Save Search

Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
A New Tax System (Family Assistance) Bill 1999



Download WordDownload Word

Bills Digest No. 175  1998?99

image

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

Date Introduced:  31 March 1999

House:  House of Representatives

Portfolio:  Family and Community Services

Commencement:  After the commencement of specified goods and services tax legislation(1) proposed to commence 1 July 2000.

Purpose

The purpose of the A New Tax System (Family Assistance) Bill 1999 (the Bil l), is to introduce a simplified structure and delivery mechanism for the provision of family assistance through the tax and social security systems.

Background - Tax Reform Package

1. Tax Reform Package

On 13 August 1998 the Federal Government released p roposals for reform of the Australian tax system(2) 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,(3) PPS(4) and RPS(5) by one quarterly tax payment system, PAYG(6)
  • 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.(7)

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.(8) In February 1999 the Senate Select Committee produced its First Report.(9) The three Reference Committees produced their reports in March 1999.(10) In April 1999 the Senate Select Committee released its second report.(11)

2. Family Assistance Initiatives

The rationalisation of family assistance programs is intended to compliment other reforms contained in the tax reform package which provide extra assistance to families and attempt to remedy, to a degree, problems associated with poverty traps.

Poverty traps arise from the combination of losing entitlement to income support payments and paying tax, which ensures individuals or families retain very little of any extra money they earn.

The tax reform package boosts the amount of income tax cuts that families receive and improves work incentives for families by making changes to the family tax initiative payment, the family allowance income test free area and family allowance income test taper rate.

These changes:

  • realise direct and immediate financial assistance to those families with incomes in excess of the free area amount who are currently on reduced payments
  • provide incentive and encouragement to those on the maximum rate of payment to increase family income and thereby (when combined with personal income tax cuts) ease the problem of the poverty trap, and
  • allow greater access to entitlement to the family allowance due to the increase in the income test free area, the reduction in the taper rate and consequently the raising of the income test cut-off limits.

For additional information in relation to family assistance initiatives and compensation measures contained in the t ax reform package please refer to the Bills Digests for A New Tax System (Compensation Measures Legislation Amendment) Bill 1998 and A New Tax System (Personal Income Tax Cuts) Bill 1998.

Background - Family Benefits

Financial assistance to families with children was until 1941 provided primarily through tax concessions for children and dependant spouses. The only exception was a lump sum Maternity Allowance introduced in 1912. In 1941 Chil d Endowment, the first periodic cash payment, was introduced. Since then assistance has been provided by varying combinations of payments and tax concessions. Table 1 gives a brief chronology of major changes to the structure of family assistance since 1941.

From 1941 until the mid 1980s modest assistance was available to families with children means test free. Families dependent on pensions and benefits were entitled to additional limited assistance. Increased awareness of child poverty in the 1980s led to increases in rates and the introduction of assistance for low income working families. To help pay for this increase in assistance and to target it at lower income people, means testing was introduced for most family assistance payments. Annual taxable income was used rather than current income (used for pensions and benefits) to reduce the complexity and intrusiveness of the income testing process. Taxable income proved to be a less than effective measure of and need for assistance. So taxable income has been modified over time to include the value of some fringe benefits, losses on rental property and foreign income. It is still a matter of debate as to whether taxable income with these adjustments affectively identifies need. This debate in other areas has seen the development of the Family Actual Means Test (for Youth Allowance).

Assistance with the costs of childcare was also introduced in the mid 1980s. The extension of eligibility to people using commercial childcare in 1990 resulted in rapid growth in the numbers using that assistance. The Child Care Cash Rebate introduced in 1994 extended assistance to higher income groups and to those using informal care.

Moves toward rationalisation and simplification of the growing number of targeted payments commenced in 1993 when all the most stringently means tested payments were combined to form Additional Family Payment. This trend was continued in 1996 with the merger of Basic Family Payment and Additional Family Payment.

During the same period, however, new payments targeted at the needs of specific groups were introduced. The need for further rationalisation was clear by the time that the Family Tax Initiative package of payments and concessions was added to the growing list of family assistance measures.

Table 1. Family Assistance 1941 to 1999

Year introduced

Payment or Tax Concession introduced or altered

Government responsible

1941

Child Endowment for second and subsequent children

Most tax concessions for children abolished

Menzies

1942

Tax concessions for children partially restored

Curtin

1943

Child Allowance for the first child of incapacitated pensioners and widow pensioners

Curtin

1945

Additional Benefit for the first child of unemployment and sickness beneficiaries

Curtin

1950

Child Endowment f or the first child

Tax concessions for children fully restored

Menzies

1956

Additional Pension for all children of incapacitated pensioners and widow pensioners

Menzies

1962

Additional Benefit for all children of unemployment and sickness beneficiaries

M enzies

1963

Mothers Allowance for widows with children

Menzies

1965

Additional Pension for all children of age pensioners

Guardian Allowance for single pensioners with children

Menzies

1975

Dependent Spouse Rebate replaced deductions for spouses

Sole Pa rent Rebate

Whitlam

1976

Family Allowance replaced Child Endowment and tax concessions

Fraser

1978

Maternity Allowance abolished

Fraser

1983

Family Income Supplement for low income working families

Fraser

1984

Mothers/Guardians Allowance for single ben eficiaries with children

Fee Relief for children attending not for profit long day care centres

Hawke

1985

Multiple Birth Allowance for triplets etc

Hawke

1986

Family allowance income test for 16 and 17 year olds

Hawke

1987

Family Allowance tapered income test for all recipients

Family Allowance Supplement replaced Family Income Supplement for low income working families

Rent Assistance payable to Family Allowance Supplement recipients

Hawke

1988

Family Allowance Supple ment Assets Test

Hawke

1990

Fee Relief extended to children attending commercial child care centres

Hawke

1991

Family Allowance income test taper removed

Hawke

1992

Family Allowance Assets Test

Hawke

1993

Family Allowance renamed Basic Family Payment

F amily Allowance Supplement, Additional Pension and Additional Benefit merged to form Additional Family Payment Mothers/Guardian Allowance and Rent Assistance payed as additions to Additional Family Payment

Hawke

1994

Home Child Care Allowance replaced Dep endant Spouse Rebate (with Children)

Child Care Cash Rebate for children attending formal and informal child care

Keating

1995

Parenting Allowance for members of couples caring full-time for children

Home Child Care Allowance became a minimum rate of Pare nting Allowance

Keating

1996

Basic family payment and additional Family Payment merged to form Family Payment

Keating

1997

Maternity Allowance introduced

Family Tax Payment Part A, Family Tax Assistance Part A for families with children

Family Tax Paymen t Part B and Family Tax Assistance Part B for single income families with a child under 5 years

Keating

Howard

1998

Family Payment renamed Family Allowance

Howard

Main Provisions

1. Summary

The Bill introduces a proposed new family benefits structure th at will reduce the existing payment mechanisms from twelve to three.

The Bill also relocates Maternity Allowance from the Social Security Act 1991 to the Bill. 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  
F
TB-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. Family Tax Benefit Part A

2.1 Current benefits to be merged into proposed FTB-Part A

There are four forms of assistance currently provided to families that are proposed to be merged into FTB-Part A:

  • Minimum Family Allowance
  • Family Allowance
  • Family Tax Payment Part A, and
  • Family Tax Assistance Part A.

2.2 Summary of FTB-Part A

2.2.1 Eligibility

Proposed Division 1 of Part 3 contains the provisions relating to eligibility for family tax benefit.

Under proposed clause 21 of Subdivision A an individual is eligible for family tax benefit if:

  • the individual has at least one FTB child(12), and
  • is an Australian resident, and
  • the individual's rate of family tax benefit is greater than nil.

Under proposed clause 31 of Subdivision B an individual remains eligible for family tax benefit for 14 weeks after the death of a child.

Under proposed clause 34 of Subdivision C an approved care organisation is eligible for family tax benefit for an individual if:

  • the individual is aged under 18
  • is a client of the organisation, and
  • is an Australian citizen.

2.2.2 Rate

Proposed Division 1 of Part 4 contains the provisions relating to the rate of family tax benefit.

Under proposed subclause 58(1) an individual's annual rate of family tax benefit is to be calculated in accordance with the Family Tax Benefit Rate Calculator in Schedule 1 .

An individual's annual rate of family tax benefit is worked out by adding the individual's Part A rate and Part B rate ( proposed clause 1(1) of Schedule 1 ).

  • There are two methods of calculating an individual's Part A rate
  • Method 1 ( standard rate
     
    If the individual's adjusted taxable income (13)(income) does not exceed the 'higher income free area,' (14) Method 1 is used. Under this Method, the Part A rate is the greater of the Income and Maintenance Tested Rate(15) and the Base Rate.(16) (Method 1 is contained in Part 2 of Schedule 1 )
  • Method 2 ( base rate
     
    If the individual's income exceeds the 'higher income free area,' Method 2 is used.(17) (Method 2 is contained in Part 3 of Schedule 1 )
  • The main difference between Method 1 and Method 2 is found in the calculation of the maximum rate(18) and in the exclusion of a maintenance income test in Method 2.
  • The maximum standard rate of FTB-Part A will be $2,920-00 per annum (FTB child under 13yrs),$3,697-45 per annum (FTB child 13yrs to 15yrs) and $956-30 per annum (FTB child 16yrs to 18yrs) (excluding additional allowances) and will have an income test threshold of $28,200 per annum ( proposed clause 19 of Schedule 1 )
  • The maximum base rate   of FTB-Part A will be $956-30 per annum and will have an income test threshold of $73,000 plus $3,000 per child (after the first) ( proposed clause 2 of Schedule 1 )
  • Both the standard rate and base rate of payment will have an income test taper rate of 30 per cent (although the maintenance income test taper will be 50 per cent) ( p roposed clauses 18 , 20 and 28 of Schedule 1 )
  • FTB-Part A will be indexed in July each year, in line with CPI (Consumer Price Index) increases ( proposed Parts 1 to 4 of Schedule 4 ) , and
  • Payment of rent assistance, multiple birth allowance and large family supplement will remain unchanged.

Under proposed subclause 58(2) an approved care organisation's annual rate of family tax benefit for an individual is $956.30 per year.(19)

2.3 Summary of changes

  • the income test free area for the standard rate will increase from $24,350 per annum(20) to $28,200 per annum. This will be a singular threshold regardless of the number of children
  • the upper income test free area for the base rate has increased from $66,403 plus $3,322 per child (after the first) to $73,000 plus $3,000 per child (after the first)
  • the income test taper will be reduced from fifty per cent to thirty per cent
  • the income test taper will apply to the base rate previously subject to immediate cut-off(21), thereby allowing greater access to entitlement to payment
  • calculation of income will be based on current year income
  • removal of the assets test which currently applies to family allowance
  • a rate increase of $140 per annum, and
  • indexation in line with CPI in July each year.

2.4 Comments

  • Increased rates, h igher thresholds and lower taper rates will result in both the base rate and the standard rate being available at least in part to people on higher incomes than was the case under the present system. For example families with two children and annual incomes between $40,000 and $54,000 will be eligible for more than the base rate of payment depending on the ages of their children and whether they are renters. Page 62 of Tax Reform: Not a New Tax, a New Tax System contains a chart, which gives a comparison of entitlements under the present and the new arrangements. One of the main justifications for this reform is the reduced effective marginal tax rates that will result.
  • The removal of the assets test and the easing of the income test mentioned above will reverse the trend towards tighter targetting of family assistance to those most in need which became evident in the mid 1980s. Those excluded by the assets test (farmers and other self-employed people in particular) will benefit greatly.
  • Taxable income adjusted to take into account fringe benefits, foreign income, net rental property loss and certain tax free pensions will be used to measure income under the income test. Unlike the present Family Allowance income test current year taxable income will be used. This change will better reflect the current means of recipients. However questions arise about how current income will be calculated before income tax assessments are available and how discrepancies between estimates of adjusted taxable income and actual taxable income will be resolved. Frequent overpayments and under payments would seem to be inevitable under this arrangement. A New Tax System (Family Assistance)(Administration) Bill 1999 should clarify this issue.

3. Family Tax Benefit Part B

3.1 Current benefits to be merged into proposed FTB-Part B

There are six forms of assistance currently provided to families that are proposed to be merged into FTB-Part B:

For sole parents:

  • Guardian Allowance
  • Sole Parent Rebate

For single income families:

  • Basic Parenting Payment
  • Dependent Spouse Rebate (with children)

For both:

  • Family Tax Payment Part B
  • Family Tax Assistance Part B.

3.2 Summary of FTB-Part B

3.2.1 Eligibility

Proposed Division 1 of Part 3 contains the provisions relating to eligibility for family tax benefit.

The eligibility criteria apply for FTB-Part A and FTB-Part B. Please refer to paragraph 2.2.1 of the Main Provisions section of this Bills Digest for additional information.

3.2.2 Rate

Proposed Division 1 of Part 4 contains the provisions relating to the rate of family tax benefit.

Under proposed subclause 58(1) an individual's annual rate of family tax benefit is to be calculated in accordance with the Family Tax Benefit Rate Calculator in Schedule 1 .

An individual's annual rate of family tax benefit is worked out by adding the individual's Part A rate and Part B rate ( proposed clause 1(1) of Schedule 1 ).

  • There are two methods of calculating the Part B rate
  • Individual not a member of a couple 
     
    An individual's Part B rate is the individual's Standard Rate.  
    The Standard Rate is dependent upon whether the youngest FTB child is under 5 years of age.  
    If the youngest FTB child is under 5 years of age the Standard Rate is $2,569.60.  
    If the youngest FTB child is 5 years of age or older the Standard Rate is $1,781.20. 
    ( Proposed subclause 29(1) and clause 30 )
  • Individual is a member of a couple 
     
    The individual's Part B rate is the individual's Standard Rate (the same as if the individual were not a member of a couple) less any reduction, after applying the income test, for adjusted taxable income.(22)  
    ( Proposed subclause 29(2) and clauses 32 and 33 )  
    For the purposes of calculating an individual's Part B rate, the adjusted taxable income of the individual's partner may be used if it is less than the adjusted taxable income of the individual.  
    ( Proposed subclause 3(2) of Schedule 3 )
  • FTB-Part B will be indexed, in line with CPI (Consumer Price Index) increases ( proposed Parts 1 to 4 of Schedule 4 ).

3.3 Summary of changes

  • the cut-out point for assistance for partnered families will rise to $10,500 per annum (projected July 2000)(23) of caring parent's income, because the income test free area will be  $1,616 and the income test taper rate  will be reduced from 50 per cent to 30 per cent (24)
  • the income test on FTA/FTP(25) on working partners' (or sole parents') income that currently applies at $65,000 will be abolished (currently no income test applies to Basic Parenting Payment, Sole Parent Rebate or Dependent Spouse Rebate)
  • the income test taper will be reduced from 50 per cent to 30 per cent
  • calculation of income will be based on current year income
  • there will be a rate increase of $350 where the youngest child is under 5 years of age and $61 where the youngest child is over 5 years of age, and
  • indexation in line with CPI in July each year.

3.4 Comments

  • Increased rates of payment, reduced taper rates, higher thresholds and no assets test will result in increased assistance to single income couple families. The removal of all income and assets testing for sole parents will result in many gaining considerable increases in assistance.
  • The amalgamation of payments for sole parents and the alignment of the rates of those payments with those for single income couple families will result in a reduction in entitlements for sole parents in the private income range $10,000 to $ 30,000 per annum. The bottom chart on page 65 of Tax Reform: Not a New Tax, a New Tax System shows this reduction clearly. However income tax cuts and increases in other social security payments should result in overall gains to this group from the tax package.
  • The use of annual rather than fortnightly income under the income test will preclude many families who rely on one income for short periods from access to FTB Part B.  For example, families with very young children where the parents consider childcare inappropriate. At present Basic Parenting Payment is income tested using current fortnightly income, so that people in this situation can receive assistance for short periods.
  • See 2.4 above for comments on the use of current taxable income in the income test and the abolition of the assets test

4. Child Care Benefit

4.1 Current benefits to be merged into proposed child care benefit

There are two forms of assistance currently pro vided to families in relation to child care that are proposed to be merged into CCB:

  • Childcare Cash Rebate, and
  • Child Care Assistance

4.2 Summary of CCB

4.2.1 Eligibility

Proposed Division 4 of Part 3 contains provisions relating to eligibility for CCB.

The individual will generally be entitled to CCB and not the child care service as is currently the position. In addition the individual will have the choice of receiving CCB by instalment and paid directly to the child care service or by lump sum in arrears. Proposed Subdivision A provides the mechanism for the payment to be received by instalment and proposed Subdivision B provides the means for CCB to be received in a lump sum during or at the end of the financial year.

Under proposed Subdivision A (payment by instalment option) an individual's eligibility for CCB by instalment to an approved child care service is determined by a dual process:

  • an individual becomes conditionally eligible(26) for CCB under proposed clause 41 , and then,
  • eligible for CCB(27) under proposed clause 42
     
    In the first instance, conditional eligibility for CCB is given to both the individual and the child care service. The child care service will, presumably continue to receive money in advance and then reduce the individual's periodic child care fees. The trigger for eligibility is acceptance of the accuracy of the calculations in the statement provided by the child care service to the Secretary.

This structure reflects the process that currently applies upon the consideration of an individual's eligibility for child care assistance but not the terminology.

We may expect that the criteria for conditional eligibility, which will be contained in the proposed, A New Tax System (Family Assistance)(Administration) Act 1999 may mirror those set out in proposed Subdivision B .

Under proposed Subdivision B (lump sum option) an individual is eligible for CCB for past periods of care provided by an approved child care service if:

  • the child is an FTB child of the individual
  • the care is provided in Australia
  • a liability has been incurred to pay for the past care
  • the individual is an Australian resident or receiving Commonwealth financial assistance in relation to a course of study
  • where the child is under 7, the child meets certain immunisation requirements, and
  • the individual is not conditionally eligible for CCB.

Under proposed Subdivision C an approved child care service is eligible for CCB in special circumstances, primarily where the child care service believes the child is at risk of serious abuse or neglect.

Under proposed Subdivision D an individual is eligible for CCB for past periods of care provided by registered carers if:

  • the child is an FTB child of the individual and not of the registered carer
  • the care is provided in Australia
  • a liability has been incurred to pay for the past care
  • the individual is an Australian resident or receiving Commonwealth financial assistance in relation to a course of study
  • where the child is under 7, the child meets certain immunisation requirements, and
  • the individual satisfies the work/training/study test.(28)

Under proposed Subdivision E there are limitations on eligibility for CCB, including:

  • no multiple eligibility for same care
  • no eligibility where the child is under care pursuant to a child welfare law, and
  • situations where child care service is limited to 20 or 50 hours per week.

4.2.2 Rate

Proposed Division 4 of Part 4 contains the provisions relating to the rate of CCB.

Under proposed subclause 70(1) an individual's rate of CCB is worked out using Schedule 2 .

  • an individual's rate of CCB is basically the Standard Hourly Rate (generally $2.40) multiplied by an Adjustment Percentage. The Standard Hourly Rate is adjusted up or down to take into account an income test, the number of children in care and whether or not they are at school
  • the individual's rate of CCB is multiplied by the number of hours of child care (to a maximum of 50 hours per week) to produce the amount of child care benefit that may be paid for care provided to a child in a week. This amount cannot exceed the amount actually charged by the child care service
  • this will generally mean a CCB of $120 per week for one child who is not in school, who receives standard care of 50 hours per week, if the individual's adjusted taxable income does not exceed $28,200 per annum, and
  • CCB will be subject to an income test threshold of $28,200 per annum with taper rates varying between 10 per cent and 35 per cent according to the level of income (higher for incomes over $66,000 per annum) and the number of children. The income test will not apply once the minium rate ($20-10) has been reached (at an income level of $81,000 per annum) in order to preserve average entitlements to assistance currently available to higher income families.
  • CCB will be indexed in July each year, in line with CPI (Consumer Price Index) increases ( proposed Parts 1 to 4 of Schedule 4 )

4.3 Summary of Changes

  • the minimum rate will not be based on out of pocket expenses but on hours of care charged by a child care service
  • increase in the income test lower limit to $2 8,200 per annum
  • maximum rate of assistance will taper down to a minimum rate (different to current Child Care Assistance)
  • the individual becomes the one entitled to the payment and not the child care service, and
  • the individual may elect to receive CCB by instalments paid directly to the child care service or in a lump sum in arrears during or at the end of the financial year.

4.4 Comments

  • The new arrangements will deliver modest increases in assistance to families using childcare. The greatest gains will g o to those receiving the maximum rate of assistance.
  • There will be one category of individuals who may be worse-off. Presently under the Childcare Cash Rebate arrangements the weekly amount paid as a rebate is calculated as a percentage of fees paid (after the first $19.50) up to a maximum amount. This allows many families using part-time child care to receive the full rebate available according to their income. Under the new arrangements assistance is paid on a per hour basis. The hourly rate is reduced in line with the income test until it reaches a 40.2 cents minimum rate. At the minimum rate for example a family needs to use 50 hours of childcare (up to about $200 per week) to gain the $20-10 minimum rate. At present they need only pay around $120 per week in fees for the current minimum rate.

5. Maternity Allowance

5.1 Maternity allowance benefits relocated from Social Security Act 1991

The Bill relocates Maternity Allowance (MA) and Maternity Immunisation Allowance (MIA) from the Social Security Act 1991 to the Bill. This is to ensure that all family assistance benefits are located in one Act, to be administered by one office - the Family Assistance Office.

5.2 Summary of MA and MIA

5.2.1 Eligibility

Proposed Division 2 of Part 3 contains the provisions relating to eligibility for MA.

Under proposed clause 36 an individual is eligible for MA for a child, if the individual is eligible for FTB-Part A and:

  • the individual is the parent of the child, or
  • the child, not more than 13 weeks old, is entrusted to the care of the individual for a period of not less than 13 weeks, or
  • the child is stillborn, or
  • during an adoption process, the child, not more than 26 weeks old, is entrusted to the care of an individual

Proposed Division 3 of Part 3 contains the provisions relating to eligibility for MIA.

Under proposed clause 39 an individual is eligible for MIA for a child if:

  • the child is alive within 18 months of birth and satisfies the immunisation requirements(29)
  • the child is stillborn and the individual is entitled to MA
  • the child dies within 2 years of birth and the individual is entitled to MA or FTB-Part A

5.2.2 Rate

Proposed Division 2 of Part 4 contains the provisions relating to the amount of MA.

Under proposed clause 66 MA is a one-off lump sum payment which is the greater of:

  • $780, or
  • 2.4 times the amount of the maximum basic rate payable for Parenting Payment where a person is partnered.  That amount is currently $293-80.

Proposed Division 3 of Part 4 contains the provisions relating to the amount of MIA.

Under proposed clause 67 MIA is a one-off lump sum payment which is the greater of:

  • $208, or
  • 0.6 times the amount of the maximum basic rate payable for Parenting Payment where a person is partnered. That amount is currently $293-80.

5.3 Summary of changes

  • structural changes consequent upon relocating the provisions to the Bill from the Social Security Act 1991, and
  • MA may be paid in relation to adopted children who are not more than 26 weeks old, currently the child must not be more than 13 weeks old.

Concluding Comments

1. Complexity - Problem Overcome?

The reduction of twelve payments into three is undoubtedly a significant step in the right direction in terms of simplification of the family benefit system.

Similarly, the fact that the Bill contains only a few multiple payment categories within the three new payments, is a positive step toward rationalisation.

Having said that, however, there remain areas within the Bill that are complex, particularly in relation to child care benefit. The calculations for CCB are complicated and the dual process of conditional eligibility and eligibility have been maintained, presumably to permit CCB payments by instalment to be made to a child care service in advance.

There is, of course, a balance to be achieved between simplicity and the requirement to target specific groups within the population for assistance. The more the assistance is targeted, the more complex the legislation becomes.

2. Rules governing claims, determination of claims and payment of benefits in an Act not yet introduced

The provisions in the Social Security Act 1991 and Child Care Payments Act 1997 that govern the making of a claim for benefits, determinations of claims, payment of benefits, recipient obligations and termination of payments in relation to family assistance will all be repealed by A New Tax System (Family Assistance) (Consequential and Related Measures) Act (No.1) 1999.

The administrative provisions that will be repealed are not contained in the Bill. Presumably they will be contained in the proposed A New Tax System (Family Assistance) (Administration) Act 1999.

The A New Tax System (Family Assistance) (Consequential and Related Measures) Act (No.1) 1999 will commence immediately after the A New Tax System (Family Assistance) Act 1999 and A New Tax System (Compensation Measures Legislation Amendment) Act 1999 . It is not conditional upon the enactment of the A New Tax System (Family Assistance) (Administration) Act 1999 .

Thus there is potential for the administrative provisions relating to family assistance payments to be absent from the legislative framework.

There is, however, provision in the A New Tax System (Family Assistance) (Consequential and Related Measures) Bill (No.1) 1999 for the Governor-General to make regulations providing for matters of a transitional nature in respect of the enactment of the Bill and the A New Tax System (Family Assistance)(Administration) Act 1999 . Presumably this will be the mechanism utilised, if necessary, to bridge the gap.

3. Child Care Benefit - Eligibility dependent on an Act not yet introduced

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 .

The rules governing such conditional eligibility will be set out in the abovenamed Act. The Bill for the Act has not yet been introduced and therefore no assessment can be made at this stage of the rules that will impact upon eligibility.

The significance of the interaction between the Bill and the A New Tax System (Family Assistance)(Administration) Act 1999 for CCB is that, unlike FTB-Part A and FTB-Part B, eligibility itself is contingent upon provisions contained in the A New Tax System (Family Assistance)(Administration) Act 1999 .

The comments in paragraph 2 above are relevant to CCB.

4. Issues in relation to the proposed delivery mechanism

The Bill refers in numerous clauses to the 'Secretary', a term that is not defined. References to the Secretary, are presumably, references to the Secretary of the Department of Family and Community Services. This will be confirmed, one assumes, in the A New Tax System (Family Assistance)(Administration) Bill 1999.

This issue is important because it impacts upon ultimate responsibility for the making of determinations in relation to the FTB-Part A, FTB-Part B and CCB. This in turn affects recipients' rights of appeal upon the making of such determinations.

The introduction of a Family Assistance Office further complicates matters. While intending to simplify the delivery of family benefits, it may cause confusion in relation to determining who under the legislation 'made' any particular decision that may be the subject of appeal.

It appears that the Family Assistance Office, may be a joint venture between the Health Insurance Commission, the Department of Family and Community Services and the Australian Taxation Office, to allow delivery of payments by any one of the three agencies. Therefore, there may not be a Family Assistance Office as such, but families may elect to receive payments through any one outlet.

Something akin to this is proposed in the A New Tax System (Bonuses for Older Australians) Bill 1998 (BOA Bill).

The BOA Bill proposes that payments will be authorised by one of three Commonwealth agencies (the Department of Family and Community Services, the Repatriation Commission and the Australian Taxation Office) depending on whose customer or client the individual is.

Under the BOA Bill, individuals do not actually have an unrestricted choice of which agency to use. If they lodge a tax return they are clients of the ATO for the purposes of claiming the bonus payment.

If a review of any decision in relation to a determination in respect of a bonus payment arises it will be dealt with under the procedures contained in the legislation applicable to the relevant agency.

It remains to be seen for the family assistance Bill if the position with respect to review of determinations will follow the BOA Bill, that is, legislation governing each agency will apply, or if review of determinations will be made in accordance with procedures in the Social Security Act 1991 . It is difficult to predict, but one may suggest that the incorporation into the Bill of responsibility for the making of determinations by the 'Secretary' indicates that the review mechanism will be the procedures contained in the Social Security Act 1991 . (However, 'Secretary' may be defined to include the Commissioner of Taxation and this could indicate a system similar to that contained in the BOA Bill).

Clarification of this issue will most likely be forthcoming in the A New Tax System (Family Assistance)(Administration) Bill 1999.

Endnotes

  1. Section 1-2 of the A New Tax System (Goods and Services Tax) Act 1999; Section 2 of the A New Tax System (Goods and Services Tax Imposition - Excise) Act 1999; Section 2 of the A New Tax System (Goods and Services Tax Imposition - Customs) Act 1999 Section 2 of the A New Tax System (Goods and Services Tax Imposition - General) Act 1999; and Section 2 of the A New Tax System (Goods and Services Tax Administration) Act 1999.
  2. Treasurer, Tax Reform: not a new tax - a new tax system; Tax Reform Plan, 13 August 1998, Commonwealth of Australia.
  3. Pay As You Earn.
  4. Prescribed Payments System.
  5. Reportable Payments System.
  6. Pay As You Go.
  7. Treasurer, Tax Reform: not a new tax - a new tax system ; Tax Reform Plan, 13 August 1998, Commonwealth of Australia, pp. 52?55.
  8. 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.
  9. Senate Select Committee on A New Tax System, First Report , February 1999.
  10. Senate Community Affairs References Committee, The Lucky Co untry 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.
  11. Senate Select Committee on A New Tax System, Main Report , February 1999.
  12. FTB child has the meaning given by proposed Subdivision A of Division 1 of Part 3 . Basically an individual is an FTB child of an adult if: 
    (a) the individual is aged 18 and under 
    (b) the adult is legally responsible for the day-to-day care, welfare and development of the individual 
    (c) the individual is in the adult's care, and 
    (d) the individual is an Australian resident or living with the adult
  13. For the purposes of the Bill an individual's adjusted taxable income is worked out in accordance with proposed Schedule 3 and is the sum of the following income components: 
    (a) taxable income 
    (b) adjusted fringe benefits total 
    (c) target foreign income 
    (d) net rental property loss, and 
    (e) tax free pension of benefit 
    less the amount of the individual's deductible child maintenance expenditure.
  14. The 'higher income free area' is defined in clause 2 of Schedule 1 to be the basic amount of $73,000 plus an additional amount of $3000 for each FTB child after the first.
  15. To calculate the Income and Maintenance Tested Rate, Steps 1,2 and 3 of the Method statement contained in proposed clause 3 of Division 1 of Part 2 must be followed.  
     
    Step 1: Calculate the Standard Rate and (if applicable) add the individual's large family supplement, multiple birth allowance and rent assistance 
     
    This is the Maximum Rate 
     
    Step 2: Apply the Income Test and subtract any reduction for adjusted taxable income 
     
    This is the Income Tested Rate 
     
    Step 3: Apply the Maintenance Income Test and subtract any reduction for maintenance income. 
     
    This is the Income and Maintenance Tested Rate
  16. Base Rate is the Maximum Rate worked out in accordance with Method 2. To calculate the Maximum Rate, Step 1 of the Method statement contained in propo sed clause 25 of Division 1 of Part 3 must be followed. 
     
    Step 1: Calculate the Standard Rate and (if applicable) add the individual's large family supplement and multiple birth allowance. 
     
    This is the Maximum Rate
  17. To calculate the Part A rate under Method 2, steps 1 and 2 of the Method Statement contained in proposed clause 25 of Division 1 of Part 3 must be followed. 
     
    Step 1: Calculate the Standard Rate and (if applicable) add the individual's large family supplement and multiple birth allowance. 
     
    This is the Maximum Rate 
     
    Step 2: Apply the Income Test and subtract any reduction for adjusted taxable income. 
     
    This is the Part A rate
  18. For both Methods 1 and 2 the Maximum Rate is the Standard Rate plus specified allowances. 
    The Maximum Rate in Method 2 does not include a component for rent assistance. 
    In addition the Standard Rate is calculated by reference to FTB child rates. The sum of FTB child rates produces the Standard Rate. The FTB child rate under Method 1may, in certain situations, be more than the FTB child rate under Method 2.
  19. This is the same as the FTB child rate for the purposes of calculation of the Part A rate in Method 2 and, depending on the age of the child, in some situations in Method 1.
  20. Current income test free area that applies to family allowance.
  21. The income test for family allowance does not currently have a taper.
  22. If an individual's adjusted taxable income does not exceed the 'income free area' of $1,616 there will be no reduction to the Standard Rate. 
     
    If an individual's adjusted taxable income exceeds $1,616, the 'income free area' of $1,616 is deducted from the adjusted taxable income to produce the individual's 'income excess'. The Standard Rate is then reduced by 30 per cent of the 'income excess'. 
    ( Proposed subclause 29(2) and claus e 32 ).
  23. Current cut-out points for assistance are: $4,587 per annum for FTP-Part B, $4,606 per annum for Basic Parenting Payment and $6,090 for Dependent Spouse Rebate.
  24. The income test taper rate currently applies to the higher rate of family allowance
  25. FTA means Family Tax Assistance Part B and FTP means Family Tax Payment Part B.
  26. Under proposed subclause 41(1) an individual will be conditionally eligible for CCB by instalment to a child care service if: 
    (a) the individual has an FTB child, and 
    (b) is an Australian resident or receiving Commonwealth financial assistance in relation to a course of study, and 
    (c) the child care service is not receiving CCB in special circumstances, such as where the child is at risk of abuse or neglect, and 
    (d) the child care service is conditionally eligible for CCB pursuant to the proposed A New Tax System (Family Assistance)(Administration) Act 1999 .
  27. Under proposed subclause 42(1) an individual is eligible for CCB by instalment to a child care service if: 
    (a) the individual is conditionally eligible for CCB pursuant to the proposed A New Tax System (Family Assistance)(Administration) Act 1999 , and 
    (b) the child care service gives the Secretary a Statement in the approved form containing details of the amount of the CCB.
  28. The meaning of 'satisfies the work/training/study test' is found in proposed clauses 14 , 15 , 16 and 17 of Division 3 of Part 2 .
  29. Pursuant to proposed clause 6 of Division 2 of Part 2 a child satisfies immunisation requirements if the child has been immunised or the adult has declared in writing that he or she has a conscientious objection to the child being immunised.

Contact Officer

L esley Lang, Dale Daniels and Peter Yeend

10 May 1999

Bills Digest Service

Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament.  While great care is taken to ensure tha t the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document. IRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.