Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX REGULATIONS (AMENDMENT) 1996 NO. 150

STATUTORY RULES 1996 No. 150

Issued by Authority of the Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Regulations (Amendment)

The purpose of the regulations is to make amendments to Part 8 of the Income Tax Regulations (the regulations) which provide the detail for calculation of pensioner and beneficiary rebates in line with section 160AAA of the Act.

The regulations in Part 8 ensure that a person receiving a full rate benefit for the full year with no other taxable income will not have a tax liability for that year. Pensions are rebated similarly but the pensioner rebate also allows the receipt of a certain amount of other taxable income before any tax liability results.

Because the current arrangements are very complex a number of measures for streamlining the arrangements are implemented by these regulations. These include amendments made to reflect:

* changes to broadbanding arrangements;

* changes to some beneficiary payments; and

* some restructuring of the regulations.

Otherwise, most of the rebates be calculated on the same basis as in previous years. The detail of these changes is provided below.

Broadbanding

The amending regulations provide for broadbanding which means using the same rebate amount (the highest of the pair or group) and threshold for two or more rebatable benefits. In the past, AUSTUDY and ABSTUDY beneficiaries have generally received the same rebate levels as Social Security beneficiaries with similar characteristics. This approach continues. However, an increase in the number of social security and education and training scheme payments has required increases in the number and complexity of rebate categories such that further broadbanding is necessary.

Changes in payment arrangements

The amending regulations provide changes in the approach used for last year's rebates due to changed circumstances for some existing payments or the introduction of a new payment. The amending regulations provide for rebates to take account of:

*       some benefits that were introduced part way through 1994-95 but are paid for all of 1995-96;

*       the cessation of partnered rates for social security (full year effect this year) and AUSTUDY and ABSTUDY (commencing 1 January 1996) benefits and their replacement with separate benefit entitlements for partners; and

*       a new social security payment, the Parenting Allowance.

Restructuring the regulations

As mentioned above, the regulations have become very complex. The references in the regulations to other legislation and their general user unfriendliness means they are not able to be used by all people as a practical tool to determine rebate entitlements. This situation has created the need for significant restructuring of the relevant regulations.

The amending regulations split Part 8 of the regulations into three Divisions. The main reason is to separate out the regulations dealing with the rebates for certain pensions from those dealing with rebates for beneficiaries. This will be helpful in the future because the former are seldom amended and the latter frequently.

Another reason for the split is that the pension rebate provisions are left in the current format because of the explanation of the more complicated income conditions. On the other hand, with the large number of rebatable benefits and the relative simplicity of their conditions it is convenient to express the appropriate "annual benefit amounts" and the circumstances in which they are paid in tabular form.

Commencement

One of the amendments, which is to correct a technical omission, is effective 1 July 1994. Retrospectivity of pensioner and beneficiary rebate regulations is authorised by subsection 160AAA of the Act. Also the amendments only positively affect persons subject to them and are thus in accord with section 48 of the Acts Interpretation Act 1901. The other amendments have effect from 1 July 1995.

Details of the amending regulations are set out in the Attachment.

ATTACHMENT

Details of Income Tax Regulations Amendments

Commencement

By subregulation 1.1 the amending Regulations amend the Income Tax Regulations. The amending regulations commence on gazettal in line with section 48 of the Acts Interpretation Act 1901.

Amendment

Division 1 - General

Subregulation 2.1 inserts a new heading indicating a new Division called "Division 1 -General" after the main heading of Part 8 of the Income Tax Regulations.

Subregulation 3.1 omits from regulation 148 (Interpretation) the definitions that are pensioner rebate-specific or beneficiary rebate-specific which are covered by new Divisions 2 and 3.

By the above changes Division 1 contains the general definitions from the existing regulation 148 and also contains existing regulations 149 and 150. The general definitions in regulation 148 are: "lowest marginal tax rate", "member of a couple", "Partner", "rebatable benefit" and "rebatable pension", "SSA91", "tax-free threshold" and "VEA". Some of the remaining definitions from the current regulation 148 are transferred to new Division 2 (see below) and the use of a table in Division 3 enables the repeal of the remainder.

Division 2 - Rebate in respect of certain pensions

Subregulation 4.1 inserts a new heading indicating a new Division called "Division 2 - Rebate in respect of certain pensions" after existing regulation 150.

Subregulation 5.1 inserts a new regulation 150A in new Division 2. The new regulation contains the pensioner rebate-specific definitions omitted from existing regulation 148.

These are organisational changes that do not affect the pensioner rebate arrangements in any other way. The pensioner rebate-specific definitions from regulation 148 are: "illnessseparated-rate pension", "illness-separated-rate service pension", "illnessseparated-rate social security pension", "partnered-rate pension", "partnered-rate service pension", "partnered-rate social security pension", "single-rate pension", "single-rate service pension" and "single-rate social security pension". The Division also contains existing regulation 151 unchanged by the regulations.

Division 3 - Rebate in respect of certain benefits

Subregulation 6.1 inserts a new heading indicating a new Division called "Division 3 - Rebate in respect of certain benefits" after existing regulation 151.

Division 3 contains existing regulation 152. This is the area in which major change is made. Subregulations not mentioned below remain as before.

Subregulation 7.1 substitutes the definition of "Annual benefit amount" in existing subregulation 152(3) with a definition more suitable to the change to prescribed annual benefit amounts in the new table in subregulation 152(5) as amended by these regulations.

Subregulation 7.2 omits subregulation 152(3A) because it has no effect in respect of years beyond the 1994-95 income year. The reduction of the taxfree threshold by half in respect of Youth Training Allowance beneficiaries was only necessary for that year because the benefit only commenced on 1 January 1995. Full year operation of the benefit requires no reduction in the threshold.

Subregulation 7.3 inserts a reference to existing paragraph 152(5)(pa) in existing paragraph 152(4)(a).

This paragraph provides for a reduction in beneficiary rebate where the beneficiary may be eligible for the rebate in respect of dependent spouse for the 1994-95 year of income. Existing paragraph 152(5)(pa) (a type of Austudy recipient with a dependent spouse and child) should also have been mentioned in paragraph 152(4)(a).

The necessary amendment was overlooked earlier and is inserted in the paragraph before its removal by these regulations (see below) to properly authorise the rebate that was allowed in respect of those taxpayers' assessments for the 1994-95 year of income. Subsection 160AAA(5), of the Income Tax Assessment Act 1936 allows regulations made for pensioner and beneficiary rebate purposes to have retrospective application.

Subregulation 7A omits paragraph 152(4)(a).

The dependent spouse situation that gave rise to the increased benefit mentioned in existing paragraphs 152(5)(n) and 152(5)(pa) ceased on 31 December 1995. The formerly dependent spouses now receive a benefit in their own right. Any notional entitlement to a rebate in respect of a dependent spouse (envisaged by paragraph 152(4)(a)) is reduced to nil because of income received and is thus adequately covered by existing paragraph 152(4)(b).

Subregulation 7.5 substitutes paragraph 152(4)(aa) to replace the reference to existing paragraph 152(5)(k) in the paragraph with an appropriate descriptor in line with the new table in subregulation 152(5). The operation of the paragraph is unaffected. If a beneficiary is entitled to receive the full sole parent rebate their beneficiary rebate is reduced accordingly.

Subregulation 7.6 substitutes paragraph 152(4)(ab) to replace an identical reference to that above with the same descriptor as above. The operation of the paragraph is unaffected. If a sole parent beneficiary is entitled to receive a partial sole parent rebate their beneficiary rebate is reduced accordingly.

Subregulation 7.7 substitutes paragraph 152(4)(ac) to replace the reference to existing paragraph 152(5)(u) in the paragraph with an appropriate descriptor in line with the new table in subregulation 152(5). The operation of the paragraph is unaffected. Partnered drought relief payment beneficaries with no children who are entitled to a spouse rebate have their beneficiary rebate reduced accordingly.

Subregulation 7.8 omits paragraph 152(4)(ad) because it has no effect in respect of years beyond the 1994-95 income year. The $298 amount is not deducted from the beneficiary rebate of dependent partnered drought relief payment recipients who have dependent children or students after that year. The amount reflected the partial entitlement to a dependent spouse rebate in the year when the home child care allowance (now non-benefit parenting allowance) commenced on 29 September 1994. It is assumed for beneficiary rebate purposes that such families claim parenting allowance for the full year.

Subregulation 7.9 substitutes subregulation 152(5) with a table. In column 2 of the table, cells contain descriptors of various beneficiaries distinguished by age and family situation. In column 3, listed against the relevant groups are the types of benefit for which they are eligible. Column 4 prescribes the annual benefit amounts to be used for the purpose of calculation of beneficiary rebates for the various categories of persons.

Where groups of beneficiaries have been broadbanded, the annual benefit amount will be that which corresponds with the highest rate of benefit receivable by members of that category of persons. In any instance the annual benefit amount is the amount that would be received at the highest rate for the full year. The textual content of the table also achieves the amendments necessary to cope with changes to payment arrangements mentioned above.

Subregulation 7.10 omits subregulation 152(7). This rounding provision is no longer needed as whole dollar annual benefit amounts are provided in the subregulation 152(5) table.

Application

Subregulation 8.1 provides that the amendment made by subregulation 7.3 applies in relation to the 1994-95 year of income for the reasons described above.

Subregulation 8.2 provides that the remainder of the amendments, including the omission of paragraph 152(4)(a) as amended by subregulation 7.3, apply in relation to the 1995-96 and later years of income.