House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP)

Chapter 4 Ex-gratia disaster recovery payments to New Zealand SCV holders

Outline of chapter

4.1 Schedule 4 to this Bill makes amendments to provide income tax relief to New Zealand special category visa (subclass 444) (SCV) holders in Australia who have been impacted by disasters in the 2014-15 year and later years by:

•

amending the Income Tax Assessment Act 1936 (ITAA 1936) to provide a tax rebate for the ex-gratia Income Support Allowance (ISA), and

•

amending the Income Tax Assessment Act 1997 (ITAA 1997) to provide an income tax exemption for the ex-gratia Disaster Recovery Payment (DRP).

Context of amendments

4.2 The Australian Government makes certain payments to eligible Australians to assist when a major disaster happens, and these payments are exempt from income tax, or an income tax rebate is available.

4.3 The Government may extend these payments and the equivalent tax treatment to New Zealand SCV holders on an ex-gratia basis.

4.4 The New Zealand SCV is a temporary visa allowing New Zealand citizens to reside, work and study indefinitely in Australia as long as they remain New Zealand citizens. New Zealand citizens arriving in Australia are generally eligible for a New Zealand SCV, subject to meeting other eligibility criteria (such as not constituting a health or behaviour concern). New Zealand SCV holders generally pay Australian tax because they are Australian residents for tax purposes.

Ex-gratia Income Support Allowance to New Zealand SCV holders

4.5 The Disaster Recovery Allowance (DRA) is means-tested, short-term income support for eligible Australians who have suffered a loss of income as a result of a major disaster. The DRA is taxable, but recipients may be entitled to the Beneficiary Tax Offset.

4.6 Where the Minister for Justice has made a determination and the DRA has been activated, the Prime Minister may also decide to provide an equivalent ISA to New Zealand SCV holders.

4.7 To qualify for the ISA, New Zealand SCV holders must meet the same eligibility criteria as Australian citizens applying for the DRA. Under the Programme Guidelines, New Zealand SCV holders must also demonstrate they have participated in the Australian taxation system for at least one year in the past three financial years. Payments of the ex-gratia ISA are made on the same terms as payments of the DRA.

4.8 The DRA is not exempt income but may be eligible for a tax offset under section 160AAA of the ITAA 1936.

Ex-gratia Disaster Recovery Payment to New Zealand SCV holders

4.9 The Australian Government Disaster Recovery Payment (AGDRP) is a non-means-tested, one-off payment to assist with the short-term recovery needs of eligible Australian adults and children who have been adversely affected by a major disaster. Such payments are exempt from income tax.

4.10 Where the AGDRP has been activated, the Prime Minister may also decide to provide an equivalent DRP to New Zealand SCV holders.

4.11 To qualify for the DRP, New Zealand SCV holders must meet the same eligibility criteria as are applied to Australian citizens applying for the AGDRP. Under the Programme Guidelines, New Zealand SCV holders must also demonstrate they have participated in the Australian taxation system for at least one year in the past three financial years. Payments of the DRP are made on the same terms as payments of the AGDRP.

4.12 The ITAA 1997 does not provide an ongoing tax exemption for DRP payments. In past financial years, the Australian Government has provided New Zealand SCV holders with a tax exemption for the DRP for those years. This gave the payments equivalent tax treatment to Australian citizens in receipt of a corresponding AGDRP.

Summary of new law

4.13 This measure amends the ITAA 1936 to provide a tax rebate for recipients of the ISA. This measure also amends the ITAA 1997 to provide an income tax exemption for the DRP.

4.14 The measure benefits taxpayers as they are now eligible for tax relief for the 2014-15 income year and all future years, where the relevant determination is made by the Minister for Justice because a major disaster has occurred.

Comparison of key features of new law and current law

Detailed explanation of new law

Income Support Allowance

4.15 Subsection 160AAA(1) of the ITAA 1936 contains a list of rebatable benefits.

4.16 The ISA payment is included in the list of rebatable benefits for the 2014-15 year and future years. [Schedule 4, items 1 and 2, paragraph 160AAA(1)(ab) and subsection 160AAA(2) of the ITAA 1936]

4.17 As a result, New Zealand SCV holders in receipt of an ISA for disasters occurring in the 2014-15 year and future years are entitled to an income tax rebate.

4.18 The Minister for Justice must have made the relevant determination under section 36A of the Social Security Act 1991 (that the event is a 'Part 2.23B major disaster'). [Schedule 4, item 2, paragraph 160AAA (2)(b) of the ITAA 1936]

4.19 This amendment ensures that New Zealand SCV holders in receipt of the ISA are eligible for the tax treatment equivalent to Australian citizens receiving the DRA.

Disaster Recovery Payment

4.20 The table in section 51-30 of the ITAA 1997 lists welfare payments which are exempt from income tax, as well as any special conditions.

4.21 A new item is inserted into the table, making the DRP to New Zealand SCV holders exempt from income tax for disasters occurring during the 2014-15 year or later years. [Schedule 4, item 5, item 5.2 in the table in section 51-30 of the ITAA 1997]

4.22 The exemption is subject to a special condition that a determination has been made under section 1061L of the Social Security Act 1991 (as to what constitutes being 'adversely affected'). [Schedule 4, item 5, item 5.2 in the table in section 51-30 of the ITAA 1997]

4.23 This amendment ensures that New Zealand SCV holders in receipt of the DRP are eligible for the tax treatment equivalent to Australian citizens receiving the AGDRP.

4.24 This amendment does not change the eligibility criteria or terms of the DRP, which are equivalent to the AGDRP.

Consequential amendments

4.25 The index for exempt payments is updated to include ex-gratia disaster recovery payments to special category visa (subclass 444) holders. [Schedule 4, item 3, section 11-15 of the ITAA 1997]

4.26 The list of tax offsets is updated to include ex-gratia income support allowance payments to special category visa (subclass 444) holders. [Schedule 4, item 4, section 13-1 of the ITAA 1997]

Application and transitional provisions

4.27 These amendments apply to ex-gratia payments for eligible disasters occurring during the 2014-15 year and later years.

4.28 These amendments apply retrospectively to payments of ex-gratia DRP and ISA and are beneficial to affected taxpayers.

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Tax exemption or rebate for ex-gratia disaster-related payments to New Zealand SCV holders

4.29 This Bill 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

4.30 This Bill provides an income tax exemption for New Zealand SCV holders in receipt of the DRP, and provides a tax rebate for New Zealand SCV holders in receipt of the ISA, following major disasters in the 2014-15 financial year and later years.

Human rights implications

4.31 This Bill does not engage any of the applicable rights or freedoms.

Conclusion

4.32 This Bill is compatible with human rights as it does not raise any human rights issues.