Bills Digest no. 96 2010–11
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.
Morag Donaldson
Bills Digest Service
4 May 2011
CONTENTS
Passage history
Purpose
Background
Financial implications
Passage history
Tax Laws Amendment (2011 Measures No. 1) Bill 2011
Date introduced: 24 February 2011
House: House of Representatives
Portfolio: Treasury
Commencement: The formal provisions commence on Royal Assent, as do Part 1 of Schedule 1, Part 1 of Schedule 2 and the whole of Schedule 3.
Part 2 of Schedule 1 and Part 2 of Schedule 2 commence on 1 July 2014.
Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.
The Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to exempt from income tax certain disaster recovery payments and subsidies.
It also amends the ITAA 1997 and the First Home Saver Accounts Act 2008 (FHSA Act) to enable money in a First Home Saver Account (FHSA) to be paid into a genuine mortgage after the end of a minimum qualifying period.
The Australian Government has paid a Disaster Income Recovery Subsidy to victims of natural disasters that have occurred in Australia since 29 November 2010 (including floods and Cyclone Yasi).[1] The subsidy was first announced on 10 January 2011 for an initial period of 13 weeks.[2] It was paid to employees, small business owners and primary producers who could demonstrate a loss of income as a direct consequence of the disaster, but is not available to anyone in receipt of another income support payment or pension, such as Age Pension, Newstart Allowance, Service Pension or Exceptional Circumstances Income Relief Payment.[3]
The Government has also paid a number of ‘Category C’ Natural Disaster Relief and Recovery Arrangements (NDRRA) grants to small businesses and primary producers affected by these events.[4]
Additionally, the Australian Government has made ex gratia payments to holders of New Zealand Special Category Visa holders who were affected by the natural disasters in the 2010–11 financial year but who were ineligible (because of their visa status) for a tax-exempt disaster relief payment. The ex gratia payments are of an equivalent amount to the other disaster relief payments.[5]
The Bill makes all these subsidies and payments exempt from income tax so that recipients can have the full use of the money.[6] In this regard, Bill Shorten MP (Assistant Treasurer, and Minister for Financial Services and Superannuation) said: ‘The last thing needed by people who have lost everything, who are barely scraping by financially, is to worry about paying income tax on their disaster subsidy’.[7]
The exemption from income tax in relation to the Disaster Income Recovery Subsidy paid to those affected by the recent floods and Cyclone Yasi was announced by Prime Minister Gillard on 10 January 2011 and again on 3 February 2011.[8] It was also announced by the Assistant Treasurer, Bill Shorten MP, on 21 January 2011.[9]
Since October 2008, the Australian Government has encouraged people to save for their first home by offering tax concessions and Government contributions on a banking product known as the ‘First Home Saver Account’. Currently, if a FHSA holder purchases his or her first home before certain minimum release conditions for the account are met, the account must be closed and the balance of the account is paid to the account holder’s superannuation fund or retirement savings account.[10]
The Bill provides greater flexibility by allowing the balance of the FHSA to be paid into a genuine mortgage at the end of a minimum qualifying period if the account holder purchases a house before the release conditions for the account are satisfied. In this way, the balance of the account can be used for the very purpose for which the account was established (that is, the purchase of a home, rather than providing a source of retirement income much later in life). The amendments contained in the Bill will apply to houses purchased after Royal Assent.
The measure was announced in the 2010–11 Budget. [11]
The Senate Standing Committee for the Scrutiny of Bills had no comment to make on the Bill.[12]
The Coalition supports the Bill.[13] None of the independents, nor the Greens Member of Parliament, Adam Bandt MP, spoke to the Bill when it was referred to the Main Committee of the House of Representatives on 24 March 2011.
According to the Explanatory Memorandum, the Bill has the following financial impact:
- tax exemption for the Disaster Income Recover Subsidy: nil
- tax exemption for ex gratia payments to New Zealand non-protected special category visa holders: nil
- tax exemption for recovery grants for the 2010–11 floods and Cyclone Yasi: $82.5 million over the forward estimates period
- increasing the flexibility of FHSAs: nil.[14]
Item 1 amends section 11–15 of the ITAA 1997, which sets out a list of provisions in the ITAA 1997 and the Income Tax Assessment Act 1936 (ITAA 1936) that make ordinary or statutory income exempt from income tax in certain circumstances.[15] Specifically, item 1 includes in that list a reference to the two new tax exemptions for payments to individuals contained in the Bill (being the exemptions for ex gratia payments to New Zealand non-protected special category visa holders and the Disaster Income Recovery Subsidy for the floods that occurred in Australia on or after 29 November 2010 and for Cyclone Yasi)—see item 2 for further details.
Item 2 amends the table in section 51–30 of the ITAA 1997 to provide that certain payments are exempt from income tax in the following circumstances:
- an individual who received an ex gratia payment (known as the ‘Disaster Income Recovery Subsidy’) for the floods that occurred in Australia after 29 November 2010 or Cyclone Yasi—if the payment was claimed after 9 January 2011 but before 1 March 2011, or
- an individual who received an ex gratia payment (known as ‘assistance for New Zealand non-protected special category visa holders’)—if the payment was claimed after 30 January 2011 but before 1 August 2011.[16]
The exemptions end on 1 July 2014.[17]
Item 1 of Schedule 2 amends section 11–55 of the ITAA 1997, which sets out a list of provisions in the ITAA 1997 (and the ITAA 1936) which make amounts ‘non-assessable non-exempt’ income.[18]
Item 2 of Schedule 2 to the Bill amends Division 59 of the ITAA 1997, which sets out particular amounts that are non-assessable non-exempt income. Particularly, item 2 inserts proposed section 59–55, which provides that recovery grants for small businesses and primary producers that were made under Category C of the NDRRA in relation to the 2010–11 floods are not assessable income and are not exempt income.
Item 2 also inserts proposed section 59–60, which provides that recovery grants for small businesses and primary producers that were made under Category C of the NDRRA in relation to Cyclone Yasi are also not assessable income and are not exempt income.
The exemptions contained in Schedule 2 end on 1 July 2014.[19]
As mentioned in the Background section to this Digest, Schedule 3 increases the flexibility of the FHSA Act by allowing money in a FHSA to be paid into a genuine mortgage after the end of a minimum qualifying period if the FHSA holder purchases a home before the usual FHSA release conditions are satisfied. Currently the FHSA Act only allows the balance of the account to be transferred to a superannuation fund or a retirement savings account.
Item 7 of Schedule 3 inserts proposed subsections 17(5) and (6) into the FHSA Act. Section 17 of that Act deals with the meaning of the term ‘FHSA payment conditions’ in a variety of circumstances, including where a person makes a ‘FHSA home acquisition payment’ or (as will be the case following the insertion of proposed subsections 17(5) and (6)) a ‘FHSA mortgage payment’.[20]
Proposed subsection 17(5) provides that a FHSA mortgage payment satisfies the ‘FHSA payment conditions’ for a qualifying interest in a dwelling if within 28 days of the payment being made, the FHSA holder uses an amount equivalent to the payment to repay all or part of a loan secured by a genuine mortgage over the qualifying interest and for which the account holder is a mortgagor. The term ‘genuine mortgage’ is defined to mean a mortgage where the mortgagors and mortgagees deal with each other at arm’s length and none of the mortgagors is an associate of any of the mortgagees.[21]
The person must hold the qualifying interest for at least six months, with the dwelling being the person’s main residence during this period.[22] If the construction of the dwelling is not complete when the payment is made, construction must be complete within a reasonable period after the payment is made.[23]
Item 25 inserts proposed section 32A into the FHSA Act to make it an offence for a FHSA provider to fail to provide the amount requested by the FHSA holder for repaying a mortgage if he or she acquires a home before the usual qualifying period for the FHSA period ends. The FHSA provider must provide the amount as soon as practicable after the application is made and no later than 30 days after the application is made. Specifically, proposed section 32A applies if:
- a FHSA holder acquires at a particular time (known as the ‘acquisition time’) a qualifying interest in a dwelling in Australia or Norfolk Island
- before that time the FHSA holder had never held a qualifying interest in a dwelling in Australia or Norfolk Island at a time when the dwelling was the FHSDA holder’s main residence
- the FHSA holder gives the FHSA provider an application in the approved form requesting an amount be paid from the FHSA
- the FHSA holder declares (in the application) that the payment will satisfy the payment conditions mentioned in proposed subsection 17(5) of the FHSA Act[24]
- one of the following requirements is met:
– the requirement in subparagraph 32(1)(c)(i) of the FHSA Act would be met if the FHSA holder were taken to have made a personal FHSA contribution of at least $1000 for the financial year that includes the acquisition time and each later financial year[25]
– the FHSA holder is in breach of the account balance cap and has held a FHSA in at least four financial years (including the year in which the payment is to be made),[26] or
– the FHSA holder declares (in the application) that he or she holds the qualifying interest with another FHSA holder in respect of whom the requirement in subparagraph 32(1)(c)(i) or another requirement mentioned in this bullet point is met
- the provider is satisfied any requirements specified in the regulations are met, and
- the FHSA is inactive only because of paragraph 23(1)(c) or (e) (about a FHSA remaining open until a FHSA mortgage payment can be paid) and is yet to be closed. [27]
The FHSA provider must pay the requested amount as soon as practicable after the application is made—and no later than 30 days after the application is made. [28] Failure to do so is an offence that carries a maximum penalty of 100 penalty units. [29]
If the FHSA mortgage payment fails to satisfy the FHSA payment conditions, or the payment satisfies the ‘FHSA payment conditions’[30] but is a ‘FHSA ineligibility payment’,[31] the FHSA holder is liable to pay tax imposed by the Income Tax (First Home Saver Account Misuse Tax) Act 2008. [32]
Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2795.
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