Bills Digest 37 1996-97 Income Tax Rates Amendment (Family Tax Initiative) Bill 1996


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WARNING:
This Digest is prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest was available from 3 October 1996.

CONTENTS

Passage History

Income Tax Rates Amendment (Family Tax Initiative) Bill 1996

Date Introduced: 11 September 1996
House: House of Representatives
Portfolio: Treasury
Commencement: 1 January 1997

Purpose

To provide increased tax free thresholds for certain families with children and an additional increase in the threshold for certain families with a child under 5. The increased thresholds will be subject to income tests.

Background

Refer to the Digest for the Family (Tax Initiative) Bill 1996.

Main Provisions

Schedule 1 of the Bill will insert a new Division 5, which deals with the increase in the tax free threshold for certain taxpayers with children, into Part II of the Income Tax Rates Act 1986.

The increased rebate will be available to those with a 'dependant' which is defined in proposed section 20K to be a person under age 16 or under 18 and receiving full time secondary education and who is an Australian resident. The taxpayer must also contribute to the maintenance of the person. If the person derived income during the year, the taxpayer will be deemed to have contributed to their maintenance unless the Commissioner is satisfied otherwise. If the person is under 16 and not attending full time education, or reaches 16 during the year, and is earning income during that year, they will cease to be a dependent if they exceed their relevant income ceiling, which is the same as the cut off level for a child to be treated as a dependent child for social security purposes. This aims to take into account situations where such people earned more than the ceiling level of income during the year.

Proposed section 20C provides for an increase in the threshold of $500 for 1996-97 for a taxpayer for each dependant so long as their family income is less than the family income ceiling for the year (this reflects the operation of the measures for only half of 1996-97). The rate of increase in the threshold for 1997-98 and later years will be $1 000 (ie Part A of the FTI). (The family income test threshold will be $70 000 plus an additional $3 000 for the second and each subsequent child.)

Proposed section 20D provides that if a resident taxpayer has a dependant under 5 years, their income was less than their ceiling and their spouse, if they have one, has an income less than the spouse income ceiling, they will be eligible for an additional increase in their threshold of $1 250 for 1996-97 and $2 500 for 1997-98 and later years. The effect of the various income tests are described in the background section referred to above, and basically the taxpayers threshold will be $65 000 plus $3 000 for each other child regardless of age, while the spouse's income ceiling will be approximately equal to the basic parenting allowance income test.

If a taxpayer earns more than $20 700 and less than $38 001 and they have a tax free threshold of more than $20 700 if the above applied, proposed section 20E provides that proposed sections 20C and 20D will not apply but that a lower marginal rate of tax is to apply to that amount of income that exceeds $20 700 up to the amount by which the threshold exceeds this amount. Because of the various marginal tax rates a threshold above $20 700 would provide additional benefits.

The situation where two or more people jointly maintain a dependant and those people do not reside together is dealt with in proposed section 20L, which provides that the child will only be considered to be a dependant for the days when the taxpayer had care of the child for the night. As well, a person will not be considered to have a child as a dependant unless the child has spent with the taxpayer at least 30% of the number of days during the period for which the increased threshold applies in respect of the child and the people maintaining the child have been separated during this period. Comment: This may be compared with the situation under the social security payments of the FTI where the Secretary is able to determine to whom the payment is to be made. It may be argued that the need to demonstrate on which night either of the taxpayers had care of the child for the night may lead to conflicting allegations as to who had care which may be very difficult to resolve.

The Bill also contains special provisions relating to various circumstances such as where capital gains income is involved or there is primary production income. The rules regarding these matters are very complex due to the treatment of the various types of income involved and will not be addressed in depth in this Digest. The rules are designed to allow access to the full FTI benefits for taxpayers with such income.

If a taxpayer has also received FTI benefits through the social security system during the year, proposed section 20U provides for a proportional reduction in the tax benefit.

Remarks

Refer to the Digest for the Family (Tax Initiative) Bill 1996.

Chris Field Ph. 06 277 2439

Bills Digest Service 27 September 1996

Parliamentary Research Service

Contact Officer and Copyright Details

Chris Field Ph. 06 277 2439
27 September 1996
Bills Digest Service
Parliamentary Research Service

This Digest does not have any official legal status. Other sources should be consulted to determine whether the Bill has been enacted and, if so, whether the subsequent Act reflects further amendments.

PRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.

ISSN 1323-9031
© Commonwealth of Australia 1996

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1996.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 1 October 1996

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