Revised Explanatory Memorandum
(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)Tax exemption for payments under the Defence Abuse Reparation Scheme
Outline of chapter
6.1 Schedule 8 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to exempt from income tax, payments made under the Defence Abuse Reparation Scheme (the Scheme).
Context of amendments
Payments under the Scheme
6.2 The Defence Abuse Response Taskforce (the Taskforce) was set up in response to the DLA Piper Report of the Review of allegations of sexual and other abuse in Defence . One of the functions of the Taskforce is to assess allegations concerning abuse by Defence personnel which occurred prior to 11 April 2011.
6.3 As part of this process the Taskforce has established the Scheme, which establishes a mechanism for the Department of Defence to make a monetary payment to persons who in the opinion of the Reparation Payments Assessor may have, plausibly, suffered abuse whilst employed in Defence.
6.4 A person may receive only one payment under the Scheme and the amount of any payment under the Scheme is at the discretion of the Reparation Payments Assessor, in accordance with the Defence Abuse Reparation Scheme Guidelines.
Taxable status of the payments
6.5 Whether a payment is subject to tax is determined by its character in the hands of the recipient. A payment that has the character of income according to ordinary concepts is assessable income unless a statutory exemption applies. One-off payments will generally have the character of ordinary income if they are received as a product of employment, services rendered or the carrying on of a business.
6.6 As payments made under the Scheme arise out of an employment relationship with the Department of Defence or the Australian Defence Force, it is possible that they could also be characterised as statutory income under section 15-2 of the ITAA 1997.
Summary of new law
6.7 This measure amends the ITAA 1997 to exempt from income tax, payments made under the Scheme.
Comparison of key features of new law and current law
| New law | Current law |
| Payments made to a recipient under the Scheme are exempt from income tax. | Payments made under the Scheme may be subject to income tax depending on the particular circumstances of the recipient. |
Detailed explanation of new law
6.8 This measure inserts a specific exemption into the ITAA 1997 to ensure that all individuals who receive a payment under the Scheme do not have to pay income tax on that payment.
6.9 Section 51-5 of the ITAA 1997 contains a table detailing defence related payments that are exempt from income tax.
6.10 Schedule 8 amends section 51-5 of the ITAA 1997 to insert a new item 1.7 into the table, exempting from income tax, payments made under the Scheme. [Schedule 8, item 2, item 1 . 7 in table in section 51-5 ]
6.11 Section 11-15 of the ITAA 1997 lists income which is exempt from income tax. Schedule 8 makes a consequential amendment to this list to include payments made under the Scheme as a category of exempt income. [Schedule 8, item 1 ]
6.12 This ensures that the payments will not be assessable income so that those who receive this payment will receive the full benefit of the payment.
Application and transitional provisions
6.13 These amendments will apply to the 2012-13 income year and later income years. [Schedule 8, item 3 ]
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Tax exemption for payments under the Defence Abuse Reparation Scheme
6.14 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .
Overview
6.15 Schedule 8 to this Bill amends the ITAA 1997 to exempt from income tax payments made under the Defence Abuse Reparation Scheme in the 2012-13 income year and later income years.
Human rights implications
6.16 This Schedule does not engage any of the applicable rights or freedoms.
Conclusion
6.17 This Schedule is compatible with human rights as it does not raise any human rights issues.
Assistant Treasurer, the Hon David Bradbury