Income Tax Amendment Act (No 3) 1986

This commentary item was published in Public Information Bulletin Volume 154, August 1986

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This Act gives effect to a number of the announcements made by the Minister in his 1986 Budget, which was delivered on the 31 July 1986 including:

• The cessation of the cost limitation for motorcar depreciation.
• The termination of the majority of the accelerated depreciation allowances.
• The cessation of certain petroleum and mineral mining concessions.
• The reduction in the rate of National Superannuitant Surcharge.

This Act also includes amendments relating to export incentives and to the Family Support delivery mechanism. (Part II of this Act).

Note

An amendment incorporated during the Committee stages of the Bill concerns the withdrawal of the one-third deduction on calls and subscriptions on petroleum and mineral mining shares. Whereas the Budget stated that the withdrawal would apply to payments made after Budget date, the Bill as enacted provides a cut off date of 30 September 1986 for Payments made on or before that date provided the call has been made on or before 31 July 1986. This measure effectively provides for commitments entered into ie, calls made on or before Budget date.

Various application dates apply to the different sections of this Act and care should be taken in ensuring the correct dates are used, particularly in view of the fact that a number of transitional measures have also been included. The Amendment Act received the Governor-General's assent on 6 August 1986 and is now law.

Section 1 - Short Title

Subsection (1) of this section provides that this Act shall be known as the Income Tax Amendment Act (No 3) 1986 and is to be read with and form part of the Income Tax Act 1976.

Subsection (2) provides that the provisions of this Amendment Act first apply with effect from 1 August 1986, unless otherwise stated in the Act. It is therefore important to check the commencement date when applying any of the amending sections, and it should be noted that various subsections may have different application dates.

A number of transitional measures have also been inserted into various sections for binding contracts or agreements entered into prior to the date of termination. These should be reviewed when applying any of the sections.

Section 2 - Rebate Of Tax Payable In Respect Of Certain Offshore Petroleum Mining Operations

This section amends section 42A of the principal Act by repealing, FROM THE INCOME YEAR COMMENCING 1 APRIL 1986, the 10 percent rebate of tax payable in respect of assessable income derived from a deep-sea petroleum mining licence.

The 1986 income year will be the final year for which the rebate is allowable to petroleum mining companies and non-resident mining operators.

Section 3 - Rebate From Tax On Dividends Derived From Assessable Income From Petroleum Mining

This section amends section 47A of the principal Act by repealing, FROM 1 AUGUST 1986, the 20 percent rebate of tax on dividends paid out of assessable income from petroleum mining.

The rebate will apply only to dividends paid up to and including 31 July 1986 and not to dividends paid after that date.

Section 4 - Depreciation Allowances, Etc, On Motorcars

This section gives effect to the Budget announcement that the $11,000 cost limitation on motorcars for depreciation purposes is to be repealed with effect from the income year commencing 1 April 1987.

For cars purchased during the 1988 income year and in any future year, the depreciation will be based on the actual expenditure incurred in the acquisition of the vehicle, ie, the cost price. This amount will also include all costs incurred in the installation of alternative fuel systems, as section 114B (which provided for depreciation on alternative fuel systems) will also terminate in respect of cars purchased after the end of the 1987 income year. Depreciation on these motorcars will be deductible, subject to adjustment for private use, under section 108 of the principal Act.

For cars purchased PRIOR to the 1988 income year and which were subject to the provisions of section 110, a formula has been inserted to enable the depreciation claimed in any year after the 1987 income year to be equal to that which would have been claimed had the limitation on cost not applied. Taxpayers will use the formula to calculate a deemed cost price for the purposes of calculating annual depreciation. This deemed cost price will also be used for calculating any amount of depreciation to be recovered under section 117 when the motorcar is sold and for the purposes of calculating any loss on disposal of the motorcar.

Subsection (2) of section 4 inserts the formula into section 110 by introducing a new subsection (3A). This formula, which calculates a deemed cost price of the motorcar, is:

X =the "expenditure" incurred in acquiring the motorcar.

Note: "expenditure" is defined in section 110 for the purposes of that section. It is the cost price of the motorcar less any amount that was allowed as a deduction under section 125 (energy conservation expenditure) or which was "qualifying expenditure" (which may have been less than actual cost) under section 114B for the assembly-line costs of alternative fuel systems.

Section 114B will terminate at the same time as section 110. It will cease to apply in respect of vehicles acquired during or after the 1988 income year.

Y =the specified cost (as defined in section 110(1)) that was applicable when the motorcar was acquired (for example, $11,000 if acquired on, say, 10 February 1985 but $8,000 if acquired on 10 February 1980).

Z =the sum of the amounts of depreciation claimed, or which could have been claimed had there not been any adjustments for private use and had the full allowance been claimed each year. This is the amount of depreciation that would have been allowable as a deduction on the motorcar had it been used 100 percent for business purposes and had the taxpayer claimed the maximum depreciation allowable within the constraints imposed by section 110. The calculation does not necessarily use the depreciation actually allowed as a deduction to the taxpayer.

This formula gives a deemed cost price of the motorcar. To determine the book value which will be used to calculate the depreciation claim for the year, the actual accumulated depreciation (depreciation claimed as a deduction plus that added back for private use) is deducted from the deemed cost price. Depreciation for 1988 and future years will be allowable on this book value at the rate of 20 percent on a diminishing value basis. Depreciation recovered and losses on sale will be calculated on the basis the deemed cost price and book value for sales made in 1988 and future years.

Examples:

• (a) Motorcar purchased 21 April 1982 for $15,000 and used 100 percent for business.

To Calculate the 1988 Depreciation

Firstly, calculate the deemed cost in accordance with the formula

= $4,916 + $7,395

= $12,311

Secondly, calculate the book value at the commencement of the 1988 income year

= $12,311 - $7,395

= $4,916

Book value as at the end of the 1988 income year

= $4,916 - $983

= $3,933

To Calculate 1989 Depreciation

• (b) New car purchased 20 June 1985 for $20,000 (of which $1,200 is qualifying expenditure for the purposes of section 114B). The vehicle is used 50 percent for business.

Deemed cost in terms of section 110(3A) is

= $15,992

1. Depreciation Recovered Calculation (1989 income year) for sale at $18,000

• (ii) Loss on Sale Calculation (1989 income year) for sale at $5,000

• (c) Motorcar purchased by a company on 5 May 1986 for $25,000 and used 100 percent for business. Decision was made by the company to depreciate at 10 percent straight line for tax purposes and not on 20 percent diminishing value basis.

Deemed Cost

Note Although only $1,100 depreciation had been claimed, "Z" in the calculation equals the accumulated total of the depreciation that was allowable, being 20 percent of $11,000.

Book value as at 1 April 1988 is:

= $22,200 - $1,100 (depreciation claimed to date)

= $21,100

Section 5 - First Year Depreciation Allowance On Plant And Machinery And On Certain Buildings

Section 5 gives effect to the Budget announcement of the Government's decision to terminate the first year depreciation allowances. Two of these terminated on Budget night whilst others will continue to apply until 31 March 1988. A number of transitional provisions have also been inserted.

The effect of each of the transitional provisions is to deem the expenditure to have been incurred prior to the date of termination. They do not deem the assets to be qualifying assets nor do they deem the expenditure, plant, etc, to meet any of the other requirements of the section. It should also be noted that the claim for the first year depreciation allowance can only be made in the year the asset is first used in producing assessable income, not the year in which the asset is acquired. etc, or the year in which the expenditure is incurred. Therefore it is important to ensure that the claim is made only in the year the asset is so used and that no claim is made in respect of assets first used after 31 March 1990.

For capital expenditure incurred after the termination date for any first year depreciation allowance, only ordinary depreciation will be allowed under section 108 of the principal Act.

Note

The references In the legislation are to fixed dates, not to income years. For example, the legislation applies in respect of binding contracts entered into on or before 31 March 1988, not to binding contracts entered into prior to the end of the 1988 income year. Similarly, the assets must be first used on or before 31 March 1990, not prior to the end of the 1990 income year.

1. First Year Depreciation Allowances terminated on Budget night in respect of expenditure incurred after that date:
   1. The allowance for new and secondhand plant and machinery used in a business, other than that used in a farming or fishing business - section 112(2)(a) and (b).
      • Paragraphs (a) and (b) of section 112(2) no longer include plant and machinery acquired for use in a fishing business. Expenditure on such plant and machinery has been included in subsections (c) and (d) and will be treated the same as for plant and machinery acquired for use in a farming business (ie the amendment enables the later terminating date of 31 March 1988 to apply to plant and machinery used in a fishing business).
      • Two transitional provisions have been inserted into section 112 in relation to expenditure incurred after 31 July 1986 in the acquisition of plant and machinery to which subsections (2)(a) and (2)(b) apply:
        • Subsection (3A) of section 112 provides that where a taxpayer has, on or before 31 July 1986. entered into a binding contract for the purchase of plant and machinery to which subsections (2)(a) and (2)(b) apply, the first year depreciation allowance will continue to apply provided that plant and machinery is acquired or installed within a reasonable period after Budget night.
        • Subsection (3B) provides that where the taxpayer had entered into a binding agreement on or before 31 July 1986 to lease any plant and machinery to which subsections (2)(a) and (2)(b) apply, under a "specified lease" (as defined in section 222A), the first year depreciation allowance will apply provided the "lease term" of that lease commences within a reasonable time after 31 July 1986.

2. First year depreciation allowances terminating as from 31 March 1988 in respect of expenditure incurred after that date:
   1. The allowance for new and secondhand plant and machinery leased or purchased for use in an agricultural, farming or fishing business - section 112(2)(c) and (d).
      • Paragraphs (c) and (d) of section 112(2) have been extended to include plant and machinery used in any fishing business. This amendment is required to ensure that plant and machinery purchased or leased for use in a fishing business will continue to be eligible for the allowance until 31 March 1988.
      • Two transitional provisions have been inserted into section 112 to cater for taxpayers who, on or before 31 March 1988, enter into a binding contract for the acquisition or lease of qualifying assets. Subsection (3C) of section 112 provides that the first year depreciation allowance will be allowable where a taxpayer enters into a binding contract for the purchase of plant and machinery for use in an agricultural, farming or fishing business prior to 1 April 1988, and that expenditure is subsequently incurred, and the asset is used in the production of assessable income, on or before 31 March 1990. Subsection (3D) of section 112 provides that where a taxpayer, on or before 1 April 1988, enters into a binding agreement to lease plant and machinery for use in an agricultural, farming or fishing business, the first year depreciation allowance will continue to apply provided the "lease term" commences on or before 31 March 1990 and that plant or machinery is used in producing assessable income on or before 31 March 1990. Note that this provision applies only to plant and machinery leased under a "specified lease", as defined in section 222A of the principal Act.
   2. The allowance for expenditure incurred in erecting or acquiring buildings for employee accommodation - section 112(2)(e).
      • The transitional provisions mentioned in paragraph (b)(1) above (subsection (3C)) will apply for those taxpayers who prior to 1 April 1988 enter into binding contracts for the purchase of such buildings and who use them in the business on or before 31 March 1990. Refer to (b)(i) above for the explanation on how subsection (3C) of section 112 will apply.
   3. The allowance for expenditure incurred in the erection of new farm buildings - section 112(2)(f)
      • The same transitional provisions which apply for section 112(2) (e) will also apply to 112(2)(f). Please refer to paragraph (b)(i) above for the application of the transitional provisions.
   4. The allowance for expenditure incurred in erecting new buildings or on building improvements in the fish export industry - section 112(2)(i)
      • A transitional provision, subsection (3E) has been inserted into section 112. This subsection provides that where a taxpayer enters into the principal contract for the construction of a building or for improvements to a building on or before 31 March 1988, the first year depreciation allowance will continue to apply as if that expenditure had been incurred prior to 31 March 1988. As with farming plant and machinery, the depreciation will be allowable only where that building is first used in the production of the taxpayer's assessable income prior to 1 April 1990.
   5. The allowance for expenditure incurred in erecting or improving buildings for the tourist accommodation industry. Only buildings erected or improved pursuant to a project, plan or scheme approved by the Minister are eligible for this allowance - section 112(2)(J)
      • A transitional provision, subsection (3F), has been inserted into section 112. It is in two parts. The first part allows the first year depreciation allowance where a taxpayer is given approval by the Minister on or before 31 March 1988 for a project, plan or scheme of the kind mentioned in section 112(2)(J). Where this approval has been received, the allowance will be available in respect of a building erected pursuant to that project, plan or scheme provided the building is first used in producing assessable income on or before 31 March 1990. The second option provides that where a taxpayer has, prior to 1 April 1988, entered a main construction contract for the erection or improvement of any eligible building, and the Minister's approval of the project, plan or scheme under which the construction or alteration is to take place is given after 31 March 1988, the allowance will be available provided the building is first used in the production of assessable income prior to 1 April 1990.
   6. The allowance for expenditure incurred in installing private facilities in hotels - section 112(2)(k)
      • Subsection (3G) has been inserted to provide that where a taxpayer has entered into the principal construction contract for the installation of qualifying hotel facilities prior to 1 April 1988, the first year depreciation allowance will apply provided those facilities are first used to produce assessable income prior to 1 April 1990.
   7. The allowance for expenditure incurred in the erection of new motels or hotels - section 112(2)(l)
      • Again, transitional provisions have been inserted, in this case by the new subsection (3H). This subsection provides that where a taxpayer has, prior to 1 April 1988, entered into the principal contract for the construction of a qualifying motel or hotel, the first year depreciation allowance will apply provided the building is completed and used in the production of assessable income before 1 April 1990.

Section 6 - Additional Depreciation Allowance For Plant, Machinery, And Equipment Used For Scientific Research

This section amends section 113 of the principal Act. The effect of the amendment is that the additional depreciation allowance, by way of a 5-year write-off, will not apply to plant, machinery, or equipment acquired, installed, or extended after 31 July 1986. As a transitional provision subsection (2) provides that where such plant, machinery, or equipment is acquired, installed, or extended, pursuant to a binding contract entered into on or before 31 July 1986, or is leased by a taxpayer under a specified lease (as defined in section 222A) after 31 July 1986 pursuant to a binding agreement entered into on or before that date, it is to be treated as if it were acquired, installed, extended or leased on or before 31 July 1986.

New provisions covering depreciation on assets used in connection with scientific research are contained in the new section 144 of the principal Act, as inserted by section 12 of this Amendment Act.

Section 7 - Depreciation Allowance For Approved Safety Frames Attached To Tractors

Section 7 gives effect to the Budget announcement of the Government's decision to repeal, with effect from 1 August 1986, the 100 percent write-off for costs incurred in acquiring an approved safety frame and attaching it to a tractor, or for the cost of a safety frame already attached to a tractor purchased by the taxpayer (as was provided in section 114 of the principal Act).

Section 7 provides that where a taxpayer acquires and attaches a safety frame to a tractor after 31 July 1986 or acquires a tractor with a safety frame attached after that date, there will be no 100 percent depreciation allowance available under section 114. Depreciation on that asset will be allowed under section 108 of the principal Act at the normal rate.

Subsection 2 of section 7 inserts two new subsections into section 114 which will allow the write-off for safety frames acquired and attached, and for tractors acquired with safety frames attached, after that date provided certain conditions apply.

• Subsection (2A) of section 114 provides that where a taxpayer has entered into a binding contract on or before 31 July 1986 for the purchase of an approved safety frame or of a tractor with an approved safety frame attached, the 100 percent write-off will be allowed provided the safety frame or tractor is purchased within a reasonable time after 31 July. The year in which the deduction may be claimed, however, is dependent upon the provisions of subsection (3) of section 114.
• Subsection (2B) of section 114 provides that where a taxpayer has entered into a binding agreement to lease a tractor with a safety frame attached on or before 31 July 1986, the cost of the frame will still be deductible under section 114. However, this concession will only apply where the lease is a specified lease (as defined in section 222A) and the "lease term" actually commences within a reasonable time after 31 July 1986.

If the conditions in subsections (2A) and (2B) of section 114 are met the safety frame is deemed to have been purchased or leased on or before 31 July 1986.

Section 8 - Depreciation Allowance For Approved Safety Devices Attached To Taxicabs

Section 114A of the principal Act provides for the 100 percent write-off of costs incurred in the acquisition and installation of approved safety devices for taxicabs. Section 8 of this Amendment Act gives effect to the Budget announcement to terminate this allowance as from Budget night.

Section 8 provides that the allowance will cease to apply in respect of any taxi safety device that is acquired and installed after 31 July 1986 and for any taxi with an approved safety device attached that is acquired after that date. Instead, depreciation will be allowed on the costs of acquisition and installation of the safety device at the ordinary rates of depreciation allowable under section 108.

Subsection (2) of section 8 inserts two new transitional provisions into section 114A:

• Subsection (2A) of section 114A provides that where a taxpayer has, on or before 31 July 1986, entered into a binding contract for the purchase of a safety device or a taxicab with a safety device attached, the section will apply as though the safety device or the taxicab was acquired on or before 31 July 1986. This is, however, subject to the condition that the acquisition under that contract must occur within a reasonable period after that date.
• Subsection (2B) of section 114A further provides that where a taxpayer has, on or before 31 July 1986, entered into a binding agreement to lease a taxicab with a safety device attached (being a lease that would qualify as a specified lease as defined in section 222A), and the "lease term" of that lease commences within a reasonable time after 31 July, the provisions of section 114A will apply as though the "lease term" had commenced on or before 31 July 1986.

Section 9 - Depreciation Allowance For Alternative Fuel Systems In Certain Motorcars

Section 9 inserts a terminating date into section 114B of the principal Act. (Section 114B provides for depreciation on the assembly-line installation cost of alternative fuel systems in new motorcars.) The removal of the $11,000 limit for cars purchased in 1988 and future income years means that this provision is no longer needed to enable depreciation to be claimed on this expenditure.

The effect of section 9 is that where a new motorcar with an alternative fuel system is acquired AFTER the income year ending 31 March 1987, section 114B will not apply. It will therefore not be necessary to show the assembly line installation costs of an alternative system separately from the cost of these motorcars. In cases where a new vehicle is acquired during the 1988 income year or in any future income year, depreciation will be based on the cost of the total unit, ie, the total cost of acquiring that motorcar.

Where a new motorcar with an alternative fuel system installed was purchased PRIOR to the income year commencing 1 April 1987 (ie in 1987 or previous income years) the provisions of section 114B will continue to apply.

Depreciation in those situations for the 1988 income year and for future years will be based on the book value of the alternative fuel system. Depreciation on the remaining costs (being costs in excess of the maximum in section 114B) of the fuel system and of the motorcar will be allowed on its book value (see commentary on section 4 of this Amendment Act).

Section 10 - Additional Depreciation Allowance On Certain Capital Expenditure In Relation to Fishing Boats

Section 10 of this Amendment Act gives effect to the Budget announcement to terminate the allowance given to accelerate the write-off of the cost of capital expenditure on fishing boats arising from compulsory surveys.

This section provides that the accelerated depreciation allowance provided under section 115 of the principal Act will only apply in respect of capital expenditure incurred on or before 31 March 1988.

Should any capital expenditure of the kinds referred to in section 115 be incurred after 31 March 1988, depreciation will be allowed at the rate applicable to fishing boats under section 108 of the principal Act.

It should be noted that there are no transitional provisions in respect of this allowance.

Section 11 - Depreciation Allowance For Capitalised Demolition Costs And Residual Values Of Certain Buildings Used As Export Slaughterhouses And Packing Houses

Section 116 provides that where a building previously used as an export slaughterhouse or a packing house is demolished, the costs of demolition and the remaining book value of that building may be added to the cost of a new building or the costs of improvements to an existing building which will be used for the same purposes. The deduction is conditional upon the expenditure being necessary to satisfy hygiene requirements.

Section 11 terminates this allowance with effect from Budget night, 31 July 1986. These costs are capital losses and will in future not be deductible.

However, subsection (2) of section 11 inserts into section 116 a transitional provision, subsection (2A).

• Subsection (2A) provides that where a binding contract for the demolition of an export slaughterhouse or packing house has been entered into on or before 31 July 1986 and that demolition is subsequently carried out within a reasonable time after that date, section 116 will continue to apply, provided that all other requirements of that section are met.

Section 12 - Expenditure On Scientific Research

This section extends section 144 of the principal Act to allow a deduction for depreciation in respect of assets used in connection with scientific research.

The new subsection (1)(a) repeats the existing section 144 provisions. It continues to provide that eligible expenditure consists of expenditure incurred in connection with scientific research carried on by the taxpayer for the purpose of deriving assessable income.

The insertion of subsection (1)(b) extends the scope of the section to include depreciation, allowable at ordinary rates, in respect of assets used for scientific research.

It replaces the accelerated write-off provisions of section 113 which no longer apply to assets purchased on or after 1 August 1986.

Application Date

The deduction for depreciation on assets applies from the income year that commenced on 1 April 1985. With the repeal of the accelerated depreciation provisions in section 113, from 31 July 1986, the retrospective application of the new provision in this section is intended to ensure that taxpayers with August or September balance dates who purchase assets after 31 July 1986 will be eligible for the depreciation deduction in their 1986 tax returns. However, it should be noted that taxpayers will still have the option of claiming the accelerated depreciation allowance available under section 113 in respect of assets acquired, installed, extended or leased on or before 31 July 1986.

Section 13 - Export-Market Development And Tourist-Promotion Expenditure

Section 14 - Export-Market Development Activities Incentive For Self-Employed Taxpayers

Sections 13 and 14 correct drafting deficiencies contained in sections 156F and 156G. The deficiencies result from amendments made to these sections by the Income Tax Amendment Act 1986. Those amendments gave effect to the Government's decision to phase-out the export-market development and tourist-promotion tax incentives and to increase the rate to take into account the increased company tax rate of 48 percent. The amendment to subsection (2) of each of these sections increased the rate of incentive from 67 1/2 percent to 69 percent and provided that this rate would not apply beyond the end of the 1987 income year. The drafting of the amendment, however, failed to make it clear that the 69 percent rate is to apply for the year ending 31 March 1987 only, with the rate of 67 1/2 being operative for 1986 and previous years. The amendments made by sections 13 and 14 of this Act make that point quite clear.

Sections 15, 16, 17 And 18 - Amounts Paid On Shares In Mining Companies And Mining Holding Companies

Sections 15, 16, 17 and 18 amend sections 159, 159A, 160 and 160A respectively with the effect that any payment made after 30 September 1986 in respect of subscriptions or calls on shares will not qualify for the one-third deduction. In addition, any payment made on or after 1 August 1986 and on or before 30 September 1986 will not qualify for the deduction unless the call has been made on or before 31 July 1986.

Examples

1. Call made on or before 31 July 1986
   • Payment made after 31 July 1986 and on or before 30 September 1986
     • The payment qualifies for the one-third deduction.
2. Call made after 31 July 1986
   • Payment made on or before 30 September 1986
     • The payment is not eligible for the one-third deduction.

Note

The date on which the Commissioner's approval is given is not relevant. It is the date on which the call is made that is important. A call is made on the date on which a resolution of Directors authorising the call is passed, in accordance with the Third Schedule to the Companies Act 1955.

Section 19 - National Superannuitant Surcharge Rate

Subsection (1) - amends section 336D(1) of the principal Act with the effect of reducing the surcharge rate from 25 cents to 18 cents in the dollar for each dollar of the national superannuitant's other income.

Subsection (2) - amends section 336J(2)(a) of the principal Act to allow surcharge deductions made from a national superannuitant's source deduction payments to be made at the new rate of 18 cents in the dollar.

Subsection (3) - provides for the national superannuitant surcharge to be assessed at a composite rate of 21.5 cents in the dollar for the 1986/87 income year.

Subsection (4) - provides that subsections (1) and (3) of this section will apply for the 1986/87 income year and every subsequent year.

Subsection (5) - provides for subsection (2) of this section to apply in respect of every source deduction payment made on or after l October 1986.

Part II - Family Support Credit Of Tax

This Part of the Amendment Act relates wholly to Part XIA of the principal Act which provides for the Family Support and Guaranteed Minimum Family Income tax credit schemes. Part XIA was inserted by section 17(1) of the Income Tax Amendment Act (No 2) 1986 - refer to PIB Number 151.

The amendments outlined in this Amendment Act are essentially a result of the announcement, in relation to the Family Support scheme, made in the "Government Statement of Rural Policy" of 2 July 1986.

In the statement it was announced that provisional taxpayers will now be able to receive their Family Support entitlement each month from the Department of Social Welfare.

Under the present legislation, although the non-earning spouse of a provisional taxpayer would receive payment monthly from the Department of Social Welfare, the provisional taxpayer would have received his or her Family Support entitlement at the same time as provisional tax is payable. This meant that families, in which both spouses are provisional taxpayers would not receive payment of Family Support until 7 March 1987.

The changes announced will allow any provisional taxpayer to whom Family Benefit is payable to be able to elect to receive Family Support each month from the Department of Social Welfare with the Family Benefit payments. In addition, any provisional taxpayer who is the spouse of a person receiving Family Benefit will be able to elect to have their Family Support paid to their spouse on their behalf by the Department of Social Welfare at the time that spouse's Family Benefit is payable. The election by a provisional taxpayer that his or her Family Support entitlement be paid to the spouse during the year will not effect each spouse's actual entitlement to Family Support which will still be determined on an end of year basis in respect of each individual. To achieve this, the legislation deems any payment received on behalf of a person's spouse to have been received by the spouse on whose behalf it was paid.

A detailed examination of the legislation follows:

Section 20 - Application Of This Part

This section provides that the amendments in Part II shall apply from the commencement of the Family Support Scheme, and therefore will affect the applications being made for the 1986/87 year prior to the scheme's commencement on 1 October 1986.

Section 21 - Determination Of Assessable Income

This section makes an amendment to section 374B(3)(c) of the principal Act to correct an omission. The subsection deems any income other than income from employment to be derived at a uniform daily rate throughout the year. The section should also refer to income other than income that is income derived by way of an income-tested benefit.

This amendment corrects that omission.

Section 22 - Credit Of Tax By Instalments

This section makes various amendments to section 374G of the principal Act which sets out the rules relating to the application of a certificate of entitlement, the completion of that certificate by the Commissioner, its use by the person to whom it is issued and its withdrawal.

Subsection (1)

This amends subsection (1) of section 374G and ensures that payment of a credit of tax may be made not only to any person but also to the spouse of any person on behalf of that person.

This amendment reflects the new delivery mechanism for provisional taxpayers. For further details refer to the commentary below.

Subsection (2)

This subsection repeals and substitutes a new paragraph (b) of section 374G(2) of the principal Act. This amendment is complementary to the change to the delivery mechanism for provisional taxpayers in that it relaxes the requirements relating to the evidence that must be provided in support of the taxpayer's estimate of the assessable income that will be derived during the year.

Paragraph (b) now requires that an application for a business taxpayer be accompanied by either -

1. A copy of the annual accounts of the business for the income year, or equivalent accounting year, that immediately precedes the year that contains the elected period. Example: For the 1988/89 Family Support application a person in business would be required to attach the accounts of the business for the income year ending 31 March 1988; OR
2. Where the Commissioner is satisfied that the annual accounts referred to in subparagraph (i) above have not been completed, a copy of the annual accounts of the business for the income year, or equivalent accounting year, that precedes the year immediately preceding the income year that contains the elected period. Using the example in paragraph (i) above, the accounts of the business for the income year ended 31 March 1987 would be sufficient evidence. OR
3. A set of budgeted accounts of the business for the income year, or equivalent accounting year, that contains the elected period, ie, budgeted accounts for the income year in relation to which the Family Support application has been made; OR
4. Such other evidence as is acceptable to the Commissioner in relation to the business for the income year, or equivalent accounting year, that contains the elected period. As with subparagraph (ii) this is a relaxation which has been introduced to make it easier and less costly for business taxpayers to apply for Family Support. It will relieve the taxpayer of the necessity to provide a set of accounts or budgeted set of accounts for any year, provided the taxpayer can provide other satisfactory evidence. A signed statement by the agent of the taxpayer specifying the taxpayer's estimated income and substantiated by the reasons for the estimation will constitute acceptable evidence.

Subsection (3)

This makes an amendment to paragraph (d) of subsection (6) of section 374G to ensure that the term "current year" used in the new paragraph (da) (refer to subsection (4) below) has the same meaning as in paragraph (d). Essentially, the current year is the year in respect of which the application for Family Support is made.

Subsection (4)

This subsection adds a new paragraph (da) to subsection (6) of section 374G. This paragraph provides for a certificate of entitlement to be issued by the Commissioner to a provisional taxpayer, or a taxpayer who would have an obligation to pay provisional tax but for the reasons set out in paragraph (d) of subsection (6), requiring the Director-General of Social Welfare to pay the tax credit.

The paragraph is broken into 2 subparagraphs:

1. enables the Commissioner to issue a certificate of entitlement that requires the Department of Social Welfare to make payment of the tax credit to a provisional taxpayer who is the qualifying person (by definition, the person to whom Family Benefit is payable) at the same time as payment of the Family Benefit is made to that person;
2. enables the Commissioner to issue a certificate of entitlement that requires payment of the tax credit of a provisional taxpayer, who is the spouse of the qualifying person to be made by the Department of Social Welfare to the qualifying person on behalf of the provisional taxpayer at the same time as payment of the Family Benefit is made to that person.

For example, this will mean that where the husband has elected to receive payment from the Department of Social Welfare, his share of the entitlement will be paid to his wife together with their Family Benefit payments.

Subsection (5)

This section amends section 374G(7) of the principal Act, which caters for taxpayers who have more than one option of the delivery method they may choose for the receipt of their tax credit entitlement during the year. It requires provisional taxpayers to choose which option, including the new paragraph (da) (ie, monthly payment by the Department of Social Welfare), is to apply.

Subsection (6)

This amends section 374G of the principal Act by adding a new subsection (11A).

The new subsection enables a qualifying person who is entitled to receive payment of the tax credit on behalf of the spouse of the qualifying person, to deliver the certificate of entitlement to the Director-General of Social Welfare, and to receive the interim instalments of the tax credit on behalf of the spouse at such intervals as the Director-General considers appropriate.

Section 23 - Employer To Deliver Credit Of Tax

This is a minor drafting amendment to section 374H(7) of the principal Act and reflects the correct position that a "penalty" is imposed for late payment of tax deductions, not "additional tax".

Section 24 - Director-General To Deliver Credit Of Tax

Both subsections (1) and (2) of this section make amendments to section 374(I) of the principal Act, which deals with the obligations of the Director-General of Social Welfare in relation to the Family Support and Guaranteed Minimum Family Income schemes.

Subsection (1)

adds a new subsection (1A) to the section. This requires the Director-General to pay interim instalments of tax credit to a qualifying person, on behalf of the spouse of that person, where the Commissioner has issued a certificate of entitlement that requires the Director-General to make such payments.

The Director-General will pay the interim instalments monthly to the qualifying person on the spouse's behalf.

It is important to note that every payment made to a person on behalf of the spouse of that person is deemed to be a payment received by the spouse, not by the person to whom the payment is made. This ensures the end of year calculations will not be affected and the payments made to the qualifying person on the provisional taxpayer's behalf will be credited to the provisional taxpayer in the end of year calculation.

Subsection (2) amends subsection (4) of section 374(1) to require the Director-General to issue a certificate to the person on whose behalf the tax credits have been paid, showing the total amount of tax credit delivered during the income year to the spouse of that person on his or her behalf. This certificate will be attached to the end-of-year income tax return by the person as evidence of the tax credit payments received on his or her behalf during the year.