Commonwealth Numbered Regulations - Explanatory Statements

[Index] [Search] [Download] [Related Items] [Help]

INCOME TAX REGULATIONS (AMENDMENT) 1994 NO. 399

STATUTORY RULES 1994 No. 399

Issued by authority of the Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Regulations (Amendment)

Section 266 of the Act provides that the Governor-General may make regulations prescribing matters required to give effect to the Act. Section 202AC of the Act defines a reportable payment to be a payment that is declared in the regulations to be a reportable payment for the purposes of the new provisions. The regulations will specify the transactions to which the RPS will apply and initially these regulations describe certain payments in the fishing and clothing industries which represent assessable income to the recipient.

These regulations insert new Divisions 9 to 11 into Part 7 of the income tax regulations. The regulations supplement amendments to the Act which were contained in Taxation Laws Amendment Act (No. 3) 1994. The amendments introduced new Division 1AA into Part VI of the Act to provide for a Tax File Number (TFN) based Reportable Payments System (RPS). The new RPS is scheduled to commence on 1 December 1994.

The RPS was foreshadowed in the Government's "Statement on Tax Policy" as released by the Treasurer on 16 September 1992. The statement announced that a tax file number (TFN) based payment reporting system would be implemented for specific industry transactions called "reportable payments". To achieve an increased level of compliance with the taxation laws, the statement foreshadowed an extension of information reporting using the TFN system. The RPS will initially target transactions within the fishing and clothing industries. The legislative structure of the RPS, which provides that reportable payments will be prescribed in regulations, will enable other industries to be prescribed once they are identified as suitable for inclusion in the proposed RPS arrangements.

Under the RPS, a payee's TFN may be quoted to the payer of a "reportable payment". Subject to certain limitations, a payee's TFN will be taken to have been quoted in respect of all subsequent "reportable payments" made by the payer. Payers will be required to complete, sign and forward payee TFN Information to the Commissioner, along with an end of year summary of all "reportable payments" made. This information will then be used by the Commissioner of Taxation for income matching purposes including confirmation of identity of the payee.

Consistent with the existing arrangements for employers under the pay-as-you-earn (PAYE) arrangements and with investment bodies for investment income, a payee who elects not to quote their TFN will suffer a financial consequence. If a payee's TFN is not quoted, the payer will be required to withhold the top marginal tax rate plus medicare levy (currently 48.4%) of a reportable payment and send it to the Commissioner. As with the other source deduction arrangements, a credit will be allowed to the payee at the end of the year of income for the amount withheld.

New section 220AC defines a reportable payment to be a payment that is declared in the regulations to be a reportable payment for the purposes of the new provisions. The regulations will describe certain payments in the fishing and clothing industries which represent "reportable payments".

Subject to specific exclusions for fish retailers, a "reportable payment" in the fishing industry generally includes payments for the sale or supply of fish where the fish are acquired for the sale or supply to another person. Payments between two fishers for fish acquired as bait for the activity of taking or catching fish are reportable payments. As reportable payments are those made in the course of the payer's business, payments of a private nature are excluded. For example, the RPS does not extend to a payment by a member of the public when buying fish from a fishing co-operative.

"Reportable payments" in the clothing industry include payments for any process involved in the manufacture of clothing, payments for the preparation of clothing before the clothing is first presented for sale as a complete and ready to wear item and payments for an item of clothing where the payer has contributed to the manufacturing process. A payer providing the design for clothing to be manufactured will be contributing value to the manufacturing process and payments made by that payer are reportable. Processes in the manufacture of clothing includes design, pattern-making, cutting, sewing, making-up, clipping, trimming or embroidery. The preparation of clothing for sale includes processes such as laundering, pressing, labelling and packaging.

As with the fishing industry, payments of a private nature are excluded. The reportable payment system does not extend to payments for clothing which is complete and ready to wear where the payer has made no contribution of value to the manufacturing process. Specifications as to quality or colour are not considered to represent a contribution to the manufacturing process.

Details of the regulations are as follows:

Regulation 1 provides that the amended Income Tax Regulations commence on 1 December 1994.

Regulation 2 amends the Income Tax Regulations as set out in these Regulations.

Regulation 3 inserts new Divisions 9, 10 and 11 into Part 7 of the regulations. New Division 9 contains new regulations 147A to 147C which include the structural provisions dealing with signatures and the level of deduction required when a payee's tax file number (TFN) is not quoted. New Division 10 contains new regulations 147D and 147E which describe the reportable payments in the fishing industry. New Division 11 contains new regulation 147F and the provisions necessary to describe the reportable payments in the clothing industry.

Division 9-Reportable Payments System

New regulation 147A and new regulation 147B provide the mechanics, as required by section 220AE of the Act, to enable certain documents to be signed by a person other than the payer. The new regulations are similar in structure and deal with situations where:

• the payer is an individual (regulation WA); and

• the payer is a person other than a natural person (regulation 147B).

The regulations are also similar to regulation 120 which allows similar authorisations to be made for the PAYE arrangements. When authorising, the payer must have regard to whom he/she authorises (new subregulations 147A(2) and 147B(2)). The authorisation must take a specified form and a copy must be kept by the payer for 5 years. New subregulations 147A(7) and 147B(8) give the Commissioner or Deputy Commissioner the power to disapprove of an authority in writing where he or she is satisfied that the authorised person is not a fit and proper person for the purposes of new subregulation 147A(2) and 147B(3).

The regulations also allow those payers who are already PAYE group employers, for the purposes of Section 221F of the Act, to use existing authorisation arrangements already in place under regulation 120 (new subregulations 147A(10) and 147B(11)).

New regulation 147C specifies the amount to be deducted, in accordance with subsection 220AF(2) of the Act, to be the top marginal tax rate plus medicare levy as set out in column 3 in the last item in Table 4 in Schedule 3 of the income tax regulations, expressed as a percentage. This percentage, which is applied to the existing source deduction arrangements, such as the TFN withholding and PAYE arrangements, is currently 48.4% of the payment.

Division 10-Reportable payments in the fishing industry

New regulation 147D is interpretative and describes the terms used in new regulation 147E. Those terms include 'fish', 'processed fish' and 'retailer'.

For example, fish is defined to be a live, fresh, farmed or processed fish, crustacean, echinoderm or mollusc, whether whole or in part, but does not include aquatic mammals, aquatic reptiles, oyster spat, fish roe, live fish ova, aquarium fish, fish meal, fish oil, fish skins, or pearls and shells from which fish have been removed.

A processed fish means fish which is cut, broken, filleted, packed, frozen, preserved or treated in any other way, but does not include fish that is preserved by a heat sterilisation process, or a salt curing process, and then enclosed in a hermetically sealed container.

Finally, a retailer for the purposes of a fishing industry reportable payment includes a person who:

(a)       in the course of business:

(i)       acquires goods (including fish) for resale to a consumer; or

(ii)       acquires fish as part of providing a service or facility to the public; and

(b)        derives 50% or more of the person's income from the activities referred

to in paragraph(a).

New paragraph 147E(1)(a) provides that a reportable payment in the fishing industry includes a payment that a person (including an agent) makes or is liable to make to a payee in the course of the person's business and is wholly or partly for the sale or supply of fish for resale to another person including payments made to or by persons acting as agents.

New paragraph 147E(1)(b) provides that a reportable payment will be a payment between two fishers for fish acquired as bait for the activity of taking or catching fish.

New paragraph 147E(1)(c) provides that a reportable payment is a payment that a person makes to a payee in the course of the person's business and in relation to the activity of fishing, or the taking or catching of fish.

New subregulation 147E(2) provides for an exclusion from new regulation 147E where the payment is made to or by a retailer (new paragraph 147E(2)(a)). It also provides for an exclusion from the RPS where the payments are for commission to an agent in relation to the sale or supply of fish (new paragraph 147E(2)(b)). However, the payment, including the commission, which is made by the agent to the fisher will be reportable under new paragraph 147E(1)(a).

Division 11-Reportable payments in the clothing industry

Regulation 147F contains the interpretative and operative provisions necessary to describe which payments in the clothing industry are to be subject to the reportable payments system.

The regulations distinguish payments for clothing which are purchased "off the rack" and not subject to the RPS with payments for clothing where the payer has made some contribution to the manufacturing process. The latter payments will be reportable. The terms necessary to achieve this are a process involved in the manufacture of clothing and the preparation of clothing.

For example a process in the manufacture of clothing includes design, pattern-making, cutting, sewing, making-up, clipping, trimming or embroidery or any part of such a process. Finally, preparation of clothing will include laundering, pressing, labelling or packaging.

New paragraph 147F(1)(a) describes a reportable payment in the clothing industry to be a payment (whether in whole or in part) which is made for any process involved in the manufacture of clothing or, under new paragraph 147F(1)(b), a payment (whether in whole or in part) for the preparation of clothing before the clothing is first presented for sale as a complete and ready to wear item.

As with the reportable payments in the fishing industry, payments for clothing which are private in nature will be excluded from the RPS (new subregulation 147F(2)). The scope of the reportable payments system will also not extend to payments for clothing where the clothing has been supplied to the payer by or on behalf of the payee as a complete and ready to wear item and the payer has not contributed to the manufacture of the clothing by providing the design, sample, pattern, material , machinery or tools for the manufacture of the clothing or an item of similar significance to the manufacture of the clothing (new subregulation 147(3)).

New subregulation 147F(4) provides the interpretative provisions to support new regulation 147F. In particular, the subregulation (new paragraphs 147F(4)(d) and 147F(4)(e)) provides that a payment to a person involved in any process in the manufacture or preparation of clothing will include a payment to a person who:

•       carries out a part of the process or preparation; or

•       arranges for another person to carry out the process or preparation.

Example 1:       A retailer purchases 100 shirts "off the rack" from a manufacturer. The payment will be a payment described under paragraph 147F(1)(a). However, under paragraph 147F(3)(b), the payment will not be a reportable payment because the retailer has not contributed value.

Example 2:       A payment a manufacturer makes for pressing a skirt prior to first presenting the skirt for an "off the rack sale" to a retailer would be a reportable payment under paragraph 147F(1)(b). However, if the skirt was subsequently soiled in the retail outlet, the payment that the retailer makes to clean and press the skirt would not be a reportable payment under paragraph 147F(1)(b). This is because the retailer's payment was made after the skirt was first presented for sale as a complete and ready to wear item.