Modifying the 63-day rule on employee remuneration

(Clause 70)

Summary of proposed amendment

The proposal will allow taxpayers to choose whether to apply the existing rule in section EA 4 of the Income Tax Act 2007 for the timing of the deduction for an amount of expenditure on employment income paid within 63 days after the end of the income year. If a taxpayer chooses not to apply the existing rule, they can deduct expenditure on employment income that is paid in that income year.

Application date

The proposed amendment will apply for the 2017–18 and later income years.

Key features

Section EA 4 is being amended to provide taxpayers who incur expenditure on employment income a choice over what basis they calculate the amount of the deduction claimed in an income year.

Taxpayers who wish to continue using the existing 63-day rule can still claim a deduction for amounts of expenditure on employment income paid within 63 days of the end of the income year.

Taxpayers who do not wish to incur the compliance cost involved with tracking payments paid within 63 days of the end of the income year can claim a deduction for expenditure on employment income paid within the income year.

Background

Under the existing rule in section EA 4, all taxpayers need to track payments of expenditure on employment income paid within 63 days of the end of the income year. This requirement results in increased compliance costs for taxpayers because they need to track and determine these amounts.

The proposed amendment removes the compliance costs for taxpayers who do not wish to track payments of expenditure of employment income paid within 63 days of the end of the income year. These taxpayers will be allowed a deduction for amounts of expenditure on employment income paid in that income year.