Explanatory Memorandum
Circulated By the Authority of the Minister for Families, Housing, Community Services and Indigenous Affairs, the Hon Jenny Macklin MPSchedule 5 - Other amendments
Summary
This Schedule makes minor clarifications to several family assistance and child support provisions. These clarifications do not change policy. The Schedule includes: clarifying the primary carer concept for baby bonus; simplifying the method statement for calculation of an individual's rate of family tax benefit (FTB) Part A when their income exceeds the higher income free area (known as method 2); putting beyond doubt the application of mandatory continuous adjustment to a claimant's rate of fortnightly FTB payments where there has been a break in entitlement; maintaining the treatment of pharmaceutical allowance before the pension reforms by excluding the tax-exempt pension supplement from adjusted taxable income; and a number of other technical amendments.
Background
Baby bonus and primary carer
The Paid Parental Leave (Consequential Amendments) Act 2010 included amendments to the Family Assistance Act, making it a condition of eligibility for baby bonus that an individual, or the individual's partner, is the primary carer of the child, for whom baby bonus is being claimed, at some time during the relevant eligibility period (for example, for a parent, the period of 26 weeks from the child's birth).
Where it is the individual's partner who is the primary carer of the child at the relevant time, and that circumstance would give rise to the eligibility of the individual, these amendments clarify that the individual and their partner must have been a couple at that time. In other words, where the partner was the primary carer of the child at a prior time, but the individual and their partner were not a couple at that time, becoming a couple later will not give rise to eligibility for baby bonus for the individual. In this case, the partner alone is eligible for baby bonus.
A claimant's adjusted taxable income is relevant to their eligibility for baby bonus. These amendments clarify that the relevant income is that relating to the six months commencing when the claimant both meets the existing eligibility criteria and is the primary carer of the child.
For example, in the case of the birth of a child, it would generally be expected that the parent would become the primary carer of the child at birth, such that the relevant period for calculation of their income for eligibility purposes would commence upon birth. However, in rare instances, the date upon which the parent becomes the child's primary carer may occur later than the date of birth. In this case, the period of income which is relevant should start upon the date the parent becomes the child's primary carer.
A provision made obsolete by the amendments is also removed.
Method statement for FTB Part A method 2
If an individual with an FTB child has adjusted taxable income that exceeds the higher income free area (currently $94,316 plus $3,796 for each FTB child after the first) and the individual or partner does not receive an income support payment, the method statement for calculating the individual's FTB Part A rate is set out in clause 25 of Schedule 1 to the Family Assistance Act. This is known as Method 2.
The Method 2 statement is being clarified to make it clear that it involves paying the higher of two differently calculated amounts. The two amounts are:
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- the base rate reduced by an income test that has a higher income free area (currently $94,316 plus $3,796 for each FTB child after the first) and an income taper of 30 per cent; and
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- the maximum rate reduced by the income test and maintenance income test that applies under Method 1. The income test has an income free area (currently $45,114) and an income taper of 20 per cent.
This amendment will not affect the FTB Part A rate produced by the method statement.
To improve further the clarity of the method statement, the term 'maximum rate' currently used at step 1, is replaced with the more accurate term 'Method 2 base rate'.
Enabling a past income year entitlement for rent assistance without also needing to claim fortnightly instalments when instalments cannot be paid
From 1 July 2010, if an FTB recipient has had an 'FTB non-lodger debt' raised due to failing to lodge required income tax returns in respect of three or more financial years, they or their partner are not entitled to be paid FTB as fortnightly instalments based on estimated income, until the outstanding income tax returns for the relevant years are lodged ('the non-lodger provisions'). However, these people are able to claim FTB as a lump sum for a previous financial year, and be paid FTB based on their actual income.
The current provisions provide that an individual can only be eligible for rent assistance as part of an FTB lump sum claim for a previous financial year if the individual also claims fortnightly payments of FTB at the same time. However, as a claim for fortnightly payments cannot be granted to an individual who is affected by the non-lodger provisions, it is anomalous in these cases to require lodgement of an instalment claim that cannot be granted, solely to be eligible for rent assistance as part of an FTB lump sum claim for a previous financial year.
To resolve this anomaly, it is proposed that a person who is affected by the non-lodger provisions may be eligible for rent assistance as part of an FTB lump sum claim for a previous financial year without needing to lodge an accompanying instalment claim. This would avoid the administrative anomaly described above.
Maintaining the scope of tax free pensions or benefits for adjusted taxable income since introduction of the pension supplement
Adjusted taxable income for family assistance includes specified 'tax free pensions or benefits' such as disability support pension or invalidity service pension, but excludes specified components such as pharmaceutical allowance. The relevant provision is clause 7 of Schedule 3 to the Family Assistance Act.
Under the pension reforms effective from 20 September 2009, pharmaceutical allowance for most pensions was replaced by the pension supplement, and other amounts (for example, telephone allowance, utilities allowance and 'GST supplement') were also rolled into the pension supplement, to which an increase was applied.
Pharmaceutical allowance continues for some payments, and will continue to be excluded from adjusted taxable income for family assistance. For example, pharmaceutical allowance continues for disability support pension for a person aged under 21 without a child.
To maintain the treatment of pharmaceutical allowance before the pension reforms, the only amount of the new pension supplement in a 'tax free pension or benefit' that will be included as adjusted taxable income will be the 'pension supplement basic amount' (the former 'GST supplement').
To achieve this outcome, the amount of pension supplement that will be excluded as adjusted taxable income is a payment by way of 'tax-exempt pension supplement'.
Adjusted taxable income for child support purposes has closely mirrored income for family assistance purposes since 1 July 2008. An identical amendment to the definition of tax free pension or benefit is also made to the Child Support Assessment Act.
Mandatory continuous adjustment and a break in entitlement
From 1 July 2009, mandatory continuous adjustment has applied to provide for the reduction of a claimant's rate of FTB where there is a revised estimate (of income or maintenance income) to assist in preventing overpayments following reconciliation.
The majority of FTB claimants are paid on the basis of estimated income for a financial year. If a claimant revises an estimate during the financial year, the Family Assistance Office will vary their FTB based on the new income estimate. The variation can only apply prospectively, and may result in an increase or decrease in a claimant's rate of fortnightly FTB payments.
Where a claimant's income estimate increases during the financial year and this results in a notional overpayment of FTB for the earlier period in the financial year because of the revised estimate, the Family Assistance Office is able to deduct an extra amount during the later part of the year to help in preventing an overpayment when the FTB reconciliation occurs. The deduction, called the daily overpayment rate, is calculated by dividing the notional overpayment for the earlier period by the number of days remaining in the financial year. Where the deduction is greater than the claimant's FTB entitlement before the deduction, the claimant's entitlement will be reduced to nil for the remainder of the financial year.
These amendments provide for mandatory continuous adjustment of a claimant's rate of fortnightly FTB payments even where there has been a break in the claimant's entitlement during the income year. Whether the claimant subsequently reclaims either a past period amount or ongoing instalment payments or both during the same income year, their entitlement may still be adjusted by a daily overpayment rate.
Additionally, no provision was made in the mandatory continuous adjustment provisions for the rounding of the daily overpayment rate. These amendments provide for such rounding.
The amendments made by this Schedule commence on 1 July 2011.
Explanation of the changes
Amendments to the Family Assistance Act
Baby bonus and primary carer
Item 1 amends paragraph 36(2)(ab), which provides for the eligibility for baby bonus of a parent of a child. New subparagraph 36(2)(ab)(i) now deals with the situation in which it is the individual claiming who is the primary carer of the child within the period of 26 weeks starting on the day of the child's birth. New subparagraph (ii) then deals with the situation in which it is the partner of the individual claiming who is the primary carer of the child within the period of 26 weeks starting on the day of the child's birth, and makes it clear that, for this to render the individual eligible for baby bonus, the individual must be a member of a couple with the partner at that time.
Item 3 repeals paragraph 36(3)(c) because this paragraph is now redundant as the result of the insertion of paragraph 36(3)(cb) by the Paid Parental Leave (Consequential Amendments) Act 2010 on 1 January 2011. The requirement in paragraph 36(3)(cb) that the individual, or the individual's partner, continue, or be likely to continue, to be the primary carer of the child for not less than 26 weeks includes the requirement that the child continue in the care of the individual or their partner for not less than 26 weeks . (Primary carer is defined in subsection 36(8) and includes the requirement that the individual have care of the child.)
Item 3 additionally repeals paragraph 36(3)(b) and substitutes new paragraphs 36(3)(b) and (c). New paragraph 36(3)(b) clarifies the requirement, which is either: that the child was entrusted to the care of the individual within the period of 26 weeks starting on the day of the child's birth; or that the individual is a member of a couple at any time within the period of 26 weeks starting on the day of the child's birth and that the child is entrusted to the care of the individual's partner at that time. New paragraph 36(3)(c) then makes clear the timing of the dual requirements of the individual's partner being the primary carer of the child, and the individual being a member of a couple with the partner, to the same effect as item 1.
A note to this item alters the heading to subsection 36(3) by adding at the end 'or individual's partner'.
Item 5 repeals and substitutes paragraph 36(5)(bc) for adoptions, to the same effect as item 1.
Item 2 amends subsection 36(2), which provides for the eligibility for baby bonus of a parent of a child. Paragraph 36(2)(d) requires that the claim for payment of baby bonus contain an estimate of the individual's income and, if the individual is a member of a couple, the income of the individual's partner. The period for which the income estimate must be provided is currently the period of six months beginning on the day of the child's birth. However , item 2 omits reference to the child's birth and substitutes reference to the first day on which paragraph (ab) applies. Paragraph 36(2)(ab), being substituted by item 1, will refer to the day on which the individual, or the individual's partner, is the primary carer of the child.
Item 4 makes a similar amendment to item 2, in respect of situations where eligibility for baby bonus arises because the child has been entrusted to the care of an individual . Item 4 amends paragraph 36(3)(e) to provide that the relevant period for which the individual and the individual's partner must estimate their income starts on the first day that paragraph 36(3)(c) (being substituted by item 3) applies - that is, the first day that the individual, or the individual's partner, is the primary carer of the child.
Item 6 makes a similar amendment to that made by item 2, in respect of situations where eligibility for baby bonus arises because, as part of the process for the adoption of a child by an individual, the child has been entrusted to the care of the individual . Item 6 amends paragraph 36(5)(d) to provide that the relevant period for which the individual and the individual's partner must estimate their income starts on the first day on which paragraph (bc) (being substituted by item 5) applies - that is, the first day that the individual, or the individual's partner, is the primary carer of the child.
Item 7 provides an application provision for items 1 to 6, providing that the amendments apply to claims for payment of baby bonus that are made on or after the commencement of those items.
Method statement for FTB Part A method 2
Step 3 of the method statement in clause 25 for the method 2 calculation of the Part A rate of FTB currently does two things. First, it requires the calculation for comparison purposes of the rate that would be the individual's income and maintenance tested rate under step 3 of the method statement in clause 3 (known as method 1) if the individual's Part A rate were to be calculated using Part 2 (but disregarding the method of calculating an individual's maintenance income ceiling for method 1). Second, it requires the comparison of this rate with the rate calculated under step 2 of method 2, known as the 'provisional Part A rate'. It then provides that the individual's Part A rate is the higher of the two. (In instances where the two rates are the same, the 'provisional Part A rate' is notionally preferred.)
Item 12 repeals step 3 and substitutes new steps 3 and 4. This separates out the two actions previously performed under step 3 alone, but produces the same outcome. New step 3 calculates the method 1 rate mentioned above, by reference to step 3 of the method 1 rate calculation. This result is labelled the 'Method 2 income and maintenance tested rate'. New step 4 provides for the comparison of this rate with the provisional Part A rate calculated under steps 1 and 2, and provides for the individual's Part A rate to be the higher of the two (or the provisional Part A rate if the two rates are the same).
Item 9 is consequential to item 12 above, substituting reference to step 4 for the existing reference to step 3.
Item 10 substitutes the more accurate label 'Method 2 base rate' for the current label 'maximum rate' in step 1 of the method statement . Item 11 is consequential to item 10, replacing the current reference in step 2 to 'maximum rate' with the new term 'Method 2 base rate'.
Items 8, 13, 14 and 15 are consequential to item 10. They substitute reference to 'an individual's Method 2 base rate under clause 25' for references to the maximum rate under clause 25.
Enabling a past income year entitlement for rent assistance without also needing to claim fortnightly instalments when instalments cannot be paid
Item 16 adds a new subclause to clause 38C of Schedule 1 dealing with eligibility for rent assistance. Paragraph 38C(1)(b) provides that rent assistance may be added in working out an individual's maximum rate if the claim is not a claim to which subclause 38C(2) applies. Paragraph 38C(2)(c) requires a claim for FTB for a past period that occurs in the first or second income year before the one in which the claim is made to be accompanied by a claim for FTB by instalment.
Section 32AE of the Family Assistance Administration Act applies if three variations under subsection 28(2) of that Act have been made for a claimant. A variation under subsection 28(2) may result in a debt under section 71 of that Act. The debt, known as a non-lodger debt, is for the entire amount of FTB that the claimant received for the 'cancellation income year' for which they or their partner have not lodged a tax return. A cancellation income year is an income year in which the individual was previously entitled to family tax benefit for a period, and a required tax return for that year was not lodged by the end of 12 months after the end of that year.
Subsection 32AE(2) or (5) of the Family Assistance Administration Act applies in relation to a cancellation income year if the claimant or the claimant's partner was required to lodge an income tax return for that year, and has not done so, a debt under section 71 arose as a result of that cancellation, and part of the debt is outstanding.
New subclause 38C(3), inserted by item 16, provides that paragraph 38C(2)(c), which would otherwise prevent the individual from being eligible for rent assistance for the period in the previous income year that FTB is being claimed because no instalment claim has also been made, does not apply if, at the time the claim for payment of FTB for a past period is made, subsection 32AE(2) of the Family Assistance Administration Act applies in respect of the individual, or subsection 32AE(5) of that Act applies in respect of the individual's partner. That is, the individual may be eligible for rent assistance for the past period, without also needing to make an instalment claim, if such a claim cannot be granted due to non-lodgement of tax returns.
Item 17 is an application provision for the amendments made by item 16, providing for the amendment to apply in relation to claims for payment of FTB for a past period that are made on or after the commencement of that item.
Maintaining the scope of tax free pensions or benefits for adjusted taxable income since introduction of the pension supplement
Item 18 adds two new paragraphs to the end of clause 7 of Schedule 3, which defines the term tax free pension or benefit, in order to exclude tax-exempt pension supplement from being a tax free pension or benefit. This exclusion will prevent the tax-exempt pension supplement from forming part of an individual's adjusted taxable income. If the payment is a payment under the Social Security Act, new paragraph 7(k) provides that the term does not include a tax-exempt pension supplement (within the meaning of subsection 20A(6) of that Act). If the payment is a payment under the Veterans' Entitlements Act 1986, new paragraph 7(l) provides that the term does not include a tax-exempt pension supplement (within the meaning of subsection 5GA(5) of that Act).
The references to tax-exempt pension supplement in new paragraphs 7(k) and (l) are specified in detail, unlike the existing components referred to in paragraph (j) of clause 7, because they are only recently inserted terms, and there are many similar terms now used in the Social Security Act and Veterans' Entitlements Act 1986 as a result of the pension reforms.
Amendments to the Family Assistance Administration Act
Mandatory continuous adjustment and a break in entitlement
Items 20, 21, 22, 23, 24 and 25 make the necessary amendments to section 31E to allow for the mandatory continuous adjustment of a new determination of entitlement which is made in an income year during which the claimant had a prior entitlement.
Paragraph 31E(1)(a) provides that the section applies where a determination is in force in an income year under which a claimant is entitled to be paid FTB by instalment. Paragraph 31E(1)(b) sets out additional alternative conditions which must be met for the section to apply . Item 20 adds a condition to this paragraph, which applies if the determination (the instalment determination mentioned in paragraph 31E(1)(a)) ceases to be in force in the income year and another determination comes into force in that income year. The other determination may be one under which the claimant is entitled to be paid FTB either by instalment, or for a past period falling wholly within that income year.
A note provides that the heading to section 31E is altered by omitting 'payable by instalment', to reflect the broader scope of the section resulting from these amendments.
If the section applies, subsection 31E(2) provides a method statement that the Secretary must apply to work out if there is a daily overpayment rate. Critical to the calculation is the identification of the 'applicable day' . Item 25 provides that, for the situation of another determination arising in the same income year as a prior determination, the applicable day is the first day in the income year for which the claimant's entitlement to be paid FTB arose under the other (later) determination.
Step 1 of the method statement requires the Secretary to work out the total amount of FTB the claimant is or was entitled to be paid during the period beginning at the start of the income year and ending at the end of the day before the applicable day. In this case, this will be the period during which FTB was paid as a result of the prior determination.
Step 2 is then amended by item 21 to require the Secretary to work out the total amount of FTB the claimant would have been entitled to be paid during that period if the claimant's rate of FTB were calculated using both the estimate of the claimant's adjusted taxable income for the income year, and the estimate of the claimant's maintenance income in that income year, that were used in determining the claimant's rate of FTB under the other (later) determination.
Steps 3, 4 and 5 of the method statement apply unchanged, to compare the amount the claimant was entitled to be paid during the previous period with the notional entitlement for that period calculated at step 2, to work out any daily overpayment rate. Where the amount previously paid identified at step 1 is greater than the notional entitlement calculated at step 2, then the amount of the comparison will be greater than zero, and there will be a daily overpayment rate.
Subsection 31E(3) then requires the Secretary, if there is a daily overpayment rate, to vary the determination so that the claimant's daily rate of FTB for the period beginning on the applicable day and ending on the last day of the income year is reduced (but not below nil) by that daily overpayment rate . Item 23 amends subsection 31E(3) to make it clear that it is the applicable determination which must be varied . Item 24 then inserts new subsection 31E(3A) to provide a definition of the 'applicable determination'. For situations where the variation of an existing determination during the income year has triggered a daily overpayment rate, the applicable determination will be that determination. For situations where another determination has triggered a daily overpayment rate, the applicable determination will be the later determination referred to in new subparagraph 31E(1)(b)(vii), added by item 20.
Minor technical amendments
Item 19 is a technical amendment to substitute, in subsection 10(5), the current reference to subsection 32AE(3) with the correct reference to subsection 32AE(5), and to make clear that subsection 32AE(2) applies in respect of the claimant, and subsection 32AE(5) in respect of the claimant's partner.
Items 26 and 27 are similarly technical amendments to make clear that the references to section 36 and subsection 36A(3) in paragraph 39(1A)(a) are to provisions in the Family Assistance Act.
Paragraph 66(2)(a) of the Family Assistance Administration Act provides an exception to the absolute inalienability of various payments where payment of a person's family assistance to someone else on behalf of the person is to occur, referring to subsections 23(4), 56(3) and 56A(3). However, subsection 23(4) no longer exists, (having been repealed by the Family and Community Services Legislation Amendment (Budget Initiatives and Other Measures) Act 2002 ( see item 1 of Schedule 2) . Item 28 omits the reference to subsection 23(4). However, this then results in paragraph 66(2)(a) dealing only with child care benefit-related provisions . Item 29 makes it clear that paragraph 66(2)(a) covers only the payment of child care benefit in a different way . Item 30 then inserts a new paragraph after paragraph 66(2)(cc), to include reference to Division 3 of Part 8B, dealing with payments to a payment nominee, previously covered by subsection 23(4).
Item 31 repeals section 103, which effectively became inoperative when section 78A and accompanying provisions were inserted into the Family Assistance Administration Act. All powers of the Secretary set out in section 103 are maintained in section 78A.
Amendments to the Child Support Assessment Act
Item 32 amends the definition of tax free pension or benefit for child support purposes. This will match the amendment made at item 18 above for family assistance purposes, to maintain the current close alignment between these definitions.