Explanatory Memorandum
Circulated by authority of the Minister for Employment Participation and Childcare, the Honourable Kate Ellis MPOutline and financial impact
Outline
The Bill amends the A New Tax System (Family Assistance) Act 1999 and the A New Tax System (Family Assistance ) ( Administration) Act 1999 to give effect to the 2010 pre-election commitment to introduce fortnightly child care rebate (CCR) payments for individuals who are eligible for child care benefit (CCB) by fee reduction.
As a result of these amendments, an individual will be able to elect how CCR will be paid during an income year, that is: calculated for a week and paid following the approved child care service's usage report is submitted (usually weekly or fortnightly) either to the individual's approved child care service or to the individual's bank account, or as a quarterly payment to the individual's bank account (the current way of payment).
If an election is made for CCR calculation for a week, the amount of CCR payable is assessed in respect of each week of care provided to a child by an approved child care service. This assessment is made after the service has provided a child care usage report for the week.
In accordance with the current legislative obligations, child care services are able to report child care usage up to two weeks after the week the care is provided. The current reporting patterns of approved child care services will mean that individuals electing to have their CCR calculated for a week will be paid either weekly or fortnightly.
The arrangements for payments of CCR for a week to approved child care services mirror the existing arrangements relating to payment of CCB fee reductions to such services and will be handled by the same Child Care Management System. If the CCR payment is made to an approved child care service, in accordance with an individual's election, the service will be required to pass on the rebate amount to the individual, ultimately reducing the individual's child care fees.
Under the current legislative arrangements, a determination of entitlement for CCR for an income year is made after the end of the income year. An individual who does not elect to be paid CCR during an income year will be therefore paid the total annual entitlement amount (if any) after the end of the income year.
As it is currently the case with quarterly CCR payments, CCR amounts paid to an individual during an income year for a week will be reconciled after the end of the income year when the individual's entitlement amount for the year is determined following a determination of entitlement for CCB for that year.
In order to protect families from accumulating potential debts as a result of overestimating their income, the amount of CCR payment for a week paid during an income year will be reduced by 15 per cent. This reduction percentage amount will provide a buffer to offset potential debts that may arise through differences between the actual adjusted taxable income with income estimates on which calculation of fee reductions and CCR for a week are based. This reduction percentage delivers a similar policy outcome to the current legislative framework supporting quarterly CCR payments, whereby the fourth quarter CCR payment is calculated after the income year based on the individual's actual adjusted taxable income.
The election of the way in which CCR will be paid during 2011-2012 will occur before July 2011, for the individuals who are conditionally eligible for CCB by fee reduction at that time. If the election is not made, CCR will continue to be paid in the same way as it was paid in 2010-2011. New claimants for CCB by fee reduction in 2011-2012 who will not elect any payment during an income year will be paid an annual entitlement after the end of the income year.
An election of a particular payment method will continue in effect until the individual elects to be paid differently. Generally, any change to the payment of CCR will be effective in respect of payments made in a subsequent income year. Where there are exceptional circumstances individuals will be able to change the method of payment part way through an income year. This may include where existing customers were not aware of their ability to change their method of payment for the first year of operation of this legislation.
The amendments relating to payments for a week will apply from the first week after 1 July 2011.
Financial Impact
Cost of $42.4 million over 5 years (2010-11, 2011-12, 2012-13, 2013-14 and 2014-15).