EXPLANATORY STATEMENT
Select Legislative Instrument 2012 No. 92
Issued by authority of the Treasurer
Taxation Administration Act 1953
Taxation Administration Amendment Regulation 2012 (No. 2)
Section 18 of the Taxation Administration Act 1953 Act (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.
The purpose of the amending Regulation was to: change the amount of low income tax offset (LITO) that the Commissioner of Taxation can take into account of in determining schedules at which income tax is withheld; and to take account of the merger of the senior Australians tax offset (SATO) and the pensioner tax offset (PTO) into the new seniors and pensioners tax offset (SAPTO) (Income Tax Amendment Regulation 2012 (No. 1) refers).
The amending Regulation amended the Taxation Administration Regulations 1976 (the Principal Regulations) to decrease the proportion of the LITO that is delivered through reduced withholding from 70 per cent to 18 per cent for the 2012‑13, 2013‑14 and 2014‑15 income years, and to zero from 2015‑16 onward. This change means that taxpayers will receive a smaller proportion of their LITO entitlement during the year.
As part of the Government’s Clean Energy Future Plan, the Clean Energy (Income Tax Rates Amendments) Act 2011 and the Clean Energy (Tax Laws Amendments) Act 2011 amended the Income Tax Rates Act 1986 and the Income Tax Assessment Act 1936 respectively to increase the statutory tax free threshold and reduce the LITO to deliver tax cuts and more timely tax relief to low‑ and middle‑income individuals. Section 159N of the Income Tax Assessment Act 1936 allows a person to claim the LITO.
These changes mean that from 1 July 2012, a person is entitled to the full value of the LITO ($445) provided that person’s income does not exceed $37,000. The LITO can only be used to reduce a person’s tax liability to zero, not to provide a net tax refund. For every dollar of income above $37,000, the benefit is withdrawn by 1.5 cents and is completely extinguished for income above $66,667.
From 1 July 2015, a person is entitled to the full value of the LITO ($300) provided that person’s income does not exceed $37,000. For every dollar of income above $37,000, the benefit is withdrawn by 1 cent and is completely extinguished for income above $67,000.
Paragraph 15-30(d) of Schedule 1 to the Act provides that the Commissioner may take account of a number of prescribed tax offsets in determining schedules at which income tax is withheld at. These prescribed tax offsets are listed in regulation 24 of the Principal Regulations and include 70 per cent of the amount of the LITO, with the remaining 30 per cent of the LITO being delivered on assessment.
Item 1 and Item 2 of Schedule 1 of the amending Regulation amended paragraph 24(d) and paragraph 26(j) respectively of the Principal Regulations to recognise that the PTO and SATO have been merged into the SAPTO.
Item 1 of Schedule 1 of the amending Regulation amended paragraph 24(e) of the Principal Regulations to specify that the Commissioner is able to take into consideration 70 per cent of the amount of the LITO when making income tax withholding schedules for a year of income commencing before 1 July 2012.
Item 1 of Schedule 1 of the amending Regulation inserted paragraph 24(f) into the Principal Regulations to specify that the Commissioner is able to take into consideration 18 per cent of the amount of the LITO when making income tax withholding schedules for the years of income commencing on 1 July 2012, 1 July 2013 and 1 July 2014.
As a result of the amending Regulations, someone with an annual income of up to $37,000 will receive around $80 of LITO during the year in their regular pay, and the remaining $365 on assessment. A person’s total LITO entitlement for any one year will remain unchanged. Single seniors and pensioners with an annual income of up to $32,279 will receive $2,230 of SAPTO during the year in their regular pay.
No consultation was undertaken as the amendments are minor and machinery in nature.
The Regulation Impact Statement (RIS) for the mechanism, entitled Australia’s plan for a clean energy future, is available at http://ris.finance.gov.au. The RIS was prepared by the Department of Climate Change and Energy Efficiency and has been assessed as adequate by the Office of Best Practice Regulation.
A statement of compatibility with human rights is provided at Attachment A.
The amending regulation commences on the commencement of Schedule 3 of the Clean Energy (Tax Laws Amendments) Act 2011.
Overview
The Taxation Administration Amendment Regulation 2012 (No. 2), enacted by the Governor-General under the authority of the Taxation Administration Act 1953, was introduced to align the administration of tax withholding with changes to the low income tax offset (LITO) and the merger of the senior Australians tax offset (SATO) and pensioner tax offset (PTO) into the new seniors and pensioners tax offset (SAPTO). This regulation was necessitated by legislative amendments that increased the statutory tax-free threshold and reduced the LITO as part of the Government’s Clean Energy Future Plan, aiming to provide tax cuts and more timely tax relief to low- and middle-income individuals. The regulation adjusts the proportion of the LITO that is delivered through reduced withholding, decreasing it from 70 per cent to 18 per cent for the 2012–13, 2013–14, and 2014–15 income years, and to zero from 2015–16 onward. Consequently, taxpayers will receive a smaller proportion of their LITO entitlement during the year, with the remainder being delivered on assessment. Additionally, the regulation updates the withholding schedules to reflect the merger of the SATO and PTO into the SAPTO.
Scope and Application
The Taxation Administration Amendment Regulation 2012 (No. 2) pertains to the Commissioner of Taxation and is designed to implement changes in the low income tax offset (LITO) and the merger of the senior Australians tax offset (SATO) and the pensioner tax offset (PTO) into the new seniors and pensioners tax offset (SAPTO) as outlined in the Clean Energy (Income Tax Rates Amendments) Act 2011 and the Clean Energy (Tax Laws Amendments) Act 2011. This amending regulation applies to all taxpayers in Australia who are entitled to claim the LITO or SAPTO. The changes made by the regulation impact the proportion of these tax offsets that are delivered through reduced withholding, effectively altering the distribution of these offsets between the time of income earning and the tax assessment. Specifically, the regulation decreases the proportion of the LITO delivered through reduced withholding from 70 per cent to 18 per cent for certain income years and to zero from 2015–16 onwards. Additionally, it recognises the merger of the SATO and PTO into the SAPTO. These amendments ensure that taxpayers receive a smaller proportion of their LITO entitlement during the year while maintaining the overall value of their entitlement. The regulation's scope is national, applying across all jurisdictions in Australia as it amends the Taxation Administration Regulations 1976, which operate under the authority of the Commonwealth. There are no specific exclusions or thresholds mentioned in the regulation beyond the income limits for entitlement to the LITO and SAPTO as set out in other legislation.
Key Provisions
The main provisions of the Taxation Administration Amendment Regulation 2012 (No. 2) concern the adjustment of the Low Income Tax Offset (LITO) as it applies to income tax withholding schedules and the recognition of the merger of the Senior Australians Tax Offset (SATO) and Pensioner Tax Offset (PTO) into the Seniors and Pensioners Tax Offset (SAPTO). Specifically, regulation 1 of the amending Regulation (item 1 of Schedule 1) reduces the proportion of LITO that is delivered through reduced withholding from 70 per cent to 18 per cent for income years 2012-13, 2013-14, and 2014-15, and to zero from 2015-16 onwards. Regulation 2 (item 2 of Schedule 1) recognises the merger of SATO and PTO into SAPTO, which affects how tax offsets are calculated and applied in tax withholding schedules.
These changes impose certain obligations on taxpayers and the Commissioner of Taxation. Taxpayers need to be aware of the new withholding schedules and the proportion of LITO they will receive during the year versus at the assessment. They should also understand how the merger of SATO and PTO into SAPTO affects their tax offsets. The Commissioner, on the other hand, must adjust the withholding schedules to reflect the reduced percentage of LITO and incorporate SAPTO calculations into the schedules. This includes updating relevant systems and processes to ensure accurate tax withholding and assessment.
There are no specific offences or penalties outlined in the amending Regulation itself. However, the underlying acts and regulations that the amendments pertain to may include provisions for penalties in cases of non-compliance or incorrect calculations. For example, under the Taxation Administration Act 1953, there are general provisions for penalties for incorrect tax withholding, which could apply if the Commissioner fails to adjust withholding schedules correctly. In addition, taxpayers who deliberately underreport their income to maximise their tax offsets could face criminal charges or penalties under the Income Tax Assessment Act 1997. The penalties for such offences can range from fines to imprisonment, depending on the severity and intent of the offence.