Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX REGULATIONS (AMENDMENT) 1992 NO. 216

EXPLANATORY STATEMENT

STATUTORY RULES 1992 No. 216

Issued by authority of the Treasurer

Income Tax Assessment Act 1936

Income Tax Regulations (Amendment)

The amending regulations amend chiefly regulations 148, 151 and 152 of Part 8 of the Income Tax Regulations to take account of cross-references to the rewritten Social Security Act 1991 (SS Act) and Part III of the Veterans' Entitlements Act 1986 (VE Act). Most of the amendments are necessary because of either the change of certain terminology now used in those Acts or the change of layout of those Acts. However there are several amendments made because of subsequent changes in those Acts or to put into the law what is done in practice.

Section 160AAA of the Income Tax Assessment Act 1936 (the Act) authorises the making of regulations to determine the amount of the rebate of tax allowable to the recipient of:

(a)       social security pension, benefits or allowances or service pension [subsection 160AAA(2)], included in the assessable income of the recipient (rebatable pension); and

(b)       social security benefit or allowance paid under certain Commonwealth education schemes [subsection 160AAA(3)], included in the assessable income of the recipient (rebatable benefit).

Subsection 160AAA(5) of the Act overrides provisions of the Acts Interpretation Act 1901 which would otherwise prevent the making of regulations to apply retrospectively. The regulations, for the purpose of section 160AAA, may apply in relation to a year of income, any part of which occurred before the notification of the regulations.

The amending regulations amend the Income Tax Regulations, chiefly Part 8 which cross-references to a large degree to the SS Act and to a lesser, but significant degree, the VE Act.

Most of the amendments are necessary as a result of the rewriting of the Social Security Act 1947 as the SS Act and the rewriting of Part III of the VE Act. Generally, both rewrites came in to effect as from 1 July 1991. The relevant provisions in those Acts are now written in a more straight-forward and simple style. The rewriting of the Regulations therefore will simplify them to some degree.

The rewrite of Part 8 uses the same language as SS Act and VE Act. For example, instead of the terms "spouse", "wife" or "husband" the term "partner" is used, and instead of the term "married" the term "partnered" is used.

Some changes to the SS Act subsequent to 1 July 1991 have also been taken into account, for example, the introduction of another level of allowance paid where members of a couple have to live apart as a result of illness or infirmity.

Pensioner Rebate

The regulations provide for different levels of the pensioner rebate of tax in respect of a year of income for:

•       partnered pensioners where the pensioner receives the partnered-rate of pension during the year;

•       partnered pensioners where the pensioner receives the single-rate of pension during the year, because, as a result of illness or infirmity; the couple are unable to live together; and

•       single pensioners where the pensioner receives the single-rate of pension during the year.

The rebates allow a member of a couple to receive, in addition to the full pension, a combined amount of non-pension income of $37 per week each ($1,924 for the year) or $74 per week combined ($3,848 for the year) in 1991-92, before being liable for tax. This applies also to members of a couple forced to live apart as result of illness or infirmity. For single pensioners the rebate will be set to allow them to receive, in addition to the pension, $42 per week ($2,184 for the year) in 1991-92, before becoming liable for tax.

The amount of non-pension income that can be derived by pensioners before being liable to tax is subject to indexation.

The level of each rebate reduces where the taxable income of a pensioner exceeds a certain taxable income threshold. The threshold is, in effect, the maximum level of taxable income below which a pensioner is not required to pay income tax. The rebates shade-out at a rate of 12.5 cents for each dollar of taxable income in excess of the level of the threshold.

For married pensioners, any unused portion of rebate is transferred to the spouse.

A pensioner who is eligible for more than one level of rebate because, during the year of income, he or she receives more than one of the rates of pension outlined, will be entitled to the rebate which gives the greatest benefit. Beneficiary Rebates.

These rebates are set at such a level that a recipient of a rebatable benefit for a full year will not have to pay tax unless he or she also has derived non-benefit income. The Regulations will provide for different levels of rebate in respect of a year of income as a consequence of a recipient receiving a benefit or allowance in any of the following categories:

Single:

•       under 18 years, living at home, no dependent children;

•       under 18 years, living away from home, no dependent children;

•       aged 18 to 20 years, living at home, no dependent children;

•       aged 18 to 20 years, living away from home, no dependent children;

•       aged 21 years or over, no dependent children;

•       aged 60 years to 64 years, in receipt of unemployment benefits for six months or more, no dependent children;

•       any age with dependent children;

Partnered:

•       aged under 18 years, no dependent children;

•       aged 18 to 20 years, no dependent children;

•       aged 21 years or over,

- no dependent children, spouse under 21 years;

- spouse on AUSTUDY, social security benefit, allowance or pension;

•       aged 21 years or over and spouse over 21 years and not on AUSTUDY, social security benefit, allowance or pension;

•       with children, and spouse not on AUSTUDY, social security benefit, allowance or pension;

•       separated because of illness and infirmity, with dependent children or is aged 21 years or over.

There are certain exceptions where the taxpayer began to get the benefit before 21 September 1990 and has received it continuously into a subsequent year of income:

(a) single beneficiary, aged 18 to 20 years and living at home, will be entitled to a rebate in that subsequent year of income at the same level as a single beneficiary in that age group and living away from home;

(b) partnered beneficiary aged below 21 years who has no dependent children, will be entitled to a rebate at the same level as a partnered beneficiary with children whose partner is not on AUSTUDY, social security benefit, allowance or pension;

(c) partnered beneficiary aged 21 years or more who has no dependent children and whose spouse is aged less than 21 years or is on AUSTUDY, social security benefit, allowance or pension, will be entitled to a rebate at the same level as a partnered beneficiary with children whose partner is not on AUSTUDY, social security benefit, allowance or pension;

(d) partnered beneficiary with children and whose spouse is on AUSTUDY, social security benefit allowance or pension will be entitled to a rebate at the same level as a partnered person with children who is not on AUSTUDY, social security benefit, allowance or pension.

Provision has been made for calculation of beneficiary rebate for a sole parent. The amendment puts into the form of regulation what has occurred in practice and also makes provision for alleviation of possible hardship.

A beneficiary eligible for more than one level of rebate because he or she received more than one category of benefit during the year of income is to be entitled to the rebate which gives the greatest benefit.

The rebate levels reduce at a rate of 12.5 cents for each dollar of taxable income in excess of the levels of the appropriate rebate thresholds. The Regulations contain a formula for calculation of the threshold appropriate to each rebate level.

Details of the proposed amending Regulations are set out below.

Commencement

Regulation 1 proposes that the amendments to the Income Tax Regulations come into effect on 1 July 1991.

Amendment of the Income Tax Regulations

Regulation 2 provides that the Income Tax Regulations are amended as set out in the amending Regulations.

Replacement of obsolete reference

Regulation 3 replaces a reference to social security legislation made obsolete by the rewriting of the Social Security Act 1947 as the Social Security Act 1991 (SS Act).

Interpretation

Regulation 4 replaces the existing regulation 148 (Interpretation). The new regulation will contain a number of revised or new definitions.

In numerous instances the revision will be merely one of title to take account of the terminology used in SS Act. For example, although there is no change in the essence of the definition the term., "dependant spouse-rate benefit" becomes "dependant partner-rate" benefit. Other examples are that "spouse", "wife" and "husband" become "partner" while "marital partner" becomes "member of a couple" and "married-rate benefit" becomes "partnerrate benefit".

Another example of revision of a term without changing its essence is the prefixing of terms containing the words "separated-rate" with the term "illness". Illness separated couples are those forced to live apart because of illness or infirmity. The purpose of the prefixing is to avoid confusion with the concept of legal separation.

Probably the most extensive revisions of terms relates to those definitions of rebatable benefits which took their title from various paragraphs of subsection 118(1) of the Social Security Act 1947. The Table on page 6 sets out the titles of these definitions and the titles which. it is proposed, will replace them.

In the Social Security Act 1947. the term "prescribed pension" was defined. Its definition in the regulations was no more than a cross reference to that Act. It is not used in SS Act so the amending regulations provide a definition.

The term "prescribed allowance" has been omitted. It included the "Formal Training Allowance" which is no longer paid. Its reference to educational schemes is no longer necessary.

Some definitions, for example "lowest marginal tax rate", will not change.

A new definition is "illness-separated-rate benefit" which is a new and higher level of benefit introduced in 1991 for recipients of rebatable social security benefits unable to live together because of illness or infirmity. Persons eligible have dependent children or are aged 21 years or over.

The wording of many definitions also changes to take account of the change of layout in the SS Act and the VE Act to which they cross-reference.

     Existing title           

     To whom it applies          

     Proposed title

     Paragraph 118
     (1)(a)-rate
     benefit

     Age 16-17, single, at
     home, no child*

     Under-18 at
     home-rate
     benefit

     Paragraph 118
     (1)(aa)-rate
     benefit

     Age 16-17, single,
     homeless or away from
     home student, or
     independent, no
     child*

     Under-18
     independent-
     rate benefit

     Paragraph 118
     (1)(b)-rate
     benefit

     Age 16-17, partnered,
     no child*

     Under-18
     partnered-rate
     benefit

     Paragraph 118
     (1)(ba)-rate
     benefit

     Age 18-20, partnered,
     no child*

     18-20
     partnered-rate
     benefit

     Paragraph 118
     (1)(bb)-rate
     benefit

     Age 18-20, single, at
     home, no child*

     18-20 at-home-        
     rate benefit

     Paragraph 118
     (1)(bc)-rate
     benefit

     Age 18-20, single,
     away from home or
     independent, no
     child*

     18-20
     independent-
     rate benefit

     Paragraph 118
     (1)(c)-rate
     benefit

Age 21 or over,
single, no child*

     Over-21
     single-rate
     benefit

     Paragraph 118
     (1)(d)-rate
     benefit

     (a) sole parent, any
     age
     (b) over 60,
     unemployed six months
     or more, no child*

     Sole-parent-
     rate benefit

     (b) over-60-
     rate benefit

     Paragraph 118
     (1)(d)-rate
     benefit






     Aged 21 or over,
     partnered:
     (a) spouse aged under
     21 or on Austudy or
     prescribed pension,
     no child*
     (b) spouse any age,
     on Austudy or
     prescribed pension,
     with child*



     Partnered
     half-rate
     benefit

     Partnered
     parent half
     rate benefit

* The phrase "no child" in the second column means the person has no dependent child/children. The phrase "with child" means the person has a dependent child/children.

Rebate in respect of certain pensions

Regulation 5 amends regulation 151 to take account of the rewriting of SS Act and the VE Act. The need for amendment arises from changes in the terminology and layout of those Acts. Subregulations 5.1 to 5.6 and 5.11 to 5.26 amend the terminology used. Subregulations 5.7 to 5.10 are necessary because of the changed layout in SS Act and the VE Act.

Rebate in respect of certain pensions

Regulation 6 amends regulation 152 to introduce a modification in the regulations of the treatment of the sole parent rebate consistent with the treatment of those eligible for the spouse rebate.

Subregulations 6.1 to 6.3, substitute the term "applicable concessional rebate amount" in subregulations 152(2), (3) and (4) for the term "applicable spouse rebate amount" to extend this term to include sole parents.

Subregulation 6.4 inserts a paragraph (aa) in subregulation 152(4) to apply where appropriate the sole parent rebate in determining the rebate of tax to which a taxpayer is entitled under subregulation 152(1).

Subregulation 6.4 also inserts a paragraph (ab) in subregulation 152(4) to apply where:

•       the taxpayer is entitled to a sole parent rebate; and

•       the amount of the sole parent rebate to which the taxpayer is entitled is less than what the taxpayer's beneficiary rebate would be if the applicable concessional rebate amount were 0.

In such circumstance the amount of the beneficiary rebate would be calculated by deducting from the amount of the beneficiary rebate, calculated as if the applicable concessional rebate amount were 0, the amount of sole parent rebate to which the taxpayer is entitled. An example will illustrate this:

Suppose the amount of the benefit received by the sole parent taxpayer was $8,180 and that the full safe parent rebate was $1,080. Under the existing provisions of the regulations the beneficiary rebate would be $556. In most cases this would be less than the sole parent rebate. The sole parent rebate would more than offset the amount of the beneficiary rebate, and in practice, therefore, the beneficiary rebate for sole parents was announced as nil. However suppose that, the sole parent rebate was reduced under the provisions of subsection 159K(2) to $270. Under the provisions of the proposed amendment the taxpayer would be eligible for a beneficiary rebate of $286 ($556 less $270).

Subregulation 6.5 substitutes a new subregulation 152(5)for existing subregulation 152(5). The substitution is necessary to allow for the new layout of SS Act and the new social security/veterans' affairs terminology. Subregulation 152(5) defines the term "annual benefit amount" which is used in the formula in subregulation(3) to calculate the level of rebate to which the various categories of beneficiary are entitled. The paragraphs of the subregulation identify the amount relevant to each category;

     Paragraph     

     Annual benefit amount

     152(5)(a)

     dependant partner-rate benefit amount

     152(5)(b)

     under-18 at-home-rate benefit amount

     152(5)(c)

     under-18 independent- rate benefit amount/under-18 partnered-rate benefit     

     152(5)(d)

     18-20 independent- rate benefit amount (special provision for double orphan recipients of an      allowance under the Veterans' Children Education scheme, aged under 18)     

     152(5)(e)

     18-20 at-home-rate benefit amount

     152(5)(f)

     18-20 partnered-rate benefit amount/18-20 independent- rate benefit     

     152(5)(g)

     over-60-rate benefit amount

     152(5)(h)

     partnered half-rate benefit amount

     152(5)(i)

     partnered parent half-rate benefit amount

     152(5)(j)

     over-21 single-rate benefit amount

     152(5)(k)

     sole- parent- rate benefit amount

     152(5)(1)

     illness-separated- rate benefit amount


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