The Professional Bodies have received reports that practitioners have recently been receiving letters from ATO suggesting 'You might not be eligible for the education tax refund you claimed in 2009'.
These letters quote that to be eligible for the education tax refund (ETR) you '.... were entitled to receive family tax benefit Part A .....'
This agrees with the relevant Act, all ATO information such as TaxPack, frequently asked questions (FAQs) and instruction guides. Unfortunately the ATO Data & Acquisition Management have interpreted this as 'you must have claimed from the Family Assistance Office'.
Member request
The Professional Bodies recommend that no amendments to returns (that is, to reverse ETRs) be processed, as there is significant uncertainty as to the correct interpretation of the law.
The Professional Bodies recommend that the ATO carefully consider the provision and publish their views, prior to amending assessments.
ATO response
Concerns have been raised that the ATO is issuing discrepancy letters to taxpayers in relation to ETR claims where they may have been entitled to family tax benefit Part A but have not made a claim from Centrelink.
Interpretation of law
The law and policy supports the interpretation that a taxpayer is only eligible for the education tax refund if they make a claim for family tax benefit (Part A) and are entitled to receive that benefit.
Section 61-620 of the Income Tax Assessment Act 1997 (ITAA 1997) is titled 'Eligibility in respect of another individual' and contains four subsections that determine eligibility. The first subsection is relevant to the current issue and the sub-heading is 'You are entitled to family tax benefit (Part A)'.
Paragraph 61-620(1)(a) of the ITAA 1997 then goes on to state, in part, 'you satisfy this section on a day in an income year for an individual if …you are entitled to be paid family tax benefit for the individual in relation to that day under A New Tax System (Family Assistance)(Administration) Act 1999'. (Paragraph 61-620(1)(b) explains how the benefit must be a part A benefit).
The Explanatory Memorandum which accompanied the Tax Laws Amendment (Education Refund) Bill 2008 stated:
Eligibility for Family Tax Benefit Part A or certain prescribed payments
To be eligible to claim the tax offset in respect of a child, a taxpayer must be entitled to receive a Family Tax Benefit Part A payment for a child who is undertaking primary or secondary school studies.
The law and policy clearly connects the education tax refund eligibility to the family tax benefit (Part A) entitlement. It is accordingly appropriate to turn to the family tax benefit law and provisions to understand the concept of entitlement under those provisions.
Section 5 of the A New Tax System (Family Assistance)(Administration) Act 1999 (ANTS(FA)(Admin) Act 1999) states 'the only way that a person can become entitled to be paid family tax benefit is to make a claim in accordance with this Subdivision' [emphasis added].
The emphasised phrase is the same phrase as used in paragraph 61-620(1)(a) of the ITAA 1997. Accordingly, for tax law purposes, if a person does not make a claim for family tax benefit (Part A) they are not entitled to be paid family tax benefit and, accordingly, not eligible for education tax refund purposes.
Accordingly, only taxpayers who make a claim for family tax benefit (Part A) and become entitled to payment by the Family Assistance Office are eligible under paragraph 61-620(1)(a) for the education tax refund.
The ATO view is that to be eligible to claim the Education Tax Refund you must have lodged a claim for family tax benefit Part A for a child and had it approved.
The ATO compliance approach
To monitor compliance with the ETR, the ATO acquired details of recipients of family tax benefit Part A from Centrelink for the 2009 and 2010 financial years. This information was subsequently matched against the income tax returns of taxpayers who had made a claim for the ETR.
A significant number of cases were identified where an ETR claim had been made without a corresponding payment of family tax benefit Part A being received. As a result, from February 2011 the ATO commenced issuing letters to taxpayers seeking clarification of their entitlement to claim the ETR.
The majority of cases completed to date have resulted in amendments because the taxpayers were not entitled to claim the ETR.
In some circumstances amendments have not been made because additional information has been provided by taxpayers. This includes cases where either:
- the taxpayer has not claimed family tax benefit Part A but is entitled to do so, or
- a child was in receipt of another government payment which prevented the taxpayer from receiving family tax benefit Part A (in which case the taxpayer is still eligible to claim the ETR).
To date the ATO has issued over 30,000 letters (around one-quarter of the potential case pool).
The position going forward
The ATO has temporarily suspended the letter campaign to enable us to determine our approach to remission of penalties and/or the shortfall interest charge given the complexity of the eligibility criteria (and related family assistance laws) and the recent implementation of the ETR provisions. Our position on this will be advised in due course.
The ATO has been, and is continuing, to work closely with Centrelink to minimise the impact on taxpayers by:
- providing sufficient time for those taxpayers who may need to make a claim for family tax benefit Part A with Centrelink
- refining data exchanges to also include those taxpayers who were entitled to receive family tax benefit Part A but were prevented due to either their child receiving a government payment, or stopping full time school and receiving income.
The ATO is also working with Centrelink to obtain 2010-11 family tax benefit Part A data as early as possible after the end of the financial year to help make this information available to taxpayers and tax agents through the ATO's pre-filling service.
In addition the ATO is reviewing the guidance material currently available in relation to the Education Tax Refund to ensure that the eligibility requirements are clear. This includes the guidance material contained in TaxPack 2011, on the ETR website and on www.ato.gov.au
Presentation highlights
The ATO provided a comprehensive response to questions raised on the eligibility for the ETR on the following:
- interpretation of law
- eligibility for family tax benefit Part A or certain prescribed payments
- the ATO compliance approach
- the position going forward.
Main points
- Data matching letters are being issued for the 2008-09 year
- Some taxpayers are not eligible for the family tax benefit (FTB) Part A and this affects entitlement for education tax refund
- Queries raised around interpretation of eligibility for FTB Part A.
Action item
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ATPF 1105/1
A section of the 'ATO compliance approach' in the ATO response will be rewritten and the response provided to members.
Completed and members notified 28 June 2011.
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Action item
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ATPF 1105/2
Treasury will be contacted to advise of the ATO's interpretation regarding eligibility for family tax benefit Part A. (Note: The Tax Institute supports this matter being referred to Treasury and asked to be advised if there is anything they can do to assist in this regard).
Completed and members notified 28 June 2011.
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Sections within Agenda items
Last Modified: Monday, 19 December 2011