Taxation Administration Act 1953 - Tax table for back payments, commissions, bonuses and similar payments

Taxation Administration Act 1953 -
Tax table for back payments, commissions, bonuses and similar payments

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 to the Taxation Administration Act 1953 (TAA).
2. The instrument makes publicly available a withholding schedule, which the Commissioner is empowered to make, specifying the methods to be used for working out the amount required to be withheld by an entity from back payments, commissions, bonuses and similar payments in accordance with the pay as you go (PAYG) system.
3. In making the instrument, the Commissioner has had regard to the rates of income tax specified in the Income Tax Rates Act 1986.
4. This is a legislative instrument for the purposes of the Legislative Instruments Act 2003.

Date of effect

5.     The instrument applies from 1 July 2012.

What is this instrument about?

6.     The purpose of this instrument is to help employers and other payers calculate withholding on back payments, commissions, bonuses and similar payments. This will assist taxpayers in meeting their annual income tax liabilities. The system for collecting withholding amounts is called the PAYG system.

7.     This instrument provides information on how to work out the amount an entity must withhold from back payments, commissions, bonuses and similar payments paid to individual taxpayers. The information is contained in the schedule to the instrument. The schedule is also known as a withholding schedule.

8.     The withholding schedule consolidates three withholding schedules:

• Tax table for back payments
•  Tax table for commissions and
•  Tax table for bonuses and similar payments.

The consolidation of these withholding schedules standardises the methods to calculate withholding on these payments, and provides a single product which employers and other payers may use.

What is the effect of this Instrument?

9.     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.

10. The people who find the information most useful are employers, employees, professional advisers, software developers, the Australian Taxation Office, electronic payroll stockists, electronic payroll producers and payroll service providers.

11. This instrument also withdraws the three withholding schedules currently being used to provide certainty to PAYG withholding payers with regard to their withholding obligations from back payments, commissions, bonuses and similar payments.

12. An assessment of the compliance cost impact indicates that the impact will be minimal for both implementation and on-going compliance costs. The instrument is routine in nature.

Background

13. The PAYG arrangements, introduced in A New Tax System (Pay As You Go) Act 1999, represent the most effective, simple and convenient way for most people to meet their annual income tax liability, either through instalments or withholding, as income is earned. They eliminate large end-of-year tax bills and ensure that Government has the revenue it needs during the year to provide benefits and services to the community.

14. The TAA empowers the Commissioner to make withholding schedules specifying the amounts, formulas and procedures to be used for working out the amount required to be withheld by an entity. The TAA requires the Commissioner to make each withholding schedule publicly available.

15.  Each withholding schedule is tailored to meet the circumstances of a particular class of employees or class of payments made.

Consultation

16. The making and publication of withholding schedules is a routine part of tax administration.

17. The ATO will provide the necessary information to payroll and software providers, and those employers who code their own in-house payroll systems, to ensure that they have sufficient time to update their software packages.

Human Rights Compatibility

18. This 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.

Legislative references:

Taxation Administration Act 1953

Legislative Instruments Act 2003

Income Tax Rates Act 1986

A New Tax System (Pay As You Go) Act 1999