Bills Digest no. 106 2008–09
Tax Laws Amendment (2009 Measures No. 1) 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
Contact officer & copyright details
Passage history
Date
introduced: 12 February
2009
House: House of Representatives
Portfolio: Treasury
Commencement: The
formal provisions and Parts 1 and
3 of Schedule 1 commence on
Royal Assent.
Schedules 2 and 3 commence on the
day after Royal Assent, and Part 2 of
Schedule 1 commences on 1 July
2013.
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 amendments in this Bill affect the PAYG instalment tax
system for small business, unclaimed superannuation amounts and
changes to various income tests determining a person s eligibility
to receive various Commonwealth payments.
This Bill makes a variety of amendments, in three unrelated
groups, to the:
- Taxation Administration Act 1953 (TAA 1953)
- Superannuation (Unclaimed Money and Lost Members) Act
1999 (Unclaimed Super Act 1999)
- Small Superannuation Accounts Act 1995 (Small Accounts
Act 1995)
- Superannuation (Government Co-contribution for Low Income
Earners) Act 2003 (Co-contribution Act 2003)
- Superannuation Guarantee (Administration) Act 1992
(Guarantee Act 1992)
- Financial Transactions Reports Act 1988
- Income Tax Assessment Act 1997 (ITAA 1997)
- Income Tax Assessment Act 1936 (ITAA 1936)
- A New Tax System (Family Assistance) Act 1999
(Assistance Act 1999)
- A New Tax System (Medicare Levy Surcharge Fringe Benefits)
Act 1999
- Child Support (Assessment) Act 1989 (Child Support Act
1989)
- Medicare Levy Act 1986 (Levy Act 1986)
- Social Security Act 1991 (SSA 1991)
- Veterans Entitlements Act 1986
- Higher Education Support Act 2003
- Student Assistance Act 1973, and
- Farm Household Support Act 1992.
These amendments are contained in three schedules in this Bill.
This Digest will outline the content of each schedule
separately.
Committee consideration
The Bill has been referred to the Senate Standing Committee on
Economics for inquiry and report by 10 March 2009. Further
information is at this Committee s
webpage on this inquiry.[1]
Overall financial
implications
The overall financial impact of the measures contained in this
Bill is illustrated in the following table being the sum of revenue
implications and fiscal costs (including administrative costs).
|
Table 1: Overall
financial impacts
|
|
Year
|
2008-2009
|
2009-2010
|
2010-2011
|
2011-2012
|
|
Amount $m
|
-455.1
|
559.0
|
237.0
|
203.8
|
|
Source: Explanatory
Memorandum[2]
|
These financial implications arise only from proposed changes to
PAYG instalment reduction for small business (Schedule
1) and proposed reforms to the income tests applying to
various government payments (Schedule 3).
The purpose of the provisions in Schedule 1 is
to modify temporarily the method used in the timing of the payment
the Pay as you go (PAYG) tax applying to a small business entity
only under current section 45-400 of Schedule 1 of the TAA 1953.
The intent of the proposed changes is to allow a once-only
reduction in the amount of tax paid by some small business in one
particular quarter in the early part of 2009. The proposed
amendments do not generally reduce the rate of tax applying to
these entities.
Generally, for taxation purposes a small business entity is one
that carries on a business and satisfies the $2 million aggregated
turnover test.[3]
That is, the aggregated turnover[4] of the business is less than $2 million in the
previous income year or is likely to be less than this figure in
the current income year.
The PAYG
instalments system replaced the provisional tax and company tax
instalment systems from 1 July 2000. The system is designed to
ensure the efficient collection of company income tax, amongst
other payments to the Commonwealth.
Under this scheme, entities pay tax on a quarterly rather than
on an annual basis. These quarterly instalments contribute towards
the payment of the overall tax liability for the income year.
Taxpayers affected by the proposed amendments have their income,
for PAYG purposes, worked out using the GDP-adjusted method.
Taxpayers, who satisfy certain criteria, can have their
quarterly tax instalments based on the prior year s adjusted
taxable income. This income is increased in response to any
positive movement in Gross Domestic Product (GDP). This is the
default basis for PAYG taxation of small business and applies
unless the taxpayer has chosen to pay on another basis (that is, on
the basis of their instalment income or, being eligible to pay an
annual instalment amount, and has elected to do so).[5]
Generally, a taxpayer's adjusted taxable income for these
purposes is their total tax assessable income for the base year
reduced by
- any net capital gain included in assessable income (except for
superannuation entities)
- any tax deductions used in calculating that assessable income,
and
- the amount of any tax loss to the extent that it carries
forward into the succeeding income year.[6]
The proposed amendments only affect small business entity
taxpayers, using the GDP adjusted method for determining their
taxable income, who make 4 annual tax payments per year.[7] Such taxpaying entities
can include:
- certain individuals
- small business, and
- multi-rate trustees.[8]
Other taxpayers that may be subject to this method are
superannuation funds and other entities taxed as companies, where
they have:
- $2 million or less in base assessment instalment income for the
previous income year, or
- more than $2 million in instalment income for the previous
income year and are eligible to pay annual PAYG instalments, but have chosen not to do so.
From the 2009 2010 income year, taxpayers that are small
business entities will also be able to have their liability for
PAYG instalments calculated under the
GDP-adjusted notional tax method. For these purposes, an entity is
a small business entity for an income year (the current
year) if it carries on a business in that year, and either:
- in the prior year and its aggregated turnover for that year was
less than $2 million, and/or
- its aggregated turnover for the current year is likely to be
less than $2 million.[9]
Under the current section 45-405 of Schedule 1 of the TAA 1953
the Commissioner of Taxation works out a GDP adjustment percentage
using the following formula:
For the 2008 income year, the sum of the GDP amounts for the
current year is the sum of the GDP amounts for the 2007 calendar
year. Likewise the sum of the GDP amounts for the previous year is
the sum of the GDP amounts for the 2006 calendar year. Similar GDP
amounts will apply in future years.
The amount of income that is subject to GDP-adjusted tax for the
year under assessment is calculated using the following
formula:
In this formula the original amount is the adjusted
taxable income for the base year, or the taxpayer s adjusted
withholding income for the base year, as appropriate.
For the purposes of this formula the base year is the latest
income year for which a tax assessment of that taxpayer has been
made.[10] A
taxpayer's adjusted withholding
income' for the base year is the amount of assessable income
from which PAYG withholding payments has been, or should have been,
made for the base year, less the deductions allowed for the base
year.[11]
Tax is then calculated on this GDP-adjusted income under current
section 45-325 of Schedule 1 of the TAA 1953. This is a complex
process and for the purpose of the proposed amendments need not be
further described here.
The timing of the payment of the relevant tax is set out in
current section 45-400 of Schedule 1of the TAA 1953, and is set out
in the following table:
Table 2: Schedule
for payment of GDP-adjusted quarterly instalments
|
If the instalment quarter is:
|
The amount of the instalment is:
|
|
the first
in that income year for which the taxpayer is liable to pay a PAYG
instalment
|
25% of
the GDP-adjusted notional tax
|
|
the
second in that income year for which the taxpayer is liable to pay
a PAYG instalment
|
50% of
the GDP-adjusted notional tax, less the
amount of any previous instalment in that income year
|
|
the third
in that income year for which the taxpayer is liable to pay a PAYG
instalment
|
75% of
the GDP-adjusted notional tax, less the
amount of any previous instalments in that income year
|
|
the
fourth in that income year for which the taxpayer is liable to pay
a PAYG instalment
|
100% of
the GDP-adjusted notional tax, less the
amount of any previous instalments
|
Source: CCH Australian
Master Tax Guide 2008 2009, Topic 27-220 Amount of Quarterly
PAYG Instalments
One of the important concepts for the purposes of these
amendments in the above table is that of instalment quarter . An
instalment quarter is defined in current section 45-60 of
Schedule 1 of the TAA 1953. If a taxpayer s income year for
taxation purposes ends on 30 June of any year, an instalment
quarter ends on the following dates:
- 30 September
- 31 December
- 31 March, or
- 30 June of any income year.
Where a taxpayer s income year commences on a different date,
the instalment quarter ends at three monthly intervals after the
start of that year.
The proposed amendments were announced as part of the Government
s response to the global financial crisis. They are designed to
improve the cash flow of small business during the current economic
downturn.
The proposed amendments have been announced in recent press
releases by both the Treasurer and the Prime Minister.[12]
Press comment on the proposed amendments was positive at the
time they were announced.[13] However, another commentator noted that the proposed
amendments gave a small business the ability to reduce its PAYG tax
impost on a temporary basis and that this is possible under current
legislation.[14]
The Australian Chamber of Commerce and Industry welcomed the
announcement of the proposed amendments, but emphasised that the
proposed measure is a deferral, not a reduction, in tax
liabilities.[15]
The proposed amendments will reduce the amount of GDP-adjusted
instalment tax paid for the early part of 2009. This will reduce
the drain on a small business cash flow during that period and may
assist in maintaining economic activity into the 2009 year.
Further, the proposed changes give the Government some flexibility
in responding to economic circumstances affecting small business by
allowing them to make regulations to reduce the amount of tax
collected from these groups on a temporary basis.
However, the proposed changes will reduce the Government s tax
collections at a time when the Commonwealth budget is incurring
increased deficits.
At the time of the initial announcement (12 December 2008) the
then Shadow Treasurer noted that the proposed changes to the PAYG
tax system were welcome, but sought further details before making
any further comments.[16]
Other political parties in the Australian Parliament have yet to
comment on the proposed amendments.
The financial impact of this particular measure is shown in the
following table:
|
Table 3: Proposed
PAYG measures financial impacts
|
|
Year
|
2008-2009
|
2009-2010
|
2010-2011
|
2011-2012
|
|
Amount $m
|
-440.0
|
395.0
|
45.0
|
Nil
|
|
Source: Explanatory
Memorandum, p. 3.
|
Item 3 of Schedule 1 to the
Bill inserts proposed subsections
45-400(3) to (7) into the existing
Schedule 1 of the TAA 1953.
Proposed subsections 45-400(3) to
(5) provide for the regulations to specify the
circumstances when the amount to be paid under current section
45-400 can be reduced. Proposed subsection
45-400(5) ensures that if the circumstances set out in the
regulations exist and the amount of PAYG tax instalment is reduced,
then in assessing the instalment amount for an instalment quarter,
the taxpayer assumes that the full amount (rather than the reduced
instalment amount) had been paid in earlier instalment quarters in
that year.
Proposed subsection 45-400(5) ensures that the
amount of tax not collected under the regulations noted above, is
not recovered in the collections for a later instalment
quarter.
The stated purpose of these amendments is to enable the
Government to respond quickly to changes in economic circumstances
affecting small business.[17]
In particular, proposed subsection
45-400(6) reduces the amount payable under the provisions
of current subsection 45-400(2) (see Table 2 above) by 20 per cent
for an instalment quarter that includes 31 December 2008 of a
single income year for:
- a small business entity for the 2007 2008 or the 2008 2009
income year, or
- a partner of a partnership that is a small business entity of
the 2007 2008 or 2008 2009 income year, or
- a beneficiary of a trust that is a small business entity for
the 2007 2008 or 2008 2009 income year.
Under this proposed amendment, the 20 per cent reduction in the
amount to be paid can occur once only. The Explanatory Memorandum
notes that the 20 per cent amount broadly represents the annual
reduction in instalment payments necessary to reflect the expected
slowing in small business profit growth for the 2008 2009 income
year.[18]
Proposed subsection 45-400(7) requires that the
taxpayer, in working out their payments for a later instalment
quarter has to assume that the reduction referred to in the
proposed subsection 45-400(6) had not happened.
This ensures that the amount not paid in the earlier instalment
quarter will not be recovered in a later instalment
quarter.[19]
Item 4 requires that proposed
subsections 45-400(6) and (7) be
automatically repealed on 1 July 2013.
Item 5
provides that the amendments made by Part 1 of Schedule 1 to this
Bill will apply to PAYG instalment quarters in the 2007 2008 income
year, and later income years.
This schedule s amendments are minor in nature and arise due to
previous changes to legislation governing the payment of former
temporary resident s superannuation benefits to the Commissioner of
Taxation.
The Explanatory Memorandum recalls the changes enacted by the
Temporary Residents Superannuation Legislation Amendment Act
2008. Briefly, under this Act unclaimed superannuation
benefits left behind in Australia by former temporary residents
must now be paid to the Commissioner of Taxation as unclaimed
superannuation money.
The amendments proposed in this schedule update the Unclaimed
Super Act 1999, as well as other Acts, as a consequence of the
abovementioned changes to the treatment of former temporary
residents superannuation benefits.[20]
According to section 12 of the Unclaimed Super Act 1999,
unclaimed superannuation money generally arises when:
- a superannuation fund member has reached the eligibility age
(currently age 65),[21] and
- the superannuation provider has not received a contribution
from the member for at least two years,[22] and
- a five year period has passed since the superannuation provider
has had contact with that member, despite reasonable efforts to do
so.
In relation to a deceased member, section 14 of the Unclaimed
Super Act 1999 unclaimed superannuation money arises where:
- the member has died, and
- according to the superannuation fund s rules, a benefit is
immediately payable, and
- the superannuation fund has not received a contribution from
the member for at least two years,[23] and
- after making reasonable efforts, after a reasonable period has
passed, the superannuation fund provider is unable to determine a
person to whom the benefit should be paid.[24]
Generally, unclaimed superannuation moneys arise where:
- a member changes employment or residence (generally both) and
neglects to keep their superannuation fund informed of these
changes
- a couple split their superannuation benefits as a result of a
property settlement following the breakdown of their relationship
and one party changes address or employment and also does not
inform their superannuation fund of these changes, or
- a temporary resident leaves Australia and does not claim their
benefits within 6 months of departure and the superannuation fund
pays their benefits to the Australian Taxation Office.
As at 30 June 2008 the amount of lost and unclaimed
superannuation money listed on the Australian Taxation Office s
Lost Members Register was $12.9bn. [25] The rate at which this amount has
increased is very high, rising by 8.4 per cent between 30 June 2007
and 30 June 2008.[26]
From 1 July 2007, private sector superannuation funds
must report and pay their unclaimed super money for the half-year
ending 30 June 2007 and later half-years to the Tax
Office rather than to their relevant state or territory authority.
State and territory government super schemes may be required to
report and pay unclaimed super money to the Tax Office, subject to
relevant state or territory law.[27] Additional amounts may be in separate State and
Territory government unclaimed money accounts.
The proposed amendments have not previously been
announced.[28]
There has been little, if any, comment on the proposed
changes.
The proposed amendments significantly improve the administration
of the unclaimed superannuation register and amounts of unclaimed
superannuation arising from the departure of former temporary
residents.
Political parties have not made significant comment on these
proposals.
There are no reported financial consequences of the proposed
measures.
Under current section 16 of the Unclaimed Super Act 1999, a
superannuation provider[29] is required to provide the Commissioner of Taxation
with a statement on unclaimed superannuation moneys by:
- 1 November every year in respect of the half year ending the
preceding 30 June, and
- 1 May every year in relation to the half year ending the
preceding 31 December.
Item 11 of Schedule 2 of this
Bill ends this arrangement by inserting proposed section
15A into the Unclaimed Super Act 1999. Proposed
section 15A allows the Commissioner of Taxation to
specify, by legislative instrument, days that are unclaimed money
days and for each of those days a further day that is a scheduled
statement day .[30]
Item 8 inserts a new definition of the term
unclaimed money day into the Unclaimed Super Act 1999,
stating that it has the meaning given by proposed section
15A.
However, proposed section 15A does not directly
define this term, save by reference to those days specified by the
Commissioner in the abovementioned legislative instrument.
Additional amendments suggest that the function of the proposed
unclaimed money days is that they are the days on which a
superannuation provider must tally all unclaimed superannuation
money in their control, as of that day.
Item 7 inserts a definition of the term
scheduled statement day into the Unclaimed Super Act 1999,
defining it by the meaning given to it by either proposed
section 15A or current section 20B. Both these sections
refer to a scheduled statement day declared by legislative
instrument. However, additional amendments suggest that the
function of these scheduled statement days are that they are a date
by which a superannuation provider must give the Commissioner of
Taxation the required information about the unclaimed
superannuation moneys held by that provider by the end of the
specified unclaimed money day . Further, they are also the date
upon which amounts of unclaimed superannuation moneys are payable
to the Commissioner of Taxation.
Item 12 repeals current subsections 16(1) to
(6) and inserts proposed subsections 16(1) to
(3). The proposed changes require a superannuation
provider to give the required statements regarding any unclaimed
superannuation money under the Unclaimed Super Act 1999 or:
- the Superannuation (Departing Australia Superannuation
Payments Tax) Act 2007
- the ITAA 1997, or
- Chapters 2 and 4 of Schedule 1 of the TAA 1953.
Item 16 repeals current subsections 17(1) and
(2) of the Unclaimed Super Act 1999 (requirement to pay unclaimed
superannuation amounts to the Commissioner) and inserts
proposed subsections 17(1) to
(2AA) in their place.
The proposed subsections also require that a superannuation
provider pay any unclaimed superannuation to the Commissioner.
These amounts are payable at the end of the scheduled statement day
in respect of the relevant unclaimed money day.
Proposed subsections 17(1C) and
17(2AA) require the Commissioner to pay unclaimed
superannuation amounts to a person s nominated complying
superannuation fund or their personal legal representative (if they
are deceased).
Item 19 inserts proposed section
17A into the Unclaimed Super Act 1999. This proposed
section applies the general interest charge to amounts of unclaimed
superannuation that have not been paid to the Commissioner of
Taxation by the due date that is, by the scheduled statement
day.
Item 23 inserts proposed sections
18A, 18B and 18C into
the Unclaimed Super Act 1999.
Briefly, proposed section 18A enables the
Commissioner of Taxation to refund any unclaimed superannuation
amounts paid in excess of that required.
Where the Commissioner has overpaid unclaimed superannuation
amounts to a person proposed section 18B enables
the Commissioner to recover any overpayment as a debt due to the
Commonwealth.
Proposed section 18C requires a superannuation
provider to repay amounts of unclaimed superannuation the
Commissioner has paid to them (at the direction of a person) if it
cannot be credited to that person s account within 28 days. This is
a debt due to the Commonwealth payable at that date (that is, 28
days after the Commissioner made the initial payment). The general
interest charge applies after the end of this 28 day period in
respect of any unrepaid amounts.
Register of unclaimed money
Item 23 also inserts a proposed new heading in
the Unclaimed Super Act 1999, that of Part 3AA Register of
unclaimed money . Several amendments refer to this new part (i.e.
Part 3AA) or repeal existing references to other pieces of tax
legislation and replace them with a reference to either this part
or Part 3AA . Other amendments simply refer to Part 3 of the
Unclaimed Super Act 1999. These amendments generally streamline the
legislative basis of the administration of the register of
unclaimed money (see below).
Items 24 to 41 amend the
Unclaimed Super Act 1999 in respect of the register of unclaimed
money. This register is kept by the Commissioner of Taxation to
identify unclaimed superannuation amounts paid to him and to enable
the payment of these amounts to their rightful owners when they are
claimed.
Temporary residents
Item 26 adds proposed paragraph
19(1)(c) and (d) to existing subsection
19(1) of the Unclaimed Super Act 1999. Current section 19 of this
Act requires the Commissioner of Taxation to maintain a register of
unclaimed superannuation money. The proposed addition to this
section requires the Commissioner to include particulars of amounts
paid to him, in respect of a former temporary resident (see below),
and the names of those persons, in this register.
Item 28 inserts proposed section
20AA into the Unclaimed Super Act 1999. This proposed
section defines the term former temporary resident .
Briefly, this term means a person who:
- was a temporary resident of Australia (being a holder of a
temporary visa under the Migration Act 1958 except those visas
prescribed by regulations)
- left Australia for more than 6 months
- does not currently hold either a temporary or permanent
visa
- is neither a Australian or New Zealand citizen, and
- has not made a valid application for a permanent visa that has
not been finally determined.
This term is important for the operation of the proposed
amendment to current sections 19 (see above) and 20C (see below) of
the Unclaimed Super Act 1999.
Item 29 repeals current paragraphs 20C(1)(b) to
(d) of the Unclaimed Super Act 1999 and substitutes them with
proposed paragraph 20C(b). The effect of this
change is to require the Commissioner of Taxation to give a
superannuation provider a notice that there are reasonable grounds
for believing that a former temporary resident (as defined above)
has an interest in that superannuation fund.
This allows the provider to identify any potential unclaimed
superannuation money in a superannuation fund belonging to a former
temporary resident.
Strictly speaking, unclaimed superannuation moneys held by the
Commissioner of Taxation are not held in a superannuation plan for
taxation purposes. Consequently, there is some legal uncertainty
about whether these amounts, when paid by the Commissioner should
be taxed in the same way as other superannuation payments. The
following proposed amendment ends this uncertainty.
Item 43 adds proposed section
301-125 to the ITAA 1997. The effect of this amendment is
to ensure that payments of unclaimed superannuation amounts made by
the Commissioner of Taxation are taxed in the same way as other
superannuation payments by classifying them as coming from a
superannuation plan for taxation purposes.
Item 49 repeals existing section 307-142 of the
ITAA 1997 and replaces it with a proposed new section. The effect
of this substitution is to update the tax treatment of unclaimed
superannuation payments in the light of the simplified
superannuation changes that took effect on 1 July 2007.
Item 50 has the same effect in relation to current
section 307-300 of the ITAA 1997.
It may be the case that one individual may have many unclaimed
superannuation amounts held by the Commissioner of Taxation. This
may be the case for those who change employment frequently or are
mainly employed on a casual basis.
Item 52 inserts proposed subsection 307-350(2B)
into the ITAA 1997. This proposed subsection ensures that all
unclaimed superannuation amounts paid by the Commissioner of
Taxation are treated as if they were paid from a single
superannuation plan. This greatly simplifies the tax administration
task in relation to these payments.
Item 56 repeals existing paragraph 67A(1)(b) of
the Small Accounts Act 1995 and replaces it with new proposed text.
The effect of this amendment is to define precisely the matters a
former temporary resident must satisfy the Commissioner about when
requesting a withdrawal of their unclaimed superannuation monies
held by the Commissioner.
Item 58 amends current subsection 6(1) of the
Co-contribution Act 2003. The function of this particular section
is to define persons in respect of whom a government superannuation
co-contribution may be paid. Generally speaking, a temporary
resident does not qualify to have this payment made on their
behalf. However, a New Zealand citizen, holding the appropriate
visa, does so qualify. Proposed paragraph 6(1)(f)
of the Co-contribution Act 2003 ensures that this policy is
maintained.
Under the Superannuation Guarantee regime employers are required
to pay amounts equal to at least 9 per cent of an employee s
ordinary time earnings into a superannuation account on the
employee s behalf.[31] Where the employer fails to make these payments by the
required time they may be liable to pay a Superannuation Guarantee
shortfall amount to the Commissioner of Taxation. The majority of
the shortfall amount paid is passed on to the employee s
superannuation fund.[32]
However, this cannot happen in respect of a former temporary
resident whose superannuation benefits have been either withdrawn
or are classed as unclaimed superannuation amounts and paid to the
Commissioner.
Item 61 inserts proposed section
65AA into the Guarantee Act. The proposed section requires
the Commissioner of Taxation to treat a shortfall component paid in
respect of a former temporary resident as unclaimed superannuation
money.
Item 67 specifies that an unclaimed money day
(see above) must be a day that occurs on or after 1 July 2009.
Further, item 67 requires that the unamended
version of sections 16, 17 and 18 of the Unclaimed Superannuation
Act 1999 continue to apply up to 1 July 2009 in relation to the
current half yearly periods for the notification of unclaimed
superannuation money to the Commissioner of Taxation (see
item 11 above).
Item 71 specifies that the amendments to the
Co-contribution Act 2003 in this Bill apply for the 2009 2010 and
later income years only.
The purpose of the amendments in Schedule 3 of
this Bill is to implement changes to the income test applying to
various government payments announced in the 2008 2009 Budget
speech in May 2009.
The amendments come in three main types:
- changes to the key concepts behind these tests
- changes to the reporting requirements for taxation purposes,
and
- changes to the income tests themselves.
The income of a person can govern whether they are eligible to
receive various Commonwealth payments and tax offsets,[33] or have them made on
their behalf. Too high an income and a person is not eligible to
receive such payments or tax offsets. Such payments/offsets
include:
- Age Pension, Family Tax Benefits and Unemployment Benefits paid
by Centrelink
- Drought Relief, Childcare and Youth Support payments also
administered by Centrelink
- the Service Pension paid by the Department of Veterans
Affairs
- the Government Superannuation Co-contribution paid by the
Australian Tax Office
- various tax offsets such as the Senior Australians Tax Offset
or the Dependent Spouse Tax Offset, and
- child support payments made by individuals but administered by
the Child Support Agency.
The tests that measure a person s income to determine their
eligibility to receive these payments, or qualify for a relevant
tax offset, are known generally as income tests.
These income tests also determine whether a person is liable for
additional payments to the Commonwealth, such as the Medicare Levy
and the Medicare Levy Surcharge.
These changes were announced in the Budget Speech of 13 May
2008.[34]
The key issue for the proposed amendments in this Schedule are
whether it is appropriate to include:
- the value of adjusted fringe benefits received
- the amount of additional tax deductible superannuation
contributions, and/or
- the amount of a person s net investment losses
in all of the income tests specified in Part 3
of Schedule 3 (see below) governing the payment of
various benefits and tax offsets as well as the income test
governing a person s obligation to pay both the Medicare Levy and
the Medicare Levy Surcharge?
There are a number of arguments in favour of the proposed
amendments in this Schedule:
- the payment of benefits and eligibility for tax offsets is more
tightly focused, thus they are more likely to go to those who are
most in need of them
- they potentially limit the possibly unintended payment of
benefits and tax concessions to those in higher income
brackets
- they limit the potential abuse of these payments and tax
concessions by the deliberate manipulation of a person s income
using salary sacrifice arrangements and excessive use of fringe
benefits arrangements as a replacement for income in the hand
- they provide a more consistent treatment of a person s income
across a wider range of government payments and tax
concessions
- they provide equal treatment between those who have access to
such arrangements and those who do not have such access
- they limit the support provided by Government transfer payments
to negatively geared investment arrangements
- this comes about by including the financial returns from a
negatively geared arrangement in a person s assessed income for the
purposes of gaining access to certain Commonwealth payments,
and
- over the long term the proposed measures reduce government
expenditure.
- However, there are some potential disadvantages arising from
the proposed changes, such as:
- benefits and concessions may not be provided to higher income
families with comparatively large numbers of dependents, and
- the incentives provided by tax concessions and payments to
remain in the workforce may be reduced.
An important point in this debate is the nature of government
payments. Many government payments are a safety net . That is,
payments that support a person if they do not have the means to
support themselves. They are intended to reduce or prevent the
occurrence of poverty. They are not intended to support the
accumulation of assets in any form. Where such an accumulation
occurs, supported in part or in full by government payments, it
could be argued that the relevant income test is in need of
reform.
On the other hand some payments may not be intended to be a
safety net . For example, the Baby Bonus was aimed more at
increasing the number of births, rather than providing income
support. In these cases there is less justification for the reform
of the relevant income test based on maintaining the safety net
character of the payment, particularly where a person may otherwise
be entitled to receive an ongoing government payment or tax
offset.
Some press comment in the wake of the 2008 2009 Budget Speech
noted that several otherwise low income groups would be denied
access to much needed Commonwealth payments by the proposed
amendments.[35]
However, other press comment noted that the proposed changes dealt
with pronounced weakness in the various income tests that led to
those with no objective need for these payments actually receiving
them.[36]
The proposed changes to the government income test were
reportedly supported by the Australian Council of Social Services
(ACOSS) for directing Commonwealth payments to where they were most
needed.[37]
The Institute of Chartered Accountants in Australia noted
that:
The introduction of means testing, in relation
to a number of benefits and concessions, may be justified on equity
grounds. However, such tests have administrative costs and may also
result in disincentives to workforce participation as income
increases and benefits decline.[38]
The Coalition s position at the time the proposed measures were
introduced was outlined by the then Shadow Treasurer, as
follows:
I agree with means testing generally for social
welfare benefits and payments and I think most people would agree
with the means testing for the Family Tax Benefit B. The area I do
disagree with is on the baby bonus. We had a view in Government
that this was a payment that was designed not just to help mothers
with new babies, and obviously multimillionaires don't need that
help, plainly. But it was designed to send a very strong social
message which was going to be more powerful if it was universal.
Now what they've done there is introduced a means test which says
that if you earn the six months, if your household earns, the six
months after your baby, $1 more than $75,000 you don't get any
part, not even a fraction of the baby bonus. So it's a very crude
means test. I don't think people in those circumstances regard
themselves as multimillionaires, or 'the rich', but that's where
they've set it and it will save very little money in the scheme of
the budget. Very, very little money, but it's designed to make a
political us-and-them point. It's Labor playing that, you know,
wedge politics, the politics of envy, and that's the political
decision not an economic one.[39]
Senior Coalition spokesmen also expressed concern that the
number of individuals and families receiving welfare payments would
be reduced if the proposed measures were implemented.[40]
As at the date of writing neither the Greens, Family First of
Senator Xenophon has publicly stated a position on the proposed
measures in this Schedule.
The financial implications of the measures proposed in Schedule
3 of this Bill are set out in the following table:
|
Table 4: Proposed
income test measures - financial impacts
|
|
Year
|
2008-2009
|
2009-2010
|
2010-2011
|
2011-2012
|
|
Amount $m
|
-15.1
|
164.0
|
192.5
|
203.8
|
|
Source: Explanatory
Memorandum[41]
|
Part 1 of Schedule 3 of this
Bill inserts new definitions of various terms (such as adjusted
fringe benefits totals and rebate income into the ITAA 1936, ITAA
1997 and the TAA 1953. These definitions are required to expand the
definition of income for a person claiming various Commonwealth
payments and tax offsets.
Item 1 inserts a definition of adjusted
fringe benefits total into current subsection 6(1) of the ITAA
1936. This definition is:
Taxpayers reportable fringe benefits total x [1
FBT rate]
A taxpayers reportable fringe benefits total is not precisely
defined in tax legislation. However, item 3
specifies that the term reportable fringe benefits total has the
same meaning as in the Fringe Benefits Tax Assessment Act
1986 (Fringe Benefits Act 1986). Section 135N of this Act
defines this term as the sum of a employee s fringe benefits
amounts . In turn current section 135P (or section 135Q as
appropriate) of the Fringe Benefits Act 1986 defines this term as
being worked out using the general formula:
The important point to note here is the value of the individual
fringe benefit amount is increased (or grossed up in tax language).
This determines the value of a fringe benefit for taxation
purposes. An employer pays Fringe Benefits Tax on this grossed up
value.
However, this particular formula overstates the cash value of
the fringe benefit in question to the employee. The definition in
item 1 above calculates the cash value of the
fringe benefit to the employee who is also a claimant of
Commonwealth payments or tax concessions.
Comment
The Explanatory Memorandum notes that adjusted fringe benefits
total is already used for the purposes of assessing a person s
eligibility for many Commonwealth payments, but not their
eligibility for tax offsets (when a person s reportable fringe
benefits total is used for this purpose).[42] As noted above, the reportable
fringe benefits total is the grossed up figure used for
determining an employer s fringe benefits tax liability. However, a
switch to using a person s adjusted fringe benefit total
for deciding eligibility for tax concessions may actually lower a
person s income for these purposes because the adjusted fringe
benefits total is lower than a persons reportable fringe
benefits total . The outcome of this proposed change may be an
increased number of individuals becoming eligible to claim a range
of tax offsets.
Item 2 inserts a proposed definition of
rebate income into current section 6(1) ITAA 1936. Under
the proposed amendment a person s rebate income will be the sum of
an individual s:
- taxable income
- reportable superannuation contributions
- total net investment losses, and
- adjusted fringe benefit total (as defined above)
for a particular year of income.
This definition will be used to assess a person s eligibility to
claim the Senior Australian Tax Offset. The Explanatory memorandum
notes that this definition consolidates the above components and
removes the need for unnecessary legislative amendment (see
items 40 and 41 below).[43]
Generally, a person s taxable income is their gross income less
all allowable deductions. Items 4 and
5 defined reportable superannuation
contributions and total net investment losses respectively to
have the same meaning as in the ITAA 1997.[44]
The term reportable superannuation contributions for an
individual is defined in Item 9 to include:
- personal superannuation contributions that are deducted from an
individual s gross income under current Subdivision 290-C ITAA
1997, and
-
reportable employer superannuation contributions (see items
8 and 11 below).[45]
Item 7 inserts a proposed definition of the
term income for surcharge purposes into current subsection
995-1(1) of the ITAA 1997. This definition is used to assess a
person s obligation to pay the Medicare Levy Surcharge (currently 1
per cent of assessable income if a single person s assessable
income is over $70 000 p.a. in 2008 2009). [46] Broadly the proposed definition of
income for surcharge purposes includes a person s:
- taxable income
- reportable fringe benefits total (as defined in this Part)
- reportable superannuation contributions (as defined in this
Part)
This definition is used to assess a person s obligation to pay
the Medicare Levy Surcharge (see Items 26 to
32 below).
The term total net investment loss for an individual is
defined in item 10 to broadly mean the amount by
which a person s deductions from their gross income arising from
investments for an income year exceeds the income from those
investments.
This amendment refers to deductions from gross income that a
person may generate from any negatively geared investment
arrangement. Generally, an investment is negatively geared where
the interest expense associated with the investment (arising from
moneys borrowed to purchase that investment) exceeds the net income
generated by that investment.
Why is a new definition of total net investment loss
needed?
The proposed definition is wider than is currently used. The
current definitions covering this area in existing legislation
often refer to rental property loss . While that term or phase
allows the tax deductions arising from a negatively geared rental
property to be added back into a person s income for various
purposes, it does not allow similar deductions to be added back to
a person s income arising from other negatively geared investments.
For example, similar deductions on negatively geared shares would
not be included in a person s assessed income for various purposes
under current legislation.
Other definitions currently used in Social Security legislation
are that of passive business income , or net passive business loss
. The term passive business is currently defined in section 1067G
of the SSA 1991 as a business that a person is engaged in for less
than 17.5 hours a week. Section 10B of the same Act notes that a
passive business loss for the
appropriate tax year, means a loss that, under current subpoint
1067G-F11(4), is a
net passive business loss for that
year .[47] It
can be argued that these two terms do not capture the entire range
of negative gearing arrangements currently available and so the net
losses from this wider range of arrangements would not be caught by
current legislation.
Item 11 inserts proposed section
16-182 into current Schedule 1 of the TAA 1953. This
section defines the term reportable employer superannuation
contribution .
Briefly the term is defined to mean an amount contributed to a
superannuation fund by an employer, on an employee s behalf, where
the employee has the capacity to influence the amount contributed
and/or the extent to which this contribution reduces that employee
s tax assessable income. The employee has no capacity to influence
amounts contributed under the Superannuation Guarantee regime and
such amounts do not in any way reduce the employee s tax assessable
income. Thus such amounts are excluded from this definition.
Comment
There are other arrangements where an employee may not have any
influence over the amount of superannuation paid. For example, an
employer may make payments to an employee s superannuation fund at
a higher rate than that required by the Superannuation Guarantee
regime as an overall condition of employment. Further, a negotiated
agreement between a union and an employer may also see that
employer pay superannuation amounts at a higher rate than required
under this regime. An employee may not have influence in these
situations.
However, an employee would have influence over amounts paid by
way of a salary sacrifice arrangement, where they agree to reduce
their salary in return for additional superannuation contributions
made on their behalf.
The proposed amendments in this part require an employer to
provide the Commissioner of Taxation with information on the
payment of reportable employer superannuation contributions and
reportable fringe benefits amounts, as defined in Part
1 of this Schedule.
These amendments enable the Commissioner to assess a person s
eligibility for various tax concessions.
Comment
It is not uncommon for Centrelink and the Australian Taxation
Office to exchange information to help them determine a person s
eligibility to receive various payments or claim tax offsets. It is
likely that the information collected by the Commissioner of
Taxation under this Part will be passed to Centrelink to assist it
is determination of a person s eligibility to receive a
Commonwealth payment (assuming the sharing of data is done
according to law).
Family payments
Items 19 and 20 update the
definition of adjusted taxable income in existing Schedule 3 of the
Assistance 1999 by inserting reference to the new definitions of
total net investment loss and reportable superannuation
contributions . These terms are defined in Part 1
above. The benefits affected by this proposed amendment are:
- Child Care Benefit
- Family Tax Benefit (Parts A and B), and
- the Baby Bonus.
Medicare Levy Surcharge
Items 26 to 32 apply the
definition of income for surcharge purposes to the income test
governing a person s obligation to pay the Medicare Levy Surcharge
(see Item 7 in Part 1 of
Schedule 3 above).
Child support
Item 33 repeals the definition of net rental
property loss in existing subsection 5(1) of the Child Support Act
1989. Item 34 inserts reference to the term total net investment
loss , as defined in Part 1 of this Schedule, into
the definition of a parent s adjustable taxable income for Child
Support purposes.
Higher Education Support payment
Items 36 and 37 insert
reference to total net investment loss and reportable
superannuation contributions into the income test governing the
payment of this benefit.
Senior Australians Tax Offset
Items 40 and 41 insert
reference to rebate income (see item 2 of
Part 1 of this Schedule) to the income test used
to determine a person s eligibility to make use of the Senior
Australian Tax Offset in current section 160AAAA of the ITAA 1936.
The effect of this proposed amendment is that a person s:
-
reportable superannuation contributions
- total net investment losses
- adjusted fringe benefit total (as defined above), as well
as
- their taxable income
for a particular income year will be taken into account when
determining their eligibility to make use of this tax offset to
reduce their overall tax liability. This proposed amendment may
result in fewer people being able to make use of this particular
tax offset.
Mature Age Worker Tax Offset
Item 44 amends current subsection 61-570(1) of
the ITAA 1997 so that a person s reportable superannuation
contributions (defined in Part 1 of this Schedule)
are included in their assessed income for this offset. This change
will affect those who are employed and who are above 55 years of
age only, as it is only this group who may make use of this
particular tax offset.
Medicare Levy Surcharge Lump Sum Tax Offset (MLS tax
offset)
Item 45 amends current subsection 61-580(1) of
the ITAA 1997 so that reportable superannuation contributions and
total net investment losses (both as defined in Part
1 of this Schedule) for a given year are included in the
definition of income for MLS tax offset purposes.
An MLS tax offset is an offset equal to the amount of additional
Medicare Levy Surcharge payable in the current year because:
- a person received a lump sum payment in the current year,
that
- accrued, in whole or in part, during a previous year.[48]
Deduction for personal superannuation contributions
Under current section 290-160 of the ITAA 1997 a person may
deduct all of their personal superannuation contributions from
their gross income for tax purposes if:
- they are
not treated as an employee for the purposes of the Guarantee Act
1992, and
- generally, less than 10 per cent of their income comes from
being an employee (as opposed to being self employed).
Item 46 includes reportable employer
superannuation contributions in the definition of income for such a
person. The effect of the proposed amendment isthat less than 10
per cent of the sum of a person s:
- assessable income (under existing legislation)
- reportable fringe benefits total (under existing legislation),
and
- reportable employer superannuation contributions (proposed
amendment)
comes from being employed for the income year in respect of
which the deduction is claimed.
Spouse contributions tax offset
Under current section 290-230 of the ITAA 1997, a person may
make use of a tax offset if he makes a personal superannuation
contribution to a fund on the behalf of their spouse. This offset
is available if (amongst other things) the sum of the spouse s
assessable income and reportable fringe benefits is less than $13
800 in any income year.
Item 47 proposes to amend section 290-230 of
the ITAA 1997 so that a spouse s reportable employer superannuation
contributions (as defined in Part 1 of this
Schedule) are included in the income test for this particular
offset.
Medicare Levy
Items 48 to 61 amend various
sections of the Levy Act 1986 so that the term income for surcharge
purposes , defined in Part 1 of Schedule
3 to this Bill, is the definition of income for the
purposes of determining a person s obligation to pay the Medicare
Levy.
Student Financial Supplement Scheme - Repayment Income
For social security purposes, a person s repayment income is the
income that Centrelink uses to determine a person s capacity to
repay an accumulated financial Supplement debt under the now
discontinued Student Financial Supplement Scheme. This scheme
provided repayable loans to students between 1993 and 1 January
2004.
Items 70 and 71 amend existing
subsection 1061ZZFA(1) of the SSA 1991 so that a person s total net
investment loss and reportable superannuation contributions (as
defined in Part 1 of this Schedule) are included
in their repayment income.
Item 85 makes similar amendments to the
definition of repayment income in current paragraph 12ZL(1)(b) of
the Student Assistance Act 1973.
Youth Allowance Parental income test
A person s access to Youth Allowance is governed in part both by
an income test applying to the applicant and an income test
applying to the parents of the applicant. It is the latter one that
is proposed to be amended by Schedule 3 of this
Bill.
Item 73 amends current paragraph 1067G-F10(d)
of the SSA 1991 so that the applicant s combined parental income
includes both their net investment losses and reportable
superannuation contributions , as defined in Part
1 of this Schedule.
Commonwealth Seniors Health Card
Item 81 amends current paragraph 1071-3(d) of
the SSA 1991 so that the term net property loss is replaced with
the more comprehensive total net investment loss as defined in
Part 1 of this Schedule.[49]
Item 89 amends current paragraph 118ZZA-3(d) of
the Veterans Entitlements Act 1986 making similar proposed
changes in respect of access to the Commonwealth Seniors Health
Card by those receiving a Veterans Affairs pension.[50]
Government Superannuation Co-contributions
Item 88 adds proposed paragraph
8(1)(c) to the Co-contribution Act 2003 so that the
definition of income for superannuation co-contributions purposes
includes a person s reportable employer superannuation
contributions as defined in Part 1 of this
Schedule.
Exceptional circumstances (EC) relief payments are made to
farmers and small business operators:
- living in EC declared areas
- who are having difficulty in meeting their living expenses,
or
- have had their business turnover significantly affected
by the exceptional circumstances in question.
Item 92 adds proposed subsections
24A(9) and (10) to the Farm Household
Support Act 1992 so that superannuation contributions made on
behalf of a person, by their employer, are disregarded for the
purposes of working out their entitlement to exceptional
circumstances relief payment.
The conditions governing this exception are:
- the person has not reached Age Pension age (generally 65 male,
63 female),[51]
and
- the contribution is not a contribution made by a company or a
trust in respect of an attributable stakeholder of that company or
trust,[52] and
- the person is not an associate of the attributable
stakeholder.
Comment
The effect of this proposed amendment is that a person engaged
in earning off-farm income will not have their employer s
reportable superannuation contributions made on their behalf
included in the exceptionable circumstances income test.
A dependency rebate is one available to a taxpayer who supports
a dependent during a particular income year. Particular dependency
rebates affected by these proposed amendments include:
- spouse rebate
- child housekeeper
- child less than 21 (not being a student)
- student
- invalid relative, and
- parent/parent-in-law.
Under current subsection 159J(1AB) of the ITAA 1936, a taxpayer
is ineligible to claim these rebates (or offsets) if their income
is more than $150 000 per annum. The proposed amendments in this
Part modify this income test.
Item 94 repeals current subsection 159J(1AB)
and replaces it with proposed provisions that deny a taxpayer an
entitlement to the:
- child-housekeeper offset
- invalid relative offset, and
- parent/parent-in-law offset
if the combined income of the taxpayer and their spouse is above
the income limit for Family Tax Benefit (Part B) (see item
98 below).
If the taxpayer s income alone is above this limit the proposed
amendment denies them an entitlement to the spouse dependent
rebate.
Items 95 and 96 amends
existing subsections 159J(4) and (5) respectively so that a
dependant s separate net income is replaced with the term adjusted
taxable income .
The current income tests for dependents rebates also depend on
the level of that dependant s separate net income as well as the
taxpayer s income.
The separate net income is the dependant's gross income
(including salary and wages, interest, dividends, business, rental
and trust income, income from a partnership, pensions and some
social security payments) less expenses that, in
accordance with ordinary accounting and commercial principles, are
direct costs against that income.[53]
Item 97 inserts a definition into current
subsection 159J(6) of the ITAA 1936 so that the term adjusted
taxable income has the same meaning as in the Assistance Act 1999
if clauses 3 and 3A of Schedule 3 of that Act had not been enacted.
These clauses deal with working out the adjusted taxable income of
a couple. Ignoring these clauses, the definition of adjusted
taxable income for dependants rebates is defined in clause 2 of
Schedule 3 of the above Act. Following is the text of this clause
as it will read if items 19 and
20 of Schedule 3 of this Bill succeed:
Adjusted taxable income
For the purposes of this Act and subject to
subclause (2), an individual s adjusted taxable
income for a particular income year is the sum of the
following amounts (income
components):
- the individual s taxable income for that year;
- the individual s adjusted fringe benefits total for that
year;
- the individual s target foreign income for that year;
- the individual s total net investment loss (within the meaning
of the Income Tax Assessment Act 1997) for that year;
- the individual s tax free pension or benefit for that year;
and
- the individual s reportable superannuation contributions
(within the meaning of the Income Tax Assessment Act 1997)
for that year;
less the amount of the individual s deductible
child maintenance expenditure for that year.
Item 98 inserts additional text into subsection
159J(6) of the ITAA 1936 noting that the income limit for family
tax benefit (Part B) means the amount specified in subclause 28B(1)
of Schedule 1 of the Assistance Act 1999 as indexed under Part 2 of
Schedule 4 to that Act.
The effect of this amendment is to allow the income test limits
for dependency rebates to be automatically adjusted by changes in
the Consumer Price Index as calculated by the Australian Bureau of
Statistics. The income test threshold for a taxpayer wishing to
claim these dependency rebates will no longer be $150 000 p.a.
Item 102 provides for most of the amendments
made in Schedule 3 to commence on 1 July 2009
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277
2495.
[8]. Multi rate
trustees are those who are liable to pay tax or more than one tax
liability at more than one tax rate. For example, a trustee may be
liable to pay tax at the company tax rate and an individual s tax
liability at the personal income tax rate.
Leslie Nielson
26 February 2009
Bills Digest Service
Parliamentary Library
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