Revised Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello MP)Chapter 1 Extension of the beneficiary tax offset to Cyclone Larry and Cyclone Monica income support payments
Outline of chapter
1.1 Schedule 1 to this Bill amends the Income Tax Assessment Act 1936 (ITAA 1936) and the Income Tax Assessment Act 1997 (ITAA 1997) to extend eligibility for the beneficiary tax offset to farmers and small business owners in receipt of Cyclone Larry and Cyclone Monica income support payments.
Context of amendments
Cyclone Larry and Cyclone Monica income support payments
1.2 The Cyclone Larry income support payments provide income support to farmers and small business owners whose income has been adversely affected by Cyclone Larry.
1.3 The Prime Minister announced the Cyclone Larry income support payments to farmers and small business owners on 22 March 2006.
1.4 The Cyclone Monica income support payments provide income support to farmers and small business owners who have been adversely affected by the cumulative effects of Cyclone Larry and Cyclone Monica (eg, farmers and small business owners in the Cape York region that were affected by flooding and damage caused by Cyclone Monica shortly after suffering from the residual effects of Cyclone Larry).
1.5 The Prime Minister announced the Cyclone Monica income support payments to farmers and small business owners on 26 May 2006.
1.6 The Cyclone Larry and Cyclone Monica income support payments are equivalent to the maximum rate of Newstart allowance and are administered by Centrelink.
1.7 The Prime Minister announced that the Cyclone Larry payments will be available for 6 months from 22 March 2006 to 21 September 2006 and the Cyclone Monica payments will be available for 6 months from 29 May 2006.
Taxable status
1.8 A payment received by a person as income support, or as a replacement for lost salary or wages or lost income, is taxable. The Cyclone Larry and Cyclone Monica payments are therefore taxable as they are received as ordinary income by the recipient.
1.9 The Newstart allowance is also a form of income support which is received as ordinary income by the recipient. However, the Newstart allowance is a rebatable benefit to which the beneficiary tax offset applies, ensuring that a person who receives the Newstart allowance for the full year and has no other income pays no tax on the Newstart income.
1.10 This amendment will extend the beneficiary tax offset to Cyclone Larry and Cyclone Monica income support payments to ensure consistent taxation treatment with the Newstart allowance.
Summary of new law
1.11 This measure amends:
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- subsection 160AAA(1) of the ITAA 1936 to include Cyclone Larry and Cyclone Monica income support payments in the definition of a 'rebatable benefit' to which the beneficiary tax offset applies; and
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- section 13-1 of the ITAA 1997 to list Cyclone Larry and Cyclone Monica income support payments as a payment that is allowed a tax offset.
Detailed explanation of new law
Include Cyclone Larry and Cyclone Monica income support payments in the definition of 'rebatable benefit' for beneficiary tax offset purposes
1.12 Subsection 160AAA(1) of the ITAA 1936 lists certain pensions, benefits and payments that are considered to be a 'rebatable benefit'.
1.13 Paragraph (a) of subsection 160AAA(1) includes payments made under certain parts of the Social Security Act 1991 as rebatable benefits, including the Newstart allowance.
1.14 The amendment to subsection 160AAA(1) of the ITAA 1936 includes Cyclone Larry and Cyclone Monica income support payments as a 'rebatable benefit' to which the beneficiary tax offset applies. This ensures that taxpayers in receipt of Cyclone Larry and Cyclone Monica income support payments are treated consistently with recipients of the Newstart allowance. [Schedule 1, item 1, subsection 160AAA(1)]
1.15 Paragraph 160AAA(3) of the ITAA 1936 provides that where a taxpayer receives an amount of 'rebatable benefit' greater than the tax-free threshold, the taxpayer may be entitled to a tax offset.
Include Cyclone Larry and Cyclone Monica income support payments in the Division 13 guide of tax offsets
1.16 Section 13-1 of the ITAA 1997 lists payments that are allowed a tax offset and the relevant provision of the ITAA 1936 or the ITAA 1997 that provides that offset. Payments are listed under headings classifying the type of payment.
1.17 The first amendment to section 13-1 of the ITAA 1997 will include Cyclone Larry and Cyclone Monica income support payments in the list of payments that attract a tax offset and will direct readers to the item in the table headed 'social security and other benefit payments'. [Schedule 1, item 2, section 13-1]
1.18 The second amendment to section 13-1 lists the reference to Cyclone Larry and Cyclone Monica income support payments at subsection 160AAA(3) under the item in the table headed 'social security and other benefit payments'. [Schedule 1, item 3, section 13-1]
Application and transitional provisions
1.19 These amendments are to apply to the 2005-06, 2006-07 and 2007-08 years of income.