Explanatory Memorandum
Circulated by authority of the Treasurer, the Hon Wayne Swan MPChapter 3
Income tax treatment of rent assistance paid to Austudy recipients
Outline of chapter
3.1 Schedule 3 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to exempt rent assistance paid to Austudy recipients from income tax.
Context of amendments
3.2 The then Minister for Education, Science and Training announced the payment of rent assistance to Austudy recipients in Press Release No. BUDB 07/07 of 8 May 2007.
3.3 This measure is a consequential amendment that ensures the tax-free status for rent assistance paid to Newstart Allowance and Youth Allowance recipients is extended to rent assistance paid to Austudy recipients. Rent assistance has been payable to Austudy recipients from 1 January 2008.
Summary of new law
3.4 This measure provides that rent assistance paid to Austudy recipients will be exempt from income tax and applies to assessments for the 2007-08 income year and later income years.
Comparison of key features of new law and current law
| New law | Current law |
| Rent assistance paid to Austudy recipients is exempt from income tax. | Rent assistance received by Austudy recipients is considered to be 'ordinary income' and therefore taxed at the recipient's marginal tax rate. |
Detailed explanation of new law
3.5 Section 52-10 of the ITAA 1997 sets out the taxation treatment for social security payments. The table at section 52-10 lists payments under the Social Security Act 1991 that are wholly or partly exempt from income tax.
3.6 Item 2A.1 of the table sets out the taxation treatment of Austudy payments. Item 2A.1 provides that the 'supplementary amount' of Austudy payment is exempt from income tax.
3.7 Section 52-15 of the ITAA 1997 provides a table for working out the supplementary amount of a social security payment for the purposes of section 52-10.
3.8 Under item 4 in the table, the definition of 'supplementary amount' of Austudy payment is amended to include so much of the payment as is included by way of rental assistance. This ensures that Austudy recipients who receive rent assistance pay no tax on that assistance. [ Schedule 3, item 4, section 52 - 15 ]
Application and transitional provisions
3.9 This measure applies to assessments for the 2007-08 income year and later income years.