Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 4 - Claiming and payment of the Baby Bonus
Outline of chapter
4.1 This chapter explains:
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- how to make a claim for the Baby Bonus;
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- when a claim can be made; and
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- how the ATO will pay the Baby Bonus.
Summary of new law
4.2 There can only be one claimant per year in respect of a child born on or after 1 July 2001, unless there has been a change in legal responsibility in relation to the child during the year.
4.3 A primary person cannot revoke a claim to the Baby Bonus, nor revoke an election to transfer their entitlement to the Baby Bonus to their spouse. [Schedule 1, item 2, sections 61-410 and 61-390]
4.4 A primary person can only make a claim in respect of one child per year.
4.5 The Baby Bonus is claimed through the ATO as a refundable tax offset.
Detailed explanation of new law
4.6 As established by the eligibility rules (see paragraph 2.10), only one person can be eligible to claim in respect of a child for any given entitlement period.
4.7 Where there is a change in legal responsibility there may be 2 claimants for the child but the entitlement days will differ.
Example 4.1
Ram and Sita have a daughter Sonu who was born on 15 October 2001. Sita was the primary person in the 2001-2002 income year and claimed a pro-rated Baby Bonus. Ram and Sita separate and Ram is given sole legal responsibility for and care of Sonu on 2 April 2003.
Ram can claim the Baby Bonus for the period 2 April 2003 to 30 June 2003 as he has sole legal responsibility for and care of Sonu for this period and is considered the primary person for this period. Sita can claim the Baby Bonus for the period before she lost legal responsibility for Sonu (1 July 2002 to 1 April 2003), as she was the primary person for this period.
Example 4.2
Michel was born on 20 August 2001. His natural mother places him in an adoption centre on 30 July 2002.
Pierre and Justine are Australian residents for income tax purposes and have no children. On 27 May 2003 they adopt Michel.
Michels natural mother is entitled to the Baby Bonus for the period 1 July 2002 to 30 July 2002. Michels natural mother can claim the Baby Bonus in her income tax return for the 2002-2003 income year.
Justine, as the primary person, is entitled to the Baby Bonus for the period 27 May 2003 to 30 June 2003 in her income tax return for the 2002-2003 income year.
Election to claim the Baby Bonus is irrevocable
4.8 Once a primary person, most commonly the mother, decides who will claim the Baby Bonus, the primary person cannot change their mind at a later time for any reason. For example, a mother who had transferred her entitlement cannot change her mind following a later event such as her spouses taxable income being amended. [Schedule 1, item 2, section 61-410]
Example 4.3
Angela has a child, Christian, who was born on 23 October 2001. Angela is the primary person in respect of Christian.
Angela is married to Noel and according to their calculations, Angela has a higher entitlement than Noel in the 2001-2002 income year. Therefore, Angela decides to claim for the Baby Bonus for that year.
Angela calculates that Noel will have a higher entitlement than herself for the 2002-2003 income year. Angela therefore elects to transfer her entitlement for the 2002-2003 income year to Noel.
Noels income tax return for the 2002-2003 income year is later amended by the Commissioner to include omitted income. This amendment has effectively reduced Noels Baby Bonus entitlement because his income has increased. Angela cannot revoke her election which would allow her to claim the Baby Bonus for the 2002-2003 income year.
A primary person can only make a claim in respect of one child
4.9 A primary person cannot claim the Baby Bonus in respect of 2 children in the same income year. The primary person will claim the Baby Bonus in respect of the first child. [Schedule 1, item 2, section 61-365]
4.10 Where a child dies in an income year before reaching 5 years of age and the claimant is eligible to claim in respect of another child (a younger sibling), there will still be only one claim for that income year and it will be in respect of the deceased child. However, in the following year, the claimant can claim the Baby Bonus in respect of the other child. [Schedule 1, item 2, subsection 61-380(3)]
Example 4.4
Clara and George have 2 children - Carol who was born on 12 December 2001 and Margaret who was born on 4 June 2003. Clara is the primary person and is entitled to claim the Baby Bonus in respect of Carol, as Carol was born before Margaret.
Carol dies on 11 October 2005. Clara can claim a full years entitlement of the Baby Bonus in respect of Carol as her eligibility period is extended to the end of the income year. Clara cannot claim any amount in respect of Margaret in the year that Carol died.
As Carol died before the age of 5, Clara can claim the Baby Bonus in respect of Margaret in the following year and up to and including the year in which Margaret turns 5. The first claim in respect of Margaret will be in the 2006-2007 income year.
Base year is the year before the event year.
4.11 If the base year is the year before the event year, the first year in which a claim can be made is the event year.
4.12 In this first year, the entitlement amount will be pro-rated based on the number of days from the time the legal responsibility was obtained to the end of that income year. There will also be a pro-rata claim in the income year in which the child turns 5 years of age, based on the number of days from 1 July up to the day on which the child turns 5. There will be full year claims in the intervening 4 years of income if there is no change in legal responsibility.
Example 4.5
Sophie goes on maternity leave on 1 February 2002 and gives birth to Henry on 14 February 2002. Sophie ends her maternity leave on 30 April 2002. For the period 1 May 2002 to 30 June 2003 Sophie is on leave without pay. Sophie resigns from her job on 1 July 2003 and does not have any taxable income in subsequent years.
Taxable income $30,000 Taxable income $26,000 Taxable income $0
Basic income tax liability $5,380 Basic income tax liability $4,180
Base amount $1,076 Base amount $836
Sophie elects her base year to be the year ended 30 June 2001, as this gives her a higher base amount. This means that Sophie can claim for Henry in her income tax return for the year ended 30 June 2002.
As Sophie only had legal responsibility of Henry for 137 days in her first year, she will need to pro-rate her entitlement amount. Sophie will also need to adjust her base amount to account for her taxable income in the income year.
Sophies calculation of the Baby Bonus for the year in which she gave birth to Henry is as follows:
Baby Bonus = base amount [1 - (TIi/TIb)] (total entitlement days/365)
$1,076 [1 - (26,000/30,000)] (137/365)
= $1,076 [1 - 0.867] 0.375
= $54
Sophies calculation of her Baby Bonus for the subsequent 4 income years after she gave birth to Henry will be as follows:
Baby Bonus = base amount [1 - (TIi/TIb)] (total entitlement days/365)
$1,076 [1 - (0/30,000)] (365/365)
= $1,076 1 1
= $1,076
In the year in which Henry turns 5, Sophie will again be required to pro-rate her entitlement amount, as she will only be eligible to claim for Henry until he turns 5. The total entitlement days will be the period from 1 July to 13 February, 228 days.
Sophies calculation of her Baby Bonus for the year in which Henry turns 5 will be as follows:
Baby Bonus = base amount [1 - (TIi/TIb)] (total entitlement days/365)
$1,076 [1 - (0/30,000)] (228/365)
= $1,076 1 0.625
= $673
Sophies claims will be as follows:
4.13 Where the event year is elected to be the base year, a full year claim may only be made in the income year after the event year and each later income year but not after the income year in which the child turns 5. This means that there is no pro-rating of the entitlement, but there is a delay in receiving the entitlement.
Example 4.6
Assume that Sophies taxable income for the income year 2000-2001 is $26,000 and taxable income for the income year 2001-2002 (the year of Henrys birth) is $30,000.
Sophie elects her base year to be the income year 2001-2002, the year of birth. Sophie makes this election to delay the payment to ensure she receives her maximum entitlement. Sophie can only start to claim for Henry in the following income year, the year ended 30 June 2003. Sophie will be entitled to a full year claim in the years ended 30 June 2003 to 30 June 2007.
Sophies first claim will be made in respect of the year ended 30 June 2003, and in this year she had legal responsibility of Henry for the full year. She will not need to pro-rate her claim. Sophie will also not need to adjust her base amount in any income year as she has no taxable income in any future years of income.
Sophies calculation of her Baby Bonus for her first claim will be as follows:
Baby Bonus = base amount [1 - (TIi/TIb)] (total entitlement days/365)
$1,076 [1 - (0/30,000)] (365/365)
= $1,076 1 1
= $1,076
In the year in which Henry turns 5, as Sophie has elected her base year to be the year of birth, the number of days for which she is eligible to claim the Baby Bonus is increased by the number of days from the date of Henrys birth until the end of the income year of Henrys birth.
In the year in which Henry turns 5, Sophie is eligible for 228 days, and the number of days from Henrys birth to the end of the income year is 137. Therefore, the number of days that Sophie is eligible to claim for Henry in the year he turns 5 is 365. This means that she is entitled to a Baby Bonus of $1,076 in the year Henry turns 5.
Sophies claims will be as follows:
How the ATO will pay the Baby Bonus
4.14 The Baby Bonus will be claimed as a refundable tax offset.
4.15 Claimants who lodge income tax returns will make a claim for the Baby Bonus in their income tax return. The Baby Bonus will be provided as part of the ordinary income tax assessment and refund process and will form part of the claimants income tax assessment notice. [Schedule 1, item 2, section 61-405]
4.16 Claimants who are not required to lodge income tax returns will receive their entitlement to the Baby Bonus from the ATO by completing a separate claim form. This will effectively create a nil income tax assessment with the Baby Bonus as a refundable tax offset. [Schedule 1, item 2, section 61-405]
4.17 As a refundable tax offset, the Baby Bonus will be applied (where applicable) to reduce the claimants:
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- tax debts;
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- Family Tax Benefit debts;
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- Child Support Agency debts; and
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- other tax related Commonwealth debts.
4.18 Tax debts will include:
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- income tax debts;
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- Medicare levy;
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- HECS debt; and
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- Supplement Loan Scheme debt.