Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Schedule 10 - Income tax laws
The Family Assistance Actcontains the eligibility criteria and rate calculators used for determining the amount of family tax benefit a family is eligible to claim from the Family Assistance Office (FAO). The FAO is a joint venture between the Australian Taxation Office (ATO), Centrelink and the Health Insurance Commission (HIC).
The First Consequential Act , which accompanied the Family Assistance Act, contains amendments relating to the repeal of the various tax, child care and social security benefits that are being replaced by the new family assistance payments. Specifically, the First Consequential Act repeals family tax assistance, dependent spouse rebate (with child), sole parent rebate, child care rebate, child care assistance, family tax payment, family allowance, maternity allowance, maternity immunisation allowance and part of the parenting payment.
The proposed amendments contained in Schedule 10 to this Bill, which are explained here, are consequential to the replacement of the tax, child care and social security benefits with payments under the new family assistance scheme. The Bill also contains amendments to correct technical errors that occurred in the Child Care Payments (Consequential Amendments and Transitional Provisions) Act 1997 and the A New Tax System (Bonuses for Older Australians) Bill 1999.
Claims for family tax benefit through the tax system
People entitled to family tax benefit who choose to obtain their benefit through the tax system in a lump sum may also choose to claim reduced fortnightly tax instalment deductions (TIDs) in anticipation of their benefit at the end of the year of income. Under the current law, provisional tax is a counterpart to the TID system. Generally, where a taxpayer is able to reduce their TIDs in anticipation of a benefit, they may also have the benefit taken account of in the determination of their provisional tax liability.
As foreshowed by the Government on 13 August 1998 in its tax reform policy document, Tax Reform: not a new tax, a new tax system: The Howard Governments Plan for a New Tax System, the provisional tax system will be replaced by the income tax instalment aspects of the new Pay-As-You-Go (PAYG) system from 1 July 2000. On account of this, consequential amendments to the provisional tax provisions in the Income Tax Assessment Act 1936 have not been made. However, the new system will allow taxpayers claiming the family tax benefit through the tax system to have the benefit taken into account in determining their PAYG instalment liability.
Amendments to the Fringe Benefits Tax Assessment Act 1986 (FBTAA)
Section 47 of the FBTAA specifically exempts a number of residual benefits from fringe benefits tax. Certain recreational or child care facilities provided by employers, or an associate of an employer, for the benefit of employees, and certain contributions to secure priority of access to child care facilities, are exempt residual benefits under section 47.
Items 1 to 6 amend paragraph 47(8)(a) as a result of the repeal of the Child Care Payments Act 1997 and replace the types of care covered by the exemption with relevant references to the Family Assistance Administration Act. The proposed amendments ensure that the provision of residual benefits in the form of priority access to child care facilities under both the former child care scheme and the new family assistance scheme remain exempt from fringe benefits tax.
Amendments to the Income Tax Assessment Act 1936 (ITAA36)
Item 8 inserts new paragraph 16(4)(fb) to enable the Commissioner, Second Commissioner, Deputy Commissioner or person authorised by him to communicate information relating to income tax to the Secretary of the Department of Family and Community Services for the purpose of the administration of the Family Assistance Administration Act.
New paragraph 16(4)(fb) will allow the ATO to give information to Centrelink and the HIC, who are partners with the ATO in the FAO joint venture, for the purpose of administering the new family assistance scheme.
The free flow of information between participating joint venture agencies will ensure that the new scheme is administered efficiently and accurately by the FAO. For example, there is an income test for the new family assistance that is based on taxable income. Since taxable income cannot be accurately determined until after the end of a tax year, claims made during a year can use an estimate of taxable income. This then requires a reconciliation of actual taxable income against the estimate to work out whether a person was paid too little, or too much, family assistance. Details of taxable income ascertained by the ATO after processing of tax returns will be used to reconcile payments at the end of the income year to which claims relate.
Item 7 amends paragraph 16(4)(fa) to correct a technical error which occurred as a result of amendments to this paragraph by the Child Care Payments (Consequential Amendments and Transitional Provisions) Act 1997 . The amendment will restore paragraph 16(4)(fa) to its former position by allowing the Commissioner to provide information to the HIC as to whether a registered carer within the meaning of the Childcare Rebate Act 1993, or an application for registration as a registered carer has a tax file number. The paragraph does not authorise the provision of tax file numbers to the HIC.
The proposed amendment also ensures information in relation to registered carers under the former childcare rebate scheme will be able to be provided to the HIC despite the repeal of the childcare rebate.
Amendments resulting from the repeal of family tax assistance
Items 9 to 16 propose to amend section 23AF, section 23AG and section 156 to exclude references in those sections to family tax assistance, since family tax assistance is being abolished and replaced by the new family tax benefit.
Separate net income is a concept used in tax law (different from taxable income) in relation to dependant and certain other rebates. A taxpayers entitlement to certain rebates (such as the medical expenses rebate) will depend, amongst other things, on the level of separate net income of the taxpayers dependants.
Items 17 to 21 make consequential amendments to the definition of separate net income in subsection 159J(6) of the ITAA36 as a result of the replacement of certain social security payments listed in the definition by the new family assistance payments.
Item 18 specifically excludes family assistance payments, that is, child care benefit, family tax benefit, maternity allowance and maternity immunisation allowance, from the definition of separate net income. The amendment ensures that a payment of family assistance to a taxpayers spouse will not be included in the calculation of the spouses separate net income for the purpose of determining the taxpayers entitlement to other rebates such as the medical expenses and zone rebates.
Items 17, 18, 19, 20 and 21 further amend the definition of separate net income to enable amounts of family tax payment, maternity allowance, maternity immunisation allowance, family allowance, family allowance supplement, non-benefit PP (partnered) and certain exempt parts of benefit PP (partnered) paid after 1 July 2000, for a period of entitlement before this date, to continue to be excluded from the definition of separate net income. Item 20 also repeals references to child care assistance and child care rebate paid under the Child Care Payments Act 1997 from the definition as these benefits were never paid under this Act.
Tax file numbers and family assistance
Item 22 inserts new paragraph 202(m) to allow a tax file number system to be established to facilitate the administration of the Family Assistance Administration Act. This will allow the FAO to collect tax file numbers from persons who lodge a claim for family assistance payments. The use of tax file numbers will facilitate data-matching of information between the ATO, Centrelink and the HIC.
The sharing of information between the joint venture agencies will ensure the seamless operation of the FAO. It will also facilitate the reconciliation of family assistance payments after the end of the income year to ensure that correct payments have been made.
Tax file number and bonuses for older Australians
Item 22 also inserts new paragraph 202(n) to allow a tax file number system to be established to facilitate the administration of the A New Tax System (Bonuses for Older Australians) Act 1999 (the Bonus Act). The proposed amendment corrects the omission of the amendment in the Bonus Act. That Act (which is still in the form of a Bill presently before Parliament) will provide for the payment of special bonuses to older Australians to preserve the value of their savings. There are three agencies that will pay bonuses, the ATO, Centrelink and the Department of Veterans Affairs. This amendment will allow tax file numbers to be collected with claims for bonuses. Subsequent data-matching between the ATO, Centrelink and the Department of Veterans Affairs will ensure that claims are not made with more than one agency.
Currently, subsection 251R(5) of the ITAA36 establishes that where parents of a child are living separately the child is treated as a dependant of the parent who is entitled to receive family allowance. Item 23 amends this subsection to replace the reference to family allowance with the new family tax benefit. The amendment will ensure that where parents of a child are living separately, the child will be treated as a dependant for Medicare levy purposes of the parent who is entitled to receive family tax benefit.
Amendments to the Income Tax Assessment Act 1997 (ITAA97)
Items 28 and 29 amend the list of tax offsets in section 13-1 of the ITAA97 to exclude the references to the sole parent rebate as a consequence of the repeal of the rebate.
Exempt income refers to amounts of ordinary income and statutory income which are specifically excluded from income tax. Item 46 inserts new Subdivision 52-G in the ITAA97. New section 52-150 provides that payments of family tax benefit, child care assistance, maternity immunisation allowance and maternity allowance are exempt from income tax.
Section 11-15 contains a list of ordinary income and statutory income which is exempt if derived by certain entities. Item 24 amends this section to include references to the new family assistance payments which are exempt from income tax under new section 52-150.
The table contained in section 52-10 outlines the income tax treatment of social security payments. Section 52-15 contains a table which helps you work out the exempt portion of supplementary amounts of social security payments. The table contained in section 52-40 lists the provisions of the Social Security Actunder which exempt or partially exempt social security payments are made.
Items 31 to 44 amend the tables in sections 52-10, 52-15 and 52-40 to delete references to family allowance, family tax payment, parenting payment (non-benefit PP (partnered)), maternity allowance, maternity immunisation allowance and certain amounts of parenting payment (benefit PP (partnered)) as a consequence of their replacement with the new family assistance payments. Sub-item 69(1) ensures that if any of these payments are received after 30 June 2000 in respect of an entitlement before that date, the amount will remain exempt from income tax.
Section 53-10 and paragraph 53-15(c) provide that so much of the part of an exceptional circumstances relief payment as is included because of paragraph 24A(1)(c) of the Farm Household Support Act 1992 , which related to family allowance, is exempt from income tax. Items 47 and 48 repeal paragraph 53-15(c) as a result of the repeal of paragraph 24A(1)(c) of the Farm Household Support Act 1992 . Sub-item 69(1) ensures that where one of these payments is received after 30 June 2000 in respect of an entitlement before that date, the amount will remain exempt from income tax.
Section 52-120 currently provides that payments of child care assistance and child care rebate under the Child Care Payments Act 1997 are exempt from income tax. Item 45 proposes to repeal this section as these payments were never made under this Act. As explained earlier, the child care benefit, which replaces these two payments, will be exempt from income tax by proposed new section 52-150. As the table in section 11-15 currently includes references to these payments, items 25 and 26 propose to omit these references.
Tax deductibility of fees and commissions to recognised tax advisers
One option for people entitled to the new family assistance is to obtain their benefit through the tax system. Many taxpayers use tax advisers to help them lodge their tax returns. Fees for tax return preparation and for advice related to a persons tax affairs more generally, are tax deductible. It is proposed to provide a tax deduction for fees related to family tax benefit claimed through the tax system.
Item 30 , inserts proposed new section 25-7 in the ITAA97. Section 12-5 of the ITAA97 list the provisions that contain rules about specific types of deductions. Item 27 amends this section to insert a reference to new section 25-7. This will direct a user to new section 25-7 when they wish to know if they are able to claim a deduction for advice in relation to family tax benefit.
New section 25-7 will allow taxpayers to claim a tax deduction in respect of a fee or commission they incur for obtaining advice from a recognised tax adviser in relation to their claim for family tax benefit. To be entitled to the deduction the claim must be lodged with the ATO for determination.
The cost of obtaining advice from a recognised tax adviser in relation to a review of a determination for family tax benefit made by the ATO will also be deductible under the new section.
A recognised tax adviser is defined in section 995-1 of the ITAA97 and includes a registered tax agent, a solicitor and a barrister enrolled with the federal court, or a court of a state or territory.
Amendments resulting from the repeal of the various tax, child care and social security benefits
Items 47 to 52 omit references to family tax assistance from the primary producer averaging provisions in Division 392 of the ITAA97.
Items 53 and 54 amend section 405-5, which provides for a special rate of income tax on above-average special professional income, to omit a reference to family tax assistance.
Amendments to the Income Tax Rates Act 1986 (ITRA)
Items 55 to 62 make consequential amendments to the ITRA to omit references to family tax assistance as a result of its repeal.
Amendments to the Income Tax Rates Amendment Act (No. 1) 1997 (ITRAA)
Item 63 corrects a technical error that occurred in an amendment to paragraph 12(8)(a) of the ITRA in the ITRAA. The amendment commences immediately after the commencement of item 2 of Schedule 1 to the ITRAA. This enables the further amendment contained in item 56 to the definition of B in paragraph 12(8)(a) of the ITRA to be made.
Amendments to the Income Tax (Transitional Provisions) Act 1997
Item 64 repeals section 52-5 which relates to the exemption of payments of child care assistance and child care rebate under the Child Care Payments Act 1997 under section 52-120. As previously explained, section 52-120 is being repealed by item 45 .
Amendments to the Medicare Levy Act 1986 (MLA)
Section 8 of the MLA provides relief to certain low income earners from the Medicare levy. Item 65 amends subsection 8(6) of the MLA to replace the reference to family allowance with family tax benefit. This amendment will allow sole parents to increase the family income threshold by $2,100 for each child or student considered a dependant under section 159J of the ITAA36 for whom they receive family tax benefit.
Amendments to the Taxation Administration Act 1953 (TAA)
A penalty is imposed under sections 8WA and 8WB of the TAA for the unauthorised collection, recording, use or disclosure of a tax file number, unless the use of a tax file number is specifically authorised under these sections.
Items 66 and 67 make consequential amendments to paragraphs 8WA(1)(b), 8WB(1)(d) and 8WB(1)(e) of the TAA as a result of insertion of proposed new paragraphs 202(m) and 202(n) in the ITAA36 by item 22 .
As explained earlier,paragraph 202(m) will allow a tax file number system to be established to facilitate the administration of the Family Assistance Administration Act. Paragraph 202(n) will allow a tax file number system to be established to facilitate the administration of the A New Tax System (Bonuses for Older Australians) Act 1999 .
The proposed amendments to sections 8WA and 8WB will ensure that officers of the FAO joint venture agencies and the Department of Veterans Affairs, family tax claimants, bonus claimants and recognised tax advisers who record, collect, use or disclose tax file numbers for the purposes of administering or complying with obligations under the family assistance and bonuses for older Australians schemes will not be in breach of sections 8WA and 8WB.
The amendments, except for those relating to the provision of information to the HIC, apply to assessments in relation to the 2000-2001 year of income and later years of income. [Sub-item 68(1)]
Sub-item 68(2) ensures that the Commissioner can continue to provide information to the HIC relating to registered carers under the childcare rebate scheme after 8 December 1997, which is the date from which the technical error in paragraph 16(4)(fa) applied. As discussed in the preceding paragraphs relating to item 7, the proposed amendment ensures the Commissioner will be able to continue to provide information to the HIC to maintain the effective administration of the childcare rebate scheme.
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