Explanatory Memorandum
(Circulated by the authority of the Treasurer,the Hon Peter Costello)Chapter 1 Family tax assistance - in summary
This explanatory memorandum is divided into six chapters. The following guide to the later chapters forms a brief summary of the FTA:
Chapter 2 - What are FTA benefits?
- •
- There are 2 kinds of FTA benefits:
- •
- an increase in the tax-free threshold of up to $1,000 for each dependent child (referred to here as Part A benefits).
- •
- an increase in the tax-free threshold of up to $2,500 for taxpayers with dependent children under 5 (referred to here as Part B benefits).
- •
- for the 1996-97 year of income, the amounts are $500 for Part A and $1,250 for Part B.
- •
- there are several exceptions to the normal threshold increase for FTA benefits. In these cases the benefit is received in the form of a reduced rate of tax.
Chapter 3 - Who is entitled to FTA benefits?
Part A benefits will be available to a taxpayer who, during the year:
- •
- was an Australian resident, with at least one dependant; and
- •
- the taxpayer either did not have a spouse on the last day of the year, and had a taxable income of less than the "family income ceiling"; or
- •
- the taxpayer had a spouse on the last day of the year, and the sum of the taxable incomes of the taxpayer and spouse was less than the "family income ceiling".
- •
- "family income ceiling" will be $70,000 for one dependant, increased by $3,000 for each dependant after the first.
Part B benefits will be available to a taxpayer who during the year:
- •
- was an Australian resident; and had at least one dependant under the age of 5 years;
- •
- had a taxable income less than the taxpayer's income ceiling, i.e. $65,000 for one dependant, increased by $3,000 for each dependant after the first; and
- •
- if the taxpayer had a spouse on the last day of the year, the spouse's income did not exceed the "spouse income ceiling".
A person (a child) will be a dependant of another person if:
- •
- the child was either under the age of 16, or was aged 16 or 17 and was receiving full-time secondary education; and
- •
- the child was an Australian resident; and
- •
- the child had an income less than the relevant dependant ceiling; and
- •
- the other person contributed to the maintenance of the child.
A spouse of a taxpayer cannot be a dependant of the taxpayer.
Chapter 4 - What if a person is a dependant of 2 or more people?
- •
- if a child is a dependant of 2 or more people who do not all live together, the benefit is allocated according to the number of nights that each person has care of the child.
- •
- only persons who have care of the child for more than 30% of nights during a period are entitled to a benefit.
- •
- if a child is a dependant of 2 or more people who live together:
- •
- if only one of the people is entitled to a Part B benefit, the child will be a dependant of that person;
- •
- in all other cases, the people can make an agreement as to who will get the benefit;
- •
- if they do not make an agreement, they will not be entitled to FTA benefits, except if they have since separated, in which case the benefit will be apportioned evenly.
Chapter 5 - What if a child is a dependant for only part of a year?
- •
- where a child is a dependant for only a part of the year of income, FTA benefits are pro-rated on the basis of the number of days that the child was a dependant.
Chapter 6 - What if a taxpayer receives family tax payments?
- •
- the amount of FTA benefit allowed to a taxpayer will be reduced by reference to the amount of FTP received.