Explanatory Statement

Issued by authority of the Treasurer

Taxation Administration Amendment Regulations 2011 (No. 2)

Subject - Section 18 of the Taxation Administration Act 1953

Section 18 of the Taxation Administration Act 1953 (the Act) provides that, in part, the Governor-General may make regulations prescribing all matters required or permitted by the Act to be prescribed, or which are necessary or convenient to be prescribed for giving effect to the Act.

The Regulations amended the Taxation Administration Regulations 1976 (the Principal Regulations) to increase the proportion of the low income tax offset (LITO) that is delivered through workers' week-to-week pay packets from 50 per cent to 70 per cent. This change means that instead of being compensated after they put in their tax return at the end of the financial year, lower income earners are taxed less during the year.

Section 159N of the Income Tax Assessment Act 1936 allows a person to claim the LITO. A person is entitled to the full value of the LITO ($1,500) provided that person's income does not exceed $30,000. The LITO can only be used to reduce a person's tax liability to zero. For every dollar of income above $30,000, the benefit is withdrawn by 4 cents and is completely extinguished for income above $67,500.

Paragraph 15-30(d) of Schedule 1 to the Act provides that the Commissioner may take account of a number of prescribed tax offsets in determining schedules at which income tax is withheld at. These prescribed tax offsets are listed in regulation 24 of the Principal Regulations and include 50 per cent of the amount of the LITO.

The Regulations amended paragraph 24(e) of the Principal Regulations so that the Commissioner is able to take into consideration 70 per cent of the amount of the LITO when making income tax withholding schedules.

As a result of the Regulations, someone with an annual income of $30,000 will receive an extra $300 during the year in their regular pay. A person's total LITO entitlement for any one year will remain unchanged.

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

The Regulations commence on the day after registration on the Federal Register of Legislative Instruments.