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A New Tax System (Family Assistance) (Administration) Bill 1999



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Bills Digest No. 205  1998-99

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A New Tax System (Family Assistance) (Administration) Bill 1999

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have an y official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Contents

 

Passage History

A New Tax System (Family Assistance) (Administration) Bill 1999

Date Introduced:  9 June 1999

House:  House of Representatives

Portfolio:  Family and Community Services

Commencement: For the most part immediately after commencement of the A New Tax System (Family Assistance) Act 1999 which commences after the commencement of specified goods and services tax legislation proposed to commence on 1 July 2000.

Purpose

The pu rpose of the A New Tax System (Family Assistance)(Administration) Bill 1999 (the Bill) is to complement the A New Tax System (Family Assistance) Bill 1999 which aims to introduce a simplified structure and delivery mechanism for the provision of family assistance through the tax and social security systems.

The Bill contains administrative provisions that govern such matters as the making of claims for benefits, determination of claims, payment of benefits, recipient obligations, termination of payments and the review process.

Background - Tax Reform Package

On 13 August 1998 the Federal Government released proposals for reform of the Australian tax system(1) of which, a goods and services tax (GST) was the centrepiece.

The tax reform plan proposes to:

  • Introduce a GST which eliminates sales tax and a range of nine other indirect taxes
  • Change Commonwealth-State financial relations by providing States and Territories with an independent revenue base
  • Implement significant changes to individual marginal tax rates
  • Implement a major rationalisation of family assistance
  • Replace the various existing taxation payment and reporting systems of company tax, provisional tax, PAYE,(2) PPS(3) and RPS(4) by one quarterly tax payment system, PAYG(5)
  • Introduce a new universal business number system
  • Move toward an entity taxation system which is directed toward the elimination of tax advantages between different business structures, and
  • Simplify the imputation system and introduce refunds for excess franking credits.

As part of the tax reform package to implement a major rationalisation of family assistance the Government proposes to simplify the structure and delivery of family assistance.  Accordingly, twelve family benefits are proposed to be reduced to three and a new Family Assistance Office will deliver the new set of simplified family assistance programs.(6)

On 25 November 1998, the Senate referred issues relating to the GST and the new tax system to a Select Committee and three of its Reference Committees.(7) In February 1999 the Senate Select Committee produced its First Report.(8) The three Reference Commit tees produced their reports in March 1999.(9) In April 1999 the Senate Select Committee released its second report.(10)

Background - Family Assistance Package

1. Summary of the A New Tax System (Family Assistance) Bill 1999

The A New Tax System (Family Ass istance) Bill 1999 introduces a proposed new family benefits structure that will reduce the existing payment mechanisms from twelve to three.

It also relocates Maternity Allowance from the Social Security Act 1991 to the A New Tax System (Family Assistance) Bill 1999. This is to ensure that all family assistance benefits are located in one Act.

It is proposed that there will be three distinct family benefits:

  • Family Tax Benefit Part A 
     
    Family Tax Benefit Part A (FTB-Part A) will provide assistance to families to raise children.
  • Family Tax Benefit Part B, and 
     
    Family Tax Benefit Part B (FTB-Part B) will provide additional assistance for single income families with children
  • Child Care Benefit 
     
    Child Care Benefit (CCB) will provide assistance with the costs of childcare outside the home.

An individual's annual rate of family tax benefit is the sum of FTB-Part A and  
FTB-Part B.

Maternity Allowance (MA), assistance in the form of a one-off payment to meet additional costs at the time of the birth of a child, will continue to be available with some minor changes.

2. Further background information on family benefits

For further information please refer to the Bills Digest for the A New Tax System (Family Assistance) Bill 1999, No. 175 of 1998-99, and in particular t o the sections on family assistance initiatives and family benefits found on pages 2 to 5 inclusive. It includes a summary of family assistance from 1941 to 1999 in table format.

Main Provisions

1. Summary

There are four principal administrative issues dea lt with in the Bill:

  • payment of family assistance
  • overpayments and debt recovery
  • review of decisions, and
  • approval of child care services and registered carers.

2. Payment of family assistance

There are basically three forms of family assistance dealt wit h by new Part 3 :

  • Family Tax Benefit (the sum of FTB-Part A and FBT-PartB)
  • Maternity Allowance  and Maternity Immunisation Allowance (MIA), and
  • Child Care Benefit.

New Divisions 1 , 3 and 4 of new Part 3 deal with claims, determinations and payments for FTB, MA and CCB.

2.1 Family Tax Benefit

2.1.1 Claims

An individual or approved care organisation must make a claim in order to be paid family tax benefit. ( New section 5 )

Under new section 7 a person may choose one of two payment options:

  • Payment by instalment, or
  • fortnightly payments for a current period paid by the Family Assistance Office (Centrelink).(11)
  • Payment for a past period.
  • a lump sum payment paid through the Australian Taxation Office (ATO).

A person choosing to receive payments through the ATO can also elect to have their tax instalment deductions (TIDs) reduced in anticipation of the end of year lump sum payment. 
 
A lump sum payment may also be paid by the Family Assistance Office (Centrelink) for up to 2 years in arrears, if a person is making a claim for current fortnightly payments and realises that they were eligible for a past period.

A person making a claim (and their partner) must also meet the tax file number (TFN) requirements specified in new section 8 . Basically the requirement is to supply a TFN.

Under new section 10 a claim for a past period must be made before the next income year. This means that persons choosing to receive payment through the ATO will have to lodge a claim every year with their tax return. Recipients of fortnightly payments through Centrelink will receive their payments on a continuing basis (subject to continuing eligibility etc) without the need to claim each year.

2.1.2 Determinations and variations of determinations

Pursuant to new section 13 the Secretary must make a determination in relation to an effective claim. That is, the Secretary must decide whether the claimant is entitled to be paid family tax benefit and at what rate the Secretary considers the claimant to be eligible.

Under new section 20 a determination may be based on an estimate of income where the taxable income of an individual is not known.

Pursuant to new sections 23 and 24 the Secretary must pay the instalment or lump sum amount to the claimant at such time and in such manner as the Secretary considers appropriate. This is subject to the provisions relating to overpayment and debt recovery.

Variations of entitlement determinations may be made where a person:

  • fails to provide a TFN ( new section 27 )
  • does not lodge an income tax return ( new section 28 )
  • fails to provide information or documentation ( new section 29 ), or
  • fails to notify a change of address ( new section 30 )

Under new section 31 a variation may also be made to reflect changes in eligibility.

2.1.3 Comments

The current income testing arrangements under the Social Security Act 1991 for family allowance refer to taxable income. Income from the previous complete financial year is used to determine eligibility under the income test. For example, payment for the 1999 calendar year is based on the taxable income for the 1997-98 financial year.

This method of retrospective examination of income is problematic in that it may refer to income that may be up to 18 months old, which may not be indicative of real and current need for assistance.

There are provisions that require recipients to notify changes in circumstances so that payments can be adjusted to more accurately reflect current income. However, these arrangements are cumbersome and do lead to a significant number of incorrect payments.(12)

The proposal to use current financial year income will address the problems associated with the use of retrospective income levels but may create difficulties connected with the requirement to estimate income.

The requirements to estimate income should not impact greatly on families whose income is consistent and predictable, but the incidence of families with varying incomes is becoming more prevalent given the changes to the labour market over the past years.(13) For those whose income varies, there is much potential for under or overpayment.

Given that the effect of the income test for the proposed FTB-Part A targets this assistance to lower income families, it is highly probable the vast majority of claimants will elect to receive payment by way of periodic instalments during the year, rather than as a refund at the end of the year.  Therefore, the vast majority of assessments will require forward estimates of annual income.  This means there is the potential for a significant number of reconciliations required to be made at the end of the year and the resultant recovery of overpayments and the refund of underpayments.  Given a natural and rational desire to receive some assistance and to maximise this assistance, this process will probably mean far more overpayments than underpayments.  See paragraph 3 of the Mains Provisions section of this Bills Digest, which refers to overpayments and debt recovery.

2.2 Family Tax Benefit Advances

There is provision in new sections 33 , 34 and 35 , for the payment of family tax benefit advances. Advances are restricted to persons whose adjusted taxable income does not exceed $73,000 plus $3,000 for each child after the first and whose FTB-Part A rate is twice the amount of the FTB advance rate.(14)

2.3 Maternity Allowance and Maternity Immunisation Allowance

As with family tax benefit the only way a person can become entitled to be paid MA or MIA is to make a claim in the form and manner required by the Secretary. ( New sections 36 , 37 and 38 )

The Secretary must determine the claim and if the claimant is entitled to be paid MA or MIA the Secretary must pay the allowance to the claimant. ( New sections 41 and 47 )

2.4 Child Care Benefit

2.4.1 Regulations

The provisions of the Bill relating to Chil d Care Benefit are rather different from the provisions concerning family tax benefit. Rather than set out the requirements in the Bill concerning claims, determinations and payments new Division 4 basically provides for the making of regulations about how individuals and approved child care services can become entitled to have payments of child care benefit made, and how such payments are to be made.

2.4.2 Comment

Under the A New Tax System (Family Assistance) Bill 1999, eligibility for CCB depends upon the individual and child care service being conditionally eligible for CCB under the A New Tax System (Family Assistance) (Administration) Act 1999 . It was expected that the rules governing such conditional eligibility would therefore be set out in the Bill, however, the path chosen has been to state that the regulations may prescribe circumstances in which, and procedures by which conditional eligibility will be determined.

This theme is continued throughout new Division 4 with the obvious consequence that until the regulations are available administrative detail concerning CCB will not be available and therefore no assessment can be made of any rules that will impact upon eligibility.

3. Overpayments and Debt Recovery

3.1 Amounts recoverable

Where an amount is paid to a person not entitled to the amount or where a person is overpaid, the amount so paid is a debt due to the Commonwealth by the person or i n some circumstances the approved child care service. ( New sections 70 , 71 and 72 )

Interest is payable on a debt at a penalty rate of 20% where a person fails to enter into an agreement to pay the debt or where the agreement to pay the debt is breached. ( New sections 77 , 78 and 79 )

3.2 Methods of recovery

Pursuant to new subsection 82(1) a debt owed by a person is recoverable by:

  • deductions from family assistance payments made to the person or to another person who consents to have their family assistance payments applied against the debt
  • the application of an income tax refund owed to the person or to another person who consents to have their refund applied against the debt, or
  • legal proceedings or garnishee notice.(15)

Pursuant to new subsection 82(2) a debt owed by an approved child care service is recoverable by:

  • deductions from any group payments made to the service, or
  • legal proceedings or garnishee notice

4. Review of Decisions

The review process in relation to decisions of an officer under the family assistance law follows a particular path. Initially an application must be made to the Secretary for internal review. Following this a person may apply to the Social Security Appeals Tribunal and then eventually the Secretary or the person affected by the decision may apply to the Administrative Appeals Tribunal.

4.1 Internal review

Under new section 221 the Secretary has the general administration of the family assistance law.(16)

A person affected by a decision may apply for internal review of the decision. The Secretary must then review the decision and notify the applicant of the outcome, including reasons therefore and advise the person of their further rights of review by the Social Security Appeals Tribunal (SSAT) and the Administrative Appeals Tribunal (AAT). ( New sections 105 and 109 )

Under new section 222 the powers of the Secretary may be delegated and it is presumed that the Commissioner of Taxation (or his delegate) may be empowered to conduct internal reviews of decisions taken by ATO officers administering the family assistance law.

It is clear that this is contemplated because new subsection 106(2) provides that where the officer belongs to an agency other than the Department of Family and Community Services, the Secretary can only appoint an officer as an authorised review officer with the consent of the head of the relevant agency. It is also stated in the Second Reading Speech for the Bill, that 'It is expected that where family tax benefit is paid through the tax system, the Commissioner, as delegate of the Secretary, will carry out the review functions for those customers.'(17)

4.2 Review by Social Security Appeals Tribunal

Under new section 111 , if there has been an internal review of the decision and person is not satisfied with the outcome of the review, they may apply to the SSAT for review of the decision as varied or affirmed.

This makes it clear that after the point of internal review, the review process is proposed to be kept separate from the ATO appeal and review process.

Pursuant to new sections 131 and 132 the SSAT is not bound by legal technicalities or rules of evidence and the hearing is to be in private.

4.3 Review by Administrative Appeals Tribunal

Pursuant to new section 143 , if a decision has been reviewed by the SSAT, the Secretary or the person affected by the decision may apply to the AAT for review of the decision made by the SSAT.

5. Approval of child care services and registered carers

5.1 Approval of child care services

Under new section 195 a person who operates centre based long day care service, family day care, occasional care or an outside school hours care service may apply to have the service approved for the purposes of the family assistance law.

Pursuant to new section 196 the Secretary must approve the service if it meets certain criteria including eligibility requirements and allocation of child care places.

The criteria for eligibility and allocation of child care places will be the subject of guidelines and rules determined by the Minister. ( New sections 206 and 207 )

5.2 Approval of registered carers

Under new section 210 an individual who provides care for a child or children may apply to the Secretary to be approved as a registered carer for the purposes of the family assistance law.

Under new section 211 the Secretary must approve the individual as a registered carer if they meet either an age requirement or qualification requirement (made by determination of the Minister) and TFN requirement.

The care by the individual must comply with all applicable Commonwealth, State or Territory laws and any other conditions imposed by the Secretary. The Minister may also, by determination, impose other conditions in relation to registered carers generally. ( New section 214)

5.3 Determinations

A determination made by the Minister in relation to approval of child care services and registered carers is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901 , which means that the determination must be gazetted and tabled before each House of Parliament. Either House may pass a resolution to disallow the determination.

6. Delegation of Secretary's powers

Under new section 222 the Secretary may delegate all or any of the powers of the Secretary under the family assistance law.

This will be the mechanism used to create the Family Assistance Office - a virtual office or joint venture between the ATO, Centrelink and Medicare.

Concluding Comments

  1. Same rules to apply to everyone

All recipients of family assistance will be subject to the same eligibility rules and rate of payment whether they choose to receive their payment fortnightly through Centrelink or through the AT O. The eligibility criteria for each payment are found in the proposed A New Tax System (Family Assistance) Bill 1999 which does not link eligibility to delivery mechanisms.

  1. Income Testing

Under the new proposal, calculation of income will be based on curr ent year adjusted taxable income. This change will better reflect the current means of recipients, however, it will require income to be estimated. It will also mean that discrepancies between estimates of taxable income and actual income will need to be resolved. This will result in the repayment of overpayments and in the top-up of underpayments. Frequent overpayments and underpayments would seem to be inevitable under this arrangement and some would argue that this will cause administrative complexity.

It should be relatively straightforward to make top-up payments but may be more complex in relation to the recovery of overpayments. It should be noted that there is a current requirement to repay overpayments but deductions cannot currently be made from the income tax refund owed to the person.

Currently families do not receive any top-up for underpayments. The proposed adjustment mechanism therefore provides a fairer result in this respect.

Please refer to paragraph 2.1.3 under the Main Provisions section of this Bills Digest for additional commentary in relation to income testing.

  1. Regulations for Child Care benefit

Please refer to comments in paragraph 2.4 of the Main Provisions section of this Bills Digest relating to proposed regulations for CCB.

Endnotes

 

1.Treasurer, Tax Reform: not a new tax - a new tax system ; Tax Reform Plan, 13 August 1998, Commonwealth of Australia.

2.Pay As You Earn.

3.Prescribed Payments System.

4.Reportable Payments System.

5.Pay As You Go.

6.Treasurer, Tax Reform: not a new tax - a new tax system ; Tax Reform Plan, 13 August 1998, Commonwealth of Australia, pp. 52-55.

7.Senate Select Committee on A New Tax System; Senate Community Affairs References Committee; Senate Employment, Workplace Relations, Small Business and Education References Committee and Senate Environment, Communications, Information Technology and the Arts References Committee.

8.Senate Select Committee on A New Tax System, First Report , February 1999.

9.Senate Community Affairs References Committee, The Lucky Country Goes Begging, Report on the GST and a New Tax System , March 1999; Senate Employment, Workplace Relations, Small Business and Education References Committee, Report of the Inquiry into the GST and A New Tax System , March 1999 and Senate Environment, Communications, Information Technology and the Arts References Committee, Inquiry into the GST and a New Tax System , March 1999.

10.Senate Select Committee on A New Tax System, Main Report , February 1999.

11.Warren Truss MP, A New Tax System (Family Assistance)(Administration) Bill 1999, Second Reading , 9 June 1999. The Family Assistance Office 'will be a "virtual" organisation using the existing infrastructure of Centrelink, the Australian Taxation Office and the Health Insurance Commission (Medicare Offices). It is expected that all Australian Taxation Offices, all Centrelink offices and all Medicare offices will have a Family Assistance Office as part of their office.'

12.Warren Truss MP, Reducing Social Security Fraud , Ministerial Press Release, 13 May 1999, Table 2. 
 
In the period 1 July 1998 to 31 December 1998, the total number of family allowance reviews were 85,950, which was 6.4% of all reviews (ie. 1,342,501). However, the number of family allowance debts arising from these reviews was 27,477, being 32% of all family allowance reviews.  
 
This is far higher than the average number of reviews raised of 13% for all payments.

13.ABS, Weekly Earnings of Employees (Distribution), Cat. No. 6310.0, The incidence of part-time employment in the workforce was about 19% in 1988 and about 27% in 1998.

14.The FTB advance rate is defined in the A New Tax System (Family Assistance) Bill 1999 in section 3 and is basically $956.30 per child divided by two.

15.Under new section 89 the Secretary may serve a garnishee notice on another person who holds or may hold money on behalf of the debtor requiring that person to pay to the Commonwealth the amount of the debt. 
 
'Garnishment: A court order by which a third party who holds money for a judgment debtor is directed to attach certain amounts of money to the judgment debt. A common example of a garnishment is where a court requires an employer of the judgment debtor to 'garnish' the employee's wages by paying a portion of those wages directly to the judgment creditor.' Butterworths Australian Legal Dictionary , 1997, p 516.

16.'Family assistance law' is defined in new section 3 to mean any one or more of the following: 
 
- the A New Tax System (Family Assistance)(Administration) Act 1999; 
-
the A New Tax System (Family Assistance) Act 1999;  
- regulations under A New Tax System (Family Assistance)(Administration) Act 1999.

17.Warren Truss MP, A New Tax System (Family Assistance)(Administration) Bill 1999, Second Reading , 9 June 1999, p 4.

Contact Officer

Lesley Lang, Dale Daniels a nd Peter Yeend

24 June 1999

Bills Digest Service

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