Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX REGULATIONS (AMENDMENT) 1992 NO. 449

STATUTORY RULES 1992 No. 449

ISSUED BY THE AUTHORITY OF THE TREASURER

Income Tax Assessment Act 1936

Income Tax Regulations (Amendment)

These regulations amend the Income Tax Regulations by inserting: replacement paragraphs 56(4)(f) and 56(4A)(f); new paragraphs 56(4)(fa), 56(4)(ga), 56(4A)(fa), 56(4A)(fb) and 56(4A)(ga); and, new subregulation 56(5C).

The purpose of these regulations is to ensure that investment bodies include in their Annual Investment Income Reports details of transactions involving deferred interest investments entered into on or after 1 February 1992.

Paragraph 221YHZC(1A)(f) of the Income Tax Assessment Act 1936 (the Act) and Regulation 56 currently require investment bodies (as defined in s.2021) of the Act) to provide the Commissioner with Annual Investment Income Reports within 4 months after the end of the financial year containing information with respect to investments held by its investors.

Taxation Laws Amendment Act (No.3) 1991 amended the Tax File Number (TFN) arrangements so that, when a TFN is not quoted, a TFN withholding tax is payable for income accrued under certain deferred interest investments. A deferred interest investment is a "qualifying security" within the meaning of Division 16E of Part III of the Act.

The investments to which these amendments relate are defined in subsection 221YHZA(1) of the Act as "eligible deferred interest investments".

Division 16E of Part III of the Act alters the basis for taxing income accruing on these investments from a receipts basis to an accruals basis (section 159GQ and paragraph 159GR(2)(c)).

Previously, former subsection 221YHZA(2B) of the Act (omitted by Taxation Laws Amendment Act (No. 2) 1991) imposed deduction obligations on investment bodies in relation to deferred interest investments. Subsection 221YHZA(2B) applied when section 159GQ operated to include income accruing from this type of investment in assessable income. The amount included in a person's assessable income under section 159GQ was, for the purposes of the TFN arrangements, treated as a payment of income at that time. Accordingly, the amounts were intended to be subject to the TFN arrangements.

Where an investor had not quoted a TFN the former TFN arrangements for deferred interest investments required the investment body to deduct amounts from accrued income despite income not being paid to the investor. An argument could have been raised that requiring the investment bodies to fund the remittances against investment earnings owing or accrued but not paid may have been unconstitutional. To overcome this, the Government introduced the TFN withholding tax on investors and investment bodies, levied by the Income Tax (Deferred Interest Securities) (Tax File Number Withholding Tax) Act 1991, for eligible deferred interest investments which have not had a TFN quoted. The administrative provisions for the new tax are contained in Taxation Laws Amendment Act (No.3) 1991. The new TFN Withholding Tax provisions mirror the normal TFN rules.

The Regulations are required to ensure that similar TFN reporting requirements apply to investments subject to TFN withholding tax as currently apply to investments subject to normal TFN deductions. The regulations require information regarding income accrued on eligible deferred interest investments and details of associated TFN withholding tax amounts, arising when a TFN is not quoted in respect of such investments, to be reported to the Commissioner.

The Explanatory Memorandum to Taxation Laws Amendment Act (No.3) 1991 states at paragraph 14.23 that regulations would be made to require reports on all such investments. After consideration of the administrative burden imposed with this approach it was decided that the Government would only require reports of such investments entered into on or after 1 February 1992.

The regulations do not affect the rights of any person (other than the Commonwealth) in a manner prejudicial to that person, nor will they impose any liability on such a person.

Accordingly, the regulations amend the Income Tax Regulations as described above and apply to such transactions entered into on or after 1 February 1992.