

22.  The effect of this instrument is to broadly preserve certain record keeping concessions (for Australian resident individuals with simple tax affairs) that were recently repealed from the income tax law. 

23.  This will ensure that these taxpayers continue to be afforded compliance cost relief through reduced record keeping obligations.

Background:

24.  This instrument has been developed to ensure that certain Australian resident individuals with simple tax affairs will continue to be subject to concessional record keeping rules.

25.  Until recently, the income tax law allowed taxpayers who qualified as a ‘Shorter Period of Review taxpayer’ or ‘SPOR taxpayer’ under section 6AD of the ITAA 1936 to retain the following records for a shortened period of 2 years (rather than 5 years):

• family agreements;
• copies of payment summaries; and
• taxpayer declarations (as well as copies of taxpayer declarations) for documents lodged by tax agents.

These concessions were provided for in section 251R of the ITAA 1936 and sections 18-100 and 388-65 of Schedule 1 to the TAA respectively.

26.  The Tax Laws Amendment (Improvements to Self Assessment) Act (No.2) 2005 repealed the special record retention period of 2 years that applied to SPOR taxpayers for payment summaries, family agreements and taxpayer declarations for documents lodged by tax agents.  These rules were repealed because the SPOR classification and the provisions relying on it are no longer necessary following the introduction of the broader eligibility for the 2 year amendment period provided by that Act.

27.  The special record retention rules have been replaced with a standard 5 year period or a shorter period as determined by the Commissioner in writing for an individual or as determined by legislative instrument for a class of taxpayers.

Consultation:

28.  This instrument was developed in consultation with the Personal Tax Advisory Group, which consists of members from a cross section of organisations that represent individual taxpayers. 

29.  Wider consultation was not considered to be necessary because the instrument merely preserves a concession that would otherwise be removed as a consequence of recent changes to the income tax law and because the concession relates only to taxpayers with relatively simple tax affairs.

Legislative references:

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997

Taxation Administration Act 1953

Tax Laws Amendment (Improvements to Self Assessment) Act  (No.2) 2005

Legislative Instruments Act 2003