House of Representatives

INCOME TAX RATES AMENDMENT (FAMILY TAX INITIATIVE) BILL 1996

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.


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