Bills Digest no. 93 2008–09
Tax Bonus for Working Australians Bill 2009 and Tax
Bonus for Working Australians (Consequential Amendments) Bill
2009
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
Financial implications
Main provisions
Concluding comments
Endnotes
Contact officer & copyright details
Passage history
Date
introduced: 4 February
2009
House: House of Representatives
Portfolio: Treasury
Commencement:
Royal Assent and the date
on which the Tax Bonus for Working Australians Act 2009 commences,
respectively.
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at
http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The purpose of the Tax Bonus for Working Australians Bill 2009
(Bonus Bill) is to enable the payment of one-off amounts to those
who lodge a tax return for the 2007 08 financial year prior to 30
June 2009, and, for that financial year, have an adjusted tax
liability greater than nil and a taxable income of $100 000 or
less.
The purpose of the Tax Bonus for Working Australians
(Consequential Amendments) Bill 2009 (Consequential Bill) is to
amend the:
- Income Tax Assessment Act 1936 (ITAA 1936)
- Income Tax Assessment Act 1997 (ITAA 1997)
- Taxation Administration Act 1953 (TAA 1953)
- Social Security Act 1991(SSA 1991), and
- Veteran s Entitlement Act 1986 (VEA 1986).
These amendments will ensure that
the proposed tax bonus payments are not treated as taxable income
for the financial year in which they are received or income for
calculating social security or veteran s affairs entitlements.
The general background to these Bills is contained in the
Parliamentary Library s recent Bills Digest on the Appropriation
(Nation Building and Jobs) Bill (No. 1) 2008 2009.[1]
These measures were announced in Government s updated Economic
and Fiscal Outlook for 2008 2009 released on 3 February
2009.[2] These
measures were also announced in a joint media release from the
Prime Minister and Treasurer on 3 February 2009.[3]
All the Bills implementing the proposed stimulus package have
been referred to the Senate Standing Committee on Finance and
Public Accounts for report by 10 February 2009.
Concern has been expressed that if a person did not submit a tax
return for the 2007 2008 financial year, or they did not have a net
tax liability for that income year (such as some long term
unemployed) then they would not be receiving this payment.[4]
However, much of the press commentary has been favourable. The
various state Premiers and Territory Chief Ministers are reported
as supporting the overall package of measures.[5]
The Business Council of Australia noted that the government s
responsible approach in keeping stimulus measures timely, well
targeted at those who ll spend it, and temporary, will ensure the
spending will not be a dead weight on our ability to achieve future
growth and surpluses .[6]
While supporting the overall stimulus package the Australian
Chamber of Commerce and Industry considered that the government
should also have included personal income tax cuts.[7]
The Australian Council of Social Services commended the overall
economic stimulus package. However, it was concerned that, in its
view, those on unemployment benefits would not be receiving these
payments.[8]
Anglicare Australia supported the one-off benefits to those
people who are under Age Pension age[9] and believes that such payments are
well targeted.[10]
The great advantage of this Bill is that it quickly directs the
majority of the proposed tax bonus payments to low and middle
income earners who may have a greater propensity to spend these
amounts, rather than save them. This may well support economic
activity at a higher level than it would otherwise have been.
Presumably, details of any Treasury modelling on the impacts of the
tax bonus (as distinct from other elements of the stimulus package
introduced into Parliament on 4 February) will be examined in the
course of the Senate Committee inquiry.
An additional advantage is that the payments are single, one
time only payments intended as a temporary measure. The Government
does not intend for the proposed tax bonus payments to be a
continuing this measure, as would be the case with a personal
income tax cut. The maintenance of a set level of personal income
tax enables the government to more easily deal with any budget
deficits that may arise as a result of any temporary spending
measures.
However, these advantages rely on the recipient s inclination to
spend, rather than save the proposed payment. It may be the case
that many recipients will use these amounts to pay down debt, or
simply save them, rather than spend. If this is the outcome then
the stimulus effect to the economy will be less than it might
otherwise have been.
Clearly, the proposed tax bonuses represent a temporary boost in
household income. It can be argued that a temporary boost in
household income will not be spent where the recipients are
uncertain whether they will continue to be employed in the future.
In these circumstances a rational decision in dealing with such a
temporary boost in income would be to reduce any outstanding debt
or to increase capital reserves.
Further, there is a view that it is only permanent increases in
household income that enable an increase in spending. The reasoning
behind this view is that households will increase their spending on
a sustainable basis only where they have reasonable expectations of
a long term permanent boost in income. A cut in personal income tax
rates represents such a permanent increase in household income.
This, of course, assumes that the same households are confident of
remaining employed, or that their income from self employment will
remain at least steady for a reasonable future period.
As readers would be aware, further reductions in personal income
tax rates are due to take effect on 1 July of both 2009 and
2010.[11] It could
also be argued that the already legislated cuts in personal income
tax are a sufficient increase in household income in conjunction
with the proposed tax bonus payments.
The Coalition has decided to oppose the entire economic stimulus
package, including the payments authorised by the Bonus Bill,
believing the entire package s measures to be poorly targeted,
ineffective in supporting employment and unaffordable.[12]
Senator Brown has indicated that the Greens would support many
aspects of the overall stimulus package. However, he also noted
that
when times are tough, it is ordinary
Australians who need to be supported - not the big end of town. The
package should also include a permanent $30 a week increase to
people on income support, including aged pensioners and the
unemployed.[13]
The Green s precise position on the payments authorised by the
Bonus Bill is, at the time of writing, unclear. However, the above
comments indicate that the Greens would support these payments
being made to a wider group of recipients.
Generally, the Greens support increased scrutiny of the overall
stimulus package by the Senate and wish to extend that Chamber s
sitting days into the week commencing 9 February 2009. The Greens
have also indicated that they are seeking to work with the
Government to improve the stimulus package. In addition they
support the referral of the overall package to the above mentioned
Senate Committees.[14]
As at the time of writing, a spokesman for the Family First
Party has indicated that party would support an inquiry into the
overall package of proposed measures.[15] Senator Xenophon also supports a
referral of the overall stimulus package, including the Bonus Bill
and the Consequential Bill, to the above mentioned Senate
Committees.
The following table gives the expected financial impact of the
payments authorised by both Bills upon the Commonwealth budget.
|
Year
|
2008-2009
|
2009-2010
|
2010-2011
|
2011-2012
|
|
Impact $m
|
-8 150
|
-1
|
0
|
0
|
|
Source: Explanatory
Memorandum[16]
|
The key issue in relation to the payments authorised by the
Bonus Bill is their effectiveness in stimulating economic activity.
As noted above, this depends on whether they are saved or used to
paydown debt, or spent.
A further issue is whether personal income tax cuts would be
more effective in stimulating the economy rather than the tax bonus
payments.
Clause 5 sets out the provisions governing a
person s entitlement to a tax bonus payment, being:
- a person was an Australian resident
for the 2007 2008 income year
- a person s adjusted tax liability for
the 2007 2008 income year is greater than nil
- the person s taxable income does not exceed $100 000 in that
financial year, and
- a person has lodged the relevant tax return no later than 30
June 2009.
A person s adjusted tax
liability is defined in subclause
4(2) as the sum of:
- the basic income tax liability plus their Medicare Levy amount
plus the Medicare Levy Surcharge amount for the 2007 2008 income
year, less
- any tax offsets (plus any dividend imputation franking
credits).[17]
Subclause 4(1) provides that Australian
resident has the meaning given by the ITAA 1997. Paragraph
5(1)(b) requires that a person was living in Australia for
the 2007 2008 income year. An individual is an Australian resident for
taxation purposes if he/she resides in Australia for generally at
least more than half the income year on either a continuous or
intermittent basis (183 or more days in total). There are
exceptions, for example merchant seamen are still resident of
Australia if they maintain a family home in Australia, despite
possibly not being in country for half the year or more. A decision
in individual cases will be based on the facts of each case.
This means that a taxpayer, who was resident in Australia for
the 2007 2008 income year, but is currently living outside
Australia, would be eligible to receive this payment, all other
eligibility conditions also being met.
Subclause 4(1) provides that taxable income has
the meaning given by the ITAA 1997. Briefly, a person s taxable
income is their gross income after all relevant deductions have
been made. Such deductions could include general deductions made up
of expenses incurred in gaining or producing a person s income; or
specific deduction allowed for in the tax legislation, such as
travel expenses between unrelated workplaces while engaged in
income producing activities.
The term tax offset has the same
meaning in this Bill as the meaning in the ITAA 1997:
subclause 4(1). A tax offset is an allowance that
reduces a person s tax liability. The more common tax offsets
are:
- the Low Income Tax Offset (maximum of $750 in 2007 2008 for
those with incomes of less than $30 000 per annum.)
- Senior Australians Tax Offset (maximum of $2 230 for a single
person with an income of less than $25 867 in 2007 2008
- Mature Age Worker Tax Offset (maximum of $500 for those age
over 55 with income from employment and incomes between $10 000 and
$63 000 per annum)
- Pensioner Tax Offset (maximum of $2 018 in 2006 2007 for those
receiving a social security Age Pension and whose total income is
below $35 598 in that year), or
- Beneficiary Tax Offset (amount determined by a formula that
ensures that those who receive only social security benefits and
allowances at the full rate, and no income, pay no income
tax).[18]
These eligibility requirements do not formally exclude Age
Pensioners or the unemployed from receiving these payments.
However, members of these groups will be ineligible to receive
these payments if they did not have an adjusted tax liability for
the 2007 2008 income year. It is likely that the majority of Age
Pensioners and those who were on unemployment benefits for a
significant proportion of the 2007 2008 income year did not have
such a liability.
A further group who will not be eligible to receive the proposed
payments are those whose taxable income was above $100 000 in 2007
2008, but are now unemployed.
Clause 6 specifies the amount of the proposed
bonus payments. These payments are to vary according to the person
s level of taxable income in the 2007 2008 income year, as
follows:
- if the person s taxable income was $80 000 or below the
proposed bonus payment will be $950
- if the person s taxable income was between $80 000 but does not
exceed $90 000 the proposed bonus payment will be $650, and
- if the person s taxable income exceeded $90 000 but was not
above $100 000 then the proposed bonus payment will be $300.
Clause 7 specifies that the Commissioner for
taxation must pay the bonus as soon as he is satisfied that the
person is entitled to it. Further, these payments will generally be
made to the same account with a financial institution into which
the person s tax refund for the 2007 2008 income year was paid.
Clause 8 of the Bill provides that where a
person receives a bonus payment to which they were not entitled or
for an amount greater than the amount to which they were entitled,
the person is liable to repay the overpayment to the
Commonwealth.
Item 1 amends section 159J(6) of the ITAA 1936
so that the tax bonus payments are not included for the purposes of
calculating a dependent s separate net income when assessing a tax
payer s eligibility for the dependent s income tax offset.
Item 3 amends the ITAA 1997 adding
proposed section 59-45. The effect of this new
section would be to make the proposed bonus payment tax free to the
recipient.
Technically this amendment classifies the proposed tax bonus
payments as non-assessable non-exempt income . Non-assessable
non-exempt income is ordinary or statutory income that is expressly
made neither assessable income, nor exempt income. Income falling
into this category is both excluded from taxable income and ignored
when working out a taxpayer's available losses.
Item 4 amends the SSA 1991 so that the proposed
tax bonus payments are not classed as income for social security
purposes.
That is, the receipt of these payments will not affect a person
s social security entitlements.
Items 5, 6 and
7 amend the TAA 1953 so that overpaid amounts of
the proposed tax bonus payments are subject to the general interest
charge for taxation purposes and cannot be considered to be a tax
credit to offset any other tax liabilities.
Item 8 amends the VEA 1986 so that the proposed
tax bonus payments are not classed as income for purposes of
calculating a person s entitlements under that Act.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277
2495.
Leslie Nielson
6 February
Bills Digest Service
Parliamentary Library
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