Taxation Administration Act
Withholding Schedules 2005
(2005 Budget Changes)
Explanatory Statement
General Outline of Instrument
- 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 (TAA).
- The Instrument makes publicly available the withholding schedules, which the Commissioner is empowered to make, specifying the amounts, formulas and procedures to be used in working out the amount required to be withheld by an entity in accordance with the Pay As You Go (PAYG) system.
- It also revokes the withholding schedules contained in the Legislative Instrument Taxation Administration Act Withholding Schedules 2005 (2004 Budget Changes).
- In making the Instrument the Commissioner has had regard to the Income Tax Rates Act 1986 as amended by the Tax Laws Amendment (Personal Income Tax Reduction) Act 2004. This amendment provided for reductions of the income tax rates in the 2004-2005 income year and further reductions in 2005-2006.
- The Commissioner has also had regard to the proposed amendments in the Tax Laws Amendment (Personal Income Tax Reduction) Bill 2005. The Bill provides for reductions of the income tax rates in the 2005 - 2006 income year and for later years.
- The Instrument contains 22 Schedules based on the income tax rate changes announced by the Treasurer in the 2005 Budget and set out in the Tax Laws Amendment (Personal Income Tax Reduction) Bill 2005. Each Withholding Schedule provides information for calculating the withholding amount taking into account the particular circumstances presented in the Schedule.
- This is a legislative instrument for the purposes of the Legislative Instruments Act 2003.
Date of effect
8. The Instrument applies from 1 July 2005.
9. It provides for PAYG withholding on or after 1 July 2005 based on income tax rate changes that have not yet been enacted. These rate changes were announced in the 2005 Budget. While the changes have not yet become law their introduction into Parliament and likely enactment with effect from 1 July 2005 is a matter to which the Commissioner may have regard when making withholding schedules.
10. This Instrument is the second stage of a two stage process.
11. As the first stage, a related Instrument, the Taxation Administration Act Withholding Schedules 2005 (2004 Budget Changes), is being tabled at the same time as this Instrument. That related Instrument (2004 Budget Changes) provides for PAYG withholding from 1 July 2005 based on income tax rate changes that have already been enacted. Those rate changes were announced in the 2004 Budget.
12. The related 2004 Budget Changes Instrument revokes the previous withholding schedules gazetted on 28 June 2004 and replaces them with withholding schedules based on the 2004 Budget income tax rate reductions, enacted in Tax Laws Amendment (Personal Income Tax Reduction) Act 2004 (Act No. 67 of 2004), which apply from 1 July 2005.
13. As the second stage, this Instrument (2005 Budget Changes) will override the 2004 Budget Changes Instrument. The intended outcome is that the 2004 Budget withholding schedules are revoked and replaced by the 2005 Budget withholding schedules.
14. Employers and other withholders will be able to make PAYG deductions at the 2005 Budget rates if both the 2004 Budget Changes instrument and the related 2005 Budget Changes Instrument remain in effect and are not disallowed, even if the Tax Laws Amendment (Personal Income Tax Reduction) Bill 2005 is not enacted by 1 July 2005.
15. If the 2005 Budget Changes instrument is disallowed the 2004 Budget Changes Instrument will operate.
What is this Instrument about?
16. To help taxpayers meet their annual income tax 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.
17. When a change in income tax rates is made, the Commissioner prepares and publishes a new set of withholding schedules to notify the community of the specific amounts, formulas and procedures to be used for calculating the amount required to be withheld by an entity from a withholding payment. The withholding schedules facilitate the efficient collection of income tax, Medicare levy and amounts of liabilities to the Commonwealth under chapter 5A of the Higher Education Act 1988.
18. 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 Schedules to the Instrument, also known as withholding schedules.
What is the effect of this Instrument?
19. 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.
20. The people who find the information most useful are employers, employees, professional advisers, software developers, the Australian Taxation Office (ATO), electronic payroll stockists, electronic payroll producers and payroll service providers.
Background
21. 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.
22. 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.
23. Each withholding schedule is tailored to meet the circumstances of a particular class of employees. For example the weekly tax table is produced for employees paid weekly.
Consultation
24. The making and publication of withholding schedules is a routine part of tax administration. However, this year there are rate changes scheduled to apply from 1 July 2005 which were enacted in 2004 and there are additional changes announced by the Treasurer in the 2005 Budget which are also proposed to apply from 1 July 2005.
25. The Tax Office has consulted with bodies representing employers and with a number of payroll and software providers about the status of the 2005 Budget tax cuts, which may or may not be enacted by 30 June 2005.
26. Following those consultations two sets of withholding schedules are being released. This will give software providers and employers who code their own in-house payroll systems the best opportunity to build their systems with sufficient flexibility to cater for whichever withholding schedules apply on 1 July 2005.
27. The Tax Office will distribute hard copies of the relevant schedules to employers when it is known which withholding schedules will apply.
Commissioner of Taxation
25 May 2005
Subject references:
Higher Education Contribution Scheme,
Higher Education Loan Program
Student Financial Supplement Scheme
Legislative references:
Taxation Administration Act 1953
Higher Education Act 1988
Legislative Instruments Act 2003
Tax Laws Amendment (Personal Income Tax Reduction) Bill 2005
Tax Laws Amendment (Personal Income Tax Reduction) Act 2004 (67 of 2004
Income Tax Rates Act 1986
A New Tax System (Pay As You Go) Act 1999