Explanatory Memorandum
(Circulated by the authority of the Minister for Families, Community Services and Indigenous Affairs, Minister for Disability Reform, the Hon Jenny Macklin MP)Schedule 3 - Non-entitlement to family tax benefit on estimated income basis
Summary
From 1 July 2012, this Schedule will prevent an individual (and partner, if any) from being entitled to FTB Part A and/or Part B as fortnightly instalments on the basis of estimated income where the individual had no actual entitlement after underestimating their income for two consecutive years, starting from 2009-10.
Background
FTB can be paid as fortnightly instalments or a past period lump sum payment. Where FTB is paid fortnightly (or for a past period in the current income year), the individual must provide an estimate of their income (and the income of their partner if relevant) in order to be able to determine their rate of FTB. The estimate is provided because the individual's finally determined adjusted taxable income (actual ATI) cannot be known until after the end of the relevant income year to which the instalment payments apply.
The estimate can be provided by the individual, or the Secretary can calculate an indexed amount based on the individual's previous estimate or previous actual income. The Secretary must be satisfied that the individual's estimate is reasonable.
At the end of the relevant income year when actual ATI is known (that is, the individual or their partner has lodged their income tax return, or they have notified the Secretary that they are not required to lodge), FTB reconciliation occurs and the individual's entitlement based on actual income is determined. If the reconciled FTB entitlement is more than what was paid based on estimated income, a top-up amount may be paid. If the individual has been paid more than the reconciled FTB entitlement, a debt may be raised against the individual for the amount of the overpayment.
Families who have income over the cut-off for a given year (that is, an amount of ATI that results in a nil rate of FTB Part A or primary earner ATI that results in a nil rate of FTB Part B) are currently able to remain as fortnightly instalment recipients if they provide a new estimate (lower than the cut-off) for subsequent years.
From 1 July 2012, this Schedule will prevent an individual (and partner, if any) from being entitled to family tax benefit (FTB) Part A and/or Part B as fortnightly instalments on the basis of estimated income where the individual had no actual entitlement after underestimating their income for two consecutive years, starting from 2009-10. This measure will apply for FTB Part A if, for two consecutive years, the Part A rate is nil because of the individual's actual ATI. Similarly, this measure will apply for FTB Part B if, for two consecutive years, the Part B rate is nil because of the actual ATI of the primary earner (the higher earner in a couple or a sole parent).
Exceptions will apply to ensure that families are not put at risk of hardship. The exceptions will take account of changes that occur after the two consecutive years of nil entitlement to FTB Part A and/or Part B. The exceptions include: a reduction in actual ATI for a more recent income year; receiving an income support payment; gaining a new FTB child; and a couple separating. Exceptions may also apply in special circumstances.
Families not entitled to FTB Part A or Part B as fortnightly instalments will still be able to make a lump sum claim at the end of the income year.
This Schedule will commence on 1 July 2012 and the earliest year that can be counted for this measure is the 2009-10 income year.
Explanation of the changes
Amendments to the Family Assistance Act
Item 1 amends paragraph (b) of the definition of receiving in subsection 3(1) to reflect the reference to receiving a social security pension or a social security benefit in new section 32AI, which is inserted as part of the changes made by item 8 of this Schedule.
Item 2 amends paragraph 103(1)(e) to reflect the new definition of estimated income basis introduced by item 3 . This paragraph is to be introduced into the Family Assistance Act by item 3 of Schedule 2 to the Clean Energy (Household Assistance Amendments) Act 2011 and it is intended that this provision will commence from 14 May 2012.
Amendments to the Family Assistance Administration Act
Item 3 inserts a new definition into subsection 3(1) of the Family Assistance Administration Act for estimated income basis . This definition provides that FTB is worked out on an estimated income basis if it is worked out on the basis referred to in subsection 20(1), (2A) or (3).
Item 4 adds a note to the end of section 20 to assist in explaining that, if the FTB entitlement is worked out on the basis referred to in subsection 20(1), (2A) or (3) it is referred to as being worked out on an estimated income basis as defined in subsection 3(1).
Items 5, 6 and 7 amend subsection 32AA(1), section 32AD and subsections 32AE(2) and (5) to reflect the new definition of estimated income basis introduced by item 3 .
Item 8 inserts a new Subdivision CB into the Family Assistance Administration Act. New Subdivision CB sets out when an individual will not be entitled to FTB on an estimated income basis.
New subsection 32AF(1) sets out the scope of Subdivision CB. For new Subdivision CB to apply to an individual, there must be two consecutive years (each of which is a consecutive year ) in which the individual was entitled to be paid FTB on an estimated income basis; for each of the consecutive years the Secretary has conducted a Secretary-initiated review on the basis of the individual's finally determined ATI (that is, FTB reconciliation), and, as a result of the Secretary-initiated review for each consecutive year, the Secretary determines either or both of the following apply:
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- the individual's FTB Part A rate is nil because of the individual's finally determined ATI and there are no other days in either of the consecutive years that the individual is entitled to be paid FTB Part A;
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- the individual's FTB Part B rate is nil because of the application of subclause 28B(1) of Schedule 1 to the Family Assistance Act. This means the finally determined ATI of the primary earner (the higher earner in a couple or a sole parent) is greater than the primary earner income limit for FTB Part B, which is currently $150,000.
The note at the end of new subsection 32AF(1) provides a reference to the new definition of estimated income basis in subsection 3(1).
Basic non-entitlement rule
New paragraph 32AF(2)(a) provides that, if new subparagraph 32AF(1)(c)(i) applies, such that an individual's rate of FTB Part A was nil for two consecutive years because of the individual's finally determined ATI, then the individual is not entitled, on and after the exclusion day, to be paid FTB Part A on an estimated income basis. New subsection 32AF(3) defines the exclusion day .
Similarly, new paragraph 32AF(2)(b) provides that, if new subparagraph 32AF(1)(c)(ii) applies, such that an individual's rate of FTB Part B was nil for two consecutive years because of the primary earner's finally determined ATI, the individual is not entitled, on and after the exclusion day, to be paid FTB Part B on an estimated income basis.
For the purpose of new Subdivision CB, the exclusion day for an individual is defined in new subsection 32AF(3) to be 1 July 2012 if the later of the consecutive years is the 2010-11 income year, or, in any other case, 1 July of the first income year after the later of the consecutive years. However, the Secretary may determine a later day to be the exclusion day. The discretion under new paragraph 32AF(3)(b) to determine a later day exists so as to avoid an exclusion day under paragraph 32AF(3)(a) that may result in a debt for the amount of FTB Part A or Part B already paid on an estimated income basis for a previous period. For example, if the individual is currently being paid fortnightly instalments of FTB Part A or Part B, the intention is to determine an exclusion day that would result in the fortnightly instalments ceasing prospectively.
New subsection 32AF(4) provides that a determination made under new paragraph 32AF(3)(b) is not a legislative instrument. This provision is included to assist readers and is merely declaratory of the law, as the determination is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003 .
Position of individual's partner
New subsections 32AF(5) and (6) set out that, if an individual is not entitled to be paid FTB Part A and/or FTB Part B on an estimated income basis, the individual's partner (including a new partner) is also not entitled to be paid FTB Part A and/or Part B on an estimated income basis.
Multiple applications of section
New subsection 32AF(7) provides that, even if an exception in new sections 32AG to 32AM applies, this does not prevent new section 32AF from applying again in relation to the individual in respect of two consecutive income years, if either or both of those years are different to the previous consecutive income years. For example, if the original consecutive income years were 2009-10 and 2010-11 and a change that occurs after the end of 2010-11 results in an exception that prevents section 32AF applying, that particular exception would not prevent section 32AF again applying because of the different consecutive income years of 2010-11 and 2011-12. However, if a fresh exception arises due to a change that occurs after the end of 2011-12, that would prevent section 32AF applying.
Exceptions
New sections 32AG to 32AM set out when there may be an exception for an individual such that new section 32AF is taken not to have applied or ceases to apply. As a consequence, if an exception applies, an individual may be entitled to be paid FTB on an estimated income basis despite having two consecutive years of nil entitlement.
Exception - greater than nil rate of FTB for later income year
New section 32AG provides that there will be an exception for an individual if their rate of FTB Part A or Part B is greater than nil for a more recent income year. New subsection 32AG(1) sets out the scope of this section. New section 32AG applies if, in respect of an income year (the payment year ) after the later of the consecutive years, the Secretary determines on a day (the payment day ) following reconciliation for the payment year, that the individual's rate of FTB Part A or FTB Part B is greater than nil for one or more days in the payment year.
If new section 32AG applies, then the non-entitlement on an estimated income basis to FTB Part A under new paragraph 32AF(2)(a) and/or to FTB Part B under new paragraph 32AF(2)(b) is taken not to have applied or ceases to apply, depending on when the payment day occurs. The relevant provision depends on which component or components of FTB the individual is entitled to in the payment year.
Payment day is in same income year as exclusion day
New subsection 32AG(2) sets out when the non-entitlement is taken not to have applied because the payment day is in the same income year in which the exclusion day in new subsection 32AF(3) occurred. If section 32AG applies in relation to FTB Part A, then paragraph 32AF(2)(a) is taken not to have applied and the individual can be paid FTB Part A on an estimated income basis from the exclusion day. If section 32AG applies in relation to FTB Part B, then paragraph 32AF(2)(b) is taken not to have applied and the individual can be paid FTB Part B on an estimated income basis from the exclusion day.
The example at the end of new subsection 32AG(2) assists in explaining the date of effect rule in this provision.
Payment day is in income year later than that of exclusion day
New subsection 32AG(3) sets out when the non-entitlement ceases to apply because the payment day is in an income year which is later than the income year in which the exclusion day occurred. If section 32AG applies in relation to FTB Part A, then paragraph 32AF(2)(a) ceases to apply and the individual can be paid FTB Part A on an estimated income basis from 1 July of the income year in which the payment day occurs. If section 32AG applies in relation to FTB Part B, then paragraph 32AF(2)(b) ceases to apply and the individual can be paid FTB Part B on an estimated income basis from 1 July of the income year in which the payment day occurs.
The example at the end of new subsection 32AG(3) assists in explaining the date of effect rule in this provision.
The note after new section 32AG provides a reference to the subsections that provide the meaning for consecutive year and exclusion day .
Exception - resumption of eligibility for FTB
New section 32AH provides that an exception will apply for an individual if, for the whole of an income year (the applicable year ) after the consecutive years, the individual was not eligible for FTB for a non-income reason (for example, did not have an FTB child), and, after the applicable year, the individual claims FTB for the income year (the current year ) in which the claim is made, and the actual ATI for the applicable year of the individual (and their current partner, if any) is below the individual's income cut-out for FTB Part A, or does not exceed the FTB Part B primary earner income limit, in the current year.
If new section 32AH applies, then the non-entitlement on an estimated income basis to FTB Part A under new paragraph 32AF(2)(a) and/or to FTB Part B under new paragraph 32AF(2)(b) is taken not to have applied or ceases to apply, depending on when the exclusion day in new subsection 32AF(3) occurs. The relevant provision depends on which component or components of FTB the individual would be entitled to in the current year.
Exclusion day is in current year
New subsection 32AH(2) sets out when the non-entitlement is taken not to have applied if the exclusion day is in the current year. If section 32AH applies in relation to FTB Part A, then paragraph 32AF(2)(a) is taken not to have applied and the individual can be paid FTB Part A on an estimated income basis from the exclusion day. If section 32AH applies in relation to FTB Part B, then paragraph 32AF(2)(b) is taken not to have applied and the individual can be paid FTB Part B on an estimated income basis from the exclusion day.
The example at the end of new subsection 32AH(2) assists in explaining the date of effect rule in this provision.
Current year is later than that of exclusion day
New subsection 32AH(3) sets out when the non-entitlement ceases to apply if the current year is later than the income year in which the exclusion day occurs. If section 32AH applies in relation to FTB Part A, then paragraph 32AF(2)(a) ceases to apply and the individual can be paid FTB Part A on an estimated income basis from 1 July of the current year. If section 32AH applies in relation to FTB Part B, then paragraph 32AF(2)(b) ceases to apply and the individual can be paid FTB Part B on an estimated income basis from 1 July of the current year.
The example at the end of new subsection 32AH(3) assists in explaining the date of effect rule in this provision.
The note after new section 32AH provides a reference to the subsections that provide the meaning for consecutive year and exclusion day .
Exception - income support payments
New section 32AI provides that an exception will apply if, on a day (the income support day ) after the later of the consecutive years, the individual, or the individual's partner, is receiving a social security pension, a social security benefit, a service pension or income support supplement. In new section 32AI, these payments are referred to as income support .
New subsections 32AI(2) and (3) set out the date of effect rules for this provision. If the trigger day (defined in new subsection 32AI(4)) is on or before the exclusion day, then new subsection 32AF(2) is taken not to have applied. If the trigger day is after the exclusion day, then new subsection 32AF(2) ceases to apply to the individual on and from the trigger day.
New subsection 32AI(4) sets out the meaning of trigger day for the purpose of new section 32AI. In this situation, it means the later of the earliest income support day and 1 July of the income year the Secretary becomes aware that the individual (or partner, if any) is receiving income support.
The note after new section 32AI provides a reference to the subsections that provide the meaning for consecutive year and exclusion day .
Exception - new FTB child
New section 32AJ provides that an exception will apply if, on a day (the FTB child day ) after the later of the consecutive years, the individual now has an FTB child who was not an FTB child of the individual at any time during the consecutive years.
New subsections 32AJ(2) and (3) set out the date of effect rules for this provision. If the trigger day (defined in new subsection 32AJ(4)) is on or before the exclusion day, then new subsection 32AF(2) is taken not to have applied. If the trigger day is after the exclusion day, then new subsection 32AF(2) ceases to apply to the individual on and from the trigger day.
New subsection 32AJ(4) sets out the meaning of trigger day for the purpose of new section 32AJ. In this situation, it means the later of the earliest FTB child day and 1 July of the income year the Secretary becomes aware of the existence of the FTB child.
The note after new section 32AJ provides a reference to the subsections that provide the meaning for consecutive year and exclusion day .
Exception -couple separates
New section 32AK provides that an individual may have an exception if the individual was a member of a couple at the end of the later of the consecutive years, and has ceased to be a member of that couple on a later day (the separation day ).
New subsections 32AK(2) and (3) set out the date of effect rules for this provision. If the trigger day (defined in new subsection 32AK(5)) is on or before the exclusion day, then new subsection 32AF(2) is taken not to have applied. If the trigger day is after the exclusion day, then new subsection 32AF(2) ceases to apply to the individual on and from the trigger day.
The exception in new section 32AK will continue to apply if the individual becomes a member of a couple with a new partner. However, new subsection 32AK(4) provides that the exception will end if the individual reconciles with the individual who was their partner at the end of the later of the consecutive years. In this situation, new subsection 32AF(2) applies in relation to the individual as if the day the individual reconciles with the partner were the exclusion day.
The note after new subsection 32AK(4) notes that subsection 32AK(4) may apply more than once if the couple separates and reconciles more than once.
New subsection 32AK(5) sets out the meaning of trigger day for a particular separation day for the purpose of new section 32AK. In this situation, it means the later of the particular separation day and 1 July of the income year the Secretary becomes aware that the individual has (on that separation day) ceased to be a member of that couple.
The note after new section 32AK provides a reference to the subsections that provide the meaning for consecutive year and exclusion day .
Exception - special circumstances
New section 32AL provides that there may be an exception if the Secretary is satisfied that, on a day (the special circumstances day ) after the later of the consecutive years, special circumstances exist in relation to the individual or the individual's partner (or both) that did not exist at the end of the later of the consecutive years and make it inappropriate to prevent the individual from being entitled to be paid FTB Part A and/or Part B on an estimated income basis.
New subsections 32AL(2) and (3) set out the date of effect rules for this provision. If the trigger day (defined in new subsection 32AL(5)) is on or before the exclusion day, then new subsection 32AF(2) is taken not to have applied. If the trigger day is after the exclusion day, then new subsection 32AF(2) ceases to apply to the individual on and from the trigger day.
New subsection 32AL(5) sets out the meaning of trigger day for the purpose of new section 32AL. In this situation, it means the later of the special circumstances day and 1 July of the income year the Secretary becomes aware of the existence of the special circumstances.
The note after new section 32AL provides a reference to the subsections that provide the meaning for consecutive year and exclusion day .
New subsection 32AL(4) provides that a determination made under new subsection 32AL(2) or (3) has effect in accordance with its terms and is not a legislative instrument. New paragraph 32AL(4)(b) is included to assist readers and is merely declaratory of the law, as the determination is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003 .
Exception - determined circumstances
New section 32AM allows the Minister to make an instrument to determine other circumstances that may result in an individual having an exception from the application of new section 32AF and being entitled to be paid FTB Part A and/or Part B on an estimated income basis. This provision is similar to new section 32AL, except that new subsection 32AM(2) provides that the Minister may make a legislative instrument to determine circumstances for the purposes of new paragraph 32AM(1)(a). The Secretary must be satisfied that the circumstances set out in the instrument exist in relation to the individual, their partner or both on a day (the determined circumstances day ) after the later of the consecutive years.
New subsections 32AM(3) and (4) set out the date of effect rules for this provision. If the trigger day (defined in new subsection 32AM(6)) is on or before the exclusion day, then new subsection 32AF(2) is taken not to have applied. If the trigger day is after the exclusion day, then new subsection 32AF(2) ceases to apply to the individual on and from the trigger day.
New subsection 32AM(6) sets out the meaning of trigger day for the purpose of new section 32AM. In this situation, it means the later of the determined circumstances day and 1 July of the income year the Secretary becomes aware of the existence of the determined circumstances.
The note after new section 32AM provides a reference to the subsections that provide the meaning for consecutive year and exclusion day.
New subsection 32AM(5) provides that a determination made under new subsection 32AM(3) or (4) has effect in accordance with its terms and is not a legislative instrument. New paragraph 32AM(5)(b) is included to assist readers and is merely declaratory of the law, as the determination is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003 .
Item 9 amends paragraphs 65J(2)(b) and (3)(b) to reflect the new definition of estimated income basis introduced by item 3 . These paragraphs are to be introduced into the Family Assistance Administration Act by item 4 of Schedule 2 to the Clean Energy (Household Assistance Amendments) Act 2011 and it is intended that this provision will commence from 14 May 2012.
Item 10 is the application provision for this Schedule. Subitem 10(1) provides that new paragraph 32AF(1)(a), which defines a consecutive year, applies in relation to the 2009-10 income year and later income years. Subitem 10(2) provides that new paragraph 32AF(1)(c), which relates to a determination by the Secretary of nil entitlement to FTB Part A and /or Part B for each consecutive year based on finally determined ATI, applies in relation to determinations made before, on or after 1 July 2012.