Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX REGULATIONS (AMENDMENT) 1998 NO. 163

STATUTORY RULES 1998 NO. 163

Issued by. Authority of the Assistant Treasurer

INCOME TAX ASSESSMENT ACT 1936

INCOME TAX REGULATIONS (Amendment)

Purpose of the regulations

The purpose of the regulations is to enable employees to have their expected entitlement to the savings tax offset (the offset) taken into account when determining the amount of the tax instalments to be deducted from their salary or wages.

Background

Subsection 221C(1) of the Act authorises the making of regulations to prescribe rates of deductions to be made by employers from the salary or wages of their employees to enable the collection by instalment of income tax payable by employees. This is known as the Pay-As-You-Earn (PAYE) system. Subdivision 2 of Division 2 of Part 7 of the Income Tax Regulations sets out the prescribed rates of tax instalment deduction (TID) in respect of payments of salary or wages to employees.

Reason for the Amendments

The offset was inserted in the Income Tax Assessment Act 1997 by the Taxation Laws Amendment Act (No. 3) 1998. It operates to reduce income tax otherwise payable by a taxpayer who has savings or investment income and/or undeducted superannuation contributions.

The amendments make it possible for a taxpayer to benefit from his or her expected entitlement to the offset through the PAYE system by reducing the amount of TIDs in respect of salary or wages paid by his or her employer. These taxpayers elect to have the offset available through the PAYE system by completing and lodging a new employment declaration.

Details of the amending regulations are set out in the Attachment. The regulations commence on 1 July 1998.

ATTACHMENT

Details of Amendment of Income Tax Regulations

The amendments:

*       provide that the regulations commence on 1 July 1998 (subregulation 1.1)

*       provide that the Income Tax Regulations are amended as set out in these amending Regulations (subregulation 2.1);

*       define the "savings offset amount" and "savings tax offset" (subregulation 3.1). "Savings tax offset" means an employee's entitlement to the tax offset as calculated under Subdivision 61-A Income Tax Assessment Act 1997. The "savings offset amount" is the amount of savings tax offset (the offset) to which the employee claims to be entitled in an employment declaration;

*       provide a method for employers to calculate the reduction to TIDs in respect of employees claiming the offset. An employee's TIDs will be reduced by the weekly savings offset amount which is the savings offset amount to which the taxpayer claims to be entitled multiplied by 1.9% (subregulation 4.1).

*       Multiplying by 1.9% approximates the result obtained by dividing the total offset amount for the year by 52 weeks and is consistent with the existing method used in relation to concessional and zone rebates and the family tax assistance benefit;

*       require employees, who desire to reduce their TIDs by their expected entitlement to the offset, to furnish their employer with a new employment declaration to that effect. Paragraphs 85(1)(a), (b), (c), (d), (da) and (e) are rewritten to simplify the regulation (subregulation 5.1);

*       require employees, who desire to have their expected entitlement to the offset taken into account by their employer in calculating their TIDs, to include a savings offset amount and the sum of the offset amount and other rebate and family tax assistance benefit amounts (where applicable) in the declaration (regulation 6);

*       require the Commissioner to specify a savings offset amount when issuing a certificate under regulation 92 where the employee has claimed to be entitled to the savings offset in the employment declaration (subregulation 7.1);

*       provide that where an employee lodges with an employer a certificate issued by the Commissioner under regulation 92 which specifies a savings offset amount, the employer is required to take the amount into account when calculating TIDs (subregulation 8.1); and

*       provide that an employee is required to lodge a further employment declaration if there is a change in circumstances which reduces his or her entitlement to the offset (subregulation 9.1).