EXPLANATORY STATEMENT
Select Legislative Instrument 2011 No. 84
Issued by authority of the Treasurer
Taxation Administration Act 1953
Taxation Administration Amendment Regulations 2011 (No. 2)
Section 18 of the Taxation Administration Act 1953 (the Act) provides that, in part, the Governor-General may make regulations prescribing all matters required or permitted by the Act to be prescribed, or which are necessary or convenient to be prescribed for giving effect to the Act.
The Regulations amended the Taxation Administration Regulations 1976 (the Principal Regulations) to increase the proportion of the low income tax offset (LITO) that is delivered through workers’ week-to-week pay packets from 50 per cent to 70 per cent. This change means that instead of being compensated after they put in their tax return at the end of the financial year, lower income earners are taxed less during the year.
Section 159N of the Income Tax Assessment Act 1936 allows a person to claim the LITO. A person is entitled to the full value of the LITO ($1,500) provided that person’s income does not exceed $30,000. The LITO can only be used to reduce a person’s tax liability to zero. For every dollar of income above $30,000, the benefit is withdrawn by 4 cents and is completely extinguished for income above $67,500.
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 50 per cent of the amount of the LITO.
The Regulations amended paragraph 24(e) of the Principal Regulations so that the Commissioner is able to take into consideration 70 per cent of the amount of the LITO when making income tax withholding schedules.
As a result of the Regulations, someone with an annual income of $30,000 will receive an extra $300 during the year in their regular pay. A person’s total LITO entitlement for any one year will remain unchanged.
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
The Regulations commence on the day after registration on the Federal Register of Legislative Instruments.
Overview
The Taxation Administration Amendment Regulations 2011 (No. 2), issued under the authority of the Treasurer, amended the Taxation Administration Regulations 1976 to modify the delivery of the low income tax offset (LITO) for lower-income earners. The Act was enacted in 1953 and allows for the creation of regulations to provide details necessary for its implementation. The problem these regulations addressed was the delayed tax compensation that low-income earners experienced, as they were previously only compensated after lodging their tax returns at the end of the financial year. The policy objective of these amendments was to provide more immediate tax relief to eligible individuals by increasing the proportion of the LITO delivered through weekly pay packets from 50 per cent to 70 per cent. This change ensures that low-income earners are taxed less throughout the year, thereby offering them a more timely financial benefit.
Scope and Application
The Taxation Administration Amendment Regulations 2011 (No. 2) applies to the implementation of the Taxation Administration Act 1953, specifically altering the Taxation Administration Regulations 1976 to adjust the low income tax offset (LITO) distribution from workers' weekly pay packets. The Regulations target low income earners, specifically those with an annual income of $30,000 or less, by increasing the proportion of the LITO delivered through their weekly pay from 50 per cent to 70 per cent. This amendment ensures that lower income earners are taxed less throughout the year rather than being compensated at the end of the financial year. The scope of the Act and its Regulations is national, covering all entities and individuals within Australia's jurisdiction. The Regulations do not specify exclusions or exemptions but alter the schedules at which income tax is withheld by taking into consideration 70 per cent of the amount of the LITO, a change from the previous 50 per cent. The Regulations are subordinate instruments that extend the application of the Act by specifying details necessary for its implementation.
Key Provisions
The Taxation Administration Amendment Regulations 2011 (No. 2) amends the Taxation Administration Regulations 1976 to modify the way the low income tax offset (LITO) is distributed to eligible individuals (regs 1–3). Previously, 50% of the LITO was delivered through weekly pay packets; this is now increased to 70%. This change means that low-income earners will receive a greater proportion of their LITO through their weekly or fortnightly pay, rather than receiving it as a lump sum at the end of the financial year when they lodge their tax return (reg 24(e)). This is designed to provide more immediate financial relief to those who qualify for the LITO, as opposed to having to wait until the end of the tax year.
The Regulations impose obligations on employers to withhold the correct amount of tax from the income of their employees based on the revised LITO schedule (reg 24(e)). Employers must ensure they are aware of the new withholding schedules and apply them correctly when calculating the tax to be deducted from employee pay. The Regulations also impose an obligation on employees who earn up to $30,000 per year to ensure their employer is aware of their LITO eligibility, so that the correct amount of tax is withheld from their pay throughout the year.
Breach of these obligations can lead to serious consequences. Employers who fail to correctly apply the new withholding schedules may face penalties for under- or over-withholding tax. This can result in financial penalties, as well as potential legal action from affected employees. Employees who do not inform their employer of their LITO eligibility may end up paying more tax than is legally required, resulting in a financial loss for the employee. While the Regulations do not explicitly state penalties for non-compliance, failure to adhere to the withholding schedules could result in the imposition of penalties under the Taxation Administration Act 1953 or the Income Tax Assessment Act 1936.
The maximum penalties for non-compliance with taxation laws can be severe. Under the Taxation Administration Act 1953, individuals can be fined up to 5,000 penalty units ($840,000 as at July 2023) for serious tax offences, while corporations can be fined up to 50,000 penalty units ($8.4 million as at July 2023). Additionally, under the Income Tax Assessment Act 1936, individuals can be fined up to 2,500 penalty units ($420,000 as at July 2023) and corporations can be fined up to 10,000 penalty units ($1.68 million as at July 2023) for serious tax offences. It is therefore crucial for both employers and employees to understand and comply with the obligations imposed by the Regulations to avoid potential legal and financial repercussions.