Issued by authority of the Minister for Revenue
and Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Amendment Regulations 2006 (No. 3)

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

*                the calculation of the beneficiary tax offset, allowed under section 160AAA of the Act.

to reflect the increase in the 30 per cent personal income tax threshold from $21,601 to $25,001 which is included in Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Act 2006.  The threshold will increase from 1 July 2006.

The senior Australians 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.  Senior Australians are able to earn up to the effective tax free threshold before they start paying income tax.

The current formula in subregulation 150AB(3) of the Income Tax Regulations 1936 (the Principal Regulations) assumes the rebate threshold occurs when a taxpayer has a 30 per cent marginal tax rate.  However, as a result of the increase in the 30 per cent threshold to $25,001, the formula for calculating the rebate threshold requires amendment.

Subregulation 150AB(3) has been added to 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 2006‑07 year are $24,867 for a single senior Australian, $20,680 for a senior Australian who is a member of a couple and $23,600 for a senior Australian who is a member of an illness‑separated couple.

The previous formula has been maintained in the Regulations for any future circumstance where the effective tax free threshold occurs when a single senior taxpayer has a 30 per cent marginal tax rate.  Maintaining the previous formula minimises the need for future amendments.

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 Principal Regulations.

The Regulations would amend subregulation 152(1) 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 increase in the 30 per cent threshold from $21,601 to $25,001. 

The formula for calculating the beneficiary tax offset has also been modified to avoid hard-coding of numbers, which will minimise the need for future amendments.

The Regulations commence on 1 July 2006. 

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.