House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Family and Community Services, Senator the Hon Kay Patterson)

Outline and financial impact statement

This Bill is the second of two bills giving effect to the More Help for Families package of measures announced in the 2004 Budget to provide extra assistance to families.

The Bill contains five elements:

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An ongoing increase in the maximum and base rates of family tax benefit Part A of $600 annually for each FTB child. The new FTB Part A supplement would be paid as a lump sum on income reconciliation for the 2003-04 income year and later years.

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A reduction in the rate at which family tax benefit Part A reduces from the maximum rate to the base rate, from 30 cents in the dollar to 20 cents in the dollar.

The financial cost of these measures is $1.9b in 2003-04, $2.5b in 2004-05, $2.5b in 2005-06, $2.6b in 2006-07 and $2.7b in 2007-08.

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A new maternity payment of $3000, which will be payable as a lump sum to all mothers, regardless of income, from 1 July 2004. The maternity payment will increase to $4000 in July 2006 and $5000 in July 2008. The new maternity payment will replace the current (means tested) maternity allowance and the Baby Bonus. As the new maternity payment will be universal, the maternity immunisation allowance is also to be free of the means test and will be payable for all children who meet current immunisation requirements.

The Baby Bonus will be phased out, and a deadline imposed for lodging a valid Baby Bonus claim, by amendments to the Income Tax Assessment Act 1997. The changes relating to the phasing out of the Baby Bonus will take effect from 1 July 2004, with parents of children born on or after this time being able to claim a maternity payment instead of a Baby Bonus. The changes relating to the deadline for lodging valid Baby Bonus claims will take effect from 1 July 2001, the date of effect of the Baby Bonus.

The net additional financial cost of introducing the new maternity payment for the Family and Community Services portfolio is $559m in 2004-05, $567m in 2005-06, $797m in 2006-07 and $818m in 2007-08.

The Baby Bonus amendments will reduce expenses across the forward estimates period by $50m in 2005-06, $100m in 2006-07 and $140m in 2007-08.

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A reduction in the rate at which family tax benefit Part B is withdrawn, from 30 cents in the dollar to 20 cents in the dollar.

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An increase in the amount of income a secondary earner in a partnered relationship can earn before entitlement to family tax benefit Part B is affected, from $1825 to $4000 annually.

The financial cost of these measures is $414m in 2004-05, $438m in 2005-06, $459m in 2006-07 and $479m in 2007-08.

Commencement: The measures in the Bill generally commence on 1 July 2004. However, the further increases in the amount of the new maternity payment commence on 1 July 2006 (increase to $4000) and 1 July 2008 (increase to $5000) respectively. The amendments relating to the new FTB Part A supplement commence on 1 July 2004 but apply in relation to the 2003-04 income year and later income years.

Notes on clauses

Clause 1 sets out how the Act is to be cited, that is, the Family Assistance Legislation Amendment (More Help for Families - Increased Payments) Act 2004.

Clause 2 provides a table that sets out the commencement dates of the various sections in, and Schedules to, the Act.

Clause 3 provides that each Act that is specified in a Schedule is amended or repealed as set out in that Schedule.

This Explanatory Memorandum uses the following abbreviations:

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'Family Assistance Act' means the A New Tax System (Family Assistance) Act 1999;

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'Family Assistance Administration Act' means the A New Tax System (Family Assistance) (Administration) Act 1999;

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'Tax Assessment Act 1936' means the Income Tax Assessment Act 1936;

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'Tax Assessment 1997' means the Income Tax Assessment Act 1997;

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'FTB' means family tax benefit.

Schedule 1 - Amendments relating to FTB Part A supplement

Part 1 - Amendments

Summary This Schedule provides for an ongoing increase in the maximum and base rates of FTB Part A of $600 annually for each FTB child. The new FTB Part A supplement would be paid as a lump sum on income reconciliation for the 2003-04 income year and later years.

Background

Legislative framework

An individual can claim payment of FTB by instalments, as a lump sum for a past period or as a single payment/in substitution because of the death of an FTB child or individual. These options are set out in section 7 of the Family Assistance Administration Act.

If an individual makes an effective claim and meets all the relevant eligibility criteria, then the Secretary must make an entitlement determination. Where the claim is for payment of FTB by instalment, the entitlement determination is made under section 16 of the Family Assistance Administration Act and provides that an individual is entitled to be paid FTB on each day that the determination is in force at an appropriate daily rate. For past period claims, the entitlement determination is made under section 17 of the Family Assistance Administration Act to the effect that the individual is entitled to be paid FTB for the relevant past period. Section 18 covers the determination of claims for FTB because of the death of an FTB child or individual.

An individual's annual rate of FTB is calculated in accordance with the relevant method statements in Schedule 1 to the Family Assistance Act (subsection 58(1) refers). Schedule 1 applies irrespective of the payment method claimed by an individual. In defined circumstances (for example, where the care of an FTB child is shared between separated parents or a couple has a blended family), certain amounts for the child or the rate of FTB can be "shared" in accordance with percentages determined by the Secretary (sections 59 to 61 of the Family Assistance Act refer). The annual rate is converted to a daily rate under subsection 58(3) of the Family Assistance Act (to support payment of FTB by instalments and payment for a past period that is less than a whole year).

An individual's annual rate of FTB is made up of the individual's Part A rate and a Part B rate. An individual can be entitled to one or both of these amounts, depending on the individual's circumstances.

Instalment payments are provided for in section 23 of the Family Assistance Administration Act. Instalments are paid on a fortnightly basis (the "instalment period"). The amount of an instalment payment is "the amount accruing for the days in the instalment period for which an entitlement to be paid FTB arose under the determination" (definition of "instalment amount" in subsection 23(2)). Other types of FTB payments are paid at such time and in such manner as the Secretary determines (section 24 of the Family Assistance Administration Act refers).

The rate calculation process in Schedule 1 to the Family Assistance Act incorporates an income test that relies on the concept of "adjusted taxable income" (ATI) as defined in Schedule 3. It is actual ATI for the current income year that is ultimately relevant in determining an individual's annual and daily rate of FTB, although an estimate of income can be used to calculate a "provisional" rate (section 20 of the Family Assistance Administration Act refers). ATI for members of a couple for FTB Part A includes the ATI of both partners (clause 3 of Schedule 3 refers).

The general rules around ATI and the rate calculation process for FTB are specifically modified to take account of the situation where an individual dies part way through the year and where an individual was partnered for part of the relevant income year but separated at the end of that year (see subclause 2(2) and clause 3A of Schedule 3 to the Family Assistance Act).

The process of income reconciliation is a process of comparing an individual's rate calculated and paid on the basis of an estimate of ATI and actual ATI. Income reconciliation is a Secretary initiated review under section 105 of the Family Assistance Administration Act when details of actual ATI become known (the Australian Taxation Office has sent the relevant income information to Centrelink). Income reconciliation generally happens after the end of the income year to which the payment relates. There may be occasions where an individual dies part way through an income year where reconciliation can happen before that time.

Maintenance income can also affect an individual's rate of FTB Part A. As the maintenance income test is based on maintenance income received in the current income year, an estimate of maintenance income can be used to determine rate. The relevant provisions relating to the maintenance income test are set out in Division 5 of Schedule 1 to the Family Assistance Act. After the end of the income year when actual maintenance income is known, reconciliation (Secretary initiated review under section 105 of the Family Assistance Administration Act) occurs.

FTB Part A supplement

The new FTB Part A supplement will be included in an individual's maximum rate of FTB Part A. The supplement will also be included in the base rate of FTB by virtue of existing cross-references in the FTB rate calculator in Schedule 1 to the Family Assistance Act (amendments are not required to achieve this outcome). However, the supplement will not be paid in respect of a particular income year until reconciliation occurs (which will generally be after the end of that income year). Schedule 1 includes specific provisions that set out when reconciliation occurs in particular circumstances (for example, when the individual is and remains a member of a couple). These provisions establish a relevant reconciliation time that is then the trigger for review (and payment of the supplement).

The amount of the FTB Part A supplement is $600 for each FTB child. There would be capacity to "split" the payment in certain situations where the care of an FTB child is shared.

The supplement would be added into an individual's rate of FTB on reconciliation in respect of the 2003-04 income year. The supplement would be indexed on 1 July 2004 (to set a new amount for the 2004-05 income year) and then would be paid for 2004-05 when reconciliation occurs in relation to that income year and so on.

Explanation of changes

A New Tax System (Family Assistance) Act 1999

The rate calculation process for FTB Part A is set out in Schedule 1 to the Family Assistance Act. There are two ways in which that rate can be calculated. Method 1 is used where the individual's income does not exceed the "higher income free area" as defined in clause 2 of Schedule 1 or the individual or his/her partner is receiving a social security pension or benefit or a service pension. Method 2 is used where the individual's income does exceed the higher income free area and neither the individual nor his/her partner is receiving a social security pension or benefit or a service pension.

The "Method 1" calculation process is outlined in the method statement at the end of clause 3 of Schedule 1.

The first step is to calculate an individual's maximum rate based on the number and ages of the individual's FTB children and the individual's eligibility for large family supplement, multiple birth allowance and rent assistance.

Step 2 is to apply an income test to ascertain the individual's income tested rate. An individual's income tested rate will be their maximum rate if the individual's income is less than the income free area (as set out in clause 19 of Schedule 1). For every dollar over the income free area, the individual's maximum rate is reduced by 30 cents in the dollar until the "base rate" (defined in clause 4 of Schedule 1) is reached. This is known as the first taper. An individual's FTB Part A rate, calculated using method 1, cannot fall below the base rate.

The next step is to apply the maintenance income test if relevant to ascertain the individual's income and maintenance tested rate. This test has the effect of further reducing an individual's maximum rate (assuming it is more than the base rate) by 50 cents for every dollar of maintenance income in excess of the individual's maintenance income free area (as defined in clauses 22 and 23 of Schedule 1). As with the income test, an individual's FTB Part A rate cannot fall below the base rate.

The "Method 2" calculation process is outlined in the method statement at the end of clause 25 of Schedule 1.

Step 1 is to work out an individual's maximum rate having regard to the number and ages of the individual's FTB children (unlike method 1, there is no additional amount available as rent assistance). The maximum rate for the purposes of method 2 is the same as the base rate for method 1.

The next step is to apply the income test in clause 28 of Schedule 1 to the Family Assistance Act to ascertain the individual's provisional Part A rate. An individual's maximum rate is then reduced by 30 cents for each dollar of income above the individual's higher income free area. This is known as the second taper.

Items 1 and 2 increase an individual's maximum rate for both methods 1 and 2 by the new FTB Part A supplement. This is achieved by:

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adding a new paragraph (ca) into step 1 of the method statement in clause 3 of Schedule 1 to the Family Assistance Act which refers to the new FTB Part A supplement; and

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adding a new paragraph (d) into step 1 of the method statement in clause 25 of Schedule 1 to the Family Assistance Act which refers to the new FTB Part A supplement.

The FTB Part A supplement would also be incorporated into the base rate as defined in clause 4 of Schedule 1 by virtue of the reference in clause 4 to the maximum rate worked out under clause 25. Separate amendments are not required to achieve this result.

Item 3 inserts a new Division 2A (new section 38A) into Part 5 of Schedule 1 to the Family Assistance Act. This new division deals with the rate of the new FTB Part A supplement.

The amount of FTB Part A supplement to be added in working out an individual's maximum rate is $600 for each FTB child of the individual, provided that a percentage determination under subsection 59 (1) of the Family Assistance Act does not apply in relation to the FTB child.

This $600 amount per FTB child is referred to in new section 38A as the "FTB gross supplement amount".

However, as there is capacity to split FTB between two or more individuals who are not members of the same couple where the care of an FTB child is shared, this capacity is carried over into new section 38A, in subsection 2. If the Secretary has determined under subsection 59(1) of the Family Assistance Act the percentage that is to be the individual's percentage of FTB for an FTB child, then the FTB Part A supplement in respect of that child is also dealt with in accordance with that determination. Therefore a 70:30 split under subsection 59(1) would mean that the FTB Part A supplement is split on the same terms.

New subsection 38A(4) makes it clear that indexation of the FTB Part A supplement on 1 July 2004 applies prospectively in relation to the 2004-05 income year and not to the 2003-04 income year

Items 4 and 5 amend the relevant indexation provisions in Schedule 4 to the Family Assistance Act to ensure that the new FTB Part A supplement is indexed in accordance with the Consumer Price Index on 1 July of each year (starting on 1 July 2004) on the same terms as the other components of the maximum rate of FTB Part A.

Clause 7 of Schedule 4 to the Family Assistance Act provides for the adjustment of the FTB under 13 child rate and the FTB 13-15 child rate to ensure that proportional parity is maintained between those rates and the combined pensioner couple maximum basic rate. Items 6, 7 and 8 make some consequential amendments to the adjustment provisions in clause 7 to take account of the new FTB Part A supplement.

A New Tax System (Family Assistance) (Administration) Act 1999

Item 9 inserts a new Subdivision D at the end of Division 1 of Part 3 to the Family Assistance Administration Act.

In broad terms, the new Subdivision provides that the new FTB Part A supplement cannot be added into an individual's rate of FTB unless and until the relevant FTB reconciliation conditions are satisfied and sets out the "FTB reconciliation conditions".

There are a number of amounts that may be unknown at the time that eligibility for, or rate of, FTB is being considered. Section 20 of the Family Assistance Administration Act enables an estimate of an unknown amount relevant to eligibility or rate to be used in these circumstances. The unknown amount could be of taxable income, adjusted fringe benefits total, target foreign income, net rental property loss, tax free pension or benefit, deductible child maintenance expenditure (these are components of the definition of "adjusted taxable income" as defined in clause 2 of Schedule 3 to the Family Assistance Act), maintenance income and adjusted taxable income of an FTB child (a child whose income is above a specified income cut-out amount in a particular income year cannot be an FTB child in that year according to section 22A of the Family Assistance Act).

The FTB Part A supplement should not be taken into account in determining an individual's annual rate of FTB until, broadly speaking, the process of reconciliation occurs. The FTB reconciliation conditions outlined in new Subdivision D are essentially the triggers for reconciliation.

Under new section 32A, the Secretary is required to disregard the FTB Part A supplement provisions in making or varying an instalment or past period entitlement determination under which an individual is entitled to FTB in respect of a "same-rate benefit period" in a particular income year unless and until the individual has satisfied the relevant FTB reconciliation conditions for that period.

The concept of a same-rate benefit period within an income year acknowledges that an individual's circumstances may change during the course of an income year such that different reconciliation conditions may need to be satisfied in relation to different periods in an income year. However, the reconciliation conditions for all the same rate benefit periods in the relevant income year would need to be satisfied before the new FTB

Part A supplement is included in an individual's rate calculation on reconciliation.

Note 1 indicates that those FTB Part A supplement provisions will be taken into account when the relevant determination or variation is reviewed under section 105 when the Secretary is required to do so by new section 105A.

Note 2 refers the reader to new section 32B which sets out when the FTB reconciliation conditions are satisfied.

New section 32B sets out when the FTB reconciliation conditions (outlined in new sections 32C to 32Q) are satisfied in relation to a same rate benefit period. If only one of these conditions applies to an individual, then the individual satisfies the FTB reconciliation conditions at the "relevant reconciliation time". Where more than one condition applies, then the individual satisfies the FTB reconciliation conditions at whichever relevant reconciliation time is the latest. The relevant reconciliation time for each condition is then set out in the provision relating to the condition.

New sections 32C to 32H set out the relevant reconciliation time in situations where an individual, or a partner of the individual, is or was required to lodge an income tax return for the relevant income year. In the situations covered by these sections, the relevant reconciliation time is generally when an assessment is made of the individual's taxable income, or the partner's taxable income (if both have an assessment, it is the later of the two). However, this is conditional on the individual's income tax return, and the partner's income tax return, having been lodged before the end of the second income year following the relevant income year. If the individual, or partner, lodges his or her income tax return after that time, the result is that the FTB Part A supplement cannot be paid. The situations covered by new sections 32C to 32H, and any exceptions to the relevant reconciliation time being when an assessment of taxable income is made, are noted below.

New section 32C covers the situation where the individual was a member of a couple throughout the same-rate benefit period, and continues to be partnered to the other member until the end of the second income year following the relevant income year.

New section 32D covers the situation where the individual was not a member of a couple at any time during the same-rate benefit period.

New section 32E covers the situation where the individual was a member of a couple throughout the same-rate benefit period, but was no longer partnered to the other member at the end of the relevant income year.

New section 32F covers the situation where the individual was a member of a couple throughout the same-rate benefit period, but separated after the end of the relevant income year and before the end of the designated date (defined in new section 32R) in the next income year, and at least one person in the couple lodged an income tax return for the relevant income year before the end of the designated date in the next income year.

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In new section 32F, there is one exception to the relevant reconciliation time being when an assessment of taxable income is made. This is set out in new subsection 32F(4), and covers the situation where the person entitled to FTB has lodged an income tax return for the relevant income year before the end of the designated date in the next income year, but the person's former partner has not. In this situation, the relevant reconciliation time is the end of the designated date in the next income year. The reason for this exception is to prevent a delay beyond that time by the person's former partner in lodging his or her income tax return from also delaying payment of the FTB Part A supplement.

New section 32G covers the situation where the individual was a member of a couple throughout the same-rate benefit period, but separated after the end of the relevant income year and before the end of the designated date in the next income year, and neither person in the couple lodged an income tax return for the relevant income year before the end of the designated date in the next income year.

New section 32H covers the situation where the individual was a member of a couple throughout the same-rate benefit period, but separated after the designated date in the next income year and before the end of the second income year after the relevant income year.

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In new section 32H, the relevant reconciliation time is the later of when an assessment is made of the individual's taxable income (if the income tax return was lodged before the end of the second income year following the relevant income year), and when the individual separated.

New section 32J sets out the relevant reconciliation time for an individual who is not required to lodge a tax return. It applies where that individual (the first individual) or anyone else whose adjusted taxable income is relevant in working out the first individual's entitlement to, or rate, of FTB (except an FTB child of the first individual), is not required to lodge a tax return for the relevant income year.

The relevant reconciliation time is the earlier of:

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the time after the end of the income year when the first individual notifies the Secretary of his or her adjusted taxable income for the relevant income year; or

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the time after the end of the income year when the Secretary becomes satisfied that the adjusted taxable income of the first individual can be worked out without such notification.

New section 32K sets out the relevant reconciliation time for an individual who has a child aged between 5 and 16 who is not undertaking full-time study or primary eduction where the individual has provided an estimate of the child's adjusted taxable income and, assuming the child's income is less than the "cut out amount", the child would be an FTB child of the individual.

In this situation, the relevant reconciliation time is the earlier of:

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the time after the end of the income year when the first individual notifies the Secretary of the child's adjusted taxable income for the relevant income year; or

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the time after the end of the income year when the Secretary becomes satisfied that the adjusted taxable income of the child can be worked out without such notification.

The "cut out amount" for a child's income is defined in subsection 22A(2) of the Family Assistance Act.

The question of whether a child is undertaking primary education is to be determined in the same way as it is determined under section 22A of the Family Assistance Act.

New section 32L sets out the relevant reconciliation time for an individual who has a child aged 16 or more where the individual has provided an estimate of the child adjusted taxable income and, assuming the child's income is less than the "cut out amount", the child would be an FTB child of the individual.

In this situation also, the relevant reconciliation time is the earlier of:

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the time after the end of the income year when the first individual notifies the Secretary of the child's adjusted taxable income for the relevant income year; or

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the time after the end of the income year when the Secretary becomes satisfied that the adjusted taxable income of the child can be worked out without such notification.

The "cut out amount" for a child's income is defined in subsection 22A(2) of the Family Assistance Act.

New section 32M sets out the relevant reconciliation time for an individual whose adjusted taxable income for the relevant income year is affected by an amount of target foreign income, tax free pension or benefit or deductible child maintenance expenditure of the individual or another individual.

Where this happens, the individual's relevant reconciliation time is the earlier of:

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the time after the end of the income year when the first individual notifies the Secretary of his or her adjusted taxable income for the relevant income year; or

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the time after the end of the income year when the Secretary becomes satisfied that the adjusted taxable income of the first individual can be worked out without such notification.

"Target foreign income", "tax free pension or benefit" and "child maintenance expenditure" are concepts defined in clauses 5, 7 and 8 of Schedule 3 to the Family Assistance Act.

New section 32N sets out the relevant reconciliation time for an individual who has "annualised maintenance income" (as defined in Division 5 of Part 2 of Schedule 1 to the Family Assistance Act) and who is not exempt from the maintenance income test.

In this situation, the relevant reconciliation time is the earlier of:

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the time after the end of the income year when the individual notifies the Secretary of information sufficient to work out the individual's annualised amount of maintenance income for the relevant income year; or

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the time after the end of the income year that the Secretary becomes satisfied that the individual's annualised amount of maintenance income can be worked out without such notification.

New section 32P sets out the relevant reconciliation time for an individual who is not a member of a couple, is exempt from the Part A income test, either didn't have annualised maintenance income or was exempt from the maintenance income test and who has an FTB child whose adjusted taxable income is not relevant in determining the individual's entitlement to, or rate of FTB.

In this situation, the relevant reconciliation time is the end of the relevant income year.

New section 32Q allows the Secretary to determine the relevant reconciliation time for classes of individuals in specified circumstances. The determination would be in writing and would be a disallowable instrument.

New section 32R defines "designated date" (as used in some of the conditions described above) as the specified date determined by the Secretary in a disallowable instrument.

Item 10 inserts a new section 105A into the Family Assistance Administration Act. Under this new provision, the Secretary is required to review a determination which, when made or varied, disregarded the new FTB Part A supplement if the individual subsequently satisfies the FTB reconciliation conditions for each same rate benefit period in the relevant income year. This assumes that if the FTB Part A supplement were not disregarded, it would have been relevant in working out the individual's rate of FTB.

The resulting review under section 105 of the Family Assistance Administration Act must take account of the relevant FTB Part A supplement provisions (but other matters can also be considered in the context of the review).

Part 2 - Application provisions

Item 11 sets out the various amendments in Part 1 apply.

The amendments relating to the indexation of the "FTB gross supplement amount" apply in relation to FTB for the 2004-05 income year and later income years.

All other amendments made in Part 1 apply in relation to FTB for the 2003-04 income year and later income years.

Schedule 2 - Amendments relating to maternity payment and maternity immunisation allowance

Summary

This Schedule provides for a new maternity payment of $3000, which will be payable as a lump sum to all new mothers, regardless of income, from 1 July 2004. The maternity payment will increase to $4000 in July 2006 and $5000 in July 2008. The new maternity payment will replace the current (means tested) maternity allowance and the Baby Bonus. As the new maternity payment will be universal, the maternity immunisation allowance is also to be free of the means test and will be payable for all children who meet current immunisation requirements.

The Baby Bonus will be phased out, and a deadline imposed for lodging a valid Baby Bonus claim, by amendments to the Tax Assessment Act 1997. The changes relating to the phasing out of the Baby Bonus will take effect from 1 July 2004, with parents of children born on or after this time being able to claim a maternity payment instead of a Baby Bonus. The changes relating to the deadline for lodging valid Baby Bonus claims will take effect from 1 July 2001, the date of effect of the Baby Bonus.

Background

To give effect to the new maternity payment, this Schedule repeals the existing maternity allowance eligibility and rate provisions in the Family Assistance Act and substitutes new provisions for maternity payment. It also makes various consequential amendments, to provisions in the Family Assistance Act, the Family Assistance Administration Act, the Tax Assessment Act 1936 and the Tax Assessment Act 1997, to reflect the name change while preserving the same general effect for the new payment (as part of the family assistance law) as for the old allowance.

The initial amount of the new maternity payment is to be $3000 from 1 July 2004. This Schedule also provides for future increases in the amount of maternity payment - to $4000 from 1 July 2006 and to $5000 from 1 July 2008.

In relation to maternity immunisation allowance, amendments are made to the maternity immunisation allowance eligibility and rate provisions in the Family Assistance Act.

Certain amendments (other than the name change) consequential to the main changes are also made to the Family Assistance Act and the Family Assistance Administration Act.

Amendments are made to the Tax Assessment Act 1997 to limit claims for the Baby Bonus to children born between 1 July 2001 and 30 June 2004, or for children aged under five years for whom claimants otherwise gain legal responsibility during that period. There will also be a requirement for claims for the Baby Bonus to be lodged by 30 June 2014.

The Schedule also includes a range of application and saving provisions.

Explanation of changes

Item 1 repeals the current Division 2 of Part 3 of the Family Assistance Act (the maternity allowance eligibility provisions) and substitutes a new version of the Division, containing the eligibility provisions for maternity payment.

The main changes are in the name and in the removal of current references to the individual having to have actually or (in the case of a stillborn child) hypothetically an FTB Part A rate greater than nil. That rate requirement is how the means test has been applied to maternity allowance - FTB Part A under the FTB rate calculator in Schedule 1 to the Family Assistance Act may be reduced to nil under the income test and/or the maintenance income test.

Those tests are no longer required for the new maternity payment, although it is still basically required that the individual be actually or hypothetically (as applicable) eligible for FTB. This is to apply the usual FTB criteria such as having at least one FTB child (who must meet the usual residence requirements) and the individual meeting the residence requirements personally. However, there is one FTB eligibility criterion that needs to be overcome for this purpose, ie, that the individual's overall rate of FTB (not just the Part A rate) be greater than nil (see paragraph 21(1)(c) of the Family Assistance Act). Accordingly, an individual will generally be eligible for maternity payment for a child either if he or she is (or would hypothetically be) eligible for FTB for the child, or would be if not for having an overall rate of nil.

The new section 37 of the Family Assistance Act inserted by this item includes a further substantive change. The current maternity allowance is payable only to one eligible individual, with the Secretary deciding which of two or more individuals who may be eligible for one child should be the eligible one. This will remain the default rule under the new maternity payment. However, if the Secretary considers it reasonable in any given case, the Secretary will be able to share the increased amount of the new payment between two or more eligible individuals, by determining a percentage for each of them (so that the total amount for one child is not exceeded). This discretion is not available in relation to two members of the same couple. The new arrangement is similar to the arrangements for sharing FTB between eligible individuals.

Item 2 repeals the current Division 2 of Part 4 of the Family Assistance Act (dealing with the amount of maternity allowance) and substitutes a new version of the Division, dealing with the amount of maternity payment.

The main change in the substituted Division is to give effect to the substantial increase in the payment to $3000 (later amendments give effect to the further increases in this amount to $4000 and $5000, as discussed below). The new sharing rule mentioned above is also reflected here, so that an individual is eligible only for his or her determined percentage of the total amount.

The item also reflects a technical change to the indexation arrangements for the new payment. This is necessary because indexation of the amount in question is currently achieved by reference to increases in the rate of parenting payment, a means tested payment under the Social Security Act 1991. That indexation mechanism is no longer appropriate for maternity payment, given that the amount of the payment is now being set without any reference to the rate of parenting payment. Accordingly, specific indexation provisions are being set up in the family assistance law (by items 9, 10 and 11) and the existing parenting payment link is being removed by this item. The new indexation arrangements will basically retain the parenting payment indexation structure - with reference to CPI on 20 March and 20 September each year.

The change of name to maternity payment is being incorporated in the main amendments discussed here. However, the following items are also necessary, to reflect the name change in various provisions of the Family Assistance Act, the Family Assistance Administration Act, the Tax Assessment Act 1936 and the Tax Assessment Act 1997: items 4, 5, 6, 7, 12, 13, 15, 16, 18, 20, 21, 22, 24, 26, 28, 32, 34, 35, 36, 37 and 38. The amendments to section 52-150 of the Tax Assessment Act 1997, in particular, are to retain the tax exempt status of the new payment on the same basis as the old allowance.

The following items make amendments to reflect in relevant Family Assistance Administration Act provisions the new rules for sharing maternity payment: items 17 and 19.

New section 47 (relating to payment of maternity payment and maternity immunisation allowance), substituted by item 23, gives effect to a further substantive change in relation to the new maternity payment. This is to give the Secretary a discretion to allow maternity payment to be paid in instalments, rather than as one lump sum as at present. If this were considered appropriate, the total amount would be paid in six equal instalments, and generally to a bank account in the same manner as for FTB. For consistency, it is being clarified that lump sum payments of maternity payment and maternity immunisation allowance should also generally be paid to a bank account. There is capacity, however, to pay any of the amounts in a different way. Rules are included to round to the nearest cent any amount paid under the section - this will be relevant mostly to maternity payment shared between eligible individuals and/or paid as instalments.

The new arrangement to allow payment by instalments is also reflected in the new version of section 38 of the Family Assistance Act, substituted by item 1, so that amounts of maternity payment to be paid to an individual on the death of another individual are limited to those not already paid to the deceased individual - again, this is similar to the FTB arrangements.

Items 43 and 45 make amendments to the Family Assistance Act eligibility provisions for maternity immunisation allowance to remove the means test requirement in the same way as for the new maternity payment.

Similarly, item 47 amends section 67 of the Family Assistance Act, dealing with the amount of maternity immunisation allowance, to remove the indexation link to parenting payment. The new indexation arrangements for maternity immunisation allowance are covered by the amendments made by items 9, 10 and 11.

Item 30 repeals section 72 of the Family Assistance Administration Act. That section currently prevents debts arising under section 71 in certain cases where the individual's FTB Part A rate being nil has precluded the individual's entitlement to maternity allowance or maternity immunisation allowance. Those circumstances will no longer arise.

There are several application and saving provisions included in these amendments. The amendments discussed above relating to the new maternity payment generally apply in relation to children born or delivered on or after 1 July 2004. However, they also apply to children born before that date who are placed with families on or after that date as part of an adoption process, as long as that placement takes place within the relevant child's first 26 weeks.

The amendments relating to maternity immunisation allowance generally apply in relation to children who would attract the allowance on or after 1 July 2004, whether it is a living child who reaches the 18 month minimum eligibility age for the allowance on or after that date, a stillborn child delivered on or after that date, or a child who is born alive but who dies on or after that date.

Other application and saving amendments are made - these are basically to preserve current maternity allowance and maternity immunisation allowance rights and obligations in relation to eligibility, claims, payments, debts, etc.

Phasing out the Baby Bonus

Detailed explanation of new law

Child event - current law

A person is entitled to the Baby Bonus if they meet a number of criteria, including that they have a 'child event'.

A person has a child event at a particular time (event time) if:

•

the person becomes legally responsible for a child at the event time;

•

the event time is on or after 1 July 2001;

•

the person is an Australian resident at the event time;

•

the person has not previously been legally responsible for the child before 1 July 2001; and

•

there is no other person who is also legally responsible for the child at the event time and who was also legally responsible for the child at a time before 1 July 2001.

Child event - new law

The amendment made by item 39 provides that only persons who become legally responsible for a child aged under five years between 1 July 2001 and 30 June 2004 inclusive will be able to make a claim for the Baby Bonus.

The item sets out that a person will have a child event at a particular time (event time) if:

•

the person becomes legally responsible for a child at the event time;

•

the event time is between 1 July 2001 and 30 June 2004 inclusive;

•

the person is an Australian resident at the event time;

•

the person has not previously been legally responsible for the child before 1 July 2001; and

•

there is no other person who is also legally responsible for the child at the event time and who was also legally responsible for the child at a time before 1 July 2001.

Example 1

Sue is an Australian resident who has her first child, Kerrie, on 30 June 2004.

Sue has a child event and may claim the Baby Bonus in respect of Kerrie as:

•

Sue became legally responsible for Kerrie when she was born;

•

the event time was between 1 July 2001 and 30 June 2004;

•

Sue was an Australian resident at the event time;

•

neither Sue nor another person was legally responsible for the child before 1 July 2001.

Provided that she continues to meet the eligibility requirements, Sue could claim the Baby Bonus for income years up to and including 2008-09.

Example 2

Lauren and Craig are Australian residents who have two children, Lionel, born 11 August 2000, and Tony, born 5 October 2002. Lauren has claimed the Baby Bonus in respect of Tony for the 2002-03 and 2003-04 income years.

Provided that she continues to meet the eligibility requirements, Lauren could continue to claim the Baby Bonus in respect of Tony for income years up to and including 2007-08.

Items 40 and 41 impose a deadline of 30 June 2014 for lodging valid Baby Bonus claims. This will allow taxpayers who are eligible to claim the Baby Bonus sufficient time to lodge claims for their full five year entitlement to the Baby Bonus, as well as allowing a further four years to align with the period for which tax returns may be reviewed and/or amended.

Application and transitional provisions

The commencement clause of the bill provides for the changes to the child event provisions of the Baby Bonus made by item 39 to apply from 1 July 2004.

The commencement clause also provides for the imposition of a deadline by which a valid Baby Bonus claim must be lodged to apply from 1 July 2001, the date of effect of the Baby Bonus.

Later increases in maternity payment

The last Parts of the Schedule provide for the later increases in the new maternity payment. The amount will rise to $4000 in relation to children born or delivered on or after 1 July 2006. However, the amendment giving effect to this increase will not operate in the (unlikely) event that normal indexation increases in the meantime overtake that $4000 figure by that date. Similarly, the amount will rise to $5000 in relation to children born on or after 1 July 2008, but not so as to override any interim indexation increases to higher than that amount at that point.

Schedule 3 - Amendments relating to income taper

Summary

This Schedule provides for a reduction in the rate at which FTB Part A reduces from the maximum rate to the base rate, from 30 cents in the dollar to 20 cents in the dollar. It also provides for a reduction in the rate at which FTB Part B is withdrawn, from 30 cents in the dollar to 20 cents in the dollar.

Background

The income test for FTB Part A is set out in Division 5 of Part 2 of Schedule 1 to the Family Assistance Act. The method statement in clause 18 provides a mechanism for working out an individual's "reduction for adjusted taxable income" (that is, the amount that the individual's maximum rate of FTB Part A is to be reduced because of income). Step 5 of the method statement incorporates a 30% taper. This means that an individual maximum rate is reduced by 30 cents for each dollar of income over the individual's income free area.

FTB Part B also has a 30% taper that applies under the income test. The income test for FTB Part B is set out in Division 3 of Part 4 of Schedule 1 to the Family Assistance Act. The relevant provision is step 5 in the method statement in clause 32.

This Schedule reduces the tapers in clauses 18 and 32 from 30% to 20%.

The income test taper applicable to FTB Part A (method 2) would remain at 30% - the method statement in clause 28 of schedule 1 refers. Method 2 applies where the individuals adjusted taxable exceeds the income higher income free area.

Explanation of changes

Item 1 reduces the taper that applies under the income test for FTB Part A (method 1) from 30% to 20% by amending step 5 in the method statement in clause 18 of Schedule 1 to the Family Assistance Act.

Item 2 reduces the taper that applies under the income test for FTB Part B from 30% to 20% by amending step 5 in the method statement in clause 32 of Schedule 1 to the Family Assistance Act.

Item 3 provides that the new tapers apply in relation to FTB for the 2004-05 income year and subsequent income years.

Schedule 4 - Amendments relating to income free area

Summary

This Schedule provides for an increase in the amount of income a secondary earner in a partnered relationship can earn before entitlement to FTB Part B is affected, from $1825 to $4000 annually.

Background

The income test for FTB Part B is set out in the method statement in clause 32 of Schedule 1 to the Family Assistance Act. If the income of a secondary earner in a partnered relationship exceeds the income free area, then the individual's standard rate of FTB Part B is subject to reduction.

This Schedule increases the income free area for FTB Part B to $4,000.

Explanation of changes

Item 1 repeals clause 33 of Schedule 1 to the Family Assistance Act and inserts a new clause 33. New clause 33 sets an individual's income free area at $4,000. The new $4,000 income free area will apply in relation to FTB for the 2004-05 income year.

The income free area will then be indexed on 1 July 2005 and the new indexed amount will apply for 2005-06 and so on.

The relevant application provision is in item 3(1). Item 4 ensures that the new income free amount of $4,000 is not indexed on 1 July 2004.

Item 2 makes a technical amendment to the relevant indexation provision. This amendment applies to FTB for the 2005-06 income year or a subsequent income year.