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House of Representatives

Social Security Legislation Amendment (Youth Allowance Consequential and Related Measures) Bill 1998

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

OUTLINE AND FINANCIAL IMPACT STATEMENT

This Bill completes the legislation package commenced with the Social Security Legislation Amendment (Youth Allowance) Bill 1997. That Bill gives legislative effect to the new social security payment, youth allowance. Youth allowance will be an integrated income support payment for young people which will be available regardless of whether a person is in education, in training, unemployed or sick.

The primary purpose of this new Bill is to provide the consequential amendments for youth allowance. However, it also incorporates some significant related measures flowing from the establishment of youth allowance. These related measures largely comprise the transfer of program elements for older students from the portfolio of the Minister for Employment, Education, Training and Youth Affairs to the portfolio of the Minister for Social Security.

This is to be done primarily by setting up a new payment, austudy payment, in the Social Security Act for over 25 year old students. There will also be new provisions in the Social Security Act for the pensioner education supplement, for fares allowance and for the Student Financial Supplement Scheme. Current arrangements will continue to apply for ABSTUDY pensioner education supplement, student financial supplement and fares allowance, and for the Assistance for Isolated Children Scheme.

This Bill provides the consequential amendments for the transfer of these elements as well as for youth allowance itself. It also provides: the transitional arrangements for the package; the flow through to youth allowance of certain Budget measures contained in the Social Security Legislation Amendment (Parenting and Other Measures) Act 1997 and the Social Security and Veterans' Affairs Legislation Amendment (Budget and Other Measures) Bill 1997 that were not drafted in time to be included in the original youth allowance legislation; and certain policy and technical refinements to youth allowance.

The Acts to be amended are the Social Security Act 1991 , the Data-Matching Program (Assistance and Tax) Act 1990 , the Student and Youth Assistance Act 1973 , the Income Tax Assessment Act 1936 , the Income Tax Assessment Act 1997 , the Taxation (Interest on Overpayments and Early Payments) Act 1983 , the Veterans' Entitlements Act 1986 , the Farm Household Support Act 1992 , the Health Insurance Act 1973 , the National Health Act 1953 , the Disability Services Act 1986 , the Child Care Payments Act 1997 , the Aged Care Act 1997 , the Bankruptcy Act 1966 , the Registration of Deaths Abroad Act 1984 and the Telecommunications Act 1997 .

Date of effect: 1 July 1998
Financial impact: Whole initiative
(program costs) (running costs)
1997-98 $14.00m. nil.
1998-99 $53.77m. $22.52m.
1999-00 $34.49m. $14.28m.
This Bill alone
(program costs) (running costs)
1997-98 $14.00m. nil.
1998-99 $1.44m. nil.
1999-00 $0.97m. nil.

PRELIMINARY

Clause 1 of the Social Security Legislation Amendment (Youth Allowance Consequential and Related Measures) Bill 1998 sets out how the amending Act is to be cited.

Clause 2 specifies that the amending Act commences on 1 July 1998, subject to the subclauses (2) to (10).

Clause 3 says that each Act that is specified in a Schedule to the Social Security Legislation Amendment (Youth Allowance Consequential and Related Measures) Bill 1998 is amended or repealed in accordance with the applicable items in those Schedules.

The abbreviations to be used in this Explanatory Memorandum are set out below:

-
the Social Security Act 1991 (the Social Security Act)
-
the Student and Youth Assistance Act 1973 (the Student and Youth Assistance Act)
-
the Student Assistance Act 1973 (the Student Assistance Act)
-
the Social Security Legislation Amendment (Parenting and Other Measures) Act 1997 (the Parenting Act)
-
the Social Security and Veterans Affairs Legislation Amendment (Budget and Other Measures) Bill 1997 (the Budget Measures Bill)

Schedule 12 - Amendment of taxation legislation

1. Summary

This Schedule amends three pieces of taxation legislation to provide for the taxation treatment of the new youth allowance package.

2. Background

The abolition of the former AUSTUDY allowance and youth training allowance and the introduction in their place of new social security payments, that is, youth allowance, austudy payment, pensioner education supplement and fares allowance necessitate changes to the taxation legislation to provide for the taxation treatment of the new payments.

Similarly, changes to the taxation legislation are required as a consequence of the decision to set up in the Social Security Act a new Student Financial Supplement Scheme.

The aim is to replicate for the new payment structure the taxation treatment currently given to the payments that are to be repealed. This essentially involves refining the current tax provisions so that they refer correctly to the new payment structure.

3. Clauses and Schedule involved in the changes

Clause 2: provides the commencement rules for this Schedule.

Clause 3: provides that each Act that is specified in this Schedule is amended as set out in the Schedule.

Schedule 12 - Amendment of taxation legislation

Items 1 to 24: amend the Income Tax Assessment Act 1936 (the 1936 Tax Act).

Item 1: amends paragraph (b) of the definition of "Commonwealth education or training payment" in subsection 6(1).

Item 2: amends paragraph 16(4)(hb).

Item 3: amends subsections 24ABZE(4) and (5).

Item 4: repeals subsections 24ABZF(2), (3), (4) and (5).

Item 5: amends subsection 51(6AA) (note).

Item 6: amends paragraph (a) of the definition of "prescribed allowance" in subsection 79A(4).

Item 7: amends paragraph (c) of the definition of "expenses of self-education" in subsection 82A(2).

Item 8: amends paragraph (a) of the definition of "rebatable benefit" in subsection 160AAA(1).

Item 9: amends paragraph (b) of the definition of "rebatable pension" in subsection 160AAA(1).

Items 10 and 11: amend subsection 163B(10).

Item 12: amends section 202.

Items 13 and 14: amend paragraph 202CB(6)(a).

Item 15: repeals paragraph 202CB(6)(aa).

Item 16: amends paragraph 202CB(6)(b),

Items 17 and 18: amend paragraph 202CE(7)(a).

Item 19: repeals paragraph 202CE(7)(aa).

Item 20: amends paragraph 202CE(7)(b).

Item 21: amends paragraph (c) of the definition of "prescribed non-resident" in subsection 221A(1).

Item 22: omits the definition of "FS assessment debt" in subsection 221ZY(1) and substitutes a new version.

Items 23 and 24: provide application provisions in respect of payments made under the AUSTUDY scheme and payments of youth training allowance, respectively.

Items 25 to 46: amend the Income Tax Assessment Act 1997 (the 1997 Tax Act).

Item 25: amends section 11-15.

Item 26: amends paragraph 26-20(1)(d).

Items 27 to 30: amend section 52-10 (table).

Items 31 to 37: amend section 52-15 (table).

Item 38: amends subsection 52-20(3).

Items 39 and 40: amend subsection 52-30(1).

Items 41 to 44: amend section 52-40.

Items 45 and 46: amend section 52-70.

Item 47: amends subsection (3)(1) of the Taxation (Interest on Overpayments and Early Payments) Act 1983 .

4. Explanation of the changes

Youth allowance, austudy payment, pensioner education supplement and fares allowance

Currently, the taxation treatment of social security benefits, youth training allowance and AUSTUDY allowance is similar in that supplementary amounts of these payments are exempt from tax and the balance is not. The supplementary amounts in respect of social security benefits and youth training allowance are amounts of pharmaceutical allowance, rent assistance and remote area allowance. The supplementary amounts in respect of the AUSTUDY allowance include pensioner education supplement amounts and fares allowance. Certain social security benefit and youth training allowance bereavement payments are also exempt from tax. Social security benefits, youth training allowance and AUSTUDY allowance are rebatable.

Youth allowance and austudy payment

It is intended that the taxation treatment of youth allowance and austudy payment, that are to be defined in the Social Security Act as social security benefits, be the same as the taxation treatment of other social security benefits payable to the unemployed, eg, newstart allowance. Amendments made in this Schedule to the provisions of the 1936 Tax Act and the provisions of the 1997 Tax Act ensure that supplementary amounts of youth allowance (rent assistance, remote area allowance and pharmaceutical allowance) and supplementary amounts of austudy payment (pharmaceutical allowance and remote area allowance) are exempt, the balance of these payments is taxable and the payments are treated as rebatable benefits.

(a) amendments to the 1997 Tax Act

Section 52-10 specifies, in a table, social security amounts that are exempt from income tax. To indicate the exempt amounts of austudy payment and youth allowance, item 27 inserts after table item 2.1 a new item 2A.1 for austudy payment and item 30 inserts at the end of the table a new item 35.1 for youth allowance. The entries specify further when supplementary amounts and certain bereavement payment amounts of those payments are exempt.

Items 31, 32 and 34 to 36 amend section 52-15 that provides a table for the calculation of supplementary amounts of the specified social security payments. These items amend item 1, 2 and 4 of the table in section 52-15 by omitting from the column relating to supplementary amounts an obsolete reference to residential care charge amount. ( Items 45 and 46 make similar technical amendments to paragraphs 52-70(c) and (d) to omit an obsolete reference to residential care charge amount from section 52-70 referring to supplementary amounts of payments under the Veterans' Entitlements Act.) Item 33 inserts in the table, in item 2 that lists supplementary amounts of social security benefits, a new entry referring to youth allowance. Item 37 adds a new item 5 to the table to provide for the listing of supplementary amounts of austudy payment.

Section 52-20 sets out in a table the Subdivisions of the Social Security Act that are bereavement Subdivisions and the provisions of that Act under which a person qualifies for bereavement payments. Item 38 amends the table by inserting the relevant youth allowance references, that is, Division 10 of Part 2.11 and paragraph 567(1)(f), and the relevant austudy payment references, that is, Division 10 of Part 2.11A and paragraph 592(1)(f).

Section 52-30 determines the amount of a tax-free amount of certain other bereavement lump sum payments and lists social security benefits to which this section applies. Items 39 and 40 amend subsection 52-30(1) by inserting references to youth allowance and austudy payment.

Section 52-40 lists social security payments and the respective social security provisions under which the payments that are exempt from income tax are made. Items 41 and 44 amend section 52-40 by inserting a new entry, 2A, for austudy payment and its relevant provisions and a new entry, 35, for youth allowance and its relevant provisions, respectively.

(b) amendments to the1936 Tax Act

Item 8 amends the definition of "rebatable benefit" in subsection 160AAA(1) by inserting in paragraph (a) of the definition references to Part 2.11 and 2.11A of the Social Security Act under which youth allowance and austudy payment will be payable. Item 9 amends the definition of "rebatable pension" in paragraph 160AAA(1)(b) to exclude youth allowance and austudy payment from this definition. Items 13, 14 and 16 amend section 202CB dealing with quotation of tax file number in employment declaration. Items 13 and 14 amend paragraph 202CB(6)(a) to include references to declarations given by austudy payment and youth allowance applicants. Item 16 makes a consequential technical amendment to the wording of paragraph 202CB(6)(b). Items 17, 18 and 20 amend section 202CE dealing with effect of incorrect quotation of tax file number in employment declaration. Items 17 and 18 amend paragraph 202CE(7)(a) to include references to declarations given by austudy payment and youth allowance applicants. Item 20 makes a consequential technical amendment to the wording of paragraph 202CE(7)(b). Item 21 makes a consequential amendment to paragraph (c) of the definition of "prescribed non-resident" in subsection 221A(1) to include, alongside references to other social security benefits, references to Parts 2.11 and 2.11A of the Social Security Act under which austudy payment and youth allowance are to be payable.

Pensioner education supplement and fares allowance

It is intended that the pensioner education supplement and fares allowance which are currently exempt from tax, remain not taxable. To achieve this, items 28, 29, 42 and 43 make the following relevant amendments to the 1997 Tax Act.

Section 52-10 specifies, in a table, social security amounts that are exempt from income tax. To indicate that fares allowance and pensioner education supplement are exempt amounts, item 28 inserts after table item 13.1 a new item 13A.1 for fares allowance and item 29 inserts after table item 22.1 a new item 22A.1 for pensioner education supplement.

Section 52-40 contains a table listing the provisions of the Social Security Act under which social security payments are made that are wholly or partly exempt from income tax under Subdivision 52-A. Item 42 inserts after table item 13 a new item 13A for the purposes of listing fares allowance payable under Part 2.26 of the Social Security Act and item 43 inserts after table item 22 a new item 22A for the purposes of listing pensioner education supplement payable under Part 2.27 of the Social Security Act.

Amendments consequential on the repeal of Part 2 (AUSTUDY allowance) and Part 8 (Youth training allowance) of the Student and Youth Assistance Act

As a result of the repeal of Part 2 - AUSTUDY scheme and Part 8 - Youth training allowance of the Student and Youth Assistance Act, the following amendments are made to taxation legislation to remove the references that are no longer needed.

(a) amendments to the 1936 Tax Act

Item 1 omits subparagraph (b)(i) of the definition of "Commonwealth education or training payment" in subsection 6(1) to remove the reference to the AUSTUDY scheme. Item 3 repeals subsections 24ABZE(4) and (5) that relate to expressions used in Part 8 of the Student and Youth Assistance Act. Item 4 repeals subsections 24ABZF(2), (3), (4) and (5) dealing with the taxation treatment of bereavement payments under Part 8 of the Student and Youth Assistance Act. Item 6 amends subsection 79(4) by amending paragraph (a) of the definition of "prescribed allowance" to remove the reference to remote area allowance payable under Part 8 of the Student and Youth Assistance Act. Items 15 and 19 repeal paragraphs 202CB(6)(aa) and 202CE(7)(aa) referring to declarations given by youth training allowance applicants.

(b) amendment to the 1997 Tax Act

Item 25 amends section 11-15 that index provisions relating to ordinary or statutory income that is exempt only if it is derived by certain entities. Item 25 omits the entry in this section referring to youth training allowance provisions which, as a result of the amendments made by items 3 and 4 , will no longer apply to youth training allowance.

Application of the amendments to AUSTUDY and youth training allowance payments

Items 23 and 24 are application provisions. They provide that the amendments to the 1936 Tax Actmade by this Schedule do not apply to payments under the AUSTUDY scheme made under Part 2 of the Student Assistance Actor to payments of youth training allowance made under Part 8 of the Student Assistance Act. Consequently, the AUSTUDY and youth training allowance payments made on or after 1 July 1998 will be assessed under the 1936 Tax Act as in force before 1 July 1998.

Student Financial Supplement Scheme

Items 2, 5, 7, 10, 11, 12, 22, 26 and 47 are all consequential amendments flowing from the setting up in the Social Security Act of the new Student Financial Supplement Scheme. This scheme, which will mirror the one of the same name provided by Part 4A of the Student and Youth Assistance Act, will apply for tertiary students within the social security system, whereas the other scheme will apply only for ABSTUDY customers. Therefore, the intention in relation to taxation amendments is to make sure that the new scheme is given exactly the same taxation treatment as is the current scheme.

Most of the amendments are to the 1936 Tax Act. Item 2 adds reference to the Secretary to the Department of Social Security, alongside the existing reference to the Secretary to the Department of Education, as a person to whom information may be communicated for the purpose of the administration of any law of the Commonwealth relating to financial assistance to students.

Item 5 adds reference to the new scheme in a note signposting a relevant provision. Item 7 adds reference to the new scheme in the definition of "expenses of self-education" in subsection 82A(2), governing deductions for expenses of self-education. Section 163B relates to a late lodgement penalty - additional tax for persons other than relevant entities and instalment taxpayers. Item 11 inserts a new definition of "FS assessment debt" for the purposes of this provision, making it clear that there are now two schemes that might give rise to such a debt.

Item 12 adds a new paragraph (ha) to section 202 which sets down the objects of the relevant Part relating to tax file numbers so that it applies in relation to recovery through the taxation system of a student's outstanding financial supplement indebtedness. Such recovery will be dealt with by disallowable instrument under new Chapter 2B of the Social Security Act. Item 22 omits the current definition of "FS assessment debt" in subsection 221ZY(1) and substitutes a new one to make it clear that there are now two schemes that might give rise to such a debt.

Item 26 amends the 1997 Tax Act to add reference to the new scheme alongside reference to the current scheme to provide that a payment to reduce a debt under the scheme is not deductible. Item 47 makes the only amendment to the Taxation (Interest on Overpayments and Early Payments Act) 1983, omitting the current definition of "FS assessment debt" in subsection 3(1) and substituting a new one to make it clear that there are now two schemes that might give rise to such a debt.

5. Commencement

The amendments in this Schedule will commence on 1 July 1998.


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