House of Representatives

A New Tax System (Family Assistance and Related Measures) Bill 2000

Explanatory Memorandum

(Circulated by authority of the Minister for Family and Community Services, Senator the Hon. Jocelyn Newman)

This memorandum takes account of a correction made to the memorandum as tabled in the House of Representatives.

Schedule 1 - amendment of the A New Tax System (Family Assistance) Act 1999 - Part 1 - amendments relating to family tax benefit and maternity immunisation allowance

Overview of Part 1 of Schedule 1

Part 1 amends the eligibility and rate rules in the Family Assistance Act that apply to FTB. These amendments relate to the following issues:

residence rules;
pattern of care eligibility;
arrears of rent assistance;
rent assistance for parents paying low rent and sharing the care of a child;
maintenance income test; and
other amendments.

Part 1 also amends the eligibility conditions and a rate provision relating to maternity immunisation allowance, in keeping with the changes made to the pattern of care eligibility rules for FTB.

Explanation of amendments

Residence rules

Subsection 21(1) of the Family Assistance Act provides that an individual is eligible for FTB where, among other things, the individual is an "Australian resident" (as defined in section 3).

The qualification conditions for special benefit are outlined in Part 2.15 of the Social Security Act. To qualify for special benefit, a person must, among other things, be an Australian resident or the holder of a specified visa (see paragraph 729(2)(f)).

The residence requirements for special benefit are more generous than those applicable under the new family assistance regime. It is therefore possible for a person who is receiving special benefit to be precluded from FTB because of a failure to satisfy the FTB residence requirements.

Item 1 aligns the special benefit and FTB residence rules. Subsection 21(1) of the Family Assistance Act is amended so that an individual is eligible for FTB if the individual is an Australian resident or the individual meets the requirements set out in subparagraphs 729(2)(f)(ii) to (v) of the Social Security Actand is in Australia.

Pattern of care eligibility

Where two or more individuals have a "pattern of care" in relation to an FTB child (eg, separated parents living apart), they can be eligible for FTB for only those days on which they have the care of the child. This rule is reflected in the eligibility conditions for FTB.

This contrasts with the treatment under existing family allowance rules where a parent is also eligible on those days that the child is with the other parent, but a percentage of family allowance is paid based on the time the child is in the parent's care.

A different approach was adopted for FTB to provide greater clarity in the law as to the relative entitlements of separated parents sharing the care of a child. This also took into account that one parent may claim FTB as fortnightly payments, but the other parent may claim an end-of-year lump sum.

However, the approach adopted for FTB impacts on the rate of rent assistance available to an FTB customer. The maximum rate of rent assistance for an individual with an FTB child is significantly higher than the maximum rate of rent assistance available to social security recipients. This is because of the higher costs of rent associated with accommodating a child or children. In pattern of care situations, an individual's rate of FTB includes a rent assistance component (if relevant) for those days on which the individual is eligible for FTB. If the individual is also a social security recipient, rent assistance for the remaining days is calculated under the relevant calculator in the Social Security Act. This is an unintended result. The intention is that the higher FTB maximum rate of rent assistance is available for each day in the period of the pattern of care. This is consistent with existing rules applicable to family allowance recipients.

In view of this impact on rent assistance, amendments are made to modify existing pattern of care arrangements in the family assistance law so that pattern of care eligibility is treated in a similar manner to "shared care" arrangements under family allowance. This allows individuals with a pattern of care in relation to a child to be eligible for FTB for each day in the period of the pattern of care. This resolves the rent assistance issue described above. The Secretary would then have a power to determine a percentage of FTB for an individual based on the living arrangements for the child. This percentage determination would not affect payment of rent assistance.

The changes to pattern of care eligibility described above are made by items 2, 3, 4, 5, 6, 7, 8, 11, 16, 17, 18 and 20 .

Item 2 omits from subsection 22(3) of the Family Assistance Act all words after paragraph (e). This repeal opens the possibility of an individual being an FTB child of an adult under subsection 22(3) and, at the same time, an FTB child of another adult.

Item 3 repeals subsections 22(7) and (8) of the Family Assistance Act. These provisions become new section 22A as inserted by item 4 and with a minor modification discussed below.

Item 3 alsoinsert new subsection 22(7). The new provision operates where:

there is a pattern of care in relation to a child over a period such that for the whole or parts of that period the child is an FTB child of more than one adult;
an adult claims FTB in respect of the child for some or all of the days in the period of the pattern of care; and
the child is in the care of the adult for10% or more of that period.

Where these conditions are met, the child is taken to be an FTB child of the adult for each day in the period of the pattern of care irrespective of whether or not the child was in the adult's care on each of those days.

Item 5 makes consequential amendments to subsections 23(1) and (2) as a result of the insertion of new subsection 22(7).

Item 6 repeals subsection 23(3). This provision is no longer required because, under the revised pattern of care arrangements, a child can be an FTB child of two individuals at the same time. Item 7 makes a consequential amendment to subsection 23(4) to omit a cross-reference to the repealed subsection 23(3).

Item 8 replaces existing section 25 of the Family Assistance Act with a new section 25. The change is made because of the new pattern of care arrangements.

New section 25 operates where:

there is a pattern of care in relation to a child over a period such that for the whole or parts of that period the child is an FTB child of more than one adult;
an adult claims FTB in respect of the child for some or all of the days in the period of the pattern of care; and
the child was, or will be, in the care of the adult forless than 10% of that period.

If these conditions are met, the child is taken not to be an FTB child of the adult for the period.

For the purposes of determining whether the 10% care rule applies, a child cannot be in the care of more than one adult on any given day. Where, as a matter of fact, the child is in the care of more than one adult on a day, the Secretary is given a discretion to determine which adult has the care of the child on the day, having regard to the living arrangements of the child.

Item 11 repeals section 30 of the Family Assistance Act. Section 30 deals with the situation where 2 or more individuals who are not member of the same couple and who are not living together are eligible for FTB in respect of a child at the same time and ensures that that only one individual can be eligible for FTB in respect of the child at any given time. The new pattern of care rules allows for more than one individual to be eligible for FTB in respect of the same child. Section 30 is therefore obsolete and is repealed by item 11 .

Section 59 of the Family Assistance Act provides the mechanism for sharing FTB where a child is an FTB child of more than one individual and those individuals are not members of the same couple but are living in the same residence. Under the new pattern of care rules, a child can also be an FTB child of more than one individual where the individuals are not members of the same couple and are living apart. Item 18 modifies section 59 to take this into account.

The changes to pattern of care eligibility described above also flow through to CCB, which draws on the concept of an FTB child. However, it should also be noted that the new subsections 42(2), 44(3) and 45(3) of the Family Assistance Act provide special powers for the Secretary to determine a child, who is not an FTB child, to be such a child for the purposes of CCB.

Items 16, 17 and 20 make consequential amendments to the eligibility and rate provisions relating to MIA.

Items 16 and 17 amend the eligibility rules for maternity immunisation allowance to reflect the changed pattern of care rules. Subparagraph 39(2)(b)(v) and paragraph 39(4)(c) are no longer required because, under the revised pattern of care rules, a child can be an FTB child of more than one individual at the same time.

Item 20 repeals existing section 68 and substitutes a new section 68. The new provision allows the payment of maternity immunisation allowance in respect of a child to be shared by eligible individuals at the same percentage as payments of FTB for that child.

Arrears of rent assistance

Paragraph 13(1)(b) and subclauses 13(2), (3) and (4) of Schedule 1 of the Family Assistance Act allow the Minister to make guidelines relating to the payment of rent assistance to individuals who are entitled to be paid FTB for a past period.

Items 25 and 27 repeal these provisions. They are replaced with substantive rules thatcomplete the picture in relation to eligibility for rent assistance.

Item 25 inserts a new paragraph 13(1)(b). Under this provision, if an individual claims FTB and new subclause 13(2) does not apply to the claim, then an amount of rent assistance may be added in working out the individual's rate of FTB.

New subclause 13(2), inserted by item 27, identifies claims that cannot attract payment of rent assistance. These are effective claims for FTB for a past period that occurs in the previous income year when not accompanied by a claim for FTB by instalment.

The types of claims that can attract payment of rent assistance because they are not excluded under new subclause 13(2) are:

a claim for FTB by instalment; or
a claim for FTB for a past period that occurs in current income year (if the individual is also eligible for FTB by instalment, such a past period claim is effective only if accompanied by an instalment claim by operation of subsection 10(3) of the FA Admin Act); or
a claim for FTB for a past period that occurs in the previous income year where accompanied by a claim for FTB by instalment.

Rent assistance for parents paying low rent and sharing the care of a child

There is a current anomaly in the Social Security Actfor a small number of parents paying low rent when they agree to take on the shared care of a child.

Income support customers without the care of a child and paying low rent may receive less total assistance when they agree to share the care of a child. This problem arises because persons with the care of a child face a higher rent threshold for payment.

To avoid this anomaly under FTB, Division 3 of Part 2 of Schedule 1 of the Family Assistance Act is amended so that an individual who only has shared care of a child (ren) is assessed for rent assistance at both the "with child" and "without child" rates. Payment of rent assistance would then be made at the higher rate.

The comparison of the two calculations would only occur where the Secretary has made a determination under subsection 59(1) of the Family Assistance Act for each FTB child of the individual. It would not apply to an individual who has at least one FTB child who is not the subject of a determination under subsection 59(1). This rule is embodied in the new definition of "relevant shared carer", inserted into subsection 3(1) of the Family Assistance Act by item 73 of Part 3 of Schedule 1 to this Bill.

Clause 13 of Schedule 1 of the Family Assistance Act sets out the eligibility conditions for rent assistance. To be eligible for rent assistance, the rent payable by an individual must be more than the rent threshold. The relevant threshold amounts are provided for in paragraph 13(1)(f).

Item 26 omits existing paragraph 13(1)(f) and substitutes new paragraphs 13(1)(f) and (fa). The threshold amounts in new paragraph 13(1)(f) are the same as in the existing provisions except that they are amended to apply where the individual concerned is not a relevant shared carer. New paragraph 13(1)(fa) provides new lower rent threshold amounts for individuals who are relevant shared carers. These amounts will be consistent with rent threshold amounts that will apply under the Social Security Actfrom 1 July 2000.

An individual's rate of rent assistance is worked out under clause 14 of Schedule 1 of the Family Assistance Act. Item 28 amends clause 14 so that it applies to work out the rate of rent assistance of an individual whom is not a relevant shared carer. Item 29 makes some minor technical amendments to the table in clause 14, including changing the heading of the table so that it refers to rent assistance payable to an individual who is not a relevant shared carer.

Item 30 inserts a new clause 14A which includes a table to be used in working out the rate of rent assistance payable to an individual who is a relevant shared carer. The rent assistance rates and rent threshold amounts used in the new table will be equivalent to the "without child" rates and thresholds used in working out the rate of rent assistance payable under the Social Security Act.

New clause 14A provides that the rate of rent assistance payable to an individual who is a relevant shared carer is the higher of:

the rate of rent assistance that would be payable to an individual if the individual were not a relevant shared carer (the "with child" rate); and
the rate of rent assistance worked out under the table in clause 14A that applies where an individual is a relevant shared carer (the "without child" rate).

The table then provides for the calculation of an individual's rate of rent assistance based on the individual's family situation and using the formula in Column 2 of the table up to the maximum rate specified in Column 3.

Clauses 78 to 82 of Part 3 of Schedule 1 to this Bill then provide for the indexation of the new threshold amounts and rates in the table in clause 14A and new paragraph 13(1)(fa). These amounts are to be indexed in the same manner as the amounts and rates in the table in clause 14 and paragraph 13(1)(f). These changes to the indexation provisions are discussed further in the context of amendments made by Part 3 of Schedule 1 .

Maintenance income test

Items 33 to 38 inclusive amend Division 5 of Part 2 of Schedule 1 of the Family Assistance Act to:

exempt certain pensioners from the maintenance income test; and
clarify the annual rate of maintenance income.

Exempt certain pensioners from the maintenance income test

Division 5 of Part 2 of Schedule 1 does not, at present, provides for any exemptions from the maintenance income test.

Item 33 inserts a new clause 19B into Division 5, which provides such an exemption. Under the new provision, if an individual, or the individual's partner, is:

permanently blind; and
receiving an age or disability support pension under the Social Security Act , a service pension (as defined in section 3 of the Family Assistance Act), or an income support supplement (provided for under Part IIIA of the Veterans' Entitlements Act 1986 );

then the individual is exempt from the maintenance income test.

Clause 20 of Division 5 outlines the steps to be taken in working out an individual's reduction for maintenance income. Item 34 makes a consequentialamendment to clause 20 so that it does not apply to an individual to whom new clause 19B applies.

Clarify the annual rate of maintenance income

Division 5 of Part 2 of Schedule 1 of the Family Assistance Act provides for the application of the maintenance income test (MIT). The first step in the MIT is to work out the annual rate of the individual's maintenance income (see clause 20). If the individual is a member of a couple, the amount is taken to be the sum of each member's annual rate of maintenance income (see clause 21). An individual's annual rate of maintenance income is also affected by the apportionment of capitalised maintenance income under clause 24.

As currently drafted the MIT results in different outcomes depending on whether an individual claims FTB by instalment or for a past period.

Where a claim is made for FTB by instalment, the "annual rate of the individual's maintenance income" will be the aggregate of maintenance income received by the individual during the ensuing year on the assumption that the person's maintenance income continues at the same level for that year. If there is a change in circumstances such that the level of maintenance income changes, then the annual rate will need to be reassessed in light of the change. In effect, a new annual rate of maintenance is struck when the individual's level of maintenance income changes.

By contrast, where a claim is made for a past period, the individual's annual rate of maintenance income for the past period is known and the MIT is applied accordingly.

To ensure the same outcome for both instalment and past period claims, amendments are needed to replace the concept of annual rate of maintenance income with an "annualised amount" of maintenance income. This is done in new clause 20A, inserted by item 36 .

The object of new clause 20A is to annualise the maintenance income (other than capitalised maintenance income) of an individual during an income year. Capitalised maintenance income would continue to be apportioned in accordance with clause 24, as amended by item 38 .

For an individual who receives maintenance income during a period or periods in an income year, the annualised amount of maintenance income would be worked out using the formula in new subsection 20A(2). Under the formula, the amount of maintenance income received by the individual during a period or period in the year would be multiplied by

number of days in the income year / number of days in the relevant period or periods

New subsections 20A(3) to (9) outline what is meant by "relevant period".

Where an individual receives maintenance income in an income year under a maintenance liability, the relevant period commences:

where the maintenance liability arises after 1 July of that income year - on the day the maintenance liability arises; or
where the maintenance liability arises before 1 July of that income year - on 1 July.

In this situation, the relevant period ends:

on 30 June in that income year; or
if the maintenance liability ceases before the end of that income year, on the day on which the liability ceases.

These rules are contained in new subclauses 20A(3) and (6).

However, an individual may start to receive maintenance income before a maintenance liability exists (for example, maintenance is being paid voluntarily under an informal agreement). In these cases, new subclause 20A(5) provides that the relevant period commences from the day the individual first received the maintenance income, or from an earlier date determined by the Secretary (this is to allow the individual to specify that the first payment represents arrears owing from a particular date). Under new subclause 20A(7), the relevant period ends:

on 30 June in that income year; or
if the individual ceases to receive the maintenance income before the end of that income year, when the individual ceases to receive the maintenance income.

There will be cases where an individual receives maintenance income in an income year under an informal arrangement, stops receiving maintenance income under this arrangement for a period (the "gap period") and then later in the same year starts receiving maintenance income under a maintenance liability. Provided the individual and the payer are not members of the same couple during the gap period and the individual was entitled to claim, or apply for, maintenance income in the gap period, then the relevant period commences:

on the first day the individual received maintenance income under the informal arrangement; or
an earlier day related to the receipt of maintenance income under the informal arrangement as the Secretary determines (again, this is to allow the individual to specify that the first payment represents arrears owing from a particular date).

In this situation, the relevant period ends either when the maintenance liability ceases (if is ceases before the end of the income year) or 30 June of that income year.

These rules are contained in new subclauses 20A(4) and (8). They simplify the calculation of maintenance income of an individual who meets the above requirements by including the gap period in the individual's relevant period for the income year.

New subclause 20A(9) deals with the situation where an individual receives maintenance income from a payer under an assessment under Part 5 of the Child Support (Assessment) Act 1989 , the individual and payer become a member of the same couple and the individual elects to end the assessment from a specified day before the individual and the payer became a member of the same couple. For the purposes of determining the commencement or end of the relevant period, the assessment is taken to end from the day the individual and payer become a member of the same couple or an earlier day (not being a day before the specified day) determined by the Secretary.

This new rule ensures that maintenance income received after the specified day that the assessment is ended from and before the individual and the payer became a member of the same couple is included under the MIT.

New subclause 20A(10) defines "maintenance liability" as used in new clause 20A. Maintenance liability means:

child support; or
maintenance (other than child support) arising under a court order; or
maintenance (other than child support) arising under a maintenance agreement registered in, or approved by, a court under the Family Law Act 1975 or the law of a State or Territory.

New subclause 20A(11) specifies the day a maintenance liability arises. A liability to provide child support arises on the day the liability arises under the Child Support (Assessment) Act 1989 . A liability to provide maintenance other than child support arises the day that the court order or maintenance agreement has effect from.

Item 35 makes a consequential amendment to step 1 in the method statement in clause 20 of Schedule 1 of the Family Assistance Act. The existing reference to "annual rate" is replaced by a reference to "annualised amount".

Example of the operation of the new annualisation rules in new clause 20A A and B separate on 1/9/2000. A retains care of the couple's child.B starts paying voluntary maintenance on 15/9/2000, and A advises that this represents payment from separation.Subsequently, A applies for privately collected child support, and the liability commences from 1/11/2000.This continues until A applies for the child support to be collected by the Child Support Agency (CSA), and the CSA collection commences in relation to the liability from 1/1/2001.The relevant period is determined to start from 1/9/2000 and ends on 30/6/2001. A new period would commence on 1/7/2001.The amount paid in the period 1/9/2000 to 30/6/2001 was $800 voluntary maintenance, $1,000 privately collected child support, and $3,600 CSA collected child support (a total of $5,400).Therefore, the annualised amount during this period would be

$5,400 * 365 / 303 = $6,504.95.

Item 37 makes a consequential amendment to clause 21 of Schedule 1 of the Family Assistance Act so that the clause refers, where appropriate, to the new concept of "annualised amount" rather than "annual rate".

Item 38 inserts a new subclause 24(2A) that provides for the annualisation of an individual's capitalised maintenance income.

The annualised amount of an individual's capitalised maintenance income for the capitalisation period in an income year is worked out, under new subclause 24(2A), by multiplying the amount worked out under subclause 24(2) by:

Number of days in the income year / Number of days in the capitalisation period in the income year

Finally, item 33 inserts a new clause 19A into Schedule 1 to make it clear that any maintenance income received by an FTB child of an individual from another individual is taken to be maintenance income received by the individual.

Other amendments

Definition of FTB child

Subsection 22(7) of the Family Assistance Act provides that an individual cannot be an FTB child of an adult if, among other things, the individual or someone on behalf of the individual is receiving payments under a prescribed educational scheme. This restriction applies to an individual of any age. According to subsection 3(1) of the Family Assistance Act, "prescribed educational scheme" has the same meaning as in subsection 5(1) of the Social Security Act.

There are children who are under 16 who receive prescribed educational payments such as payments under the Veterans' Children Education Scheme. The intention, which reflects the current position under the family allowance rules, is that receipt of such payments by, or for, children who are under 16 should not preclude payment of FTB.

Item 4 relocates subsections 22(7) and (8) as new section 22A. The table in subsection 22A(1) is also changed so that an individual cannot be an FTB child of an adult if the individual is aged 16 or more and the individual, or someone on behalf of the individual, is receiving payments under a prescribed educational scheme. This preclusion currently operates in relation to individuals of any age.

Item 15 makes similar amendments to the table in subsection 35(1) of the Family Assistance Act. Section 35 specifies the situations in which an approved care organisation is not eligible for FTB in respect of an individual.

Determination of an individual's percentage of FTB

Where two or more individuals are eligible for FTB in respect of one or more FTB children (that is, in certain blended families and where there is a pattern of care in respect of a child), the Secretary has a discretion to determine each eligible individual's percentage of FTB. The percentage determined by the Secretary is required to be a multiple of 5%. The relevant provisions in the Family Assistance Act are paragraphs 28(1)(e) and 29(e) and subsection 59(1).

Items 9, 10 and 19 omit the 5% rule from these provisions.

The repeal of the 5% rule allows the Secretary more flexibility in determining an eligible individual's percentage of FTB on the basis of the living arrangements for the child and allows a more equitable sharing of FTB in situations where 3 individuals are eligible for FTB in respect of the same FTB child or children.

Eligibility for FTB if an eligible individual dies

Section 33 of the Family Assistance Act deals with situations where, due to the death of an eligible individual, there is an unpaid amount of FTB.

An individual's eligibility for an amount of FTB can be unpaid where the individual is eligible for FTB (other than in relation to the death of an FTB child) but dies before being paid the amount. This situation may arise, for example, where an individual who is a lone parent with an FTB child intends to claim FTB in a lump sum for the past period of eligibility but dies before doing so. In this scenario, the child may not be an FTB child of any other person during that period. Therefore, there would be an amount of FTB that is unpaid in relation to that period.

Subsection 33(1) allows another individual to claim so much of the unpaid amount that the deceased individual would have been able to claim under subsection 10(2) of the FA Admin Act, that is, so much of the unpaid amount that does not relate to any period before the beginning of the income year preceding the income year in which the individual died.

An individual's eligibility for an amount of FTB can also be unpaid where the individual is eligible for FTB in relation to a deceased child but dies before being paid the amount or the individual dies at the same time as the child and would have been eligible for FTB for the deceased child had the individual not died. Subsection 33(2) addresses this situation by allowing another individual to claim any unpaid FTB in respect of the deceased child.

However, there is no limit in subsection 33(2) on how much of the unpaid amount of FTB can be claimed by another individual in substitution of the deceased individual. This is inconsistent with the treatment of unpaid amounts under subsection 33(1).

Items 12, 13 and 14 therefore amend subsection 33(2) so that it contains the same restriction on claiming that subsection 33(1) does. The effect is to allow another individual to claim so much of the unpaid amount that does not relate to any period before the beginning of the income year preceding the income year in which the individual died.

FTB advances

Division 2 of Part 3 of the FA Admin Act provides for the payment of FTB advances. In broad terms, an individual can choose to receive an advance of their instalments of FTB provided certain conditions, set out in section 33 of the FA Admin Act, are satisfied.

The advance is then "repaid" by reducing the individual's instalments of FTB for the period covered by the advance. Where an individual's Part A rate of FTB is calculated using Part 2 of Schedule 1 of the Family Assistance Act, clauses 5 and 6 of Schedule 1 provide for the reduction of instalments of FTB to recover an advance.

There will be situations where an individual receives an FTB advance and then the individual's rate of FTB decreases or payments cease due to a change in circumstances. Where this happens, the individual's advance will not be repaid by the end of the advance period.

Item 23 amends clause 5 of Schedule 1 of the Family Assistance Act so that if an individual's rate of FTB drops to such an extent that continuing deductions until the end of the advance period would not see the advance repaid by the end of that period, then deductions cease. Any FTB advance that has not be repaid by deductions would then become a debt due to the Commonwealth and repayable in the usual ways.

Items 21 and 22 make consequential changes to clause 3 and 5 of Schedule 1.

Item 24 repeals clause 6 of Schedule 1. The repeal ensures that the individual who receives the FTB advance is liable for its repayment.

An individual whose Part A rate is calculated using Part 3 of Schedule 1 of the Family Assistance Act cannot access an FTB advance under the eligibility rules in Division 2 of Part 3 of the FA Admin Act - see subparagraph 33(1)(a)(ii).

Subparagraph 33(1)(a)(ii) is repealed in Part 2 of Schedule 2 to this Bill. This repeal ensures that all FTB Part A customers are given the same access to FTB advances.

It also means that a mechanism for recovering advances needs to be inserted into Part 3 of Schedule 1 of the Family Assistance Act. This is done by items 39 and 41 .

Item 41 inserts a new clause 25A into Schedule 1 of the Family Assistance Act.

New subclause 25A(1) provides for the reduction of an individual's Part A rate for the advance period where the individual has been paid an advance.

New subclauses 25A(2) and (3) ensure that reductions cease where an individual's Part A rate drops to such an extent that continuing deductions until the end of the advance period would not see the advance repaid by the end of that period.

Item 39 makes a consequential amendment to clause 25. The operation of clause 25 is made subject to new clause 25A.

Eligibility for rent assistance where individual or partner receiving incentive allowance

Item 25 inserts a new paragraph (ba) into subclause 13(1) of Schedule 1. The new provision ensures that an amount of rent assistance is not to be added to an individual's rate of FTB where the individual or the individual's partner is receiving payments of incentive allowance under clause 36 of Schedule 1A of the Social Security Act.

This amendment brings the rent assistance eligibility rules for FTB into line with existing rules applicable to family allowance.

Rent paid by member of an illness separated, respite care or temporarily separated couple

Under the rent assistance provisions in the Social Security Act, if a person is a member of an illness separated or respite care couple, any rent paid or payable by the person's partner is treated as paid or payable by the person (see, for example, point 1064-D8 of the Social Security Act).

Clause 16 of Schedule 1 of the Family Assistance Act only applies a similar deeming rule in the situation where an individual is a member of a couple and the couple is living together.

Item 31 inserts a new clause 16A into Schedule 1 of the Family Assistance Act that operates in a similar manner to the equivalent social security rule. The new provision ensures that if an individual is a member of an illness separated, respite care or temporarily separated couple, any rent that the individual's partner pays or is liable to pay in respect of the premises occupied by the individual is to be treated as paid or payable by the individual.

Maximum Part A rate for recipients of DVA income support supplement

Clause 17 of Schedule 1 of the Family Assistance Act ensures that the income test does not apply to an individual if the individual or the individual's partner is receiving a social security pension, a social security benefit or a service pension.

As an income support supplement (available under Part IIIA of the Veterans' Entitlements Act 1986 ) is subject to the same income test as social security pensions, item 32 includes this payment in clause 17.

Method 2 for large families with high income where method 1 would produce a higher rate

There are two methods that can be used in calculating an individual's FTB Part A rate. The method used depends on whether the individual's income exceeds the "higher income free area" or whether the individual or partner is receiving certain income support payments (see clauses 1 and 2 of Schedule 1 of the Family Assistance Act). If an individual's adjusted taxable income does not exceed the higher income free area or the individual or partner is receiving certain income support payments then method 1 applies. If the converse is true, then method 2 applies. The "higher income free area" is defined to mean $73,000 plus $3,000 for each FTB child of the individual after the first.

The method 1 Part A rate of FTB is calculated using the method statement in clause 3 of Schedule 1. Under method 1, an individual is assured of the "base rate" of FTB Part A (see step 4 of the method statement). The base rate is defined in clause 4 as being equivalent to the individual's maximum rate under clause 25 of Schedule 1 if the individual's rate were being worked out under method 2. The assumption is that the rate of FTB Part A at the higher income free area will never be more than the base rate.

The starting point for the method 2 calculation is the maximum rate worked out under clause 25. The application of the method 2 income test ensures that any income in excess of the higher income free area reduces this rate by 30 cents for each dollar over that threshold.

The assumption referred to above is not correct. It is possible for an individual with a large family to be receiving more than the base rate of FTB Part A when the individual's adjusted taxable income equals the higher income free area (ie, Method 1 applies). If the individual's income exceeds the higher income free area and method 2 applies, the individual's rate of FTB Part A will be less than what would have been the individual's income and maintenance tested method 1 rate (see step 3 of the method statement in clause 3 of Schedule 1) if method 1 had applied.

This is an unintended result.

Item 40 amends clause 25 of Schedule 1 of the Family Assistance Act to ensure that the Part A rate calculated under clause 25 is subject to a comparison with what would be the individual's "income and maintenance tested rate" under Step 3 of clause 3 of Schedule 1 if the individual's Part A rate were worked out using Part 2 of Schedule 1. The higher of the two rates would apply. The resultant rate would remain a "Method 2" rate.


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