Explanatory Memorandum
Circulated By the Authority of the Minister for Families, Housing, Community Services and Indigenous Affairs, the Hon Jenny Macklin MPSchedule 3 - Non-payment of family tax benefit for non-lodgment of tax returns
Summary
This Schedule makes minor amendments to the family assistance law so as to exclude two circumstances from the provisions that prevent payment of FTB on the basis of an income estimate if relevant tax returns have not been lodged. Firstly, the amendments limit the non-payment of FTB to a claimant, or the non-entitlement of the claimant to FTB, so that it applies only if the claimant or his or her partner has an outstanding FTB debt as a result of relevant tax returns not being lodged. Secondly, the amendments allow the Secretary to determine that non-entitlement to FTB on the basis of an income estimate does not apply for a specified period in special circumstances.
Background
FTB can be paid based on an estimate of an individual's adjusted taxable income. The most commonly used payment mechanism that uses income estimates is fortnightly instalments of FTB, but this also applies to a claim for a past period in the current income year. To ensure that claimants are paid their correct entitlement, the amount of FTB paid based on the estimate is compared with the FTB entitlement based on actual adjusted taxable income when this is known. This process is known as reconciliation. Where a claimant or partner (if any) is required to lodge an income tax return, the Commissioner of Taxation can provide details about their adjusted taxable income (Schedule 3 to the Family Assistance Act refers) after making an assessment of taxable income.
A non-lodger debt can occur where a claimant or their partner has not lodged an income tax return within the prescribed time. Subsection 28(2) of the Family Assistance Administration Act provides for a variation of a claimant's entitlement determination under section 16 or 17 where relevant income tax returns are required to be lodged and this has not occurred within a specific timeframe. Where these conditions are met, the Secretary must vary the claimant's entitlement determination such that the claimant is not, and never was, entitled to FTB for the entitlement year.
A variation under subsection 28(2) may result in a debt being owed to the Commonwealth, which arises under section 71 of the Family Assistance Administration Act. The debt raised, known as a non-lodger debt, is for the entire amount of FTB that the claimant received for the entitlement year in respect of which they or their partner have not lodged a tax return.
Currently, section 32AA provides that, if a claimant's FTB entitlement determination is varied under subsection 28(2), the claimant and a relevant partner of the claimant are prohibited from being paid FTB based on an estimate of income during a prohibited period. Sections 32AB and 32AC set out that a prohibited period applies where the claimant or the relevant partner was required to lodge a tax return for the relevant 'cancellation income year' but has not done so by the end of the 'grace period'. Also, section 32AD provides that a new partner is prohibited from being paid FTB based on an estimate of income during a prohibited period for the claimant while the claimant and the new partner are members of the same couple.
The prohibition alters the way in which FTB can be paid to the claimant, or to the relevant partner or a new partner of the claimant. As payment of FTB based on an estimate of income is prevented during a prohibited period in an income year, the payment of FTB for that period in an income year cannot occur until the end of the income year and then would be paid as a lump sum having regard to his or her actual income. The rate of FTB to which the claimant or partner is entitled continues to be governed by the existing rules.
The claimant or partner is able to be paid his or her entitlement based on an estimate of income if the prohibited period has ended. Sections 32AA and 32AD prohibit the payment of FTB on the basis of an estimate during a prohibited period.
Section 32AE will apply from 1 July 2010 if three variations under subsection 28(2) have been made for a claimant. If this occurs, the claimant or his or her partner will not be entitled to be paid FTB based on an estimate for a period in which the claimant and relevant partner has not lodged each required tax return for the relevant cancellation income years.
Section 32AE will cease to apply to a claimant or partner if the claimant and relevant partner lodge each required tax return for the relevant cancellation income years, or if a couple separate and the claimant has lodged each required tax return.
Under this measure, the prohibition will not apply in relation to a relevant subsection 28(2) decision if that decision did not result in a debt because the claimant did not receive any payment of FTB for the relevant cancellation income year (for example, the claimant had chosen to defer the receipt of his or her FTB entitlement for that year until his or her actual income was known) or that decision did result in a debt but the debt has subsequently been fully repaid.
Where there is no outstanding debt in relation to a subsection 28(2) decision, sections 32AA and 32AD will not result in non-payment of FTB due to that decision. Furthermore, if there is no outstanding debt in relation to subsection 28(2) decisions, section 32AE will not result in non-entitlement to FTB due to those decisions.
This measure also gives the Secretary the discretion to determine that non-entitlement to FTB on the basis of an estimate under section 32AE does not apply for a specified period where there are special circumstances.
Explanation of the changes
Amendments to the Family Assistance Administration Act
Item 1 inserts a new subsection 32AB(1A) that qualifies the application of section 32AA and 32AD in that there is no prohibited period for a claimant if: no debt arose under section 71 as a result of that variation under subsection 28(2); or a debt arose under section 71 as a result of that variation under subsection 28(2), but no amount of that debt is outstanding at the end of the grace period.
Item 2 provides that a prohibited period for the claimant also ends when new subsection 32AB(4A) applies.
Item 3 inserts a new subsection 32AB(4A), which applies if: a debt arose under section 71 as a result of a variation under subsection 28(2); an amount of that debt was outstanding at the end of the grace period; and, at a time after the end of the grace period, no amount of that debt is outstanding.
New subsection 32AB(5A) is inserted by item 4. This new subsection qualifies the application of section 32AA in circumstances where a claimant and the relevant partner separate on or after the day of the subsection 28(2) variation, they are still separated at the end of the grace period but become members of the same couple again on a day after the end of the grace period, and the partner was required to lodge an income tax return and has not done so. Under new subsection 32AB(5A), there is not a prohibited period for the claimant if no debt arose under section 71 as a result of that variation under subsection 28(2); or a debt arose under section 71 as a result of that variation under subsection 28(2), but no amount of that debt is outstanding immediately before the day that would otherwise be determined by the Secretary as the day, on or after the couple re-partner, that the prohibited period begins.
Item 5 provides that a prohibited period also ends when new subsection 32AB(6A) applies.
Item 6 inserts a new subsection 32AB(6A), which applies if a debt arose under section 71 as a result of a variation under subsection 28(2); an amount of that debt was outstanding immediately before the day determined by the Secretary as the day, on or after the couple re-partner, that the prohibited period begins; and at a time on or after that day, no amount of that debt is outstanding.
Item 7 inserts a new subsection 32AC(1A) that qualifies the application of section 32AA in that there is no prohibited period for the relevant partner of the claimant if: no debt arose under section 71 as a result of that variation under subsection 28(2); or a debt arose under section 71 as a result of that variation under subsection 28(2), but no amount of that debt is outstanding at the end of the grace period.
Item 8 provides that a prohibited period for the relevant partner also ends when new subsection 32AC(4A) applies.
Item 9 inserts a new subsection 32AC(4A), which applies if: a debt arose under section 71 as a result of a variation under subsection 28(2); an amount of that debt was outstanding at the end of the grace period; and, at a time after the end of the grace period, no amount of that debt is outstanding.
New subsection 32AC(5A) is inserted by item 10. This new subsection qualifies the application of section 32AA to the relevant partner of the claimant in circumstances where: the claimant and the relevant partner separate on or after the day of the subsection 28(2) variation; they are still separated at the end of the grace period but become members of the same couple again on a day after the end of the grace period; the partner or the claimant was required to lodge an income tax return for the cancellation income year; and either or both has not done so by the day on which they become members of the same couple again. Under new subsection 32AC(5A), there is not a prohibited period for the relevant partner if no debt arose under section 71 as a result of that variation under subsection 28(2); or a debt arose under section 71 as a result of that variation under subsection 28(2), but no amount of that debt is outstanding immediately before the day that would otherwise be determined by the Secretary as the day, on or after the couple re-partner, that the prohibited period begins.
Item 11 provides that a prohibited period also ends when new subsection 32AC(8A) applies.
Item 12 inserts a new subsection 32AC(8A), which applies if: a debt arose under section 71 as a result of a variation under subsection 28(2); an amount of that debt was outstanding immediately before the day determined by the Secretary as the day, on or after the couple re-partner, that the prohibited period begins; and, at a time on or after that day, no amount of that debt is outstanding.
Item 13 amends subsection 32AE(1) to clarify that section 32AE applies if there have been three 'or more' subsection 28(2) variations in relation to a claimant.
Item 14 repeals the existing subsections 32AE(2) and (3) and substitutes new subsections 32AE(2) to (11).
If section 32AE applies, new subsection 32AE(2) provides that the claimant is not entitled to be paid FTB based on an estimate of adjusted taxable income, an indexed estimate, an indexed actual income or an estimate of maintenance income, if both new subsections 32AE(3) and (4) apply in relation to one or more of the cancellation income years concerned.
Subsection 32AE(3) applies in relation to a cancellation income year if: the claimant was required to lodge an income tax return for that year but has not done so; or, if the claimant is a member of a couple and the partner is a relevant partner for that year, the partner was required to lodge an income tax return for that year but has not done so.
Subsection 32AE(4) applies in relation to a cancellation income year if a debt arose under section 71 as a result of a variation under subsection 28(2) and an amount of that debt is outstanding.
Example
If there have been three subsection 28(2) variations in relation to a claimant, with each having an outstanding debt at 1 July 2010, and subsequently there is no outstanding debt for all three variations, a non-entitlement period under subsection 32AE(2) will cease to apply. However, if there have been three subsection 28(2) variations, with each having an outstanding debt at 1 July 2010, and subsequently there is no outstanding debt for two of the variations but there remains an outstanding debt for one of the variations, a non-entitlement period under subsection 32AE(2) continues to apply. Subsection 32AE(2) will cease to apply if, in relation to each cancellation income year, the claimant and relevant partner have lodged required income tax returns or the outstanding debt is repaid.
New subsections 32AE(5), (6) and (7) provide similar rules to new subsections 32AE(2), (3) and (4) for the claimant's current partner.
Exceptions
New subsection 32AE(8) provides that the Secretary may determine that a non-entitlement period under subsection 32AE(2) does not apply for a specified period if there are special circumstances that justify this occurring.
New subsection 32AE(9) provides that the Secretary may determine that a non-entitlement period under subsection 32AE(5) does not apply for a specified period if there are special circumstances that justify this occurring.
New subsection 32AE(10) allows for the Secretary to determine that the specified period referred to in subsections 32AE(8) and (9) may begin before, on or after the day the determination is made.
New subsection 32AE(11) provides that a determination made under subsections 32AE(8) or (9) is not a legislative instrument. This provision is included to assist readers, as the instrument is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003.
Application and transitional
Item 15 provides the application and transitional provisions. The amendments made under items 1 to 12 apply in relation to subsection 28(2) variations made before, on or after 1 July 2010 (subitem 15(1) refers).
Subitem 15(2) provides that new subsection 32AE(1) does not apply in relation to a variation under subsection 28(2) made before 1 July 2010 if: no debt arose under section 71 as a result of that variation; or a debt arose under section 71 as a result of that variation, but no amount of that debt is outstanding immediately before 1 July 2010.