Bills Digest No. 180  1998-99 A New Tax System (Family Assistance) (Consequential and Related Measures) Bill (No.1) 1999


Numerical Index | Alphabetical Index

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 - Tax Reform Package
Background - Family Assistance
Main Provisions
Concluding Comments
Endnotes
Contact Officer and Copyright Details

Passage History

A New Tax System (Family Assistance) (Consequential and Related Measures) Bill (No.1) 1999

Date Introduced: 31 March 1999

House: House of Representatives

Portfolio: Family and Community Services

Commencement: Generally upon Royal Assent subject, however, to:

  • child care assistance transitional provisions which will commence upon repeal of the Child Care Payments Act 1997, and
  • amendments relating to child care assistance, family allowance, family tax payment, maternity allowances, parenting payment and income tax law which will commence after the commencement of specified A New Tax System legislation(1) proposed to commence on 1 July 2000.

Purpose

The A New Tax System (Family Assistance)(Consequential and Related Measures) Bill (No.1) 1999 (Bill), compliments the A New Tax System (Family Assistance) Bill 1999 (Family Assistance Bill).

Pursuant to the Family Assistance Bill the structure and delivery of family assistance is to be simplified by the reduction of twelve forms of assistance to three.

This Bill proposes to:

  • introduce Parenting Payment (Partnered) ordinary income test taper reforms to extend the income range over which the payment applies
  • repeal existing forms of assistance proposed to be merged into the three new forms of payment under the Family Assistance Bill, introduce certain transitional provisions for child care assistance and make consequential amendments to Parenting Payment
  • make consequential amendments of the income tax law including the notional retention of certain rebates for the purposes of calculation of zone and overseas forces rebates and for determining eligibility to the Medicare Levy family income threshold, and
  • introduce fringe benefit reforms relating to the parental means test for Youth Allowance, the test used in determining whether Youth Allowance is payable.

Background - Tax Reform Package

On 13 August 1998 the Federal Government released proposals for reform of the Australian tax system(2) of which, a goods and services tax (GST) was the centrepiece.

The tax reform plan proposes to:

  • Introduce a GST which eliminates sales tax and a range of nine other indirect taxes
  • Change Commonwealth-State financial relations by providing States and Territories with an independent revenue base
  • Implement significant changes to individual marginal tax rates
  • Implement a major rationalisation of family assistance
  • Replace the various existing taxation payment and reporting systems of company tax, provisional tax, PAYE,(3) PPS(4) and RPS(5) by one quarterly tax payment system, PAYG(6)
  • Introduce a new universal business number system
  • Move toward an entity taxation system which is directed toward the elimination of tax advantages between different business structures, and
  • Simplify the imputation system and introduce refunds for excess franking credits.

As part of the tax reform package to implement a major rationalisation of family assistance the Government proposes to simplify the structure and delivery of family assistance. Accordingly, twelve family benefits are proposed to be reduced to three and a new Family Assistance Office will deliver the new set of simplified family assistance programs.(7)

On 25 November 1998, the Senate referred issues relating to the GST and the new tax system to a Select Committee and three of its Reference Committees.(8) In February 1999 the Senate Select Committee produced its First Report.(9) The three Reference Committees produced their reports in March 1999.(10) In April 1999 the Senate Select Committee released its second report.(11)

Background - Family Assistance

1. A New Tax System (Family Assistance) Bill 1999

The purpose of the Family Assistance Bill, is to introduce a simplified structure and delivery mechanism for the provision of family assistance through the tax and social security systems.

The Family Assistance Bill introduces a proposed new family benefits structure that will reduce the existing payment mechanisms from twelve to three.

The Family Assistance Bill also relocates Maternity Allowance from the Social Security Act 1991 to the Bill. This is to ensure that all family assistance benefits are located in one Act.

It is proposed that there will be three distinct family benefits:

  • Family Tax Benefit Part A

    Family Tax Benefit Part A (FTB-Part A) will provide assistance to families to raise children.
  • Family Tax Benefit Part B, and

    Family Tax Benefit Part B (FTB-Part B) will provide additional assistance for single income families with children
  • Child Care Benefit

    Child Care Benefit (CCB) will provide assistance with the costs of childcare outside the home.

Please refer to the Bills Digest for the A New Tax System (Family Assistance) Bill 1999 for additional information in respect of this measure.

2. Parenting Payment

Parenting Payment was created in March 1998 by the merger of the Sole Parent Pension and the Parenting Allowance. This merger brought together all payments made to people who were primarily engaged in caring for their children.

The first payment for partnered people caring for children was only created in 1994 when the Home Child Care Allowance replaced the old Dependent Spouse Rebate with a fortnightly cash payment.

In 1995 it was absorbed into the new Parenting Allowance. That payment was mainly for those parents who were primarily caring for children and whose partner was unemployed or in low-income employment. A minimum rate was also available for higher income families where one parent was mainly caring for children. That minimum rate will be absorbed into the new Family Tax Benefit Part B from July 2000. This Bill eases the effect of the income test on the caring parent in order to increase incentives to take up part-time and casual work.

Main Provisions

1. Parenting Payment ordinary income test taper

To calculate the amount of Benefit PP (Partnered) a person's maximum basic rate is subject to an income test. The income test is set out in Module D of the Parenting Payment Rate Calculator in Part 3.6A of the Social Security Act 1991.

Income above the ordinary income free area and (if applicable) partner income free area, reduces payment in accordance with the income test tapers set out in point 1068B-D24 (partner income reduction) and points 1068B-D30 and D31 (person's upper and lower income range reduction).

The amendments extend the income range over which the 50 per cent taper will apply. A partner's income above the partner income free area will continue to reduce payment by $0-70 for each $1 in excess of the free area as is currently the case.

This is achieved by Item 1 of Schedule 1 repealing points 1068B-D30 and D31 and inserting new points 1068B-D30 and D31 which effectively increase the income range over which the 50 per cent taper applies from $80 to $183.

The following table provides a comparison of current taper rates and proposed taper rates at 1 July 2000.

Current Income Test Tapers

for Benefit PP (Partnered)

Proposed Income Test Tapers

for Benefit PP (Partnered)

Income $per fortnight

Reduction

Income $ per fortnight

Reduction

0 - 60

no reduction

0 - 60

no reduction

60 - 140

$0-50 for each $1 over $60

60 - 243

$0-50 for each $1 over $60

greater than 140

$40-00 plus $0-70 for each $1 over $140

greater than 243

$91-50 plus $0-70 for each $1 over $243

Based on income of $300 per fortnight, the current reduction in benefit would be $152-00 and the proposed reduction would be $131-40.

2. Repeals and consequential amendments

2.1 Repeals and amendments relating to child care assistance and child care rebate

Child Care Assistance will combine with Child Care Rebate to form the proposed Child Care Benefit under the Family Assistance Bill.

There are currently three main Acts which deal with the child care payments. The Child Care Payments Act 1997, the Childcare Rebate Act 1993 and the Child Care Act 1972. The first two Acts establish the two payments and deal with entitlement, claims, determinations, payment and rate of assistance. The Child Care Act 1972 is an Act to provide assistance by the Commonwealth in respect of places where children, all or the majority of whom are under school age, may be cared for. This includes payments to child care centres so that the centres can reduce child care fees paid by families.

Consequent upon the introduction of the Child Care Benefit payment under the Family Assistance Bill, Items 1, 2, and 3 of Schedule 2 repeal the Child Care Payments Act 1997, the Child Care Payments (Consequential Amendments and Transitional Provisions) Act 1997 and the Childcare Rebate Act 1993.

Items 4 and 5 of Schedule 2 insert transitional provisions into the Child Care Act 1972 relating to immunisation, made necessary by the repeal of the Child Care Payments Act 1997. The transitional provisions are generally the same as those contained in the Child Care Payments Act 1997. These amendments are then themselves repealed immediately after commencement of the Family Assistance Bill. Immunisation is dealt with in the Family Assistance Bill.

Schedule 3 introduces amendments to the Child Care Act 1972 so that all references to child care assistance (referred to as 'fee relief' in the Child Care Act 1972) and related matters are repealed. Item 24 repeals section 12A, which contains the main provisions providing grants for fee relief.

2.2 Repeals and amendments relating to family allowance

Family Allowance will combine with three other payments to form the proposed Family Tax Benefit-Part A under the Family Assistance Bill.

Consequently Items 1, 2, 3 and 4 of Schedule 4 amend the Social Security Act 1991 by repealing Family Allowance definitions (sections 3 and 6), Family Allowance (Part 2.17) and the Family Allowance Rate Calculator (Part 3.7).

Item 2 also inserts new section 6, which will contain double orphan pension definitions currently included in Family Allowance definitions.

2.3 Repeals and amendments relating to family tax payment

Family Tax Payment Part A will combine with three other payments to form the proposed Family Tax Benefit-Part A under the Family Assistance Bill. Family Tax Payment Part B will combine with five other payments to form the proposed Family Tax Benefit-Part B under the Family Assistance Bill.

Consequently Items 1, 2, 3 and 4 of Schedule 5 amend the Social Security Act 1991 by repealing Family Tax Payment definitions (sections 3 and 6AA), Family Tax Payment (Part 2.17AA) and the Family Tax Payment Rate Calculator (Part 3.8).

2.4 Repeals relating to maternity allowance

Provisions relating to Maternity Allowance (MA) and Maternity Immunisation Allowance (MIA) have been relocated to the Family Assistance Bill. Consequently Item 1 of Schedule 6 amends the Social Security Act 1991 by repealing Part 2.17A, which deals with MA and MIA.

3. Parenting Payment consequential amendments

Basic Parenting Payment will combine with five other payments to form the proposed Family Tax Benefit-Part B under the Family Assistance Bill.

Consequently Schedule 7 amends the Social Security Act 1991 by deleting references to Non-Benefit PP (Partnered) and the maximum basic component of Benefit PP (Partnered) (Basic Parenting Payment refers to these payments) and by making consequential amendments to payability, payment and the calculation process for the remaining Benefit PP (Partnered).

The rate of Benefit PP (Partnered), except for the amendment to the income test taper rates referred to in paragraph 1 above, will remain unchanged.

4. Income tax law amendments

4.1 Rebates

Schedule 8 makes amendments to the rebates provisions in the Income Tax Assessment Act 1936.

  • Two rebates are repealed:
  • dependent spouse (with child) rebate
    Item 21 repeals subsection 159J(1C)
    Items 19 and 23 repeal associated provisions
  • sole parent rebate
    Item 24 inserts new subsection 159K(1A)
  • Three rebates are unavailable to persons eligible to receive family tax benefit within the meaning of the Family Assistance Bill.
  • dependent spouse (without child rebate)
    Item 20 inserts new subsection 159J(1AA)
  • child-housekeeper rebate
    Item 20 inserts new subsection 159J(1AA)
  • housekeeper rebate
    Item 25 inserts new subsection 159L(3)
  • The rebates are notionally retained for the purposes of calculation of the three rebates generally referred to as the zone and overseas forces rebates.(12)
  • sole parent rebate
    Items 1, 7 and 13
  • housekeeper rebate
    Items 2, 8 and 14
  • child-housekeeper rebate
    Items 3, 4, 9, 10, 15 and 16
  • dependent spouse (without child) rebate
    Items 5, 11 and 17
  • dependent spouse (with child) rebate
    Notes in Items 6, 12 and 18 clarify the fact that despite this rebate being repealed it will be notionally retained for the purposes of calculating the zone and overseas forces rebates.

4.2 Family Tax Assistance

Item 26 of Schedule 8 repeals Division 5 of Part II of the Income Tax Rates Act 1986.

Division 5 (Family Tax Assistance) provides for an increased tax-free threshold for certain taxpayers with dependent children.

Under the Family Assistance Bill Family Tax Assistance Part A will be merged with three other payments to form Family Tax Benefit-Part A. Family Tax Assistance Part B will be merged with five other payments to form Family Tax Benefit-Part B.

4.3 Medicare Levy

Items 27 and 28 of Schedule 8 amend subsections 8(1) and (2) of the Medicare Levy Act 1986 to notionally retain the sole parent, child-housekeeper and housekeeper rebates for determining eligibility to the Medicare Levy family income threshold which provides relief to certain low income earners from the Medicare Levy.

4.4 Application

The amendments made by Schedule 8 to rebates, family tax assistance and the Medicare Levy apply to assessments in relation to the 2000-2001 year of income and later years of income.

5. Fringe benefits and Youth Allowance

5.1 Fringe benefits tax

A New Tax System (Fringe Benefits Reporting) Bill 1998 - assented to as the A New Tax System (Fringe Benefits Reporting) Act 1999, Act No.17 of 1999, requires employers, from the 1999-2000 year of income, to identify on group certificates the grossed-up value of certain employee fringe benefits.

Fringe benefits tax (FBT) is a tax payable by employers on the value of certain fringe benefits that have been provided to their employees.

The amount of FBT payable in respect of a benefit depends upon the taxable value of the benefit.

FBT is payable on the grossed-up taxable value of a benefit.

Under the gross-up rules the FBT rate of tax is applied to the 'fringe benefits taxable amount', ie to the sum of the 'taxable values' of all fringe benefits for a year of tax increased by a figure based on the applicable FBT rate. For the year commencing 1 April 1998 the sum of the 'taxable values' is increased by 94.17 per cent.

To ensure similarity in the tax treatment of fringe benefits and salaries, most employers also qualify for an off-setting tax deduction for the amount of FBT incurred.(13)

5.2 Summary of proposed amendments

It is intended that, for the purposes of the parental means test for youth allowance, the non-grossed up value of a parent's fringe benefits (as defined in the Fringe Benefits Tax Assessment Act 1986) will be included in assessing an individual's entitlement to youth allowance.

The grossed-up amount will be shown on group certificates and so amendments proposed in the Bill ensure that it is the non-grossed up amount that will be taken into account in determining eligibility for youth allowance. A formula will convert the grossed-up amount into the non grossed -up amount

Concluding Comments

1. Increase in income test taper for Parenting Payment increases incentive to work

Adjustments to the Parenting Payment income test for partnered parents caring for children will provide incentive to increase family income by encouraging increased participation in employment.

The income test, which presently applies, indirectly imposes high effective marginal tax rates and was initially designed to apply to Newstart recipients who are mainly seeking full or near full time work.

The changes will realise direct and immediate financial assistance to those families with income in excess of the ordinary income free area who are currently on reduced payments.

The increase in the lower and upper income range reduction for the income test will also allow greater access to entitlement to Parenting Payment.

2. Further comments in the Bills Digest for the Family Assistance Bill

Please refer to the Bills Digest for A New Tax System (Family Assistance) Bill 1999 for additional comments on the following topics:

  • Complexity - Problem overcome?
  • Rules governing claims, determination of claims and payment of benefits in an Act not yet introduced
  • Child Care Benefit - Eligibility dependent on an Act not yet introduced, and
  • Issues in relation to proposed delivery mechanism.

3. Further consequential amendments required

Despite the amendments and repeals contained in the Bill there remain numerous references throughout the Social Security Act 1991 to Maternity Allowance, Family Allowance and Family Tax Payment. These references do not appear to directly impact upon matters included in the Family Assistance Bill and one would expect that such references will be tidied up in forthcoming consequential amendment Bills.

Endnotes

 

  1. A New Tax System (Family Assistance) Act 1999 and Schedules 1, 2 and 3 of the A New Tax System (Compensation Measures Legislation Amendment) Act 1999.

  2. Treasurer, Tax Reform: not a new tax - a new tax system; Tax Reform Plan, 13 August 1998, Commonwealth of Australia.

  3. Pay As You Earn.

  4. Prescribed Payments System.

  5. Reportable Payments System.

  6. Pay As You Go.

  7. Treasurer, Tax Reform: not a new tax - a new tax system; Tax Reform Plan, 13 August 1998, Commonwealth of Australia, pp. 52 to 55.

  8. Senate Select Committee on A New Tax System; Senate Community Affairs References Committee; Senate Employment, Workplace Relations, Small Business and Education References Committee and Senate Environment, Communications, Information Technology and the Arts References Committee.

  9. Senate Select Committee on A New Tax System, First Report, February 1999.

  10. Senate Community Affairs References Committee, The Lucky Country Goes Begging, Report on the GST and a New Tax System, March 1999; Senate Employment, Workplace Relations, Small Business and Education References Committee, Report of the Inquiry into the GST and A New Tax System, March 1999 and Senate Environment, Communications, Information Technology and the Arts References Committee, Inquiry into the GST and a New Tax System, March 1999.

  11. Senate Select Committee on A New Tax System, Main Report, February 1999.

  12. The three rebates are found in sections 23AB (rebates for service with an armed force under the control of the United Nations), 79A (rebates for residents of isolated areas) and 79B (rebates for members of the Defence Force serving overseas).

  13. Please refer to CCH Australia Limited, 1999 Australian Master Tax Guide, Chapter 35 commencing at p. 1497 for additional information in relation to FBT.

 

 

Contact Officer and Copyright Details

Lesley Lang, Dale Daniels and Peter Yeend
12 May 1999
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

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

ISSN 1328-8091
© Commonwealth of Australia 1999

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Published by the Department of the Parliamentary Library, 1999.

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