Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon Wayne Swan MP)Chapter 1 Payment to taxpayers
Outline of chapter
2.1 These Bills authorise the Commissioner of Taxation (Commissioner) to pay the Tax Bonus for Working Australians (Bonus) to eligible taxpayers. The chapter outlines the rules for determining eligibility for receiving the Bonus, how much will be paid, as well as administrative arrangements relating to the payment.
2.2 References in this explanatory memorandum are to the Tax Bonus for Working Australians Bill (No. 2) 2009 unless otherwise indicated.
Context of the Bills
2.3 These Bills give effect to the Government's Nation Building and Jobs Plan announced on 3 February 2009. The plan was introduced to assist the Australian people deal with the most significant economic crisis since the Second World War and provide immediate economic stimulus to boost demand and support jobs. This measure, at a cost of $7.7 billion, provides financial support to around 8.7 million taxpayers.
Summary of new law
2.4 The Commissioner will pay the Bonus to eligible taxpayers where the taxpayer is an individual, an Australian resident for taxation purposes, and where they have an adjusted tax liability.
2.5 An adjusted tax liability occurs where the taxpayer's basic income tax liability plus their Medicare levy for the year and their Medicare levy surcharge for the year (if any), less any tax offsets and franking credits for the year (if any), is greater than zero.
2.6 The payment amount depends on the eligible taxpayer's taxable income for 2007-08. Eligible taxpayers will receive:
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- $900 where their taxable income is up to and including $80,000;
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- $600 where their taxable income exceeds $80,000 and does not exceed $90,000; or
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- $250 where their taxable income exceeds $90,000 and does not exceed $100,000.
2.7 Taxpayers must lodge their 2007-08 income tax return by 30 June 2009 to be eligible for the payment. However, payments will be made to eligible taxpayers who, under an arrangement already approved by the Commissioner at the commencement of this Act, are able to submit a late tax return.
2.8 Special rules will apply to limit the entitlement of children to the Bonus. Only minors who are an excepted person or who have excepted assessable income will be eligible for the payment. These rules are consistent with the tax treatment of the income of minors found in the Income Tax Assessment Act 1936 (ITAA 1936).
Detailed explanation of new law
2.9 Item 3 provides for the Commissioner to administer the Bonus. [Item 3, section 3]
2.10 Item 4 sets out definitions used in the Bill generally by reference to other Acts administered by the Commissioner. [Item 4, subsection 4(1)]
2.11 Item 4 also sets out the method for determining a taxpayer's adjusted tax liability, which is necessary in deciding whether the taxpayer will qualify for the payment. [Item 4, subsection 4(2)]
2.12 The adjusted income tax liability is determined by the sum of the taxpayer's income tax liability, plus the Medicare levy and the Medicare levy surcharge reduced by any tax offsets and imputation credits available to the taxpayer. [Item 4, subsection 4(2)]
Taxpayer eligibility
2.13 Payments will be made to individuals who are Australian residents for taxation purposes in the 2007-08 income year. [Item 5, subsection 5(1), paragraphs 5(1)(a) and (b)]
2.14 Item 5 also sets out further criteria which the Commissioner will use to determine eligibility of the taxpayer for the payment. The taxpayer must have an adjusted tax liability of greater than zero and the taxpayer must have a taxable income for 2007-08 of $100,000 or less. [Item 5, paragraphs 5(1)(c) and (d)]
2.15 Item 5 prescribes that in addition to the other eligibility criteria for the payment, taxpayers must lodge their income tax return by 30 June 2009 to be eligible for the payment. However, the Commissioner has allowed some tax agents to lodge a late tax return in respect of some taxpayers (through the application of section 388-55 of the Taxation Administration Act 1953 (TAA 1953). To avoid disadvantaging those taxpayers, the Bill allows the Bonus to be made to those taxpayers who at the commencement of these provisions were the subject of that arrangement. [Item 5, subparagraph 5(1)(e)(ii)]
Minor's eligibility
2.16 There are special rules for the tax treatment of income of certain minors (in general a person who is less than 18 years of age) which are prescribed in Division 6AA of the ITAA 1936. Under these rules income may be taxed at higher rates. These rules were introduced to discourage adults from splitting their income and diverting it to their children, but also apply to certain unearned (or 'passive') income such as dividends, interest, rent, and other income from property.
2.17 However certain individuals are excluded from the rules because they may, for example, be permanently blind; or they may be in receipt of a double orphan pension. These taxpayers are considered to be an 'excepted person' and are taxed at normal rates.
2.18 Certain categories of income (called 'excepted assessable income') are also excluded from the special rules. For instance, employment income; certain compensation payments; or certain Government pension payments. In these circumstances, the income is taxed at normal rates.
2.19 This measure maintains these principles. This means that minors who are an excepted person or who have excepted assessable income will be eligible for the payment (where they otherwise meet the payment criteria). Minors who do not fall into these categories will not be eligible for the payment. [Item 5, subsection 5(2)]
Amount of payment
2.20 Item 6 sets out the amount that will be paid by the Commissioner. The amount is determined by the taxpayer's taxable income for the 2007-08 income year:
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- Where the taxpayer's taxable income does not exceed $80,000 the taxpayer will receive a payment of $900.
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- Where the taxpayer's taxable income exceeds $80,000 but does not exceed $90,000 the taxpayer will receive a payment of $600.
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- Where the taxpayer's taxable income exceeds $90,000 and does not exceed $100,000 the taxpayer will receive a payment of $250.
[Item 6, section 6]
Other items
2.21 The remaining items prescribe the administrative arrangements that the Commissioner will apply to pay the Bonus.
2.22 The Commissioner must make the payment as soon as practicable after he is satisfied that the taxpayer is entitled to the payment. The Commissioner may make the payment by electronic funds transfer or by cheque. These rules are consistent with the TAA 1953. [Item 7, section 7]
2.23 Consistent with the general administration of tax law a person who received a payment to which they were not entitled, or a payment that was greater than their entitlement, will be required to pay that money back to the Commissioner [item 8, section 8] . Any debts arising from an overpayment would also be subject to the general interest charge [item 9, section 9] .
Consequential amendments
2.24 The Tax Bonus for Working Australians (Consequential Amendments) Bill (No. 2) 2009 makes consequential amendments to a number of Acts. References in the following paragraphs are to this Bill.
2.25 Subsection 159J(6) of the ITAA 1936 is amended to ensure that the Bonus is not included for the purpose of calculating separate net income. [Schedule 1, item 1, paragraph 159J(6)(d) of the ITAA 1936]
2.26 Item 2 amends the list of non-assessable non-exempt income provisions to include the Bonus. [Schedule 1, item 2, section 11-55 of the ITAA 1997]
2.27 Division 59 of the Income Tax Assessment Act 1997 (ITAA 1997) is also amended to provide that the payment is not assessable and not exempt income. [Schedule 1, item 3, section 59-45 of the ITAA 1997]
2.28 A number of amendments are made to the TAA 1953. Firstly, the TAA 1953 is amended to provide that the payment is subject to the general interest charge [Schedule 1, item 5, subsection 8AAB(5) of the TAA 1953] . Second, the TAA 1953 is also amended to ensure that the payment is not considered a credit that can be used to offset other tax debts or liabilities [Schedule 1, item 6, section 8AAZA of the TAA 1953] . Third, the index of tax-related liability under other Acts administered by the Commissioner is amended to include this Bill [Schedule 1, item 7, subsection 250-10 in Schedule 1 to the TAA 1953] .
2.29 Consequential amendments are included to the Social Security Act 1991 and to the Veterans' Entitlement Act 1986 to exempt the payment from inclusion in the person's income for the purposes of those Acts. [Schedule 1, items 4 and 8, paragraph 8(8)(yaa) of the Social Security Act 1991 and paragraph 5H(8)(zzaaa) of the Veterans' Entitlements Act 1986]
Application provisions
2.30 Both these Bills commence on the day of Royal Assent. [Item 2, section 2]