Explanatory Memorandum
(Circulated by the authority of the Minister for Families, Community Services and Indigenous Affairs, the Hon Mal Brough MP)Schedule 9 - FTB Part B quarantining
Summary
This Schedule makes minor changes to the income test rules for FTB Part B where a secondary earner returns to work for the first time after the birth of a child. The amendments ensure that certain technical aspects are consistent with intended policy outcomes.
Background
FTB Part B is intended to assist families with one main income. In the case of couples, Part B is calculated on the basis of the secondary (or lower) income earner's adjusted taxable income. Part 4 of Schedule 1 to the Family Assistance Act sets out the rate calculation process for FTB Part B, including the income testing arrangements.
From 1 July 2005, amendments were made to modify the way in which the FTB Part B income testing arrangements operate where the secondary earner in a couple commences, or returns to, paid work for the first time after the birth of a child. Instead of applying the usual annual income test to the secondary earner's income for the particular income year (which can result in a debt on reconciliation), the legislation enables the secondary earner to receive the maximum rate of FTB Part B for the period in the particular income year when the secondary income earner was not working or receiving passive employment income (for example, paid leave). This period is colloquially referred to as the FTB Part B quarantine period.
A number of uncommon scenarios have since been identified where the quarantine provisions do not operate as intended. These scenarios relate to customers who claim FTB during the second income year after the entitlement year (the 'second lodgement year'), customers with multiple partners, and customers where the person who is the secondary earner swaps in a couple. Amendments are made addressing these scenarios in a manner consistent with intended policy outcomes and as explained in further detail below.
Explanation of the changes
Claims during second lodgement year
There is a time limit to notify a return to work to be eligible for the FTB Part B quarantine, which is the end of the first lodgment year. The definition of 'returns to paid work' in subsection 3B(3) of the Family Assistance Act includes a requirement to notify of a return to paid work during a particular income year at some time in the following income year.
A similar time limit is also reflected in the conditions that need to be satisfied in order for the quarantine to apply. The relevant condition is in subclause 29A(7) of Schedule 1 to the Family Assistance Act.
This time limit is appropriate for customers who receive their FTB in fortnightly instalments as it is the same time limit that applies for notifying other changes of circumstances to receive full arrears of FTB (see, for example, the date of effect rule in subsection 31(2) of the Family Assistance Administration Act).
However, as a claim for FTB for a past period can be made up to 2 years after the relevant income year, this time frame is incompatible with a past period claim made during the second lodgment year. The FTB Part B quarantining measure is intended to apply to such claimants if they advise of the secondary earner's return to work in the past period claim form. Items 1, 2, 3, 6 and 7 make the amendments required to address this issue.
Item 1 amends the definition of 'returns to paid work' in subsection 3B(3) of the Family Assistance Act by reworking paragraph (c) of the definition. The existing notification requirement would continue to apply under new subparagraph (c)(i) except in the situation where a claim is made for FTB for a past period that occurs in the year in which the secondary earner returned to work and is made during the second income year following that year. In the latter situation, new subsection 3B(5), as inserted by item 3 , would apply (new subparagraph (c)(ii) refers). Under new subsection 3B(5), the notification requirement would be satisfied if the Secretary is notified of the return to work in the claim form.
Item 2 makes a technical, consequential amendment to subsection 3B(4).
Clause 29A of Schedule 1 to the Family Assistance Act sets out the conditions that need to be satisfied for an individual's rate of FTB Part B to be worked out under the quarantining provisions.
Item 6 makes the existing notification obligation in subclause 29A(7) subject to new subclause 29A(8), as inserted by item 7 . New subclause 29A(8) applies where a claim is made for FTB for a past period that occurs in the year in which the secondary earner returned to work and is made during the second income year following that year. The notification requirement in this situation is satisfied by notification of the return to work in the past period claim.
Item 4 makes a technical, consequential amendment to paragraph 29A(1)(b) of Schedule 1 that acknowledges the new condition in subclause 29A(8).
Multiple partners
Subject to an exception for shared care of a child by separated parents (set out in subclause 29B(4) of Schedule 1 to the Family Assistance Act), the intention is that only one individual's return to work in relation to a child can attract the FTB Part B quarantine.
However, the legislation does not work in this way where a customer had two different partners during the period before s/he returned to work, and the customer was the secondary earner with respect to one partner and not the other, and the partner who was the secondary earner also returns to work in that same income year. In this situation, both the customer as secondary earner and the second partner as secondary earner could meet the relevant conditions set out in clauses 29A, 29B and 29C of Schedule 1 to the Family Assistance Act. The result is that the customer could benefit from the quarantine twice in the same income year in respect of the one child.
In this situation, it is only one individual's return to work that should attract the benefits of the FTB Part B quarantine. The relevant return to work should be the return to work of the individual for whom the potential FTB Part B quarantine period begins first.
New subclause 29A(4B), as inserted by item 5 , achieves this effect. New subclause 29A(4B) applies where more than one secondary earner returns to work for the first time in respect of the one child in the same income year. The provision makes it clear that the quarantining provisions cannot apply in relation to a secondary earner whose quarantine period (the period mentioned in paragraph 29C(1)(a)) does not begin first.
An example of the operation of the new rule in subclause 29A(4B) is as follows.
Mary receives FTB for her one child and was partnered to Bob during July-October 2005, single in November-December 2005, and partnered to Greg during January-June 2006. Mary was the secondary earner in July-October 2005, and returned to work for the first time on 1 May 2006. Greg was the secondary earner in January-June 2006, and returned to work for the first time on 1 February 2006.
The potential FTB Part B quarantine period for Mary's return to work is 1 July 2005 to 31 October 2005. The potential FTB Part B quarantine period for Greg's return to work is 1 January 2006 to 31 January 2006. Therefore, Mary's return to work will attract the FTB Part B quarantine period for 1 July 2005 to 31 October 2005. No quarantine will apply for Greg's return to work.
Secondary earner swaps in a couple
A related issue is where the secondary earner swaps in a couple in different years, but the FTB recipient remains the same. For example, a customer is the secondary earner and returns to work for the first time in one income year, and the customer's partner is the secondary earner in a subsequent income year and the partner returns to work for the first time in that income year. The intention is that the partner's return to work does not also attract the FTB Part B quarantine for the same child. The existing legislation does not achieve this effect. New subclause 29A(4A), as inserted by item 5 , addresses this issue.
New subclause 29A(4A) applies where more than one secondary earner returns to work for the first time in respect of the same child but in different income years. In this situation, the quarantine provisions cannot apply in respect of a return to work that is not the earliest return to work.
These amendments are taken to have commenced on 1 July 2005 (the table in clause 2 of this Bill refers) and apply in relation to the 2005-2006 income year and later income years ( subitem 8(1) refers). This is consistent with the commencement and application dates for the broader changes to the FTB Part B income test made by Schedule 1 to the Family and Community Services Legislation Amendment (Family Assistance and Related Measures) Act 2005 .
While these changes are technically retrospective, the practical benefit of the FTB Part B quarantining measure (incorporating the amendments made by this Schedule) first applies to families after July 2006 for the 2005-06 year. This is because the measure is applied after the end of the relevant income year when the FTB reconciliation conditions are satisfied and not during the financial year. Therefore, the changes are not, in practice, retrospective.
Under subclause 29A(4) of Schedule 1 to the Family Assistance Act, the quarantine provisions apply in respect of the secondary earner's first return to work after the birth of a child, etc. If the secondary earner's first return to work was before 1 July 2005, a subsequent return to work on or after 1 July 2005 will not meet the conditions for the quarantine. It was never intended that, where the secondary earner swaps in a couple in different years, the couple should benefit from the quarantine twice, but this is technically what may result under the present legislation. For example, a customer is the secondary earner in 2003-04 and returns to work for the first time after the birth of a child on 1 January 2004, and the customer's partner is the secondary earner in 2005-06 and the partner returns to work for the first time after the birth of the same child on 1 November 2005. The later return to work on 1 November 2005 by the partner was never intended to meet the conditions for the quarantine, because the customer has already had a first return to work after the birth of the child.
Subitem 8(2) provides that new subclause 29(4A) applies in respect of a return to work, whether that occurs before, on or after 1 July 2005. This ensures that the intention described above is met by taking into account any return to work after the birth of a child, etc. While this is strictly a retrospective amendment, it is merely to correct what is clearly an unintended anomaly. In any event, the quarantine being refined here will not start to apply until 1 July 2006.