Explanatory Memorandum
(Circulated by authority of the Minister for Families, Community Services and Indigenous Affairs, the Hon Mal Brough MP)Schedule 9 - Dependant and housekeeper rebates, and Medicare levy
Summary
This Schedule contains amendments to the Income Tax Assessment Act 1936 (the ITAA) that are made as a consequence of recently enacted child support reforms that included changes to 'FTB child' and the introduction of a concept of 'regular care child'.
Background
As part of the child support reforms that come into effect from 1 July 2008, the concept of 'FTB child' will be redefined to mean a child in respect of whom an individual has 35 per cent or more care, provided the child also meets all other relevant eligibility criteria such as residence. An individual with this level of care will continue to attract all relevant existing components of FTB (Parts A and B) including the child specific rates.
A child in respect of whom an individual has 14 per cent or more and less than 35 per cent care, where the child meets all other relevant eligibility criteria, will be a 'regular care child' of the individual. A regular care child who is also a rent assistance child will be relevant for the purposes of determining an individual's eligibility for, and amount of, rent assistance. However, a child-related amount of FTB Part A and FTB Part B will not be available in respect of a regular care child.
These changes have consequential implications for the ITAA.
Dependant and housekeeper rebates
Currently, individuals who are eligible for the dependant rebates and the housekeeper rebate (provided by sections 159J and 159L, respectively, of the ITAA) and receive FTB Part B at the shared care rate receive a reduced entitlement to the relevant dependant related rebate. Their proportional entitlement to the rebate is calculated having regard to the individual's shared care percentage, as determined under subsection 59(1) of the Family Assistance Act, which is relevant in calculating the individual's rate of FTB Part B.
Both subparagraphs 159J(3AB)(b)(ii) and 159L(5B)(b)(ii) of the ITAA currently refer to a 'particular specified percentage determination under subsection 59(1)' of the Family Assistance Act. Under the new FTB rules effective from 1 July 2008, the equivalent to this concept will be an individual's 'shared care percentage', defined in subsection 3(1) of the Family Assistance Act as having the meaning given by section 59 of that Act. Consequential changes are required to reflect this.
Medicare levy
Prescribed persons without dependants are exempt from the Medicare levy. However, the inclusion of dependants can reduce the Medicare levy exemption that is available to prescribed persons.
Subsection 251R(5) of the ITAA apportions a dependent child between separated parents for the purposes of the Medicare levy exemption for prescribed persons, consistent with shared care percentages determined under the family assistance law.
An example of how the current law works is as follows. In 2005-06, Leanne was a single person and a member of the defence forces for the whole year and shared care of her child, Daniel. Leanne received FTB Part A based on a shared care percentage rate of 40 per cent, as determined under subsection 59(1) of the Family Assistance Act. Forty per cent shared care translated to 146 days that Daniel was considered Leanne's dependant for Medicare levy purposes (applying subsection 251R(5) of the ITAA). Assuming Leanne had no other dependants and Daniel did not pay the Medicare levy, then Leanne would have been entitled to a full exemption from the Medicare levy for 219 days and would have been entitled to a half exemption for the 146 days that Daniel was considered her dependant.
The intention is that prescribed persons who are eligible for FTB Part A for a child (whether an FTB child or a regular care child) should continue to have their exemption apportioned according to their share of care for the dependent child, even if that care is for less than 35 per cent of the time. Amendments are therefore made to link apportionment for Medicare levy purposes with the percentage of care determined under new subsection 22(6A) of the Family Assistance Act, as in force from 1 July 2008.
Under new subsection 22(6A), the Secretary will be able to determine a percentage of a period of shared care during which a particular child was, or will be, in the care of the individual concerned. This determination will be relevant in determining whether the child concerned is an FTB child or a regular care child.
A technical amendment is also made to subsection 251R(5) to address a minor defect in the current wording of the provision.
Explanation of the changes
Items 1 and 2 make consequential amendments to subparagraphs 159J(3AB)(b)(ii) and 159L(5B)(b)(ii) of the ITAA. The existing references to a particular specified percentage determination under subsection 59(1) of the Family Assistance Act are replaced by references to a shared care percentage for an FTB child, defined in the Family Assistance Act by reference to a determination under section 59.
Paragraph 251R(5)(c) currently refers to parents or spouses being eligible for FTB at the Part A rate for a child in respect of the relevant period. Item 3 makes a minor consequential change to the wording of this provision to make it clear that the child can be an FTB child or a regular care child.
Paragraph 251R(5)(d) currently refers to a determination under subsection 59(1) of the Family Assistance Act that each parent is entitled to a specified percentage of that FTB Part A. Item 4 remakes paragraph (d) so that the provision refers instead to a determination under subsection 22(6A) of the Family Assistance Act of the percentage of the period during which the child was, or will, in the care of each parent or spouse, as the case requires. A determination under subsection 22(6A) is made in respect of an FTB child and a regular care child. The reference to both parent and spouse in the new paragraph (d) rectifies an anomaly in the current wording and is consistent with the wording in paragraph (c).
Consistent with the commencement of the FTB changes, the amendments made by this Schedule will commence on 1 July 2008. The amendments will apply to the 2008-09 year of income and later years ( item 5 refers).