Explanatory Memorandum
(Circulated by the authority of the Treasurer,the Hon. J. Kerin, M.P.)Chapter 3 Pensions, Benefits and Allowances
[Clause: 2, 11, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 83, 85, 100,]
Overview
Amends the tax legislation to bring it in line with amendments to the social security and veterans' entitlements legislation.
Summary of proposed amendments
3.1. This Bill proposes to amend various provisions of the Income Tax Assessment Act 1936 (the Act), including Division 1AA, to bring it in line with amendments to the Social Security Act 1991 and the Veterans' Entitlements Act 1986 . A technical amendment is also made to the Income Tax Rates Act 1986.
Background to the legislation
3.2. Division 1AA of the Act specifies which payments under the Social Security Act 1991, Veterans' Entitlements Act 1986 and similar payments are exempt from tax.
3.3. The Taxation Laws Amendment Act (No. 2) 1991 inserted Division 1AA in the Act to replace section 23AD. There were two reasons for these changes.
3.4. First, to make the provisions of the Act that exempt from tax certain pensions, benefits and allowances easier to understand. Under the then existing law it was often difficult and time consuming to determine if a particular payment was exempt or not exempt.
3.5. Second, the Social Security Act 1947 was completely rewritten with effect from 1 July 1991. Also Part III of the Veterans' Entitlement Act 1986 was rewritten (Part III deals with age service, invalidity service, partner service and carer service pensions). These rewrites made it necessary to amend the Act. However, it was not possible to include all the required consequential amendments to the Act in the Taxation Laws Amendment Act (No 2) 1991 .
3.6. The present Bill covers these remaining consequential amendments. It also includes other amendments which arise from further changes to the social security and veterans' entitlements legislation.
Explanation of the proposed amendments
3.7. The social security legislation allows a disaster relief payment of two weeks pension to be paid following a major disaster (e.g. an earthquake, a flood or fire).
3.8. As a result of an amendment contained in the Social Security (Rewrite) Amendment Act 1991 , a disaster relief payment is payable under Part 2.24 of the Social Security Act 1991 .
3.9. New Section 24ABDC exempts disaster relief payments from tax. [Clause 18]
Pharmaceutical Allowance and Advance Pharmaceutical Supplement
3.10. Pharmaceutical allowance and advance pharmaceutical supplement are payable under Part 2.22 and Part 2.23 respectively of the Social Security Act 1991 . Part 2.22 and Part 2.23 were included in that Act by the Social Security (Rewrite) Amendment Act 1991 .
3.11. New sections 24ABDA and 24ABDB exempt these two payments from tax. [Clause 18]
3.12. A carer pension was previously paid only to people who provided constant care to a severely handicapped pensioner. Thus section 24ABF in Division 1AA refers to a severely handicapped pensioner.
3.13. The Social Security Act 1991 now includes payment of a carer pension to people who are carrying for other pensioners and beneficiaries, including those receiving service pensions under the Veterans' Entitlements Act 1986 . This Bill amends section 24ABF so that the reference is now to a severely handicapped person in place of a severely handicapped pensioner . The amendment does not alter the tax treatment of a carer pension. [Paragraph 19(a)]
Bereavement Payment (where new single rate equals or exceeds the combined married rate)
3.14. Paragraph 66(3)(a) of the Social Security Act 1947 used to apply to situations where the new single rate of pension paid to the surviving member of a pensioner couple equalled or exceed the combined married rate of pension that would have been received if the deceased pensioner had not died.
3.15. In these circumstances, the effect of former paragraph 23AD(3)(j) (inserted by Taxation Laws Amendment Act 1991 ) was that the amount of the otherwise assessable payment received, on any one of the 7 pension paydays after the death, in excess of what the surviving person would have received if the deceased pensioner had not died, was exempt from tax.
3.16. A provision similar to paragraph 66(3)(a) was not included in the Social Security Act 1991 (as first enacted). Accordingly Division 1AA does not have a provision similar to the former paragraph 23AD(3)(j).
3.17. The situation is the same for veterans' entitlements legislation where a provision similar to paragraph 57A(3)(a) of the Veterans' Entitlements Act 1986 was not included in the original rewrite of Part III of that Act. Accordingly Division 1AA does not have a provision similar to the former paragraph 23AD(3)(t).
3.18. However, the Social Security Act 1991 has been amended to include provisions similar to paragraph 66(3)(a) of the Social Security Act 1947 . These amendments are included in Schedule 2 to the Social Security (Rewrite) Amendment Act 1991 . The Veterans' Entitlements Act 1986 has also been amended to include provisions similar to former paragraph 57A(3)(a). These amendments are included in Schedule 5 of the Veterans' Entitlements (Rewrite) Transition Act 1991 .
3.19. This Bill will ensure that payments made to the surviving member of a pensioner couple are taxed in the same way as payments made under the previous social security and veterans' entitlements legislation.
3.20. The amendments apply where the new single rate of pension equals or exceeds the combined married rate of pension that would have been received if the deceased pensioner had not died. In these circumstances, the surviving pensioner receives the new single rate of pension and is not entitled to receive certain bereavement payments under various provisions of the Social Security Act 1991 and the Veterans' Entitlements Act 1986. These provisions are covered by the term "bereavement Subdivision" and a provision excluding the receipt of payments under a "bereavement Subdivision" is defined as an "exclusion provision". [Clause 5]
3.21. The otherwise assessable amount which exceeds what would have been assessable to the surviving pensioner if the person had not died, is to be exempt from tax for each of the 7 pension paydays after the death. The amendments treat as assessable that amount of the pension that would have been assessable if the spouse had not died.
3.22. The amendments involved are:
| Amendment | Clause | |
|---|---|---|
| Age Pension | 24ABC(5) | 16 |
| Carer Pension | 24ABF(5) & (6) | 19(b) |
| Sole Parent Pension | 24ABG(5) | 20 |
| Special Needs Age Pension | 24ABQ(3) | 24 |
| Special Needs Wife Pension | 24ABS(3) & (4) | 26 |
| Age Service Pension | 24ACE(5) | 27 |
| Invalidity Service Pension | 24ACF(5) & (6) | 28 |
| Carer Service Pension | 24ACH(5) & (6) | 30 |
3.23. A pensioner couple each received $100 age pension, all of which was assessable. Following the death of one of the couple, the surviving pensioner is entitled, as an unmarried person, to an age pension of $220 which would all be assessable income. However, $120 is exempt (i.e. $220-$100). The exemption applies only for the 7 pension paydays after the death. (Subsection 24ABC(5))
3.24. A pensioner couple each received $100 assessable age pension plus $20 rent assistance (not subject to tax by virtue of paragraph 24ABC(1)(a)). Following the death of one of the couple, the surviving pensioner is entitled, as an unmarried person, to an assessable age pension of $230 plus $40 rent assistance.
3.25. $130 is exempt (i.e. $230-$100). The $40 rent assistance is also exempt. This means that for each of the 7 pension paydays after the death, the surviving pensioner receives $270, of which $170 is exempt and $100 is not exempt. (Paragraphs 24ABC(5)(d), 24ABC(5)(e) and 24ABC(5)(f))
Bereavement Payment (child-related)
3.26. These payments are exempt from tax. They are paid under various sections of the Social Security Act depending upon the type of pension, benefit or allowance and the circumstances in which the bereavement payment is made.
3.27. With effect from 1 July 1991, schedule 1 to the Social Security (Rewrite) Amendment Act 1991 extended the circumstances in which child-related bereavement payments are made to include:
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- payments to the surviving member of a couple where the deceased partner would have received those payments if he or she had not died;
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- payments where the deceased was not a member of a couple and the deceased would have received the child-related bereavement payments if he or she had not died.
3.28. Amendments contained in Schedule 1 to this Bill exempt from tax these additional child-related bereavement payments. [Subclause 83(1)]
3.29. In the 1990-91 Budget the government announced a comprehensive reform of disability support. In general terms the reforms provide for the replacement of the invalid pension paid by the Department of Social Security with a disability support pension. They also provide for the replacement of sickness benefit with a sickness allowance.
3.30. Other related changes include abolishing the incentive allowance, rehabilitation allowance and sheltered employment allowance. The changes are to commence from 12 November 1991.
Invalid pension - disability support pension
3.31. Invalid pension is currently paid under Part 2.3 of the Social Security Act 1991 . Part 2.3 is to be repealed and a new Part 2.3 will be inserted to cover disability support pension. This Bill proposes to amend Division 1AA so that the disability support pension would be tax exempt just as the invalid pension is currently exempt from tax. Bereavement payments made under proposed new Part 2.3 are also to be treated in the same way as the existing law. [Clause 17]
3.32. Likewise the special needs invalid pension is also to be replaced with a special needs disability support pension. A special needs disability support pension will be exempt in the same way as the special needs invalid pension is currently exempt from tax by section 24ABR. [Clause 25]
Rehabilitation allowance and sheltered employment allowance
3.33. At present, a rehabilitation allowance is paid under Part 2.10 of the Social Security Act 1991 , and a sheltered employment allowance under Part 2.9 of that Act. Parts 2.9 and 2.10 are to be repealed with effect from 12 November 1991. Those people who would have received a rehabilitation allowance or sheltered employment allowance will in future receive the other social security payment to which they would be entitled. (Rehabilitation allowance and sheltered employment allowance are payments to persons whose primary social security entitlement would be to some other type of payment (sections 410 and 461 of the Social Security Act 1991 )).
3.34. As a result of amendments included in the Social Security (Disability and Sickness Support) Amendment Act 1991 , a disability support pension is to be paid from 12 November 1991 to any person in receipt of an invalid pension on 11 November 1991. Sheltered employment allowance recipients on 11 November 1991 will also be transferred to disability support pension on 12 November 1991. However, a person in receipt of a rehabilitation allowance on 11 November 1991 will continue to be paid that allowance until they complete or cease the rehabilitation program.
3.35. This Bill proposes to repeal section 24ABJ of Division 1AA. [Clause 21]
3.36. Section 24ABJ sets out the tax treatment of payments of sheltered employment allowance. As rehabilitation allowance will continue to be paid, no amendments are proposed to section 24ABK which sets out the tax treatment of payments of rehabilitation allowance.
3.37. As from 12 November 1991, Part 2.14 of the Social Security Act 1991 under which a sickness benefit is paid will be repealed and a new Part 2.14 - Sickness Allowance will be inserted in its place. This Bill will amend Division 1AA so that a sickness allowance is treated in the same way as a sickness benefit (section 24ABO). [Clause 23]
Job Search Allowance and Newstart Allowance
3.38. The social security unemployment benefits system was previously divided into two payments: a job search allowance and an unemployment benefit.
3.39. Job search allowance was covered by Part 2.12 of the Social Security Act 1991 and unemployment benefit was covered by Part 2.11 of that Act.
3.40. From 1 July 1991, a new job search allowance and newstart allowance were introduced. In very broad terms, the former job search allowance and unemployment benefit were abolished and replaced with:
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- a job search allowance which is generally payable only to persons unemployed for less than 12 months (persons under 18 years of age could continue to receive the job search allowance until they turn 18); and
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- a newstart allowance which is generally payable to persons unemployed for 12 months or more.
3.41. These changes were included in the Social Security (Job Search and Newstart) Amendment Act 1991 . A job search allowance is now paid under new Part 2.11 and the newstart allowance is paid under new Part 2.12.
3.42. The new job search allowance and newstart allowance will be treated for tax purposes in the same way as unemployment benefits and the old job search allowance. Accordingly this Bill proposes to amend existing sections 24ABL and 24ABM to achieve this. [Clause 22]
Extension of Veterans' Entitlements to Male Spouses
3.43. An amendment to the Veterans' Entitlements Act 1986 extended certain benefits to dependants of eligible female veterans on the same basis as applies to dependants of male veterans with effect from 22 January 1991. For the period 22 January to 30 June 1991, a spouse's service pension was paid instead of the former wife's service pension. From 1 July 1991, the pension is called a partner service pension.
3.44. This Bill will ensure that the tax treatment of payments of a spouse's service pension and a partner service pension is the same as that applying to a wife's service pension. In particular, this Bill will amend former section 23AD of the Act with effect for the period 22 January 1991 to 30 June 1991 and section 24ACG of Division 1AA for payments made from 1 July 1991. [Clauses 11 and 29]
3.45. Both the spouse's service pension and partner service pension will be exempt from tax where the recipient of the pension and the veteran are both under the pension age and the veteran receives an invalidity service pension. In other circumstances, supplementary amounts are exempt from tax but the balance of the spouse's service pension and partner service pension is not exempt.
Other consequential amendments
3.46. Further consequential and technical amendments are required to the Act as a result of changes to the social security legislation and veterans' entitlements legislation and are contained in schedule 1 and 2 to the Bill. [Clause 83]
3.47. A technical amendment is also made to the Income Tax Rates Act 1986. [Clauses 100 and 101]
Commencement date
3.48. The amendments relating to disaster relief payments, pharmaceutical allowance, advanced pharmaceutical supplement, job search allowance, newstart allowance, carer pension and bereavement payments will take effect for payments from 1 July 1991. [Subclause 85(5)]
3.49. The amendments relating to the restructured Disability Reform Package are to apply for payments from 12 November 1991. [Subclause 85(6)]
3.50. The amendments relating to the extension of veterans' entitlements to male spouses of veterans will apply to payments from 22 January 1991. [Subclause 85(2)]
Clauses involved in the proposed amendments
Subclauses 85(2), 85(5) and 85(6): govern the commencement of the amendments to bring the tax legislation in line with changes to social security and veterans' entitlements legislations.
Clauses 11, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 83, 100, 101: make consequential amendments to the Act and the Income Tax Rates Act 1986 as a result of amendments to social security and veterans' entitlements legislation.