Taxation Administration Act 1953-Pay as you go withholding-PAYG Withholding Variation: Allowances-Legislative Instrument [F2015L01047]-Concluded matters [2015] AUSStaCSDLM 230 (11 November 2015)

---

Instrument	Taxation Administration Act 1953 - Pay as you go withholding - PAYG Withholding Variation: Allowances – Legislative Instrument [F2015L01047]
Purpose	Repeals the Taxation Administration Act 1953 - PAYG Withholding - PAYG Withholding Variation: Allowances; and adjusts the cents per kilometre car expense payments
Last day to disallow	1 December 2015
Authorising legislation	Taxation Administration Act 1953
Department	Treasury
Scrutiny principle	Standing Order 23(3)(a)
Previously reported in	Delegated legislation monitor No. 8 and 12 of 2015

Drafting

The committee commented as follows:

This instrument effects certain changes to tax arrangements, and appears to apply from 1 July 2015. The ES for the instrument states:

The variation for cents per kilometre car expense payments has been adjusted because of a proposed change to calculation rules announced in the federal budget on 12 May 2015. If passed, the change is to take effect from 1 July 2015.

The committee understands this statement to mean that the measure will subsequently be confirmed by primary legislation. If this is correct, it is unclear to the committee how the instrument operates in the period prior to the passage of the primary legislation, and in the event that measure is not ultimately confirmed by primary legislation.

The committee requested the advice of the Treasurer on this matter.

The Treasurer's first response

The former Treasurer advised:

Section 15-15 of Taxation Administration Act 1953 gives the Commissioner the discretion to vary the amounts withheld (including to nil) for a class of taxpayers to meet the special circumstances of that class. It has been long standing Australian Taxation Office practice to vary to nil the withholding rates for allowances subject to exceptions under the substantiation rules for employees claiming deductions.
In exercising the discretion under section 15-15, the Commissioner takes into account whether the final tax liability on the allowance will not accord with the withholding schedule rate.
Employers are able to pay car allowances at a rate that is less than or greater than the cents per kilometre rate. The effect of the variation is that if the rate of allowance paid exceeds 66 cents per kilometre, the employer is required to withhold at the scheduled rates. The employee will need to declare the amount of the allowance and can also claim a deduction for expenses incurred. If the employee claims an amount in their tax return equal to or less than the statutory cents per kilometre rates substantiation is not required.

Committee's first response

The committee thanks the former Treasurer for his response.

The committee notes the former Treasurer's advice as to the effect of the instrument prior to the passage of confirming primary legislation. However, it remains unclear to the committee as to whether the instrument would continue to operate in the event that the measure is not ultimately confirmed by primary legislation.

The committee therefore seeks further advice from the Treasurer in relation to this matter.

Treasurer's second response

The Treasurer advised:

The legislative instrument provides that from 1 July 2015 there is no requirement for a payer to withhold tax cents per kilometre car allowances where the payment amount does not exceed an approved rate. The approved rate has been set at 66 cents per kilometre. This was based on the 2015 Federal Budget announcement to modernise the methods used for calculating work-related car expense deductions. Part of the changes amends the three rates based on engine capacity (currently 77 cents, 76 cents and 65 cents) to one (66 cents) from 1 July 2015.
The primary legislation to give effect to the Budget announcement is currently in the lower house as Schedule 1 to Tax and Superannuation Laws Amendment (2015 Measures No. 5) Bill 2015.

The Treasurer also provided the following advice as to how the instrument would operate in the event that the measure is not ultimately confirmed by primary legislation:

The following information is provided to address these circumstances, assuming that this outcome is known by the end of the 2016 income year, given the measure is intended to commence on 1 July 2015:
• In their 2016 tax return, employees will be entitled to claim deductions according to the engine size of their car and use the three rates based on engine capacity.
• Noting that employers are free to pay allowances that are less than or more than the approved cents per kilometre rate, if the allowance was paid at the 66 cent rate, employees with larger engines may be able to claim a larger deduction at the rate of 77 cents or 76 cents per kilometre.
• If the engine size of the car means the deduction for car expenses should be 65 cents per kilometre, and the employee was paid an allowance at a higher rate, the employee's available deduction (if they cannot fully substantiate expenses) will be limited to the 65 cents rate.
• The legislative instrument, if not disallowed, will continue to operate as it does not refer to a specific rate. When it is known that the legislation will not proceed, the approved rate would be amended to reflect the three rates based on engine capacity.
• For allowances paid after the amendment, a payer would not be required to withhold from a car allowance where the payment amount does not exceed these three approved rates.

Further, the Treasurer noted that the ATO would assist employees to correctly complete their tax returns, explaining 'how to include the car allowance as income and at what rate a deduction for the work-related car expenses can be claimed without substantiation'.

Committee's second response

The committee thanks the Treasurer for his response and has concluded its examination of the instrument.