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 4 - amendment of other acts

A New Tax System (Bonuses for Older Australians) Act 1999

Overview of amendments to the A New Tax System (Bonuses for Older Australians) Act 1999

Schedule 4 to this Bill makes minor technical changes to the A New Tax System (Bonuses for Older Australians) Act 1999 (the Pension Bonus Act) to take account of the subsequent enactment of the Social Security (Administration) Act 1999 .

Explanation of amendments

Section 19 of the Pension Bonus Act provides for the application of the Social Security Act to the making of determinations about, and payment of, pension bonus. As suggested in the note at the end of section 19, this means that provisions in the Social Security Act dealing with review of determinations, recovery of overpayments etc also apply to the pension bonus.

Item 1 recasts section 19 of the Pension Bonus Act so that it refers to the social security law instead of the Social Security Act. This change takes into account the introduction of the social security law comprising the Social Security Act, the Social Security (Administration) Act 1999 and the Social Security (International Agreements) Act 1999 that commences on 20 March 2000. From the date matters such as review of decisions will be dealt with under the Social Security (Administration) Act 1999 while matter such as recovery of overpayments remain in the Social Security Act.

Child Support (Assessment) Act 1989

Overview of amendments to the Child Support (Assessment) Act 1989

Schedule 4 to this Bill makes minor technical and consequential changes to the Child Support (Assessment) Act 1989 (the CSA Act).

Explanation of amendments

Schedule 4 to the A New Tax System (Family Assistance)(Consequential and Related Measures) Act (No. 2) 1999 (CA No 2 Act) amendments various provisions in the CSA Act as a result of the repeal of family related payments from the Social Security Actand the introduction of the new family assistance regime.

Part 5 of the CSA Act provides for the calculation of a person's child support liability. In broad terms, this liability will be a percentage of the person's taxable income less any exempted amounts. An exempted income amount includes an amount, worked out under subsection 39(2) of the CSA Act, for any relevant dependent child or children of the person.

Paragraph 39(2)(b), as amended by item 5 of Schedule 4 to the CA No. 2 Act, provides a formula by which an exempted amount for a child under 16 can be calculated. This formula draws on various FTB child rates in the Family Assistance Act through the definitions of "base FTB rate" and "standard FTB rate". These definitions are further refined by items 2 and 3 so that it is clear that the base FTB rate and standard FTB rate relates to the child in question.

The amendments made by items 6, 8 and 11 of Schedule 4 to the CA No 2 Act should focus on a Part A rate that is higher than the base rate for the party/eligible person. Items 4, 5 and 7 achieve this outcome.

Division 4 of the CSA Actdeals with child support agreements. Before the child support registrar can accept such an agreement, it must satisfy the reasonable maintenance action test. This test is in clause 10 of Schedule 1 to the Family Assistance Act. The relevant rule is contained in subsection 91A(3) of CSA Act, which requires the Secretary to decide whether an eligible person, or his or her partner, has taken reasonable maintenance action.

As currently drafted, the consequences of not satisfying the maintenance action test is an adverse decision by the Secretary that the eligible person would only be entitled to be paid FTB at the base rate. Under clause 10 of Schedule 1 to the Family Assistance Act, however, the consequence of failing to take reasonable maintenance action is payment of FTB at the base FTB child rate (see clause 8 of Schedule 1).

The consequence for failing to take reasonable maintenance action should be the same in both subsection 91A(3) of the CSA Act and clause 10 of Schedule 1 to the Family Assistance Act. Item 6 amends subsection 91A(3) to reflect this outcome.

Subsection 151(4) of the CSA Act provides that an election to end an administrative assessment in the case of a carer who is receiving family allowance at the more than minimum rate can only be effective if approved by the Secretary under section 151A.

Consequential amendments are also required to subsection 151(4) to take account of the repeal of family allowance and the introduction of FTB.

Item 8 amends subsection 151(4) so that it applies to a carer who is entitled to be paid, or is a claimant for, FTB for the child at a Part A rate higher than the base rate for the carer under clause 4 of Schedule 1 to the Family Assistance Act. If such a carer elects to end an administrative assessment, then the election has no effect unless and until the Secretary approves the election under section 151A.

Item 9 repeals existing subsections 151A(2), (3) and (4) and inserts new provisions.

Existing subsection 151A(2) of the CSA Act has the effect of preventing a carer from electing to end an administrative assessment if, as a result of the election, the carer fails the reasonable maintenance action test applicable to family allowance. Subsection 151A(2) is recast so that it takes account of the new FTB rules. New subsection 151A(2) requires the Secretary to decide if the carer has taken reasonable action to obtain maintenance for the child by applying clause 10 of Schedule 1 to the Family Assistance Act if it were assumed that:

the election were to take effect; and
if the carer is a claimant for FTB for the child - the carer was entitled to be paid the benefit.

New subsection 151A(3) provides that the Secretary is taken to approve the election if the Secretary decides that the carer has taken reasonable action to obtain maintenance for the child.

New subsection 151A(4) provides the converse rule that the Secretary is taken not to approve the election if the Secretary decides that the carer has not taken reasonable action to obtain maintenance for the child.

Health Insurance Act 1973

Overview of amendments to the Health Insurance Act 1973

Schedule 4 to this Bill makes a technical amendment to the Health Insurance Act 1973 (the HI Act).

Explanation of amendments

The various categories of "disadvantaged person" specified in the HI Act are eligible for health care cards (HCCs). HCCs entitle the holder to a range of Commonwealth benefits under the HIA and other legislation and some state concessions (eg, travel concessions).

Under current arrangements, a HCC is available to family allowance recipients who receive the maximum rate of family allowance after the application of the income test. An application of the maintenance income test does not affect eligibility for a HCC.

New section 5EAA of the HI Act, inserted by item 16 of Schedule 8 to the A New Tax System (Family Assistance) (Consequential and Related Measures) Act

(No. 2) 1999 ,is intended to provide similar eligibility to FTB customers who are entitled to be paid FTB by instalment. The amendment does not achieve this outcome.

Accordingly, item 10 further amends section 5EAA of the HI Act to ensure that a person who is entitled to be paid FTB by instalment is a disadvantaged person within the meaning of that provision if:

the person's daily rate of FTB consists of, or includes, a Part A rate that is calculated using Part 2 of Schedule 1 to the Family Assistance Act; and
the person's income excess under Division 4 of Part 2 of that Schedule is nil.

Income Tax Assessment Act 1936

Medicare Levy Act 1986

Overview of amendments to the Income Tax Assessment Act 1936 and the Medicare Levy Act 1986

The amendments contained in this Schedule also amend the Income Tax Assessment Act 1936 (the ITAA) as a result of amendments contained in Schedule 1 to the "pattern of care eligibility rules"for FTB. The proposed amendments ensure that where a taxpayer is entitled to claim a dependent spouse, child-housekeeper or housekeeper rebate and either they or their spouse are eligible to FTB Part B for a period where there is a pattern of care for an FTB child (a shared care period), the taxpayer will be entitled to claim the rebate for that portion of the shared care period for which their claim for FTB Part B was reduced. Similarly, the amendments ensure that a child will not be regarded as a dependant of a taxpayer who is a prescribed person for Medicare levy exemption purposes, for that percentage of the shared care period for which the taxpayer's or their spouse's entitlement to FTB Part A was reduced.

The ITAA and the Medicare Levy Act 1986 are being amended to make technical corrections resulting from amendments of the Family Assistance Act prior to its enactment in relation to the age qualification rules for FTB. The proposed amendments will ensure that a taxpayer's eligibility to FTB Part A will have no effect on a taxpayer's entitlement to a dependent spouse, child-housekeeper or housekeeper rebate.

Explanation of amendments

By way of background, the amendments made to the ITAA are necessary because of the changes made in this Bill to pattern of care eligibility. Technical amendments are also made to the ITAA and the Medicare Levy Act 1986 to take account of age qualificatio

Changes to the pattern of care eligibility rules

The A New Tax System (Family Assistance) (Consequential and Related Measures) Act (No.1) of 1999 abolished the dependent spouse with child rebate and the sole parent rebate following their replacement by the FTB. This Act also amended the dependent spouse, child-housekeeper and housekeeper rebates to provide that a taxpayer will not be entitled to a rebate during that part of the year where they or their spouse were eligible for FTB.

The A New Tax System (Family Assistance) (Consequential and Related Measures) Act (No.2) of 1999 amended the Medicare levy provisions in the ITAA to provide that where the parents of a child lived separately and apart from each other during any part of the year of income, the child will be regarded as a dependant of a taxpayer who is a prescribed person for Medicare levy exemption purposes, for any period where the taxpayer was eligible to receive FTB.

The proposed amendments to the pattern of care eligibility rules in Schedule 1 to this Bill adverse impact on a taxpayer's entitlement to a dependent spouse, child-housekeeper and housekeeper rebates and to a prescribed person's eligibility to an exemption from the Medicare levy. This adverse impact will occur as a result of the taxpayer being entitled to FTB for the entire period where there is a pattern of care for an FTB child (a shared care period) instead of just the actual days the care is provided.

The proposed amendments to the ITAA will ensure that where a taxpayer is entitled to claim a dependent spouse, child-housekeeper or housekeeper rebate and either they or their spouse are eligible to claim FTB Part B for a shared care period, the taxpayer will be entitled to claim the rebate for that portion of the shared care period for which their claim for FTB Part B was reduced.

The proposed amendments to the Medicare levy provisions will ensure that where a taxpayer shares the care of a child with a former spouse and the taxpayer's or their spouse's eligibility to FTB Part A for that child is reduced during any part of the year of income as a result of the application of the pattern of care eligibility rules, the child will be regarded as a dependant of the taxpayer for Medicare levy exemption purposes for that percentage of the period that has been determined by the Secretary of the Department of Family and Community Services (the Secretary) under subsection 59(1) of the Family Assistance Act. The Secretary when making the determination will have regard to the living circumstances of the FTB child. The amendments ensure that the taxpayer still qualifies for an exemption from the Medicare levy for the remaining percentage of the year of income.

Changes to the age qualification rules

Technical amendments are required to the ITAA and the Medicare Levy Act 1986 to change the references to FTB with FTB Part A and FTB Part B where appropriate, due to the age qualification rules being different for the two payments. The proposed amendments will ensure that a taxpayer's eligibility to FTB Part A will have no effect on a taxpayer's entitlement to a dependent spouse, child-housekeeper and housekeeper rebates.

Amendments to the Income Tax Assessment Act 1936 - Zone and overseas forces rebates

Items 11 to 22 make consequential and minor technical amendments to the zone rebate under section 79A and the overseas forces rebates under sections 23AB and 79B of the ITAA. The amendments ensure that despite the changes proposed by items 23, 24, 25, 26 and 27 to sections 159J and 159L of the ITAA, a taxpayer's entitlement to the dependent spouse, child-housekeeper and housekeeper rebates will be notionally retained for the purposes of working out zone or overseas forces rebates, despite the repeal of the dependent spouse (with child) rebate and any eligibility to FTB Part B.

Amendments to the Income Tax Assessment Act 1936 - Dependent spouse and child-housekeeper rebates

Items 23 to 25 , which are explained in more detail in the following paragraphs, contain references to a taxpayer's spouse's eligibility to FTB Part B. This is because the spouse's entitlement to FTB Part B can affect the taxpayer's entitlement to a rebate. Since a taxpayer can have more than one spouse for tax purposes, i.e. a separated legally married spouse and a person who is living with the taxpayer on a bona fide domestic basis it has been necessary to specify which spouse's FTB entitlement can affect a taxpayer's rebates. A spouse for these purposes is the taxpayer's partner as defined in the Family Assistance Act. A "partner" in relation to a person who is a member of a couple, means the other member of the couple. This will ensure that a spouse's eligibility to FTB Part B will not be taken into account where the taxpayer and their spouse were living separately and apart during the year of income.

Item 23 replaces subsection 159J(1AA) of the ITAA as a result of the amendments to the pattern of care eligibility rules contained in Schedule 1. Proposed new subsection 159J(1AA) removes an entitlement to the dependent spouse or child-housekeeper rebate where a taxpayer or the taxpayer's spouse, was eligible to FTB Part B for an FTB child for the whole year of income and no other person, for example a former spouse, was eligible to FTB Part B for that child.

The proposed amendment also makes a technical correction by replacing the current reference to "family tax benefit" with "family tax benefit at the Part B rate". The amendment ensures that a taxpayer will be entitled to a dependent spouse or child-housekeeper rebate where the taxpayer or the taxpayer's spouse was only eligible to FTB Part A.

Item 25 proposes to insert new subsections 159J(3AA) and 159J(3AB) to replace paragraph 159J(3)(f) which is being repealed by item 24. The amendments are required as a result of the changes to the pattern of care eligibility rules in Schedule 1 to this Bill.

New subsection 159J(3AA) provides that where a taxpayer or the taxpayer's spouse was eligible to FTB Part B for an FTB child for part of the year of income and no other person was eligible to FTB Part B for that child during that period, the taxpayer will not be entitled to claim the dependent spouse or child-housekeeper rebate for that part of the year.

New subsection 159J(3AB) reduces a taxpayer's entitlement to a dependent spouse or child-housekeeper rebate where the taxpayer or the taxpayer's spouse was eligible to FTB Part B for an FTB child for either the whole or part of the year of income and another person, generally a former spouse, who shares the care of the child was also eligible to FTB Part B for the shared care period.

The amount of a taxpayer's entitlement to the dependent spouse or child-housekeeper rebate for a shared care period is calculated using the formula in new subsection 159J(3AB). A person may have more than one shared care period in a year of income because the pattern of care has changed and the Secretary has made more than one determination under subsection 59(1) of the Family Assistance Act. The formula is applied to each shared care period and then aggregated to determine the total rebate entitlement.

The effect of the formula is to allow the dependent spouse or housekeeper rebate to which the taxpayer would have otherwise been entitled, to the extent that their eligibility to FTB Part B was reduced following the application of the new pattern of care eligibility rules in the Family Assistance Act.

The application of new subsection 159J(3AB) is illustrated in the following examples:

Example 1 Alfonso and Erica are married and care for Alfonso's 10 year old son Len from a previous marriage. They do not have any other children. Erica has no separate net income.Alfonso shares the care of Len with his ex-wife. The Secretary, after having regard to Len's living arrangements, determines under subsection 59(1) of the Family Assistance Act that Alfonso's and Erica's percentage of FTB is 30%. Alfonso or Erica is therefore entitled to FTB Part B at the rate of $534.36 under clause 31 of Schedule 1 to the Family Assistance Act. This rate is 30% of the standard rate of $1781.20 for an FTB child over 5 years of age, as specified in clause 30 of Schedule 1 to the Act.The pattern of care arrangements change on 1 February 2001 when the Secretary determines that Alfonso's and Erica's percentage of FTB is 50%. Alfonso or Erica is therefore entitled to FTB Part B at the rate of $890.60 under clause 31 of Schedule 1 to the Family Assistance Act. This rate is 50% of the standard rate of $1781.20 for an FTB child over 5 years of age, as specified in clause 30 of Schedule 1 to the Act.Alfonso's entitlement to the dependent spouse rebate is calculated under new subsection 159J(3AB) as follows: Shared care period 1/7/2000 - 31/1/2001 (215 days):

(1 - ($534.36 / $1781.20) * (215/365) * $1324#
= 0.7 * $779.89
= $545.92 dependent spouse rebate

Shared care period 1/2/2001 - 30/6/2001 (150 days):

(1 - ($890.60 / $1781.20) * (150/365) * $1324
= 0.5 * $544.11
= $272.05 dependent spouse rebate

Alfonso will be entitled to a dependent spouse rebate for Erica totalling $818 for the 2000-2001 year of income, being the aggregate amount of dependent spouse rebate for the two shared care periods rounded up to the nearest dollar.# The dependent spouse rebate figures for the 1999-2000 year of income have been used for the purposes of this example as the 2000-2001 figures are not available.

Example 2 Carlos and Maria are married and care for 2 children from Maria's previous relationship. Maria's son, Bruno, is 10 years old and her daughter, Sylvia, is 4. Maria has a separate net income (SNI) of $550.The Secretary, after having regard to Bruno's and Sylvia's living arrangements, determines under subsection 59(1) of the Family Assistance Act that Carlos' and Maria's percentage of FTB for Bruno is 100% and Sylvia is 70%. The pattern of care remains the same for the whole of the 2000-2001 year of income.Carlos or Maria is therefore entitled to FTB Part B, at the rate of $1798.72 under clause 31 of Schedule 1 to the Family Assistance Act. This rate is the higher of the standard rate applicable under clause 30 of Schedule 1 of the Act for Bruno [100% of $1781.20 = $1781.20] and the rate for Sylvia [70% of $2569.60 = $1798.72].Carlos' entitlement to the dependent spouse rebate is calculated under section 159J as follows: STEP 1: apply new subsection 159J(3AB) Shared care period 1/7/2000 - 30/6/2001 (365 days):

(1 - ($1798.72 / $2569.60) * $1324#
= 0.3 * $1324
= $397.20

STEP 2: apply the "SNI test" in subsection 159J(4)

(SNI - $282) / 4
= ($550 - $282) / 4
= $67

STEP 3: $397.20 - $67.00 = $330.20Carlos will be entitled to a dependent spouse rebate of $331 for Maria for the 2000-2001 year of income being the reduced amount of dependent spouse rebate after the application of the SNI test, rounded up to the nearest dollar.# The dependent spouse rebate figures for the 1999-2000 year of income have been used for the purposes of this example as the 2000-2001 figures are not available.

Amendments to the Income Tax Assessment Act 1936 - Housekeeper rebate

Items 26 and 27 , which are explained in more detail in the following paragraphs, contain references to a taxpayer's spouse's eligibility to FTB Part B. This is because the spouse's entitlement to FTB Part B can affect the taxpayer's entitlement to a rebate. Since a taxpayer can have more than one spouse for tax purposes, i.e. a separated legally married spouse and a person who is living with the taxpayer on a bona fide domestic basis it has been necessary to specify which spouse's FTB entitlement can affect a taxpayer's rebate. A spouse for these purposes is the taxpayer's partner as defined in the Family Assistance Act. A "partner" in relation to a person who is a member of a couple, means the other member of the couple. This will ensure that a spouse's eligibility to FTB Part B will not be taken into account where the taxpayer and their spouse were living separately and apart during the year of income.

Item 26 replaces subsection 159L(3A) of the ITAA as a result of the amendments to the pattern of care eligibility rules contained in Schedule 1. Proposed new subsection 159L(3A) removes an entitlement to the housekeeper rebate where the taxpayer or the taxpayer's spouse was eligible to FTB Part B for an FTB child for the whole year of income and no other person, for example a former spouse, was eligible to FTB Part B for that child.

The proposed amendment also makes a technical correction by replacing the current reference to "family tax benefit" with "family tax benefit at the Part B rate". The amendment ensures that a taxpayer will be entitled to a housekeeper rebate where the taxpayer was only eligible to FTB Part A.

Item 27 inserts new subsections 159L(5A) and (5B).

New subsection 159L(5A) provides that where a taxpayer or the taxpayer's spouse was eligible to FTB Part B for an FTB child for part of the year of income and no other person was eligible to FTB Part B for that child during that period, the taxpayer will not be entitled to the housekeeper rebate for that part of the year.

New subsection 159L(5B) applies to a taxpayer's entitlement to the housekeeper rebate where the taxpayer or the taxpayer's spouse was eligible to FTB Part B for an FTB child for either the whole or part of the year of income and another person, generally a former spouse, who shares the care of the child was also eligible to FTB Part B for the shared care period.

New subsections 159L(3A), (5A) and (5B) do not apply where the taxpayer also contributes to the maintenance of a dependent spouse in receipt of a disability support pension. This ensures that the taxpayer remains entitled to a housekeeper rebate where the housekeeper was engaged in caring for the spouse regardless of any entitlement to FTB Part B.

The amount of a taxpayer's entitlement to the housekeeper rebate for a shared care period is calculated using the formula in new subsection 159L(5B). A person may have more than one shared care period in a year of income because the pattern of care has changed and the Secretary has made more than one determination under subsection 59(1) of the Family Assistance Act. The formula is applied to each shared care period and then aggregated to determine the total rebate entitlement.

The effect of the formula is to allow the housekeeper rebate to which the taxpayer would have otherwise been entitled, to the extent that their eligibility to FTB Part B was reduced following the application of the new pattern of care eligibility rules in the Family Assistance Act.

The application of new subsection 159L(5B) is illustrated in the following example:

Example 3 Lam is separated from his spouse with whom he shares the care of his 4 year old daughter Susan. Lam also looks after his older brother Ken who is in receipt of a disability support pension. Lam employs a housekeeper on a full time basis to look after Ken and Susan.The Secretary, after having regard to Susan's living arrangements, determines under subsection 59(1) of the Family Assistance Act that Lam's percentage of FTB is 45%. Lam is therefore entitled to FTB Part B at the rate of $1156.32 under clause 31 of Schedule 1 to the Family Assistance Act. This rate is 45% of the standard rate of $2569.60 for an FTB child under 5 years of age, as specified in clause 30 of Schedule 1 to the Act.The pattern of care arrangements change on 1 December 2000 when the Secretary determines that Lam's percentage of FTB is 75%. Lam is therefore entitled to FTB Part B at the rate of $1927.20 under clause 31 of Schedule 1 to the Family Assistance Act. This rate is 75% of the standard rate of $2569.60 for an FTB child under 5 years of age, as specified in clause 30 of Schedule 1 to the Act.Lam's entitlement to the housekeeper rebate in respect of Ken is calculated under new subsection 159L(5B) as follows: Shared care period 1/7/2000 - 30/11/2000 (153 days):

(1 - ($1156.32 / $2569.60) * (153/365) * $1606#
= 0.55 * $673.20
= $370.26 housekeeper rebate

Shared care period 1/12/2000 - 30/6/2001 (212 days):

(1 - ($1927.20 / $2569.60) * (212/365) * $1606#
= 0.25 * $932.80
= $233.20 housekeeper rebate

Lam will be entitled to a housekeeper rebate of $604 for the 2000-2001 year of income, being the aggregate amount of housekeeper rebate for the two shared care periods rounded up to the nearest dollar.# The housekeeper rebate figures for the 1999-2000 year of income have been used for the purposes of this example as the 2000-2001 figures are not available.

Amendments to the Income Tax Assessment Act 1936 - Medicare levy exemption

Item 28 replaces subsection 251R(5) and applies where two parents live separately and apart from each other and are both eligible to FTB Part A for an FTB child who would be regarded as a dependant of both parents during a period for Medicare levy exemption purposes. The subsection also applies where the taxpayer's spouse, being the taxpayer's partner as defined in the Family Assistance Act, is eligible to claim FTB Part A for the FTB child instead of the parent taxpayer. This could happen if a separated taxpayer was living with a new spouse and passed on the entitlement to FTB to the new spouse.

New subsection 251R(5) provides that where the Secretary has determined under subsection 59(1) of the Family Assistance Act that each parent is entitled to a specified percentage of FTB, the child will be a dependant of each parent for Medicare levy exemption purposes for so much only of that shared care period as represents that percentage of the period.

The effect of the application of new subsection 251R(5) upon a prescribed person's eligibility for exemption from the Medicare levy is illustrated in the following example:

Example 4 Justine, who is separated from her husband, was a member of the defence forces for the whole year of income. Justine cares for their 10 year old son Daniel every second weekend. The Secretary, after having regard to Daniel's living arrangements, makes a determination under subsection 59(1) that Justine's percentage of FTB is 14%.Daniel will be regarded as Justines's dependent for 51 days under subsection 251R(5), being 14% of the days in the period. Justine will therefore be liable to the Medicare levy for half of the 51 days following the application of subsections 251U(2) and (3). She will be exempt from the levy for the balance of 314 days following the application of sections 251T and 251U.

Amendments to the Medicare Levy Act 1986

Item 30 corrects a technical error in paragraph (b) of Note 1 in subsection 8H(2) by replacing the reference to "family tax benefit" with "family tax benefit Part B".

Application

Items 29 and 31 provide that the amendments to the ITAA and the MLA apply to assessments in relation to the 2000-2001 year of income and all later years of income.


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