Explanatory Memorandum(Circulated by authority of the Assistant Treasurer, Minister for Housing and Minister for Homelessness, Social and Community Housing, the Hon Michael Sukkar MP)
Chapter 3 - Payments to Thalidomide survivors
Outline of chapter
3.1 Schedule 3 to the Bill amends the ITAA 1997 and the SS Act and the Veterans' Entitlement Act 1986 to provide that annual and lump sum payments made by the Commonwealth to Thalidomide survivors are exempt from income tax and do not count as income for the purposes of any income support payments.
Context of amendments
3.2 The Senate Community Affairs References Committee inquiry into Support for Australia's Thalidomide Survivors handed down its Final Report on 22 March 2019.
3.3 The Australian Government recognises the plight of victims of Thalidomide, and understands they have suffered from circumstances beyond their control, resulting in a lifetime of pain and hardship.
3.4 Between 1959-1961, Thalidomide was available over the counter as a tranquiliser and pain killer used for treating insomnia and headaches as well as nausea and morning sickness during pregnancy.
3.5 Survivors age at a rapid rate and experience a wide range of secondary health problems, in particular musculoskeletal problems, and depression and anxiety, with multi-morbidity a growing issue. These health problems have had a negative impact on their employment, requiring them to leave the workforce much earlier than other Australians. Additionally, these secondary health issues often prevent them from regulating their body temperature and result in increased levels of fatigue and tiredness that interfere with, and increase the cost of their daily activities.
3.6 The ongoing impact of the Thalidomide tragedy on survivors and their families, combined with the increasing health and support needs of survivors is recognised and is the basis for the Government's provision of financial support.
3.7 The 2020-21 Budget measure Support for Australia's Thalidomide Survivors provides that the Government will provide $44.9 million over four years from 2020-21 (and $3.9 million per year ongoing). The assistance includes a lump sum payment, a tax exempt and income support income test exempt annual payment to assist with daily living expenses, the Extraordinary Assistance Fund to provide support for activities of daily living, and the Health Care Assistance Fund to cover out-of-pocket healthcare expenses. The Government will also establish a support service for Thalidomide survivors and a site of national recognition in consultation with survivors.
3.8 All recognised Australian Thalidomide survivors will be eligible for support under the support package. In addition, currently unrecognised survivors who meet requirements through an eligibility assessment process will also be entitled to receive support.
3.9 The Financial Framework (Supplementary Powers) Regulations 1997, as amended by the Financial Framework (Supplementary Powers) Amendment (Health Measures No. 5) Regulations 2020, provides the legislative authority for government spending on these payments.
3.10 Payments made from the Thalidomide Australia Fixed Trust are tax exempt - see item 5.6 in section 51-30 of the ITAA 1997. These payments are also not considered income for the purposes of the SS Act and VEA - see paragraph 8(8)(vc) of the SS Act and paragraph 5H(8)(xb) of the VEA.
3.11 The annual payments from the Commonwealth are likely to be ordinary income for taxation purposes as they are recurrent, regular and relied upon by the recipients. Therefore these amounts will likely be assessable unless they are made specifically exempt.
3.12 The lump sum payments are unlikely to be ordinary income for taxation purposes as they are not compensation for lost income. Further, to the extent that the lump sum payments are made in relation to the personal injury of survivors these payments will likely be disregarded for capital gains tax purposes under the exemption in section 118-37 of the ITAA 1997.
3.13 Under the SS Act and VEA, an income test is used to determine a person's eligibility for income support payments and the rate of payment that is payable.
3.14 The annual and lump sum payments are likely to be income for the purposes of the SS Act and VEA as they are income amounts earned, derived or received by the person for the person's own use or benefit. Therefore, unless these amounts are specifically exempted from the social security and VEA income tests, they could reduce the amount of pension or payment a person receives.
Detailed explanation of new law
Income tax treatment
3.15 Schedule 3 to the Bill amends the ITAA 1997 to make payments from the Commonwealth to Thalidomide survivors under the Support for Australia's Thalidomide Survivors program exempt income for income tax purposes. [Schedule 3, item 2, table item 5.5 in section 51-30 of ITAA 1997]
3.16 Amendments are also made to the guides and checklists in the ITAA 1997 to include references to the new payments and their exempt income status. [Schedule 3, item 1, section 11-15 of the ITAA 1997]
Income support treatment
3.17 Subsection 8(8) of the SS Act is amended to exclude payments made under the Support for Australia's Thalidomide Survivors program to Thalidomide survivors as income for the purposes of that Act. This means the payments will be exempt from the social security income test. [Schedule 3, item 4, paragraph 8(8)(vd) of SS Act]
3.18 Subsection 5H(8) of the VEA is amended to exclude payments made under the Support for Australia's Thalidomide Survivors program to Thalidomide survivors as income for the purposes of that Act. This means the payments will be exempt from the income test for payments made under the VEA. [Schedule 3, item 5, paragraph 5H(8)(xc) of VEA]
3.19 Currently, lump sum payments made under the Support for Australia's Thalidomide Survivors program are exempt for the purpose of the social security and veterans' entitlement income test by way of an instrument made under paragraph 8(11)(d) of the SS Act - see Social Security (Exempt Lump Sum - Australian Thalidomide Survivors Support Program) Determination 2020. The determination has effect under subsection 5H(12A) of the VEA with the result that lump sum payments made under the program are exempt from the veterans' entitlement income test. Amendments to the SS Act and VEA will facilitate the exemption of all payments under the program on an ongoing basis.
Application and transitional provisions
3.20 The amendments to the ITAA 1997 apply in relation to payments received in the 2021-22 income year and future income years. [Schedule 3, item 3]
3.21 The amendments of the SS Act and the VEA apply in relation to payments under the Support for Australia's Thalidomide Survivors program made on or after the day after the Bill receives Royal Assent. [Schedule 3, item 6]