EXPLANATORY STATEMENT

Select Legislative Instrument 2005 No. 161

Issued by authority of the Minister for Revenue
and Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Amendment Regulations 2005 (No. 4)

Section 266 of the Income Tax Assessment Act 1936 (the Act) provides, in part, that the Governor-General may make regulations not inconsistent with the Act, prescribing all matters which by the Act are required or permitted to be prescribed, or which are necessary or convenient to be prescribed for giving effect to the Act.

The purpose of the amending Regulations is to update:

•                the calculation of the beneficiary tax offset, allowed under section 160AAA of the Act; and

•                the calculation of the rebate threshold for the senior Australians tax offset, allowed under section 160AAAA of the Act

to reflect the reduction in the lowest personal income tax rate from 17 per cent to 15 per cent, which is proposed to apply from 1 July 2005.

The beneficiary tax offset

The payments to which the beneficiary tax offset applies are listed in the definition of ‘rebatable benefit’ in subsection 160AAA(1) of the Act and include a number of Centrelink payments and allowances and Commonwealth education allowances.  The beneficiary tax offset ensures that an individual will pay no tax for an income year if they receive any of these payments and have no other assessable income.  The offset is calculated in accordance with regulation 152 of the Income Tax Regulations 1936 (the Principal Regulations).

The Regulations amend subregulation 152(1) of the Principal Regulations to ensure that the beneficiary tax offset still covers the full tax liability that would otherwise be payable on rebatable benefits, taking into account the proposed reduction in the lowest personal income tax rate to 15 per cent.

The senior Australian tax offset

The senior Australians tax offset is a tax offset which is available to eligible Australians who are of age pension age.  The offset begins to phase out once taxable income exceeds the rebate threshold, at a rate of 12.5 cents for each additional dollar of taxable income.  The rebate threshold is set at the ‘effective tax free threshold’ for senior Australians; that is, the point where their entitlement to the senior Australians tax offset and the low income tax offset will exactly offset the income tax that would otherwise be payable.  As a result of the proposed reduction in the lowest personal income tax rate from 17 per cent to 15 per cent, the formula to calculate the rebate threshold for single senior Australians would need to be amended to maintain the alignment between the rebate threshold and the effective tax free threshold for these senior Australians.

The Regulations amend subregulation 150AB(3) of the Principal Regulations to ensure that the rebate threshold for single senior Australians who are eligible for the senior Australians tax offset is still aligned with their effective tax free threshold.  Using the formula, the rebate thresholds for the 2005‑06 year are $21,968 for a single senior Australian, $18,247 for a senior Australian who is a member of a couple and $21,167 for a senior Australian who is a member of an illness‑separated couple.  In comparison, the rebate thresholds in the 2004‑05 year are $20,500 for a single senior Australian, $16,806 for a senior Australian who is a member of a couple and $19,383 for a senior Australian who is a member of an illness‑separated couple.

The Regulations commence on the commencement of the Tax Laws Amendment (Personal Income Tax Reduction) Act 2005, which is the Act that would implement the reduction in the lowest personal income tax rate from 17 per cent to 15 per cent.  They apply to the 2005-06 year of income and later years of income.  The Bill for this Act was introduced into Parliament on 12 May 2005, is expected to pass in the next sitting of the Senate (currently due in August 2005) and would commence on 1 July 2005.

Subsection 12(2) of the Legislative Instruments Act 2003 prohibits the retrospective operation of regulations, or a provision of regulations, which adversely affect the rights of, or impose liabilities on, a person other than the Commonwealth in respect of anything done or omitted to be done before the date of notification.  The Office of Legislative Drafting has advised that the Regulations do not contravene subsection 12(2) of the Legislative Instruments Act 2003.

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

Consultation was not undertaken in relation to this instrument because it is minor or machinery of government in nature and does not substantially change the law.