House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Families, Community Services and Indigenous Affairs, the Hon Mal Brough MP)

Schedule 8 - Amendments relating to family tax benefit (commencing on 1 July 2008)

Summary

Amendments are made to ensure that a child in respect of whom an individual has less than 35% care cannot be an FTB child of that individual for the purposes of attracting payment of child specific components of family tax benefit (FTB). However, individuals who have at least 14% but less than 35% care of a child (a regular care child) would continue to have access to FTB Part A in the form of income tested rent assistance and a regular care child will continue to attract a health care card under the social security law. Child care benefit (CCB) will also continue to be available in relation to care provided to a regular care child by an approved child care service or registered carer. These changes are consistent with recommendations 1.14 and 1.15 of the Taskforce Report.

The provisions of the maintenance income test (MIT), relevant in working out an individual's FTB Part A rate, are amended to ensure that the MIT applies only to the children in a family for whom child support is payable. This change is consistent with recommendation 9.1 of the Taskforce Report.

PART 1 - REGULAR CARE CHILDREN

Background

Section 22 of the Family Assistance Act defines the concept of an FTB child. Subsection 22(7) deals with the situation where there is a pattern of care in relation to a child such that the child was, or will be, an FTB child of two or more individuals, for example, where separated parents with joint legal responsibility are sharing actual care of the child. In these circumstances, the child is deemed to be an FTB child of all relevant individuals for the period of the pattern of care. A pattern of care is determined by looking at the current care arrangements for the relevant child or children. This will generally be based on arrangements set out in a court order or parenting plan or as agreed by the parents concerned. Where care arrangements are disputed, the available evidence (such as the caring arrangements for the child across a financial year) is considered in determining whether there is a pattern of care and the shared care arrangements.

Section 25 of the Family Assistance Act currently deals with the situation where an individual has the care of a child for less than 30% of the time. There are two basic rules here. The first is that a child who is in the care of an individual for less than 10% of the time cannot be that individual's FTB child. The second is that an individual who has at least 10% but less than 30% care of a child can waive eligibility for FTB in respect of the child for some or all days in the period of the pattern of care. Where this happens, the child is not an FTB child of the individual for the days covered by the waiver.

The capacity to determine a percentage of FTB applicable to each individual involved in a shared care arrangement is set out in section 59 of the Family Assistance Act. This determination then links into various elements of the FTB rate calculation process in Schedule 1 to the Family Assistance Act. For example, clause 11 of Schedule 1 ensures that a percentage determination is relevant in determining the FTB child rate for a particular child in working out the individual's standard rate of FTB Part A under method 1.

A percentage determination is also relevant in determining an individual's amount of maternity immunisation allowance under section 68 of the Family Assistance Act.

Consistent with recommendation 1.14 of the Taskforce Report, the existing rules relating to shared care described above are amended to ensure that FTB Parts A and B will no longer be split where an individual is providing care for a child for less than 35% of the time. Where an individual has care for 35% or more of the time, then a new methodology would generally apply to determine how FTB should be split. This methodology is set out in the table in new section 59 of the Family Assistance Act.

Under recommendation 1.14, a child in respect of whom an individual has at least 14% but less than 35% care will not be an FTB child of the individual. The effect under the current law is that the individual will not be eligible for FTB in respect of that child. However, recommendation 1.15 supports continued eligibility for rent assistance for individuals who have this level of care of a child and are not otherwise entitled to payment of FTB (because they do not have another child who is an FTB child). Consistent with recommendation 1.15, a new subcategory of FTB is introduced for individuals who do not have an FTB child but have a regular care child (a child in respect of whom the individual has at least 14% but less than 35% care) who is also a rent assistance child (for example, is aged under 16). The rate of this new subcategory of FTB payment would be the amount of rent assistance for which the individual is eligible (based on existing rules) minus any reduction for adjusted taxable income (based on the existing FTB Part A income test). The rate of the new subcategory of FTB would essentially be the rate of FTB Part A determined using method 1 but without regard to child specific rates (that is, the standard rate, large family supplement, multiple birth allowance or the FTB Part A supplement).

Where the individual has one or more FTB children and one or more regular care children who are rent assistance children, the individual would be eligible for both rent assistance and child specific FTB payments in respect of the FTB child or children while the regular care rent assistance children would only be relevant for the purposes of determining the individual's rate of rent assistance.

Neither the existing nor the new subcategory of FTB would be available to individuals with less than 14% care of a child. This is currently the position in relation to individuals with less than 10% care of a child under existing rules in the Family Assistance Act.

These changes to the concept of FTB child also have implications for eligibility for CCB, which is linked to having an FTB child. The policy is that an individual should be eligible for CCB for care provided by an approved child care service or a registered carer for a child who is an FTB child of the individual or the individual's partner (current rule) or would be an FTB child but for the fact that the individual or partner has at least 14% but less than 35% care of the child (that is, the child is a regular care child of the individual or the individual's partner). Amendments are made to ensure that a regular care child can attract CCB in the same way as an FTB child. This is consistent with the approach taken in preserving certain entitlements and concessions for individuals with a regular care child under recommendation 1.15.

Recommendation 1.15 also supports continued access to a health care card for individuals with a regular care child. Amendments are made to the health care card provisions in the Social Security Act to this effect.

Explanation of the changes

Division 1 - Amendments

Family Assistance Act

Section 3 of the Family Assistance Act contains definitions of terms and concepts used in the family assistance law.

New definitions of absent overseas recipient, absent overseas regular care child, parenting plan, regular care child and shared care percentage are inserted into subsection 3(1) by items 1, 2, 6, 8 and 11 . These new terms are further explained in the context in which they first appear.

The definition of relevant shared carer is modified by item 9 to reflect changes made to the way in which shared care percentages are determined and the new concept of shared care percentage .

Consequential amendments are also made to some definitions as a result of:

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the insertion of new terms (for example, the definition of FTB child is amended by items 3 to 5 inclusive as a consequence of the introduction of the new concept of regular care child ); and

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the relocation of provisions (the amendments made by items 7 and 10 are relevant here).

Section 6 of the Family Assistance Act sets out the immunisation requirements that are relevant for the purposes of determining eligibility for CCB and maternity immunisation allowance.

Item 12 inserts a reference to regular care child in paragraph 6(4)(a). The effect is that a regular care child of an individual can meet the immunisation requirements if the individual has a conscientious objection to the child being immunised and a recognised immunisation provider has certified in writing that there has been a discussion with the individual about the benefits and risks of immunisation (in the same way as an FTB child).

Section 21 of the Family Assistance Act sets out the eligibility requirements for FTB for an individual. Subsection 21(1) is modified by item 13 so that an individual can be eligible for FTB if the individual is not an absent overseas recipient and has at least one regular care child who is also a rent assistance child.

An absent overseas recipient is an individual who has been absent from Australia for longer than 13 weeks (see definition of absent overseas recipient in subsection 3(1), as inserted by item 1 and also section 62 of the Family Assistance Act).

A regular care child is defined in subsection 3(1) (as inserted by item 8 ). A regular care child is a child who would be an FTB child of an individual but for the fact the individual has less than 35% care of the child, and the individual has at least 14% care of the child. (For CCB, a regular care child is also a child determined by the Secretary under specified provisions as a regular care child.)

A rent assistance child is defined in subsection 3(1) by reference to new clause 38B of Schedule 1 to the Family Assistance Act. New clause 38B incorporates the existing definition of rent assistance child in respect of an FTB child (currently in clause 12 of Schedule 1 to the Family Assistance Act) and inserts a new comparable definition in respect of a regular care child. The requirements for a regular care child are described in a different way because the base FTB child rate is not relevant for regular care children who cannot attract an FTB child rate.

Section 22 of the Family Assistance Act sets out circumstances in which an individual can be an FTB child of another individual (adult).

Item 14 inserts a reference to a parenting plan into paragraph 22(3)(b). This is a technical amendment that recognises parenting plans as a mechanism that defines the relationship between separated individuals and a child and is therefore relevant in determining whether a child is an FTB child of an individual. A parenting plan has the meaning given by the Family Law Act (see definition in subsection 3(1) of the Family Assistance Act as inserted by item 6 ).

Item 15 inserts a series of new provisions into section 22 of the Family Assistance Act which deal with shared care.

New subsection 22(6A) applies where there is a pattern of care for a child over a period such that the child is an FTB child of more than one individual for the whole or parts of that period, one of the individuals claims FTB in respect of the child and that individual is not a partner of at least one of the other individuals involved in the pattern of care. Where these conditions are met, the Secretary must determine the percentage of the period that the child was, or will be, in the care of the claimant. This determination of care under new subsection 22(6A) then informs the shared care percentage made under section 59 (as amended). A note at the end of new subsection 22(6A) makes this connection clear.

New subsection 22(6B) contains some rounding rules that apply when the Secretary determines a percentage under new subsection 22(6A). If the percentage of care before rounding is less than 50%, then it is rounded down to the nearest whole percentage. If the percentage of care before rounding is more than 50%, then it is rounded up to the nearest whole percentage. These rules ensure that the total of the percentages in relation to a particular child among the separate carers does not exceed 100%.

New subsections 22(6C) and (6D) pick up the rules in existing subsections 25(2) and (3). These rules ensure that a child cannot be in the care of more than one individual on a particular day and it is up to the Secretary to determine which individual has the care of a child on a given day, having regard to the living arrangements of the child. These considerations are relevant in determining a percentage of care for an individual under new subsection 22(6A).

Item 16 repeals and substitutes a new subsection 22(7), which applies where the Secretary determines, under new subsection 22(6A), that an individual has at least 35% care of a child. Where this happens, the child is taken to be an FTB of the individual concerned for each day in the period of the pattern of care, irrespective of whether or not the individual has care on that day. This ensures continuity of eligibility, although the individual's rate is affected by the percentage of care determination made under new subsection 22(6A).

A note at the end of new subsection 22(7) completes the picture by referring the reader to new section 25 which ensures that a child in respect of whom an individual has less than 35% care cannot be an FTB child of that individual.

Under section 23 of the Family Assistance Act, a child continues to be an FTB child of an individual if the child ceases to be in the individual's care without consent and the individual takes reasonable steps to regain the care of the child. The effect of section 23 is that the individual can continue to receive FTB in respect of the child for up to 14 weeks after care ceases.

Items 17 to 19 make a number of amendments to section 23 to ensure that the provision applies in relation to a regular care child in the same way as it does for an FTB child. The effect is that a child can continue to be a regular care child of an individual for up to 14 weeks after care ceases in the circumstances prescribed and the individual can continue to be entitled to FTB Part A on that basis.

Consistent with the amendment made to subsection 22(3) of the Family Assistance Act, item 20 makes a technical amendment to subsection 23(5) to insert a reference to parenting plan in the definition of qualifying period .

Under section 24 of the Family Assistance Act, a child who is absent from Australia for longer than three years cannot be an FTB child. Amendments are made to this provision by items 21 to 23 inclusive to take account of the possibility that a child can be an FTB child or a regular care child when leaving Australia or, in relation to a child born overseas, at birth, and ensure that a child cannot be an FTB child or a regular care child after having been overseas for longer than three years.

Section 25 currently sets out a number of rules that apply where an individual has less than 30% care of an FTB child. This provision is repealed by item 24 . In its place is a new section 25, which provides that a child who is in the care of an individual for less than 35% of the time, as determined under new subsection 22(6A), cannot be an FTB child of the individual, despite section 22.

Section 26 of the Family Assistance Act ensures that only one member of the same couple can be eligible for FTB in respect of an FTB child or children of the couple. Subsection 26(1) is amended by item 25 to ensure that this rule also applies in respect of a regular care child or children.

Section 27 of the Family Assistance Act ensures that an FTB child of one member of a couple will also be an FTB child of the other member. This allows a determination of FTB for an individual to be based on all the children in the household, including a step-child of the individual. Section 27 is recast by item 26 so that it applies in relation to a regular care child in the same way as it currently applies in relation to an FTB child. In addition, the new provision ensures that where a percentage of care determination has been made under new subsection 22(6A) in relation to an individual in respect of care provided to a particular child, that the determination also applies in relation to the individual's partner in respect of the same child in a blended family situation.

Sections 28 and 29 allow for the splitting of FTB in certain blended family situations or in respect of the period before a couple separates. The capacity to determine a percentage of FTB for each relevant individual is to be found in sections 60 and 61 respectively. There are other provisions in Schedule 1 to the Family Assistance Act which cross reference these splitting rules and outline their implications. These rules do not change.

Sections 31 and 32 of the Family Assistance Act provide for continued eligibility for FTB where an FTB child dies. Eligibility for FTB will generally continue for 14 weeks after the death of the child, although there is capacity to pay out that eligibility as a lump sum payment in certain circumstances.

Items 27 to 30 inclusive ensure that if an individual is eligible for FTB in respect of a regular care child and that child dies, then the bereavement rules in sections 31 and 32 also apply to extend the individual's eligibility in respect of the deceased regular care child in the same way as for a deceased FTB child.

Section 33 deals with the situation where an individual who is eligible for FTB dies before receiving their entitlement and enables the Secretary to pay another individual that entitlement. The amendments made by items 31 and 32 ensure that these same rules would apply where there is an unpaid amount of FTB in respect of a regular care child through the insertion of references to a regular care child where appropriate.

The eligibility conditions for maternity payment are set out in sections 36 and 37 of the Family Assistance Act. A common requirement in the scenarios covered by these eligibility conditions is that the individual claiming maternity payment in respect of a particular child is eligible for FTB for the child or would be so eligible except that the individual's rate is nil. There is no specific mention of FTB child in these provisions so they could potentially apply where an individual is eligible for FTB in respect of a regular care child. The policy is that only FTB children should attract payment of maternity payment. This is consistent with the general rule for maternity payment that only one individual is eligible for maternity payment. A provision exists to apportion maternity payment between two or more individuals, but this provision is generally intended for a change of care rather than shared care. The latter would be rare in the case of a new born child.

Items 33 to 40 amend each of the eligibility categories in section 36 to ensure that an individual can only be eligible for maternity payment in respect of an FTB child (and not a regular care child).

The eligibility conditions for maternity immunisation allowance are set out in section 39 of the Family Assistance Act. Like maternity payment, a common eligibility requirement for the various categories of maternity immunisation allowance is the requirement to be eligible for FTB in respect of the child, without mention of an FTB child. Items 41 to 43 amend the eligibility conditions for maternity immunisation allowance to ensure that an individual can only be eligible for maternity immunisation allowance in respect of an FTB child (and not a regular care child).

Eligibility for child care benefit is linked, in part, to having an FTB child. The relevant CCB eligibility rules are set out in sections 42, 44 and 45 of the Family Assistance Act.

In broad terms, these provisions are amended so that an individual can be eligible for CCB for care provided by an approved child care service or registered carer to a regular care child (that is, a child in respect of whom the individual or individual's partner has at least 14% but less than 35% care where the child meets all other requirements for an FTB child). The relevant amendments are made by items 44, 45, 47, 49 and 50 .

Under existing rules, the Secretary has a capacity under subsections 42(2), 44(3) and 45(3) of the Family Assistance Act, to determine that a child who is not an FTB child is taken to be an FTB child for the purposes of the relevant provision. The definition of FTB child in subsection 3(1) of the Family Assistance Act then includes such a child within the definition of FTB child as it applies for CCB purposes.

Amendments are made to these provisions by items 46, 48 and 51 . The amendments enable the Secretary to determine a child who is neither an FTB child nor regular care child to be a regular care child for the purposes of the relevant eligibility provision. There is no substantive difference between the benefits available under CCB in respect of care provided to an FTB child and a regular care child. The new definition of regular care child in subsection 3(1) of the Family Assistance Act includes such a child within its definition and a consequential amendment is made to the definition of FTB child .

Also of relevance here is the savings provision inserted by item 146 . This provision deems a determination that a child is an FTB child that is in force under subsection 42(2), 44(3) or 45(3) of the Family Assistance Act immediately before 1 July 2008 to be a determination that the child is a regular care child. This savings provision ensures continuity of treatment. It also means that the Secretary will not need to remake these determinations under the provisions as amended.

Section 54 of the Family Assistance Act describes the circumstances in which a limit of 50 hours for sessions of care provided by an approved child care service applies in a week of eligibility. In broad terms, this limit applies where, among other things, the FTB child of the individual or individual's partner attracts payment of carer allowance or where the individual or partner with an FTB child are themselves disabled. Items 52, 53 and 54 amend section 54 to ensure that the 50 hours limit also applies where an individual or partner with a regular care child satisfy the stated conditions.

Item 55 repeals existing section 59 and substitutes a new section 59 under which an individual's shared care percentage for an FTB child is determined.

Under new subsection 59(1), an individual has a shared care percentage if the Secretary has made a percentage of care determination for the individual in respect of an FTB child under new subsection 22(6A). A note at the end of this provision indicates to the reader that the Secretary is taken to have made a percentage of care determination under new subsection 22(6A) in a blended family situation by operation of new paragraph 27(2)(b).

An individual's shared care percentage is then determined using the table in new subsection 59(2). If, for example, the individual were determined as having 58% care of a child, then the individual's shared care percentage for the child would be 61% (that is, 51% plus (2% x 5)).

New subsection 59(3) addresses the situation where the sum of the shared care percentages under subsection 59(2) in respect of a particular FTB child would not result in 100%. For example, A and B have 40% care and C has 20% care of a child. The child is therefore an FTB child of both A and B but not of C because of the new rule in section 25 (although the child may still be a regular care child who is a rent assistance child of C). Applying the table in subsection 59(2), A and B's shared care percentage in respect of the child would be 35% each. This means that the full possible amount of FTB would not be paid in respect of the child. This is not the intention. In this situation (and comparable situations where three or more individuals share the care of a child), the Secretary would have a discretion (under new subsection 59(3)) to depart from the table so that 100% of FTB can be paid in respect of the FTB child to eligible individuals in accordance with percentages determined by the Secretary.

Item 55 also inserts a section 59A that replaces existing subsections 59(2) and (3). New section 59A enables the Secretary to split payment of multiple birth allowance between individuals who are not members of a couple in a manner determined by the Secretary. The Secretary would also have the option of specifying that the whole of the multiple birth allowance is to be paid to one individual.

Sections 62, 63 and 63A of the Family Assistance Act outline the implications for calculating an individual's rate of FTB where an individual and/or an FTB child leave Australia for longer than 13 weeks (subject to the short return rules).

An individual who has been absent from Australia for longer then 13 weeks (who is an absent overseas recipient) has their rate of FTB worked out using the modifications set out in subsection 62(4). Notably, an absent overseas recipient cannot attract rent assistance as part of their FTB Part A. Therefore, an individual who has one or more regular care children (and no FTB children) and who is an absent overseas recipient will not be eligible for FTB (by virtue of the new rule in paragraph 21(1)(a) of the Family Assistance Act, as amended by item 13 ).

Section 63 provides a similar set of rules where an FTB child is absent from Australia for longer than 13 weeks (and is therefore an absent overseas FTB child ). The modifications in subsection 63(4) require that an absent overseas FTB child can only attract the base FTB child rate for the purposes of determining the individual's standard rate of FTB Part A under clause 7 of Schedule 1 and is disregarded for the purposes of determining the individual's standard rate of FTB Part B under clause 30 of Schedule 1.

Item 56 reworks section 63 so that it covers the situation where a child is either an FTB child or a regular care child when leaving Australia or at birth (if born outside Australia) and where a child's status changes from FTB child to regular care child and vice versa after being absent from Australia for longer than 13 weeks. The changes to section 63 ensure that if a child is absent from Australian for longer than 13 weeks irrespective of whether the child was an FTB child or a regular care child when leaving Australia or at birth (outside Australia), then the child is an absent overseas FTB child for any period that occurs after the 13 weeks' absence and during which time the child is an FTB child. The rules in section 63 that deal with short returns to Australia of less than 13 weeks are also modified so that when the child leaves Australia within that time frame, the child is an absent overseas FTB child while overseas and while an FTB child.

The modifications set out in subsection 63(4) in respect of an absent overseas FTB child remain unchanged.

Item 57 inserts new section 63AA into the Family Assistance Act. This new provision is similar to section 63 except that it deals with the situation where a child is a regular care child for one or more periods after being absent from Australia for longer than 13 weeks. During those periods, the child is an absent overseas regular care child . The effect is that the child will not be a rent assistance child (new clause 38B of Schedule 1 to the Family Assistance Act refers). Also of relevance is the new definition of absent overseas regular care child in subsection 3(1) of the Family Assistance Act, which directly links to new section 63AA.

Consequential amendments are made to section 63A by items 58 to 60 to take account of the changes made to section 63 and the insertion of new section 63AA.

Sections 64 and 65 provide for the calculation of an individual's rate of FTB where an FTB child dies. In broad terms, rate is calculated as if the child had not died (and remains an FTB child) during the bereavement period. In addition, there is capacity to convert the rate payable during the bereavement period into a lump sum payment.

As described earlier, amendments are being made to section 31 of the Family Assistance Act to enable eligibility for FTB to continue where a regular care child dies. Consequential changes are also made to sections 64 and 65 by items 61 to 65 to enable an individual's rate of FTB to be determined during the bereavement period as if the regular care child had not died.

The effect of the changes is as follows. Where the deceased regular care child is the individual's only child, then the individual would continue to receive FTB in the form of an income tested rent assistance payment for the bereavement period, with capacity to convert that eligibility into a lump sum payment. Where the individual has a deceased regular care child and other FTB children or other regular care children, then the individual's rate of rent assistance would continue to have regard to the deceased regular care child for the bereavement period.

Section 68 of the Family Assistance Act currently allows maternity immunisation allowance to be shared between eligible individuals where each individual's percentage of FTB for the child has been determined under subsection 59(1). Item 66 reworks this provision so that maternity immunisation allowance is shared on the basis of the individual's shared care percentage of FTB for the child. The concept of shared care percentage is newly defined in subsection 3(1) of the Family Assistance Act by reference to new section 59.

Clause 1 of Schedule 1 to the Family Assistance Act provides some broad rules about the FTB rate calculation process. FTB is an annual rate that comprises a Part A rate and a Part B rate. An individual's Part A rate can be determined using one of two specified methods, Method 1 or Method 2. This will depend on whether the individual's adjusted taxable income exceeds the higher income free area (set out in clause 2 of Schedule 1).

Items 67 to 69 make various amendments to clause 1 to take account of new Part 3A of Schedule 1 (as inserted by item 78 ). Briefly, new Part 3A outlines a new method of working out an individual's Part A rate (Method 3) and applies where the individual has no FTB children.

Clause 3 of Schedule 1 outlines the method by which an individual's Part A rate is worked out under Part 2 (Method 1). Items 70 to 72 make consequential amendments to various provisions in clause 3 to take account of the relocation of the rent assistance provisions to Part 5 of Schedule 1 (common provisions) and their renumbering.

Item 73 repeals clauses 4A and 4B of Schedule 1. These provisions enable offsetting to occur where duplicate rent assistance payments would otherwise be paid. These provisions are relocated in Part 5 of Schedule 1 as new clauses 38J and 38K respectively.

Item 74 makes a consequential amendment to subclause 5(1) to reflect the relocation of the rent assistance provisions to Part 5 of Schedule 1 (common provisions) and their renumbering.

Clause 11 of Schedule 1 ensures that a percentage determination in relation to an FTB child is taken into account in working out an individual's standard rate where the individual's Part A rate is worked out using Method 1. Item 75 amends clause 11 to reflect the new concept of shared care percentage in section 59 of the Family Assistance Act (as amended).

Item 76 repeals Divisions 3 and 4 of Part 2 of Schedule 1 to the Family Assistance Act.

Division 3 currently provides the eligibility rules and rate calculation process for rent assistance. This Division is relocated in Part 5 of Schedule 1 as new Subdivision A of new Division 2B of Part 5. (The rules relating to duplicate rent assistance become new Subdivision B of new Division 2B of Part 5.)

Division 4 sets out the income test that applies where an individual's adjusted taxable income does not exceed the higher income free area. This Division is relocated in Part 5 of Schedule 1 as new Division 2C of Part 5.

These Divisions are relocated into Part 5 of Schedule 1 because they can apply where an individual's Part A rate is worked out under existing Method 1 or new Method 3.

Clause 27 of Schedule 1 ensures that a percentage determination in relation to an FTB child is taken into account in working out an individual's standard rate where the individual's Part A rate is worked out using Method 2. Item 77 amends clause 27 to reflect the new concept of shared care percentage in section 59 of the Family Assistance Act (as amended).

Item 78 inserts a new Part 3A (Method 3) into Schedule 1 to the Family Assistance Act. New Part 3A will be used to work out an individual's Part A rate where the individual has no FTB children (but does have at least one regular care child who is also a rent assistance child).

Part 3A - Part A rate (Method 3 )

In broad terms, the rate of FTB Part A for an individual with one or more regular care children but no FTB children is to be worked out without reference to specified child amounts (including the FTB Part A supplement). The individual's maximum rate of FTB Part A would therefore be the individual's rent assistance (if any). This amount would be subject to the same income test that applies in working out an individual's Part A rate using Method 1. As the individual would not be entitled to child support in respect of a regular care child under the new child support rules, the maintenance income test would not be relevant.

New clause 28A sets out a new method statement that is used to work out an individual's Part A rate where Method 3 applies. The first step is to work out the individual's rent assistance under Subdivision A of Division 2B of Part 5. The result is the individual's maximum rate. The income test set out in Division 2C of Part 5 is then applied to work out any reduction for adjusted taxable income, which is then deducted from the individual's maximum rate. The result is the individual's income tested rate, which is the individual's Part A rate.

An individual's Part A rate, as worked out under Part 3A (Method 3) may be subject to reduction in accordance with clauses 38J and 38K (offsetting for duplicate rent assistance).

If the individual has one or more regular care children as well as an FTB child or children, then the individual's Part A rate would be worked out using either Methods 1 or 2. The individual's maximum rate would include the relevant FTB child rate or rates for any FTB children of the individual. Where Method 1 is relevant and the individual therefore has potential eligibility for rent assistance, the individual's regular care children who are also rent assistance children would be relevant in determining the individual's rate of rent assistance.

Item 79 makes a consequential amendment to paragraph 29B(4)(a) of Schedule 1 to take account of the new concept of shared care percentage in section 59 (as amended).

Under the current rules, clause 31 of Schedule 1 ensures that an individual's standard rate of FTB Part B has regard to a percentage determination under subsection 59(1) as appropriate. Clause 31 is reworked by item 80 to take account of the new concept of shared care percentage in section 59 (as amended).

Similarly, clause 31A of Schedule 1 ensures that the amount of an individual's FTB Part B supplement is worked out having regard to a relevant percentage determination under subsection 59(1). Item 81 reworks subclause 31A(1) so that it takes account of the new concept of shared care percentage in section 59 (as amended).

Under the current rules, clause 38 of Schedule 1 ensures that multiple birth allowance is paid in accordance with a percentage determination made under subsection 59(2). As existing subsections 59(2) and (3) of the Family Assistance Act are being replaced with new section 59A ( item 55 makes the relevant amendment), item 82 reworks clause 38 so that multiple birth allowance is paid in accordance with a determination under new section 59A.

Paragraph 38A(2)(a) of Schedule 1 is reworked by item 83 so that it reflects the concept of shared care percentage in section 59 (as amended) instead of the existing concept of a percentage determination under subsection 59(1).

Item 84 inserts two new Divisions into Part 5 of Schedule 1.

New Division 2B contains provisions relating to rent assistance. New Subdivision A sets out the eligibility rules for rent assistance and the methods of calculating an individual's rate of rent assistance in different circumstances. New Subdivision B deals with offsetting for duplicate rent assistance. Both of these new Subdivisions are relevant when an individual's Part A rate is being worked out under existing Method 1 or new Method 3.

New Division 2C sets out the income test (applicable where an individual's Part A rate is worked out using existing Method 1 or new Method 3).

Division 2B - Rent Assistance

Subdivision A - Rent Assistance

New Subdivision A is essentially existing Division 3 of Part 2 of Schedule 1 to the Family Assistance Act, relocated into Part 5, renumbered to take account of the relocation and modified to cover certain regular care children.

Under the current rules (clause 12 of Schedule 1), an individual's eligibility for, and rate of, rent assistance is affected by whether an FTB child of the individual is also a rent assistance child. An FTB child is a rent assistance child of the individual if the FTB child rate for the child exceeds the base FTB child rate or would exceed that rate but for clause 11. The base FTB child rate is the most an FTB child can attract if the child is aged 16 or more or is an absent overseas FTB child.

Under new clause 38B, the rules that prescribe when an FTB child is a rent assistance child are the same as in existing clause 12. However, clause 38B also sets out when a regular care child is a rent assistance child. Consistent with the FTB child rules, a regular care child of an individual is also a rent assistance child of the individual if the child is under 16 and is not an absent overseas regular care child. The description of these restrictions is different for a regular care child because there is no FTB child rate or base rate for such a child.

New clause 38C sets out the eligibility requirements for rent assistance. It is modelled on existing clause 13 of Schedule 1. The main differences are as follows.

First, the eligibility requirement in paragraph (1)(fa) that applies to an individual who is a relevant shared carer (defined in subsection 3(1) as an individual who has a shared care percentage in relation to each of his or her FTB children) will also apply to an individual who has only one or more regular care children but no FTB children.

Second, the amounts specified in new clause 38C are current as at the time of introduction of the bill. Subitem 145(2 ) ensures that these amounts remain current by providing for their indexation.

New clauses 38D and 38E are modelled on existing clauses 14 and 14A respectively.

Under the current rules, clauses 14 and 14A of Schedule 1 set out an individual's rate of rent assistance. Where the only children in the care of an individual are subject to a determination under subsection 59(1) of the Family Assistance Act, rent assistance is payable at the higher of the rates calculated under clauses 14 and 14A. The maximum rate payable under the table in clause 14A is comparable to the maximum rate payable under the Social Security Act to a person without children. Clause 14A acts to reduce the risk that a person, especially a person receiving a social security payment, could receive less rent assistance when they accept responsibility for the care of a child, while giving them access to the higher rate more in line with the higher costs usually associated with a larger home needed to accommodate children.

As mentioned above, the rent assistance eligibility requirements are being modified so that an individual who has one or more regular care children but no FTB children is treated in the same way as an individual who is a relevant shared carer. Consistent with this change, new clause 38E is constructed so that it applies to determine the rate of rent assistance payable to an individual who is a relevant shared carer (as is currently the case with clause 14A) and also an individual who has only one or more regular care children. This is the substantive difference between exiting clauses 14 and 14A and new clauses 38D and 38E.

The amounts specified in new clauses 38D and 38E are also current as at the time of introduction of the bill. Subitem 145(2 ) ensures that these amounts remain current by providing for their indexation.

New clause 38F provides that a reference to annual rent in the tables in new clauses 38D and 38E is a reference to the annual rate being paid or payable by the individual whose rate is being determined.

New clause 38G deals with rent paid by a member of a couple. This provision is the same as existing clause 16 of Schedule 1.

New clause 38H deals with rent paid by a member of an illness separated couple, respite care or temporarily separated couple. This provision is the same as existing clause 16A of Schedule 1.

Subdivision B - Offsetting for duplicate rent assistance

This Subdivision contains new clauses 38J and 38K. These provisions are substantively similar to existing clauses 4A and 4B of Schedule 1 to the Family Assistance Act. The main difference is that the new rate calculation process for FTB Part A using Method 3 will also be subject to the rent assistance offsetting rules. To this end, references to new clause 28A (which sets out the method statement for calculating an individual's Part A rate where Method 3 applies) have been inserted into new clauses 38J and 38K where relevant.

In broad terms, the offsetting rules in new clauses 38J and 38K (and existing clauses 4A and 4B of Schedule 1) operate to prevent duplicate payments of rent assistance between FTB on the one hand and social security or veterans' entitlements payments on the other hand. This is done by providing that any rent assistance paid as part of a social security or veterans' entitlements payment in respect of a particular day is taken into account in calculating an individual's entitlement to arrears of FTB Part A in respect of that day.

Division 2C - Income test

This Division contains new clauses 38L, 38M and 38N. These new clauses are substantively the same as existing clauses 17 to 19 of Schedule 1.

The income testing provisions in new clauses 38L, 38M and 38N will be relevant in determining an individual's Part A rate using existing Method 1 (there is no substantive change here) or new Method 3.

Items 85 and 86 make some consequential amendments to paragraph 39(2)(e) of Schedule 1 to the Family Assistance Act that take account of the relocation of the FTB Part A income test and the income free area (new clause 38N) from 1 July 2008.

Items 87 and 88 make some consequential amendments to other provisions in clause 39 to take account of the possibility of an individual's Part A rate being worked out under new Part 3A of Schedule 1 (Method 3).

Schedule 4 to the Family Assistance Act provides for the indexation of specified amounts and rates. Item 89 makes consequential amendments to items 4 and 5 of the table in clause 2 of Schedule 4 so that relevant rent assistance amounts are appropriately described and abbreviated and that the new clause references are set out in column 3. Similarly, item 90 makes consequential amendments to item 13 of the table in clause 2 of Schedule 4, which deals with the income free area. The new abbreviations are then reflected in the table in subclause 3(1) by item 91 .

FTB Part B will continue to be available only to individuals with an FTB child. A regular care child would not affect the way in which an individual's FTB Part B rate is determined under Part 4 of Schedule 1.

Family Assistance Administration Act

There are numerous provisions in the Family Assistance Administration Act that refer to an FTB child. A number of these are amended to take account of regular care children, as explained below.

Section 28B of the Family Assistance Administration Act provides for the variation of a determination that an individual is entitled to be paid FTB by instalment where an FTB child claims another specified payment. Subsection 28B(1) sets out the conditions that must be satisfied for this provision to apply. Subsections 28B(2) and (3) outline the consequences of an application of this provision on an individual's entitlement determination where the child concerned is the individual's only FTB child and where the individual has other FTB children.

Paragraph 28B(1)(b) is reworked by item 92 so that it also applies to a regular care child who is a rent assistance child (in the same way as it currently applies to an FTB child).

Subsection 28B(2) is amended so that it also covers cases where the child concerned is the individual's only child (counting both FTB child and regular care child), and subsection 28B(3) is amended so that it also covers cases where the child is not the claimant's only child (again counting both FTB child and regular care child). Items 93, 94 and 95 make the relevant amendments.

Notes at the end of some of the amendments to section 28B of the Family Assistance Administration Act change relevant headings (including the heading to subsections 16(5) and (6)) so that they also refer to a regular care child.

Under section 30B of the Family Assistance Administration Act, a claimant's entitlement determination can be varied for failure to notify an FTB child's departure from Australia. Amendments are made by items 96 to 99 to ensure that this provision also applies in relation to regular care children who depart Australia.

Subsection 30B(1) is amended so that it refers to a child who has left Australia without the claimant notifying, whether the child is an FTB child or a regular care child who is a rent assistance child.

Subsection 30B(2) is reworked so that a claimant's entitlement determination is varied with the effect that the claimant is not entitled to be paid FTB where the claimant has not notified the absence of each child of the claimant (whether an FTB child or a regular care child who is a rent assistance child) or that the claimant's rate of FTB is varied so as not to take account of an FTB child or regular care child who is a rent assistance child in respect of whom this provision applies.

Subdivision D of Division 1 of Part 3 of the Family Assistance Administration Act sets out the relevant reconciliation conditions that need to be satisfied before an individual can access the FTB Part A and B supplements.

There are currently references to an FTB child in sections 32J, 32K and 32P of the Family Assistance Administration Act. Items 101, 102 and 104 amend these provisions so they also refer to a regular care child or a regular care child who is also a rent assistance child, as appropriate. Section 32L also refers to an FTB child but applies where such a child is aged 16 or more. As a child who has turned 16 cannot be a regular care child who is a rent assistance child, a consequential amendment is not required to this provision.

Items 100 and 103 make consequential amendments to paragraphs 32D(1)(c) and 32P(1)(b) respectively to reflect the renumbering of the FTB income test provisions.

Under section 33 of the Family Assistance Administration Act, the Secretary must determine that an individual is entitled to be paid an FTB advance where specified conditions are satisfied. The intention is that an advance would not be available to an individual who is entitled to FTB for only a regular care child who is a rent assistance child. Item 105 therefore modifies subsection 33(1) so that it includes the extra condition that the individual has at least one FTB child.

Section 71E of the Family Assistance Administration Act currently refers to an FTB child in the context of a CCB debt that arises where an approved child care services certifies a rate in relation to a session of care to an FTB child and where the service knows that that rate does not apply to the child. As it will be possible for an approved child care service to certify a rate of fee reduction for a regular care child who is at risk or whose carer is experiencing a specified kind of hardship under section 76 of the Family Assistance Act, item 106 amends this provision to also include a references to a regular care child where appropriate.

Section 228 of the Family Assistance Administration Act enables an amount to be deducted from an individual's entitlement to FTB where a notice has been given under subsection 72AB(3) of the Child Support Registration and Collection Act to this effect. The amount of the deduction will depend on, among other things, whether some or all of the person's FTB children are designated child support children. The deducted amount(s) are then applied against a child support debt that is due and payable under the child support legislation.

Items 107 to 109 amend subsections 228(3) and (4) to ensure that regular care children who are rent assistance children are also taken into account in applying these provisions.

Child Support Registration and Collection Act

The amendments made to section 72AB of the Child Support Registration and Collection Act by items 110 and 111 complement the amendments made to section 228 of the Family Assistance Administration Act (as described above). Paragraph 72AB(1)(b) is reworked and subsection 72AB(2) amended so that these provisions also apply where a regular care child who is a rent assistance child is also a designated child support child of the person.

Items 112 and 113 insert new definitions of regular care child and rent assistance child into subsection 72AB(5) to support the amendments made to subsections 72AB(1) and (2). These terms are defined by reference to their meanings in the Family Assistance Act.

Social Security Act

Health Care Cards

Recommendation 1.15 of the Taskforce Report supports continued eligibility for a health care card (HCC) for an individual who has at least 14% but less than 35% care of a child (that is, a person with a regular care child). Amendments are made to the Social Security Act to give effect to this aspect of recommendation 1.15.

Division 3 of Part 2A.1 of the Social Security Act sets out the qualification conditions for a HCC. Of particular relevance are sections 6A, 1061ZK and 1061ZO of the Social Security Act.

Section 6A provides a number of definitions that support the HCC provisions in Division 3 of Part 2A.1. There are a number of definitions in section 6A that currently refer to an FTB child. Consequential amendments are made to these provisions so that they also refer to a regular care child. Items 114, 115 and 116 make the relevant changes.

Item 117 repeals subsection 6A(3), which is a superfluous provision.

Under subsection 1061ZK(4) of the Social Security Act, a person qualifies for a HCC on a day that the person is entitled to be paid FTB by instalment that includes a Part A rate under Part 2 of Schedule 1 to the Family Assistance Act where the person's income excess for the purposes of calculating the Part A rate is nil. This basically covers individuals who are receiving certain social security or DVA income support payments or whose income does not exceed the income free area specified in clause 19 of Schedule 1.

Item 125 amends paragraph 1061ZK(4)(b) to ensure that it also covers people who are entitled to be paid FTB by instalment that includes a Part A rate under new Part 3A of Schedule 1 to the Family Assistance Act (in respect of a regular care child who is also a rent assistance child).

Item 126 makes a consequential amendment to paragraph 1061ZK(4)(c) to reflect the relocation of the FTB Part A income test provisions.

Item 127 inserts a new subsection 1061ZK(4A) that extends qualification for a HCC to a person who has a regular care child but is not entitled to be paid FTB by instalment (because, for example, the regular care child is not a rent assistance child). Consistent with existing subsection 1061ZK(4), the person's income excess for the purposes of Division 2C of Part 5 of Schedule 1 to the Family Assistance Act would also need to be nil.

Section 1061ZO sets out a number of categories of qualification for a 'low income' HCC. (by application). Several of the specified categories require the person to either be or not to be an FTB child of a particular description. For example, qualification for a HCC under subsection 1061ZO(4) requires that a person meet residence requirements, the health care card income test and be an FTB child who is 19 or more years of age.

Section 1061ZO does not, in its current form, cover a regular care child.

Items 128 and 129 amend various provisions in section 1061ZO to add references to a regular care child where FTB child is currently mentioned.

Double orphan pension

A person's rate of double orphan pension for a child is worked out under section 1010 of the Social Security Act. Subsection 1010(1) sets out the rate of double orphan pension. However, subsection 1010(2) and (3) provide for an additional DOP payment in prescribed circumstances.

There is no capacity in this provision to split double orphan pension where the care of a double orphan child is being shared between two or more individuals who each attract a percentage of FTB in respect of the child.

Item 123 inserts a new subsection 1010(1A) into the Social Security Act. Under this new provision, if a person who qualifies for double orphan pension for a child has a shared care percentage for that child, then the person's rate of double orphan pension is to reflect their shared care percentage.

If, for example, the young person's maternal grandmother has 40% care, then her shared care percentage would be 35% (that is, 25% plus 2% for each percentage point over 35% in accordance with the methodology in section 59 of the Family Assistance Act (as amended)). The rate of double orphan pension for the grandmother would therefore be 35% of the rate that would otherwise be determined under subsection 1010(1) of the Social Security Act.

Similarly, any additional double orphan pension component payable to a person with a shared care percentage in respect of the double orphan child would be the difference between:

•

the prior rate of family allowance (if the child became a double orphan before 1 July 2000) or FTB Part A that was payable for the child before the child became a double orphan, multiplied by the person's shared care percentage for the child; and

•

the person's current Part A rate for the child (which would reflect the person's shared care percentage).

Item 124 repeals existing subsections 1010(2) and (3) and substitutes new provisions that are consistent with the effect described above.

New subsections 1010(2) and (3) have the same effect as the repealed provisions except that they only apply where the person does not have a shared care percentage in respect of the double orphan child.

New subsections 1010(2A) and (3A) modify these rules where the person does have a shared care percentage in respect of the double orphan child so that the required calculations and comparisons appropriately reflect that shared care percentage.

Item 122 makes a consequential amendment to subsection 1010(1) by making it subject to new subsections 1010(1A) to (3A).

In broad terms, a person can qualify for double orphan pension for a young person who is an FTB child of the person. This qualification rule is not changing. Furthermore, there will capacity, from 1 July 2008, to split payment of double orphan pension between people who have a shared care percentage in respect of a double orphan child to reflect the caring arrangements for the child.

These changes may have an adverse effect on a small number of people receiving double orphan pension on 30 June 2008. Saving provisions are therefore inserted by item 147 to counteract this effect. A person's rate of double orphan pension for a child would be preserved at the lower of the rate payable for the child immediately before 1 July 2008 or, if the child is an FTB child on or after 1 July 2008, the rate that would be payable under section 1010 as in force before the changes. The saved rate would continue to apply until such time as the person would cease to qualify for double orphan pension for the child otherwise than because of the changes to the concept of FTB child in the Family Assistance Act or where a higher rate of double orphan pension would be payable for the child under the new rules.

Carer allowance

Section 992J of the Social Security Act enables carer allowance to be continued for a bereavement period where a disabled child who is an FTB child dies. Section 992K enables the customer to receive the bereavement payment as a lump sum.

Item 121 amends these provisions by inserting references to a regular care child where an FTB child is mentioned. The changes ensure that sections 992J and 992K will apply in the same way irrespective of whether the deceased child is an FTB child or a regular care child.

Other amendments

Item 118 amends the definition of maximum Part A rate of family tax benefit in subsection 23(1) of the Social Security Act so that it also refers to new clause 28A of Schedule 1 to the Family Assistance Act. New clause 28A provides a new method of working out an individual's Part A rate where the individual has no FTB children (but has one or more regular care children who are also rent assistance children). An individual's maximum rate is worked out under step 1 of that method statement.

Item 119 inserts a new definition of regular care child into subsection 23(1). This term has the same meaning as given by subsection 3(1) of the Family Assistance Act.

Item 120 inserts a new definition of rent assistance child into subsection 23(1). This term also has the same meaning as given by subsection 3(1) of the Family Assistance Act.

Part 3.7 of the Social Security Act provides for the payment of rent assistance as part of a person's social security payment where appropriate. Several provisions in Part 3.7 currently refer to clauses 4A and 4B of Schedule 1 to the Family Assistance Act (which deal with offsetting duplicate rent assistance).

Clauses 4A and 4B are being relocated into Part 5 of Schedule 1 to the Family Assistance Act and will be renumbered as clauses 38J and 38K respectively ( items 73 and 84 are relevant). Items 130 to 142 make the required consequential amendments to reflect this numbering change.

Veterans' Entitlements Act 1986

Points SCH6-C3A and C3B of the Veterans' Entitlements Act 1986 currently refer to clauses 4A and/or 4B of Schedule 1 to the Family Assistance Act (which deal with offsetting duplicate rent assistance).

Clauses 4A and 4B are being relocated into Part 5 of Schedule 1 to the Family Assistance Act and will be renumbered as clauses 38J and 38K respectively ( items 73 and 84 are relevant). Items 143 and 144 make the required consequential amendments to reflect this numbering change.

Division 2 - Application and saving provisions

Application

Item 145 sets out how the various amendments in this Schedule apply.

The amendments made to the Family Assistance Act and the Family Assistance Administration Act apply in relation to the 2008-09 income year and later income years ( subitem 145(1 ) refers).

The rent assistance amounts referred to in new clauses 38C, 38D and 38E of Schedule 1 to the Family Assistance Act, which are current as at the date of introduction of the bill, are to be indexed in accordance with Schedule 4 to the Family Assistance Act on 20 September of 2006 and 2007 and on 20 March of 2007 and 2008. This provision ensures that the amounts are current when the amendments commence on 1 July 2008. Subitem 145(2 ) is the relevant application provision.

Similarly, the income free area amount in new clause 38N of Schedule 1 to the Family Assistance Act, which is current as at the date of introduction of the bill, is to be indexed in accordance with Schedule 4 to the Family Assistance Act on 1 July 2007 and 2008. This provision ensures that the amount is current when the amendment commences on 1 July 2008. Subitem 145(3 ) is the relevant application provision.

Saving Provisions

The saving provisions in items 146 and 147 have been described above in the context in which they arise.

PART 2 - MAINTENANCE INCOME TEST

Background

The MIT is relevant in working out an individual's Part A rate using Method 1. The calculation process is set out in the method statement in clause 3 of Schedule 1 to the Family Assistance Act. The MIT is the second means test that potentially applies to reduce an individual's maximum rate of FTB Part A. Importantly, an individual's maximum rate of FTB Part A is the sum of the relevant amounts specified in step 1 of the method statement in clause 3 of Schedule 1 and includes an amount in respect of each FTB child of the individual, irrespective of whether or not that child is covered by a child support liability. In broad terms, any child support received in the relevant income year above the maintenance income free area (MIFA) reduces the customer's FTB Part A by 50 cents in the dollar until the base rate for the individual is reached. The base rate is defined in clause 4 of Schedule 1 by reference to the individual's maximum rate under clause 25 if the individual's Part A rate were worked out under Part 3.

The MIT may also be relevant in working out an individual's Part A rate using Method 2 (that is, where the individual's adjusted taxable income exceeds the higher income free area). The relevant provision is clause 25 of Schedule 1 to the Family Assistance Act and more specifically, the comparison required under step 3 of the method statement in clause 25.

The rules relevant to the MIT are detailed in Division 5 of Part 2 of Schedule 1 to the Family Assistance Act. An individual's reduction for maintenance income is worked out using the method statement in clause 20 of Schedule 1. The first step is to annualise the amount of maintenance income received by the individual in the relevant income year. The next step is to work out the individual's MIFA using the table in clause 22 - the amount of the MIFA will depend on the individual's family situation and number of FTB children. Again, it is irrelevant for the purposes of working out an individual's MIFA whether or not the FTB child is covered by a child support liability. The difference between the individual's annualised maintenance income and MIFA is the individual's maintenance income excess. The individual's income tested maximum rate is then (further) reduced by half of the maintenance income excess (the 50% taper).

There are definitions in subsection 3(1) and section 19 of the Family Assistance Act that support the MIT provisions. These include a definition of maintenance income, maintenance, child support and capitalised maintenance income .

Under recommendation 9.1, maintenance income received by a payee for one or more children of a payer would reduce the payee's amount of FTB Part A above the base rate, including any rent assistance, for those children only . Any partner maintenance from a payer would affect FTB Part A for the payer's children only. To this end, amendments are made to introduce a MIT ceiling that would represent the amount of maintenance income that limits the maximum reduction under the MIT to the children for whom maintenance income is paid. Any amounts paid in excess of that ceiling would be disregarded for the purposes of applying the MIT.

Also, the additional MIFA for each FTB child after the first would be limited to FTB children of an individual for whom the individual or the individual's partner is entitled to apply for maintenance (whether under the Child Support Assessment Act or the Family Law Act). Amendments are made to clause 22 of Schedule 1 to achieve this. The additional MIFA would also continue to exclude an FTB child for whom maintenance income is disregarded under step 1 of the method statement in clause 20 of Schedule 1. For example, an FTB child for whom child support is payable but who has turned 16 would continue to be excluded, as the FTB child rate for such a child is restricted to the base FTB child rate.

For example, if a payee receives child support for a child from a previous relationship, and the payee also has care of a second child from the payee's current relationship, the child support for the first child would only affect the amount of FTB Part A above the base rate for the first child. This would be achieved by disregarding any child support received for the child above the relevant MIT ceiling. Also, there would be no additional MIFA for the non-child support child.

Where a payee is entitled to maintenance income from two or more payers, the maintenance income from one payer would only reduce FTB for children of that payer, and would not affect FTB for children of the other payer(s) or any other children.

Explanation of the changes

Division 1 - Amendments

Family Assistance Act

Items 148 and 149 insert notes at the end of the definitions of capitalised maintenance income and maintenance income , which refer the reader to section 19 of the Family Assistance Act. Section 19 affects the operation of these definitions. These changes are not substantive but are made to improve readability.

Items 150 and 151 make some technical changes to the headings in the table in clause 7 of Schedule 1 to the Family Assistance Act. These changes make it clear that an individual's standard rate under clause 7 is the sum of the FTB child rates applicable to each FTB child of the individual.

Item 152 inserts new clause 19AA into Schedule 1 to the Family Assistance Act. This new provision makes it clear that any references in the MIT provisions to an individual being, or not being, entitled to apply for maintenance income include references to an individual who is, or is not, entitled to apply for maintenance income under the Child Support Assessment Act or the Family Law Act.

Clause 20 of Schedule 1 to the Family Assistance Act contains a method statement that sets out the MIT. The first step is to annualise the amount of the individual's maintenance income (which can, by virtue of clause 21, include a partner's maintenance income as relevant). Item 153 ensures that in doing so, any maintenance income received by the individual or their partner from a maintenance payer that is over the maintenance income ceiling is disregarded. This new 'disregard' is set out in new paragraph (d) of step 1 of the method statement in clause 20.

The maintenance income ceiling is then worked by applying the new rules in Subdivisions C and D of Division 5 as relevant.

An individual's MIFA is worked out under clause 22 of Schedule 1 to the Family Assistance Act. Item 154 amends clause 22 so that children in respect of whom neither the individual nor the individual's partner is entitled to apply for maintenance income are disregarded for the purposes of working out an individual's MIFA.

Item 155 inserts new Subdivisions C and D into Division 5 of Part 2 of Schedule 1 to the Family Assistance Act. These new Subdivisions set out the rules for working out the maintenance income ceiling for maintenance income received by an individual or their partner from a particular maintenance payer.

In broad terms, the maintenance income ceiling amount for maintenance income from a particular payer represents the maximum amount of maintenance income that an individual payee can receive from the payer before payment of the above base amount of FTB Part A, including rent assistance, in respect of the payer's children is totally reduced. The maintenance income ceiling is therefore the maximum amount of maintenance income from the payer that can be taken into account under the MIT under recommendation 9.1 of the Taskforce Report. Any maintenance income received from the payer that exceeds the MIT ceiling would be disregarded for the purposes of the MIT. That way, these amounts will not have the effect of reducing the individual's Part A rate in respect of other FTB children of the payee.

Subdivision C - Maintenance income ceiling for Method 1

Where an individual's Part A rate is worked out using Part 2 of Schedule 1 (Method 1), the maintenance income ceiling for maintenance income received by the individual or their partner from a particular payer would be worked out under new Subdivision C.

The exception, where it is not necessary to work out a maintenance income ceiling and which is covered by new clause 24F, is where the individual and their partner between them are only entitled to apply for maintenance income from the one maintenance payer in respect of all of the FTB children of the individual and partner. In this situation, there are no non-maintenance FTB children that need to be excluded from the application of the MIT and therefore no need to apply the new maintenance income ceiling rules.

New clause 24G sets out the method of working out an individual's maintenance income ceiling for maintenance income received by the individual or their partner from a particular maintenance payer where the individual's Part A rate is worked out under Method 1. The method statement involves working out an individual's above base standard amount, RA amount and MIFA amount . These various components then link into a formula in new clause 24L under which the individual's maintenance income ceiling is determined.

The individual's above base standard amount for the maintenance income is worked out using new clause 24H. Given that the MIT can only reduce the maximum FTB Part A rate to the base rate, an individual's above base standard amount is the difference between:

•

the individual's standard rate (worked out under clauses 7 to 11) for the FTB children of the individual in respect of whom the individual or their partner is entitled to apply for maintenance income from the particular payer concerned; and

•

the individual's standard rate for those children under clauses 26 and 27, assuming the individual's Part A rate were calculated under Part 3.

The individual's RA amount for the maintenance income is worked out using the method statement in new clause 24J. In broad terms, the individual's RA amount is the amount of rent assistance that is apportioned to the maintenance children of the particular payer.

The first step in the method statement in new clause 24J is to work out the individual's rent assistance. This calculation will have regard to all of the FTB and regular care children in the family irrespective of whether or not the individual or their partner is entitled to apply for maintenance income in respect of one or more of those children.

The second step is to work out the amount that would be the individual's rent assistance having regard only to those children in respect of whom neither the individual nor their partner is entitled to apply for maintenance income.

If there is only one maintenance payer from whom the individual and their partner between them are entitled to apply for maintenance income, then the individual's RA amount is the difference between the step 1 and 2 amounts (step 3 of the method statement in new clause 24J refers).

If there is more than one maintenance payer, then the amount that is the difference between the step 1 and 2 amounts needs to be apportioned between the children in the family in respect of whom the individual or their partner is entitled to apply for maintenance income. This apportioning ensures that an individual's RA amount reflects the number of children of a particular payer in respect of whom the individual or their partner is entitled to claim maintenance income. The application of step 4 of the method statement in new clause 24J achieves this outcome.

For example, a customer has four children under 16, two of whom are maintenance children of one payer, and two are not maintenance children. The rent assistance rate for four children is $3,485.75 pa, and the rent assistance rate for two children is $3,084.25 pa. Therefore, the individual's RA amount for the two maintenance children would be $401.50 pa ($3,485.75 - $3,084.25).

The individual's MIFA amount for the maintenance income is worked out using new clause 24K.

If there is only one maintenance payer from whom the individual and their partner between them are entitled to apply for maintenance income, then the individual's MIFA amount is the amount of the MIFA worked out under clause 22 of Schedule 1 to the Family Assistance Act (new subclause 24K(1) refers).

If there is more than one maintenance payer, then the individual's MIFA amount for a particular payer is worked out using the formula in new subclause 24K(2). The formula provides a method whereby the MIFA can be apportioned equally between the children in the family in respect of whom the individual or their partner is entitled to apply for maintenance income (this is necessary because the MIFA is not a per child amount but rather a basic amount plus an additional amount per child after the first) and attributed to the children of a particular payer. This would mean that the MIT reduction due to the maintenance income from each payer would receive an appropriate proportion of the total MIFA.

An example of how the formula in new subclause 24K(2) (which enables the MIFA to be apportioned) would work is as follows.

An FTB customer receives maintenance income from one payer for three children and the customer's current partner also receives maintenance income from one payer for one child. Using 2006-07 rates and in accordance with clause 22 of Schedule 1 to the Family Assistance Act, the MIFA would be $2,430.90 + (3 x $405.15) = $3,646.35. The individual's no child amount would equal the 'one child' amount ($2,430.90 in this example) less a notional amount for the first child of $405.15, which equals the additional amount for one child). This gives a no child amount of $2,025.75 in this example. The customer's apportioned MIFA would be ($2,025.75 / 2) + (3 x $405.15) = $2,228.325, and the partner's apportioned MIFA would be ($2,025.75 / 2) + (1 x $405.15) = $1,418.025.

New clause 24L sets out the formula for determining an individual's maintenance income ceiling. Under the specified formula, the above base standard amount for the maintenance income is added to the RA amount for the maintenance income and the total is multiplied by 2. It is necessary to double the combined total of these amounts to reflect the 50% taper that applies under the MIT. This taper is provided for in step 6 of the method statement in clause 20 of Schedule 1 and ensures that an individual's reduction for maintenance income is half the individual's maintenance income excess (which is the amount by which the individual's maintenance income exceeds the individual's MIFA). The MIFA amount is then added to the result to arrive at the individual's maintenance income ceiling for the maintenance income received by the individual or their partner from a particular maintenance payer.

The following is an example of how an individual's maintenance income ceiling is worked out in a given scenario.

An individual has one child aged 10 in respect of whom the individual is entitled to apply for maintenance income (the maintenance child) and one child of a new relationship aged 2.

The individual's above base standard rate for each child is $2,489.30 pa. This amount is the standard rate for an FTB child aged under 13 years set out in clause 7 of Schedule 1 (which is currently $3,671.90) minus the standard child rate for an FTB child aged under 18 years set out in subclause 26(2) of Schedule 1 (which is currently $1,182.60). The individual's above base standard amount for the maintenance child is therefore $2,489.30.

If the individual is eligible for maximum rent assistance of $3,084.25 pa, the individual's RA amount for the maintenance child is nil (because the rent assistance rates for two children and for one child are the same).

The individual's MIFA from July 2008 would be based on one child (not two), as there is only one maintenance child. The individual's MIFA would be $1,215.45 pa. As there is only one maintenance payer, the individual's MIFA amount is all of the individual's MIFA of $1,215.45 pa.

In this example, the maintenance income ceiling for maintenance income from the one maintenance payer for one maintenance child would be:

2 * ($2,489.30 + $0) + $1,215.45 = $6,194.05 pa


Subdivision D - Maintenance income ceiling for the purposes of comparison for Method 2

The MIT can be relevant in some circumstances where Part 3 of Schedule 1 to the Family Assistance Act applies to work out an individual's Part A rate.

It is possible for an individual with a large family to be receiving more than the base rate of FTB Part A when the individual's adjusted taxable income equals the higher income free area (that is, Method 1 applies). If the individual's income exceeds the higher income free area and Method 2 applies, the individual's rate of FTB Part A will be less than what would have been the individual's income and maintenance tested Method 1 rate (see step 3 of the method statement in clause 3 of Schedule 1) if Method 1 had applied. Step 3 of clause 25 therefore ensures that the Part A rate calculated under clause 25 is subject to a comparison with what would be the individual's income and maintenance tested rate under Step 3 of clause 3 of Schedule 1 if the individual's Part A rate were worked out using Part 2 of Schedule 1. The higher of the two rates would apply. However, the resultant rate would remain a Method 2 rate. It is therefore possible for the MIT to be relevant in working out an individual's Part A rate using Method 2.

In these circumstances, the maintenance income ceiling for maintenance income received by the individual or their partner from a particular payer would be worked out in accordance with the method statement in new clause 24N. The method statement involves working out an individual's standard amount, LFS amount, multiple birth allowance, supplement amount, RA amount and MIFA amount . These various components then link into a formula in new clause 24S under which the individual's maintenance income ceiling for a particular maintenance payer is determined.

Consistent with new clause 24F, new clause 24M does not apply where the individual and their partner between them are only entitled to apply for maintenance income from the one maintenance payer in respect of all of the FTB children of the individual and partner.

Where an individual's adjusted taxable income exceeds the higher income free area, the MIT may apply due to step 3(b) in clause 25 of Schedule 1 to the Family Assistance Act. In these cases, the MIT can reduce the individual's FTB Part A rate to nil, rather than being limited to the base rate (as is the case where the individual's adjusted taxable income is equal to or less than the higher income free area). It is therefore necessary to apportion all components that make up an individual's maximum rate of FTB Part A, rather than just the amount above the base rate. These components are the individual's standard rate, large family supplement (LFS), multiple birth allowance, FTB Part A supplement and rent assistance.

Under new clause 24P, an individual's standard amount is the individual's standard rate for the relevant maintenance children of the particular payer. An individual's standard rate is the total of the relevant FTB child rates, having regard to any shared care percentage applicable in respect of one or more of the relevant children (clauses 7 to 11 of Schedule 1 to the Family Assistance Act are relevant).

For example, for an individual with one maintenance child aged 10 and one child of a new relationship aged 2, the amount of standard rate for each child is $3,671.90. Therefore, the individual's standard amount for the maintenance child is $3,671.90.

An individual's LFS amount is worked out using the method statement in new clause 24Q. The method is not dissimilar to the method used to determine an individual's RA amount and is necessary because large family supplement, like rent assistance, is not a per child amount.

The first step in the method statement in new clause 24Q is to work out the individual's large family supplement in respect of all of the individual's FTB children (both maintenance and non-maintenance children). The amount of large family supplement is worked out under Division 1 of Part 5 of Schedule 1 to the Family Assistance Act.

The second step is to work out the amount that would be the individual's large family supplement having regard only to those children in respect of whom neither the individual nor their partner is entitled to apply for maintenance income.

If there is only one maintenance payer from whom the individual and their partner between them are entitled to apply for maintenance income, then the individual's LFS amount is the difference between the step 1 and 2 amounts (step 3 of the method statement in new clause 24Q refers).

If there is more than one maintenance payer, then the amount that is the difference between the step 1 and 2 amounts needs to be apportioned between the children in the family in respect of whom the individual or their partner is entitled to apply for maintenance income. This apportioning ensures that an individual's LFS amount reflects the number of children of a particular payer in respect of whom the individual or their partner is entitled to claim maintenance income. The application of the formula in step 4 of the method statement in new clause 24Q achieves this outcome.

For example, a customer has four children, two of whom are maintenance children of one payer, and two are not maintenance children. The amount of large family supplement for four children is $511 pa. The large family supplement for two children is nil. Therefore, the apportioned amount of LFS for the two maintenance children would be $511 pa.

If the children of a multiple birth are the maintenance children of a payer, the multiple birth allowance for those children is the amount worked out under existing clauses 36 to 38 of Schedule 1 to the Family Assistance Act (step 3 of the method statement in new clause 24N refers).

Under new clause 24R, the apportioning of the FTB Part A supplement would be the same as for the standard amount, that is, the amount for the relevant maintenance children.

The individual's RA amount for the maintenance income is worked out in the same way for the purposes of new Subdivisions C and D. The method is set out in new clause 24J.

The individual's MIFA amount for the maintenance income is also worked out in the same way for the purposes of new Subdivisions C and D. The method is set out in new clause 24K.

Under new clause 24S, an individual's maintenance income ceiling for maintenance income received by the individual or their partner from a particular maintenance payer is determined by multiplying the total of the amounts worked out under steps 1 to 5 of the method statement in new clause 24N (the apportioned components of the individual's maximum rate of FTB Part A under Method 1) by two (to reflect the 50% taper) and adding the individual's MIFA amount for the maintenance income to the result.

Item 156 makes a consequential amendment to paragraph (a) of step 3 of the method statement in clause 25 of Schedule 1 to the Family Assistance Act to ensure that in comparing the individual's provisional Part A rate worked out using Method 2 and what would be the individual's Part A rate using Method 1, that new clause 24G (the method for working out an individual's maintenance income ceiling under Method 1) is disregarded. For the purposes of the comparison, the relevant method for working out an individual's maintenance income ceiling would be that described in new clause 24N.

Division 2 - Application Provision

Item 157 is an application provision that ensures that the amendments made by Part 2 relating to the maintenance income test apply to the 2008-09 income year and later income years. The amendments commence on 1 July 2008 (in accordance with the commencement table in clause 2 of this bill).