Bills Digest No. 33 2001-02
Family Assistance Estimate Tolerance (Transition) Bill 2001
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Family Assistance Estimate Tolerance
(Transition) Bill 2001
Date Introduced: 22 August 2001
House: Senate
Portfolio: Family and Community Services
Commencement: Royal Assent
To give effect to the
Government's decision to allow a $1,000 excess payment tolerance
for Family Tax Benefit (FTB) and Child Care Benefit (CCB), arising
from an underestimate of family income or shared care, in the
2000-2001 income year.
The Bill allows for the provision of a disallowable instrument,
to give the minister power to set conditions for the waiver of
certain classes and amounts of debts, that arise under the
Family Assistance (Administration) Act 1999 (FAAA). A
disallowable instrument is being used, rather than amendments to
the FAAA, as the waiver of debts is, at this time, intended to be
used in respect of debts arising only in the 2000-2001 payment
year. The Government has not indicated its intentions in respect of
waiving debts for subsequent years and this issue is discussed in
this Digest.
Announcement of $1,000 tolerance
on FTB and CCB overpayments for the 2000-2001 financial
year
The Government announced on 1 July 2001, that there would be a
$1,000 tolerance for families who had a FTB or CCB overpayment,
because they had underestimated their 2000-2001 year family
income.(1)
FTB and CCB - family assistance
introduced from 1 July 2000
The FTB and CCB family assistance arrangements were introduced
from 1 July 2000 as a part of the government's A New Tax System
arrangements. The FTB and CCB payments were introduced with the
passage of the A New Tax System (Family Assistance) Act
1999.(2) Complimenting this Act was the A New
Tax System (Family Assistance) (Administration) Act 1999,
which provided the administrative provisions for FTB and CCB, such
as the making of claims for benefits, determination of claims,
payment of benefits, recipient obligations, termination of payments
and the review processes.(3)
Forms of family
assistance
There are three main forms of family assistance:
- Family Tax Benefit (the sum of FTB-Part A and FBT-PartB)
- Maternity Allowance and Maternity Immunisation Allowance (MIA),
and
- Child Care Benefit (CCB).
Two payment options for the payment of family assistance
(FTB and/or CCB)
For FTB and CCB there are several payment options.
For FTB:
- Payment by fortnightly instalments paid by the Family
Assistance Office (Centrelink). This method requires an income
estimate and may result in an under or overpayment, or
- Reduction amounts withheld from wages paid to the claimant or
their partner. This method requires an income estimate and may
result in an under or overpayment, or
- By the Australian Tax Office (ATO) through the tax system as a
lump sum payment at the end of the financial year. This method
requires no estimate as the amount paid is calculated
retrospectively against actual taxable income and there is no under
or overpayment.
For CCB:
- Paid by instalments to the child-care service provider. This
method requires an income estimate and may result in an under or
overpayment, or
- Claimed at the end of the year from the Family Assistance
Office (Centrelink). This method requires no estimate as the amount
paid is calculated retrospectively against actual taxable income
and there is no under or overpayment.
Calculating the rate of FTB or
CCB to be provided by instalments - payment based on an
estimate
A person choosing to receive FTB fortnightly during the year, or
CCB as a fee reduction from the child-care centre, needs to provide
an estimate of family income for the current year.
Those who do need to provide an estimate are those who are:
- single and receive income support payment from either
Centrelink or Veterans' Affairs
- only claiming the minimum rate of CCB and do not claim FTB
- claiming a lump sum payment for a previous financial year for
which actual family income is known, or
- claiming FTB through the tax system when lodging a tax return
at the end of the year, or, claim CCB from the Family Assistance
Office (Centrelink) at the end of the year.
Basing the qualification and payment rate on current year income
(even an estimate) has the benefit of being more up-to-date than
the previous arrangements, which referred to previous year income.
See Previous payment arrangements for family allowance - 10%
tolerance for variations in income below.
Legislation allows the provision
of FTB and CCB to be provided in advance based on a income
estimate
The rate of FTB and CCB payable is prescribed in the Family
Assistance Act 1999 (FAA). For FTB, sub-section 33(1) of the
Family Assistance (Administration) Act 1999 (FAAA) allows
FTB to be provided in advance by way of instalments.(4)
Likewise for CCB, sub-section 55(1) of the FAAA allows CCB to be
based on an estimate and provided in advance.(5)
Reconciliations of income
estimates and income assessments at the end of the
year
Where FTB or CCB has been paid on the basis of an income
estimate, at the end of the year a reconciliation is conducted,
comparing the estimate against the actual taxable family income, as
determined by the ATO. This reconciliation occurs automatically, as
once the actual income for the year is assessed by the ATO, the ATO
provides the Family Assistance Office with the income
assessment.
Reconciliations may lead to
under or overpayments of FTB or CCB
Where the income estimate provided underestimates the family
income for the year, an overpayment arises and the excess FTB or
CCB amount needs to be paid back to the Family Assistance
Office.
Likewise, where the income estimate provided overestimates the
family income for the year, an underpayment arises and the arrears
of FTB or CCB are paid to the claimant.
Legislation provides for a
overpayment where an excess amount of FTB or CCB has been
paid
Once the actual family taxable income is known after the end of
the year by virtue of the ATO tax assessment, sub-section 71(2) of
the FAAA provides for any excess payment to be an
overpayment.(6)
Waiver of debts up to $1,000 -
how many FTB and CCB payments to families will benefit and at what
cost?
The Prime Minister, indicated that some 4,000 families will
benefit from this waiver of debts at a cost of about $200
million.(7) This is an average debt waiver of $500 per
family. Whilst the debt waiver limit is $1,000 each for FTB and
CCB, the debts for each claimant will vary from anything from 1
cent up to $1,000. The $1,000 debt waiver applies each to FTB and
CCB, so potentially one family may benefit by up to
$2,000.(8)
Waiver of $1,000 overpayment
applies only for 2000-2001 - plans for 2001-2002
The Government has not spelt out in any detail what their plans
are (if any) for under and overpayments that will arise for
payments against forward estimates of income for the 2001-2002
year. The Minister for Family and Community Services, Senator the
Hon. Amanda Vanstone, did detail in an answer to a Question Without
Notice on 9 August 20001, that the government had some minor
modifications in mind. The Government also expected a far lesser
number of debts, once families become used to the payment
arrangements.(9)
If the Government does nothing, there will again be over and
underpayments arising from the use of estimates of current year
income. Perhaps the Government is hoping more families will elect
to take their FTB at the end of the year, a methodology that
creates no under or overpayments? However, many families have
become used to fortnightly payments, rather then end-of-year lump
sums, and this raises issues as to whether assistance is being
provided to families in a timely manner?
Forward estimates of annual
income will always lead to under and overpayments
The Department of Family and Community Services details that for
the 2001 year, approximately 400 000 families (they
guesstimate) will claim FTB at the end of the 2000-2001 tax year.
Some 1.8 million families have claimed and are being paid FTB for
the 2001 year based on an income estimate.
Centrelink had made some 800 000 updates to family income
details in the 2000-2001 year arising from families notifying of
income changes during the year.(10) This serves to
highlight that in a regime that uses forward estimates of annual
income, there will always be a significant number of families with
income variations leading to under and overpayments. Given human
nature and the desire to maximise assistance, it is probable
underestimates of income will be far more prevalent than
overestimates of income, leading to more overpayments than
underpayments.
Previous payment arrangements
for family allowance - 10% tolerance for variations in
income
The family assistance arrangements that existed before July 2000
involved the payment of family allowance (FA). Like the FTB
arrangements, payment was for a year (for FA the calendar year)
based on adjustable income over a financial year. The main
difference was the income referred to was retrospective not
prospective. So, for payment in the 2000 calendar year, the income
year was the 1998-1999 financial year.
This means in the vast majority of cases, estimates were not
required and payment could be based on actual income leaving no
opportunity for under or overpayments to arise. The main criticism
of using the most recently completed financial year was that it was
often up to 18 months out of date. Income estimates did exist under
the old system in cases where:
- Income in the 2000 year had significantly varied from the level
of 1998-1999 income, ie. reduced or increased by 10% or more;
and
- For self-employed claimants, who may not yet have completed a
tax assessment having until March of the 2000 year to lodge a tax
return, when making a claim for FA.
New arrangements from 1 July
2000 - under and overpayments - refunds and
recovery
One feature of the new arrangements is that where an
underpayment is detected, as income was overestimated, arrears are
paid. This did not occur under the pre-July 2000 arrangements,
where no arrears were paid. This is clearly more beneficial.
Under the pre-July 2000 arrangements, a 10% leeway was allowed
for overpayments, but where the amount of FA paid exceed the
correct amount by 10% or more, a debt was raised for the whole of
the excess payment. Under the new arrangements, there is no 10%
leeway and the exact amount is to be paid. This 10% tolerance that
then applied to underestimates only advantaged those whose income
had increased. Those whose income had decreased were not paid
arrears. So there is more exactitude now about claimants receiving
exactly their correct entitlement.
Even under the FA arrangements,
income estimates led to overpayments
Even though income estimates were the exception rather than the
rule under the pervious FA payment arrangements, estimates still
led to overpayments. In the 1999-2000 year, FA reviews made up 5.6%
of all reviews, yet 20.8% of all cancellations, 5.7% of all rate
reductions and 41% of all debts. This phenomenon largely arises
from income estimates.
This contrasts with newstart allowance, which had 44.6% of all
reviews but only 5.5% of cancellations, 1.9% of rate reductions and
14.9% of all debts.(11) With income estimates now the
rule rather than the exception, it is probable that the incidence
of over and underpayments will be higher.
Item 1 amends sub-section 102(1) so that parts
of debts can be waived.
Item 2 inserts new sub-section 102(1A) so that
the Minister can set certain conditions to be met by the Secretary,
and specify limits on amounts to be waived in the disallowable
instrument.
Using annual family income, whether based on previous year or
current year income, has its difficulties. Most difficulties arise
for families with variations in income. Given the increased
casualisation of the labour force and the proportion of families
where both partners are in the labour force, the proportion of
families with fluctuating incomes is also increasing. In using
annual family income, there probably isn't a methodology that
provides assistance that is both up-to-date and free of the
potential for either an under or overpayment.
No families enjoy the prospect or process of debts and recovery
being raised against the assistance they have already received and
for which they have complied with all that has been asked of them.
To avoid this problem a move away from annual income (prospective
or retrospective) appears worthy of consideration. There are
alternatives income-measuring methodologies used for other payments
and assistance. For the allowance income support payments, income
is examined at the time of claim and any adjustments to
qualification or the rate made if and when income varies. While
this method is responsive, the main argument against it is it is
far more costly administratively to deliver.
-
- Government's Generous Help For Australian Families,
Media Release by the Minister for Family and Community Services, 1
July 2001.
- 'A New Tax System (Family Assistance) Bill 1999', Bills
Digest No. 175 1998-99. http://www.aph.gov.au/library/pubs/bd/1998-99/99bd175.htm
- 'A New Tax System (Family Assistance) (Administration) Bill
1999', Bills Digest No. 205 1998-99, http://www.aph.gov.au/library/pubs/bd/1998-99/99bd205.htm
- Determination of entitlement to family tax benefit advance
33.(1) The Secretary must determine that an
individual is entitled to be paid a family tax benefit advance for
a standard advance period if:
-
- on the advance assessment day (see):
-
- the individual is entitled to be paid family tax benefit by
instalment; and
- the individual's Part A rate is equal to or exceeds twice the
individual's FTB advance rate; and
- the individual has made a request to the for the payment of a
family tax benefit advance for that period; and
- the request is made before the end of that period; and
- the individual is not an individual to whom subsection (1A)
applies.
-
- Determination of CCB % under section 50J may be based on
estimate
-
- a CCB % applicable to a claimant who is an individual is
required to be determined under; and
- subparagraph 7(a)(ii) of of Schedule 2 to the Family Assistance
Act does not apply to the claimant; and
- the information about an amount needed by the Secretary for the
calculation of the CCB % is not available (for example, because the
adjusted taxable income of the claimant or another individual
cannot be known until after the end of the relevant income year);
and
- the claimant gives the Secretary an estimate of the amount
needed; and
- the Secretary considers the estimate to be reasonable;
the Secretary may determine the CCB % applicable
to the claimant on the basis of the estimate.
-
- 71.(2) If:
-
- an amount (the received amount) has been paid to a
person by way of assistance; and
- the received amount is greater than the amount (the
correct amount) of assistance that should have
been paid to the person under the family assistance law;
the difference between the received amount and
the correct amount is a debt due to the Commonwealth by the
person.
-
- Discussion between the Prime Minister and Laurie Oakes on the
Sunday Program of 1 July 2001.
- Answer provided by Senator the Hon. Amanda Vanstone, Minister
for Family and Community Services to a Question Without Notice
asked by Senator Denman on 9 August 2001 about Child Care:
Centrelink Payments., Senate Hansard pages 25879 - 25880.
- Answer provided by Senator the Hon. Amanda Vanstone, Minister
for Family and Community Services to a Question Without Notice
asked by Senator McKiernan on 9 August 2001 about Taxation: Family
Payments., Senate Hansard pages 25878 - 25879
- Media Release, Government's generous help for
Australian families - 1 July 2001. Senator the Hon. Amanda
Vanstone, Minister for Family and Community Services.
- Centrelink 1999-2000 Compliance Activity Report - Table 1.
Peter Yeend
27 August 2001
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ISSN 1328-8091
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