House of Representatives

Explanatory Memorandum

Circulated by the authority of the Treasurer, the Hon Wayne Swan MP

Chapter 3 - Government contributions to First Home Saver Accounts

Outline of chapter

3.1 Part 4 of the main Bill provides for the Government to pay annual First Home Saver Account (FHSA) contributions to supplement the personal contributions of individuals. This chapter covers:

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the eligibility of individuals to receive a Government contribution and the amount of the contribution to which they are entitled;

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the method of payment of the Government contribution and the mechanisms for correcting late payments and underpayments, and recovering overpayments; and

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the administration of contribution arrangements by the Commissioner of Taxation (Commissioner), including the review of the Commissioner's decisions.

Context

3.2 The Government is providing assistance to first home buyers through FHSAs in two ways: Government contributions based on personal contributions to FHSAs and low tax on earnings. Chapter 6 outlines the arrangements for the taxation of earnings.

3.3 The Government contribution is 17 per cent of up to $5,000 (indexed) of personal contributions made to an FHSA during the year and is usually paid directly into individual FHSAs by the Commissioner.

Summary of new law

3.4 A Government contribution is payable for an individual for a financial year on personal contributions of up to $5,000 (indexed) made during the year, and is paid at a rate of 17 per cent.

3.5 The Commissioner determines that Government contributions are payable and pays them into FHSAs. The Commissioner must pay a Government contribution no later than 60 days of receiving both the income tax return of the individual for the financial year in which the personal contributions were made (or notice in the approved form that they are not required to lodge a tax return for the financial year) and the FHSA contributions statement from the individual's FHSA provider.

3.6 The Commissioner usually only pays Government contributions into the FHSA held by the individual. However, the Commissioner also has the power to pay Government contributions directly to the individual (or their legal personal representative), or their superannuation provider (eg, if the individual has elected or been compelled to contribute their FHSA balance to superannuation).

3.7 The Commissioner compensates individuals for the late payment or underpayment of their Government contributions through paying additional amounts as Government contributions. Similarly, the Commissioner has various powers to recover overpayments of Government contributions from an individual (or their legal personal representative), or their FHSA or superannuation provider.

Detailed explanation of new law

Government contributions

3.8 A Government contribution (Government contribution) for an individual is a contribution or amount paid by the Commissioner for that individual under the main Bill. [ Subsection 11(1) ]

Eligibility for a Government contribution

3.9 A Government contribution is payable for an individual for a financial year where the following criteria are satisfied.

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During the financial year, personal contributions are made to the FHSA. Individual contributions that are not eligible for a Government contribution are discussed in paragraph 3.12.

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The individual lodges an income tax return in relation to the financial year, or notifies the Commissioner in the approved form that they are not required to lodge a tax return in relation to the financial year.

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The tax return or notice states that the individual has met the residency requirements outlined in the Income Tax Assessment Act 1936 (ITAA 1936) for at least part of the income year corresponding to the financial year.

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The individual actually satisfies the residency requirements for at least part of the income year corresponding to the financial year.

3.10 The Commissioner is able to rely on the individual's return or notice that states they meet the residency requirements in determining that a Government contribution is payable. However, if the statement is incorrect, there is an overpayment and the Commissioner may take action to recover the Government contribution paid (see paragraphs 3.37 to 3.50). [ Sections 36 and 37 ]

3.11 For the individual's income tax return (or notice) and the provider's FHSA contributions statement to be in the approved form, they must be complete.

Individual contributions ineligible for a Government contribution

3.12 A Government contribution is not paid to an FHSA for a financial year for individual contributions made in the following circumstances.

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Where under a family law obligation, an amount is transferred to the FHSA of a spouse or ex-spouse.

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If an individual transfers their FHSA balance from one FHSA provider to another under the FHSA portability provisions.

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Where an individual re-contributes an amount previously paid from their FHSA to purchase a home where the home is not purchased or the occupancy requirements are not met. Such a re-contribution is permitted within six months of the payment being made.

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Where a contribution is refunded to an individual under the Corporations Act on the grounds of:

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an unsolicited offer, under subsection 992A(4);

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a defective product disclosure document, under section 1016F; or

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in exercising the cooling-off period, under section 1019B.

[ Subsection 11(3) ]

Amount of the Government contribution

3.13 The first step in working out the Government contribution payable is to total the personal contributions made during the financial year to an FHSA held by an individual. Only the first $5,000 (indexed) is considered; any excess is disregarded. The law refers to the personal contributions considered as the covered contributions . [ Subsections 38(1) and (2) ]

3.14 The amount of the Government contribution is the covered contributions multiplied by 17 per cent. [ Subsection 38(3) ]

Rounding rules

3.15 If an individual is entitled to a Government contribution for a financial year but the amount would otherwise be less than $20, the contribution is rounded up to $20. Other Government contribution amounts that are not whole dollar amounts are rounded up to the nearest dollar. [ Subsections 38(4) and (5) ]

Government contribution threshold

3.16 For the 2008-09 financial year, Government contributions are paid on the first $5,000 contributed to an individual's FHSA each year. The amount of the threshold is indexed annually, by multiplying the threshold for the 2008-09 financial year by its indexation factor. The result is rounded down to the nearest $500, to ensure that the contribution threshold remains in round figures [ section 39 and subsection 40(1) ].

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The indexation factor is the proportional change in full-time adult average weekly ordinary time earnings from the middle month of the December quarter 2007 to the middle month of the December quarter just before the relevant financial year. The indexation factor is calculated to four decimal places and rounded to three decimal places [ subsections 40(3) to (5) ].

3.17 The amount cannot be reduced by indexation; that is, it is not indexed if the indexation factor is less than one. [ Subsection 40(2) ]

Example 3.1

If the indexation calculation increases the threshold to $5,900, the indexed amount is rounded down to $5,500.

Payment of a Government contribution

3.18 The Commissioner must determine that a Government contribution is payable for an individual for a financial year if the Commissioner is satisfied that the Government contribution is payable for that financial year. [ Subsection 41(1) ]

3.19 The Government superannuation co-contribution also relies on the Commissioner making determinations. The proposed machinery rules for Government contributions are generally similar to those for the superannuation co-contribution. This assists the Australian Taxation Office in implementing administrative arrangements for Government contributions and assists industry in complying with the machinery rules.

Determination of eligibility for a Government contribution

3.20 In deciding whether to make a determination under section 41, the Commissioner may have regard to:

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the income tax return lodged for the individual for the relevant financial year, or a notice in the approved form advising the Commissioner that the individual is not required to lodge an income tax return in respect of the financial year in which the personal contributions were made. This information is used to determine whether an individual meets the residency requirements;

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the information about the personal contributions made in respect of the individual, contained in FHSA contributions statements given to the Commissioner by FHSA providers; and

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other information which may assist in determining the individual's eligibility to receive a Government contribution for the financial year. For example, if the Commissioner received information that indicates that the individual was not an Australian resident at any time during the income year, the Commissioner may determine that a Government contribution is not payable.

[ Subsection 41(2) ]

3.21 If the Commissioner makes a determination that a Government contribution is payable to the individual for the financial year, the Commissioner must also determine where the Government contribution is to be directed.

3.22 The Commissioner usually only pays Government contributions into the individual's FHSA. However, the Commissioner also has the power to pay Government contributions directly to the individual (eg, if the individual has closed their account to buy or build their first home in which to live), their legal personal representative (eg, if the individual has passed away), or the individual's superannuation provider (eg, if the individual has elected or been compelled to contribute their FHSA balance to superannuation). [ Subsection 41(3) ]

Notification of payment

3.23 If the Commissioner pays a Government contribution to the FHSA or superannuation account of an individual, the Commissioner must notify the individual and either the FHSA or superannuation provider (as appropriate) when the payment is made. If the Commissioner pays a Government contribution directly to the individual or their legal personal representative, the Commissioner must notify the individual or their representative when the payment is made. [ Section 45 ]

Payment date for Government contributions

3.24 The Commissioner must pay the Government contribution on or before the payment date for that contribution. The payment date is the 60th day after the Commissioner has received both the income tax return of the individual (or notice in the approved form advising that they are not required to complete an income tax return for the financial year), and the FHSA contributions statement from the FHSA provider. [ Section 42 ]

Returning Government contributions

3.25 If the Commissioner has paid a Government contribution for an individual to their FHSA or superannuation provider, and the provider is unable to credit the contribution to the individual's account within 28 days of receipt, the provider must repay the contribution to the Commonwealth. The provider must also advise the Commissioner of the repayment in the approved form when the amount is repaid. A common case is where the provider is unable to credit the amount because the individual has closed their FHSA and moved to a different provider.

3.26 General collection and recovery provisions in Part 4-15 of Schedule 1 to the Taxation Administration Act 1953 apply to the liability to repay the Government contribution. The provider may incur a general interest charge if they fail to repay the Government contribution within 28 days and an administrative penalty if they fail to notify of the repayment.

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The general interest charge is calculated seven days after the provider becomes liable to repay the amount. The charge is applied daily until both the unpaid amount and any outstanding general interest charges applied to the unpaid amount are repaid.

[ Section 43, subsections 52(1), (3) and (4) ]

3.27 Paragraphs 3.25 and 3.26 also apply in respect of returning underpaid amounts to the Commonwealth. [ Section 47, subsections 52(1), (3) and (4) ]

Late payment of Government contributions

3.28 To compensate the individual for receiving their Government contribution late, the amount of a Government contribution is increased by an interest amount if it is paid late in certain circumstances. That is, if the Commissioner does not pay the amount of a Government contribution that the individual is entitled to receive on or before the payment date for that contribution (as outlined in paragraph 3.24), interest is calculated and paid on the Government contribution.

3.29 The purpose of this provision is to make any interest payable part of the actual Government contribution. Therefore, interest payable on a Government contribution is treated for all purposes in the same manner as the Government contribution itself (eg, for taxation purposes).

3.30 The increase in the Government contribution by any interest payable is calculated:

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on the amount of the Government contribution that remains unpaid on the payment date (which in most of these cases is the whole amount);

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for the period from the payment date for the Government contribution until the day on which it is paid (in full); and

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on a daily basis using the average yield 90-day Bank Accepted Bill rate.

[ Section 44 ]

Underpayments of Government contributions

3.31 An underpayment occurs when the Commissioner pays an amount of a Government contribution and is satisfied that the amount paid is less than the correct amount. This may be the result of the FHSA provider under-reporting the level of personal contributions made to an individual's FHSA during the financial year. The underpaid amount is the amount by which the correct amount exceeds the amount paid.

3.32 If an underpaid amount exists, the Commissioner must determine that this underpaid amount is to be paid in respect of the individual for the financial year; that is, the Commissioner must make a determination in respect of the underpayment.

3.33 The Commissioner is required to correct the underpayment by the payment date as specified in paragraph 3.24, and credit the underpaid amount to either:

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the individual's FHSA or superannuation provider;

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the individual; or

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the individual's legal personal representative, as outlined in paragraph 3.22.

[ Subsections 46(1) to (4) ]

Example 3.2

In the 2008-09 financial year, Dorothy makes personal contributions of $5,000. TGG Bank provides the Commissioner with Dorothy's contribution information for the year, but incorrectly reports her personal contributions as $1,000 instead of $5,000.

Based on Dorothy's contribution information provided by TGG Bank, the Commissioner pays a Government contribution of $170 into Dorothy's account. As Dorothy is actually entitled to receive a Government contribution of $850, her contribution has been underpaid by $680.

Late payment of underpaid amounts

3.34 The amount of a Government contribution is increased by an interest amount if the underpaid amount is not paid on or before the payment date for that amount, as outlined in paragraph 3.30. [ Subsections 46(5) and (6) and 48(1) ]

3.35 The increase in the Government contribution by any interest payable on underpaid amounts is to be calculated:

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on the underpaid amount that remains unpaid on the payment date;

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for the period from the payment date for the underpaid amount until the day on which that amount is paid (in full); and

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on a daily basis using the average yield 90-day Bank Accepted Bill rate.

[ Subsection 48(2) ]

Small underpayments

3.36 Where the Commissioner makes a determination in relation to an underpaid amount of less than $5 and that amount is to be paid by cheque to the individual or their legal personal representative, the amount is increased to $5. This avoids very small cheque amounts being sent to recipients. [ Section 49 ]

Overpayments of Government contributions

3.37 An overpayment of a Government contribution occurs if the Commissioner pays an amount of a Government contribution for an individual for an income year, and either no Government contribution was payable, or the amount paid was greater than the amount that should have been paid. This may be the result of the FHSA provider overstating the level of personal contributions made to the individual's account during the financial year. [ Subsection 50(1) ]

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Where an FHSA misuse payment is made, Government contributions are recovered through the FHSA misuse tax, rather than the overpayment provisions discussed in paragraphs 3.37 to 3.50 (see separate discussion in Chapter 6 - Taxation).

3.38 The amount overpaid is the whole of the amount already paid if no Government contribution was payable, or the amount by which the amount paid exceeds the correct amount of Government contribution payable. [ Subsection 50(2) ]

3.39 The Commissioner may take action to recover an overpayment and has several methods of recovery subject to certain conditions being satisfied. [ Subsection 50(3) ]

3.40 These alternatives are necessary because contributions may have been paid to entities other than the individual (or their legal personal representative); for example, to their FHSA or superannuation provider.

Recovery from a future Government contribution payable to an individual

3.41 The Commissioner may deduct the whole or part of the amount overpaid from any future Government contribution payable for an individual. To do this, there must be a future Government contribution payable (including Government contributions payable but not yet paid) from which the Commissioner is able to deduct the amount overpaid, with the difference then being paid. Where available, this would be the most straightforward method of recovery for the Commissioner. Under this method, the Commissioner must notify the individual within 28 days of the deduction being made. [ Subsections 50(3), (5) and (6) ]

Recovery from an individual ( or their legal personal representative )

3.42 Where the Commissioner has paid a Government contribution directly to the individual (or their legal personal representative), the Commissioner may recover the whole or part of the amount overpaid directly from the individual (or their representative). Under this method, the Commissioner must give the individual (or their representative) written notice of the proposed recovery and at least 28 days in which to pay the amount. [ Subsections 50(3) and (5) ]

3.43 Where the individual (or their representative) fails to pay the amount within 28 days, a general interest charge may be applied. The general interest charge is calculated 28 days after the individual becomes liable to repay the amount. The charge is applied daily until both the unpaid amount and any outstanding general interest charges applied to the unpaid amount are repaid. [ Subsections 52(2) and (3), paragraph 52(4)(b) ]

3.44 The Commissioner may decide to withdraw the notice in certain circumstances, where the Commissioner considers it is appropriate to do so. This may include consideration of the circumstances that led to the overpayment and the circumstances in which the individual finds themselves at the time the Commissioner is seeking recovery. [ Subsection 50(4) ]

Recovery from a First Home Saver Account or superannuation provider

3.45 The Commissioner may recover the whole or part of the amount overpaid from an FHSA provider to whom either the Commissioner has paid the Government contribution for the individual, or another FHSA provider if the FHSA balance has been transferred. The amount is a debt due by the FHSA provider to the Commonwealth. [ Subsections 50(3) and (5) ]

3.46 The Commissioner may not seek recovery of an overpayment from an FHSA provider for an individual for whom (when the notice is given by the Commissioner to the FHSA provider) the provider no longer holds an FHSA on behalf of the individual.

3.47 As outlined in paragraph 3.43, where the FHSA provider fails to pay the amount within 28 days, a general interest charge may be applied. The general interest charge is calculated 28 days after the provider becomes liable to repay the amount. The charge is applied daily until both the unpaid amount and any outstanding general interest charges applied to the unpaid amount are repaid. [ Subsections 52(2) and (3), paragraph 52(4)(b) ]

3.48 As outlined in paragraph 3.44, the Commissioner may decide to withdraw the notice in certain circumstances, where the Commissioner considers it is appropriate to do so. [ Subsection 50(4) ]

3.49 The recovery arrangements described in paragraphs 3.45 to 3.48 also apply in respect of a superannuation provider into which FHSA savings are transferred.

Small overpayments

3.50 If the Commissioner makes a determination in relation to an overpaid amount and that amount is less than $100 (or a different amount specified in the regulations), then the Government contribution is increased by the overpaid amount. [ Section 51 ]

Administration

Review of decisions

3.51 Any individual affected by a decision may ask the Commissioner for a review of that decision. The Commissioner will then arrange for an independent review to be undertaken and either affirms, varies or sets aside and substitutes a new decision. In that process, the Commissioner may arrange for an authorised review officer to undertake the review.

3.52 The Commissioner must authorise taxation officers to be authorised review officers. [ Sections 71 and 72 ]

3.53 A review applicant may at any time withdraw the application and if this occurs the application is taken to have never been made. This withdrawal may be done in writing or another manner as approved by the Commissioner. [ Section 73 ]

3.54 These review rules are essentially the same as those that apply under the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 .

3.55 Where the Commissioner raises an assessment of FHSA misuse tax, the objection and review rules for income tax assessments apply (see discussion in Chapter 6 - Taxation).