Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX REGULATIONS (AMENDMENT) 1996 NO. 345

STATUTORY RULES 1996 No. 345

Issued by Authority of the Assistant Treasurer

INCOME TAX ASSESSMENT ACT 1936

INCOME TAX REGULATIONS (Amendment)

The purpose of the regulations is to amend Division 3 of Part 8 of the Income Tax Regulations (the Regulations). Division 3 provides the methodology for determination of beneficiary rebate levels in line with section 160AAA of the Act.

Division 3 ensures that a person receiving a full rate rebatable benefit for the full year with no other taxable income will not have a tax liability for that year.

Although the method had been streamlined in recent years, it remained complex. Under those arrangements we calculated rebate levels for the various types of benefits as though they had been received for the full year at the full rate. For beneficiaries with taxable income in excess of a threshold approximating the full-year, full-rate benefit the rebate reduced at a rate of 12.5 cents for each dollar of the excess.

In the 1996-97 Budget the Government announced that it had reviewed the method for setting the levels of the beneficiary rebate. For the 1996-97 and subsequent income years, the rebate levels would be calculated to offset the tax liability on the amounts of rebatable benefit actually paid during the year. There would no longer be a taper of the rebate where taxable income exceeded a determined threshold.

Under these new arrangements, beneficiaries with no other income will continue to have their tax liability extinguished. The rebate level for each beneficiary can be obtained quickly by applying a new formula.

Calculations of rebate levels based on the tax liability on notional, full-year, full-rate allowances will no longer be necessary. Nor is it necessary to taper the rebate where the taxable income of the beneficiary is greater than the full-year, full-rate benefit. Under these new arrangements a rebate threshold will be unnecessary.

Under the previous formula, certain rebates such as the sole parent rebate were deducted from the beneficiary rebate, In the new formula, for simplicity, we do not deduct such rebates.

The purpose of the amending regulations is to amend Division 3 in accordance with the Government's intention. The subregulations containing the previous formula have been repealed. The previous formula for the beneficiary rebate is replaced by the new formula referred to above.

The new formula for the beneficiary rebate

Under the new arrangements we calculate beneficiary rebate levels by the following formula:

(Actual amount of rebatable benefit received - $5,400) x (lowest marginal tax rate)

where:

"Actual amount of rebatable benefit received" is the actual amount of rebatable benefit received during the income year; all payments of rebatable income received are summed to arrive at this amount; for example, if a person received job search allowance of $4,000 and AUSTUDY living allowance of $4,500 during the income year the amount used in the formula in relation to this person will be $8,500.

"$5,400" is the general tax-free threshold below which most resident taxpayers do not pay tax.

"Lowest marginal tax rate" has the meaning given in regulation 148.

The definition of tax-free threshold used in Division 3 differs from that in regulation 148. The latter would be appropriate but for the family tax incentive which raises the tax-free threshold for certain taxpayers. To increase the tax-free threshold for beneficiaries would reduce or remove the beneficiary rebate for them. This would be inconsistent with the government's intention that the family tax incentive should be an additional benefit.

Application

The amendments take effect from 1 July 1996. Retrospectivity is authorised by subsection 160AAA(5) of the Act.

Details of the amendments appear in an Attachment.

ATTACHMENT

Details of Proposed Income Tax Regulations Amendment

Commencement

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

Amendment

Division 3 - Rebate in respect of certain benefits

Subregulation 2.1 omits the existing regulation 152 and replaces it with a new regulation 152.

New regulation 152 contains the new formula for calculating the beneficiary rebate. The new formula subtracts the tax-free threshold of $5,400 from the amount of rebatable benefit received during the income year and multiplies the result by the lowest marginal tax rate (at present 0.20).

For example, if a taxpayer received rebatable benefit amounting to $8500 in 1996-97 the relevant beneficiary rebate would be: ($8,500 less $5,400) x 0.20 = $620.

The new regulation provides that, where the amount calculated by use of the formula is not an amount of whole dollars, the amount is to be rounded up to the nearest whole dollar.

Application

The amending regulation provides that the amendments relate to a year of income commencing on or after 1 July 1996.