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
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.
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.
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)
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.
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
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.
-
- 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.
- Treasurer, Tax Reform: not a new tax - a new tax
system; Tax Reform Plan, 13 August 1998, Commonwealth of
Australia.
- Pay As You Earn.
- Prescribed Payments System.
- Reportable Payments System.
- Pay As You Go.
- Treasurer, Tax Reform: not a new tax - a new tax
system; Tax Reform Plan, 13 August 1998, Commonwealth of
Australia, pp. 52 to 55.
- 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.
- Senate Select Committee on A New Tax System, First
Report, February 1999.
- 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.
- Senate Select Committee on A New Tax System, Main
Report, February 1999.
- 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).
- Please refer to CCH Australia Limited, 1999 Australian
Master Tax Guide, Chapter 35 commencing at p. 1497 for
additional information in relation to FBT.
Lesley Lang, Dale Daniels and Peter Yeend
12 May 1999
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
© Commonwealth of Australia 1999
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