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
Income Tax Rates Amendment (Family Tax Initiative) Bill
1996
Date Introduced: 11 September 1996
House: House of Representatives
Portfolio: Treasury
Commencement: 1 January 1997
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.
Refer to the Digest for the Family (Tax Initiative) Bill
1996.
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.
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
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
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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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