MR HUMPHRIES (continuing):

Mr Speaker, this Bill amends the interest and penalty provisions of the Taxation Administration Act 1999 (which I shall refer to hereafter simply as "the Act").

Mr Speaker, under the Act, interest charged on tax defaults is the sum of an 8% premium component and a market rate component (the market rate). Currently the market rate may either be set by order of the Minister published in the Gazette or, if no order is in force, taken from the Commonwealth's Income Tax Assessment Act 1936. However, the Commonwealth has repealed the relevant provision cited in the Act, making this amendment necessary. This Bill effects that amendment and substitutes the Treasury Note yield rate as the source of the market rate, in line with amended Commonwealth and most State legislation.

While the Taxation Administration Acts of the States provide for annual review of the market rate, the ACT's current policy is for a six monthly review to ensure the relevance of the interest rate. To carry this policy into legislation, the Bill makes provision for six monthly revisions to occur automatically and to take effect on 1 January and 1 July of each year. This amendment will facilitate the Government's response to changing market place interest rates by obviating the current necessity for the preparation and publication of an order every six months, and will therefore be administratively more efficient.

This amendment will also provide certainty for taxpayers and transparency of the method used to set interest rates.

Mr Speaker, the application of the Act since March 1999 has revealed several other issues which require addressing.

Current interest and penalty tax provisions preclude liability where the amount of the interest or penalty tax is less than $20. These provisions are a disincentive for taxpayers to pay small debts on time and may result in an increase in the level of debt. The Bill therefore removes these provisions from the Act. Nevertheless, for administrative efficiency the original policy will be applied where appropriate.

Section 31 of the Act currently imposes two levels of penalty for tax defaults, namely, a basic 25% penalty for failure to take reasonable care, but with no intentional disregard for the law, or a basic 75% penalty for intentional disregard of the law.

Mr Speaker, there have already been several objections to the application of the 75% penalty tax. Should a taxpayer appeal the imposition of the 75% penalty, the absence of any mechanism in the Act to prove intent creates significant legal challenges. Proof of intent in administrative law usually relies on precedents. For one-off transactions under ACT taxation law, it is difficult and costly to establish such precedents.

Reform of the penalty requirements is necessary to alleviate the potential threat to Territory revenue of successful challenges to the imposition of 75% penalties. This Bill therefore inserts an additional level of basic penalty of 50%, to be applied in instances where a taxpayer does not have a reasonable