House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Family and Community Services, Senator the Honourable Jocelyn Newman)

Outline and financial impact statement

This Bill follows up the 1998 youth allowance legislation package, which comprised:

•

the Social Security Legislation Amendment (Youth Allowance) Act 1998 ;

•

the Social Security Legislation Amendment (Youth Allowance Consequential and Related Measures) Act 1998 ;

•

the Social Security (Fares Allowance) Rules 1998 (a disallowable instrument);

•

the Social Security Student Financial Supplement Scheme 1998 (also a disallowable instrument); and

•

the Social Security (Family Actual Means Test) Regulations 1998 .

The Bill has two purposes. The first is to incorporate into the Social Security Act 1991 provisions currently contained in the three major pieces of subordinate legislation mentioned above. As a general principle, those provisions are to be moved without making any change in their effect. Those provisions themselves were originally set up with the intention of preserving the effect of the pre-existing AUSTUDY provisions so that students did not suffer any disruption to their payments because of the youth allowance changes, which happened half way through the academic year.

The other main purpose of the Bill is to deal with any technical issues identified during the implementation of the youth allowance package.

The Bill will also make consequential amendments to reflect the new placement and structure of the relocated provisions and as a consequence of the commencement of youth allowance.

Schedule 1 - Fares allowance

This Schedule amends the Social Security Act 1991 to incorporate the provisions currently contained in the Social Security (Fares Allowance) Rules 1998 .

Date of effect: Royal Assent

Schedule 2 - Student financial supplement scheme

This Schedule amends the Social Security Act 1991 to incorporate the provisions currently contained in the Social Security Student Financial Supplement Scheme 1998 .

Schedule 3 - Family actual means test

This Schedule amends the Social Security Act 1991 to incorporate the provisions currently contained in the Social Security (Family Actual Means Test) Regulations 1998 .

Date of effect: Royal Assent

Schedule 4 - Youth allowance and austudy payment

This Schedule amends the Social Security Act 1991 to make various amendments addressing technical issues identified during the implementation of the youth allowance package.

Date of effect: Various dates

Schedule 5 - Youth allowance and the student financial supplement scheme

This Schedule amends the Data-matching Program (Assistance and Tax) Act 1990 , the Income Tax Assessment Act 1936 , the Taxation (Interest on Overpayments and Early Payments) Act 1983 and the Taxation Administration Act 1953 to reflect the new placement and structure of the provisions relocated by Schedule 2 . It also amends the Farm Household Support Act 1992 as a consequence of the commencement of youth allowance.

Date of effect: Various dates

Preliminary

Clause 1 of the Youth Allowance Consolidation Bill 1999 sets out how the amending Act is to be cited.

Clause 2 specifies that the amending Act commences on Royal Assent, subject to certain exceptions specified. Clause 3 provides that each Act that is specified in a Schedule to the amending Act is amended or repealed in accordance with the applicable items in those Schedules.

Schedule 1 - Fares allowance

1. Summary of proposed changes

This Schedule amends the Social Security Act 1991 (the Social Security Act) to incorporate the student fares allowance provisions currently contained in the Social Security (Fares Allowance) Rules 1998 (the Fares Allowance Rules). Those Rules will lapse on the repeal by this Schedule of the present enabling provision.

2. Background

As a general principle, the fares allowance provisions are to be moved in this way without making any change in their effect. Those provisions themselves were originally set up with the intention of preserving the effect of the pre-existing AUSTUDY provisions so that students did not suffer any disruption to their payments because of the youth allowance changes, which happened half way through the academic year.

However, the new fares allowance provisions have been drafted on the basis that:

•

the drafting style and structure of the new provisions be more in keeping with the rest of the Social Security Act, including the standard provisions already set up there;

•

modifications be made to certain of the provisions to improve their structure and clarify their intent; and

•

certain technical and other minor changes be made to ensure that the original AUSTUDY provisions are correctly reflected and to refine certain aspects of the provisions, as outlined in detail below.

For the most part, there is no change in effect between the provisions of the Fares Allowance Rules and those of the new Part 2.26. Only the following technical and minor departures have been made:

1

The provisions have been restructured on the basis of the students qualification for each qualifying journey, rather than blanket qualification for a range of journeys made within a qualifying period (the change is in line with the pre-existing AUSTUDY provisions).

2

A standard Social Security Act provision has been included relating to claims by telephone, facsimile or computer to allow a student some leeway when claiming close to the annual claim deadline of 1 April.

3

Provisions have been introduced to enable the Minister to update the applicable rates of fares allowance by disallowable instrument. Such a provision was not necessary previously since the rates, along with all other provisions, were already included in subordinate legislation.

4

The hardship test for the payment of fares allowance in advance of the journey has been removed (in line with the pre-existing AUSTUDY provisions).

5

The payment rules have been relaxed to allow a person who is qualified for fares allowance but who is no longer receiving a student payment (fares allowance may be paid some time after the study ceases) to have the allowance paid into a bank account of his or her choice, rather than into the account into which the student payment was paid.

6

The rule about the payment of fares allowance after the students death has been relaxed so that this may occur even if the student had not actually claimed the allowance before death (in line with the pre-existing AUSTUDY provisions).

7

Because of 1 above, it has not been necessary to retain a provision under which information may be gathered to establish a students qualification - existing information gathering arrangements will be sufficient.

3. Clauses and Schedule involved in the changes

4. Explanation of the changes

Background

Fares allowance is available to a person who is either a full-time or concessional study-load tertiary student and who is receiving either youth allowance, austudy payment or pensioner education supplement. The allowance comprises an amount to cover the cost of travel between a persons permanent home and his or her educational institution at the beginning and end of the course and for certain journeys during the course of the study year.

New section 19AA - Fares allowance definitions

Item 5 sets up a new section 19AA containing the definitions used in new Part 2.26, which is substituted by item 8 .

The definitions contained in new subsection 19AA(2) are generally drawn from the Dictionary in the Fares Allowance Rules.

New subsections 19AA(3) to (5) define a persons permanent home, drawn from section 1.5 in the Fares Allowance Rules. The permanent home of a youth allowance recipient who is not independent is the home of the parent whose income is assessed for the purpose of determining the recipients rate of youth allowance. If the recipient becomes independent during the study year due to turning 25, or meeting the self-supporting criteria for independence, then the recipients permanent home will continue to be the home of the parent whose income was assessed before the recipient became independent.

If a parent has more than one home, then the permanent home will be taken to be the home that the parent uses most frequently. If the parent spends equal amounts of time in two or more homes, then the youth allowance recipient must nominate one home as the permanent home.

In all other situations, a persons permanent home is the persons usual place of residence.

New subsection 19AA(7) provides that a person is taken to be required to live away from his or her permanent home if the person is not independent, does not live at his or her permanent home and needs to live away in order to undertake the persons course.

New Part 2.26 - Fares allowance

Item 8 repeals the old Part 2.26, under which the Fares Allowance Rules were made, and substitutes a new Part 2.26. Accordingly, the Rules will lapse and will be replaced with the substantive provisions contained in the new Part.

Division 1 - Qualification for fares allowance

This Division sets down the qualification criteria for fares allowance.

First, the person must be undertaking an approved tertiary course at an educational institution in Australia.

Second, the person must be receiving either youth allowance, austudy payment or pensioner education supplement. If the person is receiving youth allowance, it must be because the person satisfies the activity test either by undertaking full-time study or by complying with a Youth Allowance Activity Agreement, the only requirement of which is to undertake an approved course of education or study. This latter requirement ensures that only youth allowance recipients who are full-time or concessional study-load students (as opposed to those who, for example, are seeking work) are qualified for fares allowance.

Third, the person must meet certain criteria relating to personal circumstances. The persons permanent home must be in Australia. As the first qualification criterion provides that the educational institution must also be in Australia, fares allowance will be available only for travel within Australia.

Furthermore, the person must be someone who is required to live away from his or her permanent home in order to undertake his or her course of study. If the person is a youth allowance recipient, then the person must be not independent and required to live away from home in order to be qualified. If the person fitted into this category, and then during the study year became independent because of turning 25 or meeting the self-support criteria for independence, then the person will be qualified for fares allowance, but only (in that capacity) for the remainder of that study year.

Independent students will be qualified for fares allowance if they live away from their permanent homes in order to undertake their course, but must have a partner or dependent child who continues to live at that permanent home. Also, a person who is enrolled as an external student qualifies.

Fourth, the journey that attracts fares allowance must be a journey specified in the Division. For a person who is not an external student, this must be a journey from the persons permanent home to his or her educational institution to start the course, a journey from the persons educational institution to his or her permanent home on completing or discontinuing the course, or a specified return journey during the study year between the persons permanent home and the educational institution. An external student who must attend the institution as part of the course is entitled to one return journey during the study year.

The last qualification criterion is that the journey must have already been made or, if not, that the Secretary is satisfied that the person intends to make it and that the travel is to be provided by a commercial operator.

Division 2 - Making and determination of claim for fares allowance

This Division explains how a claim for fares allowance is made, and is based on similar provisions for all payment types in the Social Security Act.

A person who wants to be granted fares allowance must make a proper claim for the allowance, that is, one that is in writing, in an approved form and lodged with the Department or at an approved place or with an approved person. If the claim is lodged after an earlier enquiry, including by telephone, facsimile or computer, in relation to claiming fares allowance, the claim is taken to have been lodged on the day of the enquiry.

A person must lodge a claim for fares allowance, in respect of a study year, before 1 April in the year following that study year. A claim may be accepted after that date if the claimant took reasonable steps to ensure that it would be lodged by the due date, or if circumstances beyond the persons control prevented the person from taking reasonable steps to lodge the claim in time, and the person then lodged the claim as soon as practicable after the circumstances stopped.

Either the claimant or a person on his or her behalf may withdraw (orally or in writing) a claim for fares allowance that has not been determined, in which case the claim is taken not to have been made.

The Secretary must determine that a claim for fares allowance is to be granted if satisfied that the person is qualified for the allowance.

Division 3 - Amount of fares allowance

This Division sets down the amount of fares allowance that is to be paid for a particular journey. The rates and general rules are the same as those set down in the Fares Allowance Rules. However, there is now also a provision under which the Minister may update the rates by disallowable instrument.

Division 4 - Payment of fares allowance

This Division specifies when and how fares allowance is to be paid to a person.

Fares allowance is generally to be paid after the journey is made, to the person to whom the substantive student payment is or was paid. However, if, as described in new Division 1, the Secretary is satisfied that a person intends to make the journey and that the travel is to be provided by a commercial operator, then the fares allowance is to be paid in advance to the commercial operator.

Fares allowance will generally be paid to the account into which the substantive student payment is or was paid, or into a nominated account if the student payment is not paid into an account. However, the Secretary may direct that fares allowance be paid in a different way, eg, if a person who is qualified for fares allowance is no longer receiving a student payment and would prefer the allowance to be paid into a separate account.

There is provision for the payment of fares allowance after the students death, including when the student had not claimed fares allowance before death. The Secretary may pay the allowance to the person who, in the Secretarys opinion, is best entitled to it, as long as the application for payment was made within 6 months of the students death. Also, in the case of the allowance not having been claimed before death, the person applying must do so within the students original claim lodgment period.

Division 5 - Protection of fares allowance

This Division replicates standard provisions in the Social Security Act which provide that fares allowance is absolutely inalienable and for the effect of a garnishee or attachment order.

Items 3 and 4 amend subsection 4(6A) of the Social Security Act, which modifies the meaning of member of a couple for non-independent youth allowance recipients and their partners.

That subsection operates to the effect that a person who is the partner of a youth allowance recipient who is not independent, while still a member of a couple for most purposes in the Act, is not a member of a couple in a range of specified provisions relating to the income, assets and liquid assets tests and compensation recovery provisions and in any provision that operates for the purposes of one of those specified provisions. Furthermore, the non-independent youth allowance recipient himself or herself is also not a member of a couple in a similar respect for youth allowance, nor would be any other person who has claimed youth allowance and is not independent.

Thus, if two people are in a marriage-like relationship which has lasted for less than one year, and one of them is a youth allowance recipient who is not independent on any other ground, then the relationship is (if all the usual member of a couple criteria are met) recognised for most purposes for each of their payments, including setting maximum basic rate, pharmaceutical allowance, rent assistance, etc (to the extent that it is relevant). However, the relationship is effectively disregarded for all purposes specified. This is largely beneficial. The rationale for it is that the youth allowance recipient, being not independent, is subject to the parental means test and therefore should not also be subject to the partner income and assets tests. As a matter of consistency, if the partner's income and assets are not to be taken into account for the youth allowance recipient, nor should the youth allowance recipient's for the partner.

The refinement made by these items is to add fares allowance to the list of provisions in which the modified meaning of member of a couple applies. This reflects subsection 1.6(4) of the Fares Allowance Rules and is relevant in establishing the fares allowance claimants qualification, in the sense that the person will qualify if he or she, while required to live away from his or her permanent home to study, has a partner still living at that permanent home.

Items 6 and 7 provide definitions in subsection 23(1) of fares allowance and Social Security (Fares Allowance) Rules 1998 so that provisions in the new Part as well as elsewhere in the Social Security Act operate correctly in view of the transition between the Rules and the new Part. This is particularly necessary for the information gathering and debt recovery provisions of the Social Security Act, as amended by this Schedule.

Items 9 to 28 amend relevant debt recovery provisions in the Social Security Act to make sure that fares allowance debts may be raised and recovered as appropriate. For example, a debt may be raised against a person if an amount of fares allowance has been paid and the person was not qualified for the amount; if two amounts have been paid for the same journey (that is, a duplicate payment) or if an amount of fares allowance has been calculated, and therefore paid, incorrectly. In these situations, and others, an amount is a debt due to the Commonwealth by the person in respect of whom fares allowance was paid. These provisions were previously free-standing in Part 7 of the Fares Allowance Rules. However, now that the substantive provisions will appear in the Social Security Act itself, the mainstream debt recovery provisions are to apply directly.

Similarly, items 29, 30 and 31 amend the relevant information gathering provisions in the Social Security Act (sections 1304 and 1307) and the provision that provides an offence when payment is knowingly obtained by a person who is not entitled to it (section 1347) to make sure that fares allowance is appropriately covered.

Item 32 inserts a new clause 126 into Schedule 1A to the Social Security Act to deal with the transition from fares allowance under the Fares Allowance Rules to fares allowance under new Part 2.26.

New Part 2.26 will apply in respect of claims for fares allowance made after the commencement of the new Part in respect of journeys made after that commencement. A claim made either before or after that commencement for fares allowance in respect of a journey made before that commencement, will be determined under the Fares Allowance Rules, which are continued in force for that purpose.

If a person has made a journey before the commencement of the new Part, for which he or she is qualified for fares allowance under the Fares Allowance Rules as they continue in force, then a claim must be determined for that journey under the Fares Allowance Rules before a claim under the new Part, for a journey made after its commencement, will be determined. This rule ensures that a person finalises any outstanding entitlement under the Fares Allowance Rules so that his or her qualification under the new Part may be assessed properly, taking into account all journeys made for the year.

5. Commencement

This Schedule will commence on Royal Assent.

Schedule 2 - Student financial supplement scheme

1. Summary of proposed changes

This Schedule amends the Social Security Act 1991 (the Social Security Act) to incorporate the student financial supplement provisions currently contained in the Social Security Student Financial Supplement Scheme 1998 (the Financial Supplement Scheme). That Scheme will lapse on the repeal by this Schedule of the present enabling provision.

2. Background

As a general principle, the financial supplement provisions are to be moved in this way without making any change in their effect. Those provisions themselves were originally set up with the intention of preserving the effect of the pre-existing AUSTUDY provisions so that students did not suffer any disruption to their payments because of the youth allowance changes, which happened half way through the academic year.

However, the new financial supplement provisions have been drafted on the basis that:

•

the drafting style and structure of the new provisions be more in keeping with the rest of the Social Security Act, including the standard provisions already set up there;

•

modifications be made to certain of the provisions to improve their structure and clarify their intent; and

•

certain technical and other minor changes be made to ensure that the original AUSTUDY provisions are correctly reflected and to refine certain aspects of the provisions, as outlined in detail below.

For the most part, there is no change in effect between the provisions of the Financial Supplement Scheme and those of the new Chapter 2B. Only the following technical and minor departures have been made:

1

The tax file number provisions have been put into the standard Social Security Act form. It had previously been necessary to split these provisions between the Social Security Act and the Financial Supplement Scheme because of restrictions imposed by the Privacy Commissioners Tax File Number Guidelines.

2

An incorrect provision has been eliminated that allowed a student to apply for financial supplement after the eligibility period (the change is in line with the pre-existing AUSTUDY provisions).

3

It has been clarified that the minimum amount of financial supplement of $500 applies in respect of the full year. This will take account of a persons eligibility as either a category 1 student (a current student payment recipient) or a category 2 student (a person excluded from youth allowance on the grounds of the parental income test or family actual means test) or both categories at different times in the year. Thus, a person who becomes a category 2 student part way through the year, with a consequent lesser amount of eligibility, will not have to establish $500 worth of eligibility anew - the previous category 1 eligibility will be counted. (This is in line with the pre-existing AUSTUDY provisions.)

4

The payment rules have been relaxed to allow financial supplement to be paid into a nominated bank account and not necessarily the same account into which the student payment was or is paid.

5

The requirement has been omitted to Gazette the minimum, intermediate and maximum prescribed amounts for debt recovery purposes. This requirement is superfluous because existing provisions already clearly establish how those amounts are calculated relative to AWE.

6

The separate confidentiality provisions that currently exist for officers acting under the recovery phase of the scheme undertaken by the Australian Taxation Office have been omitted. The mainstream Act confidentiality provisions will apply.

7

A special rule has been included relating to the status as evidentiary certificates of certain documents relating to financial supplement (in line with the pre-existing AUSTUDY provisions).

3. Clauses and Schedule involved in the changes

4. Explanation of the changes

Background

The Student Financial Supplement Scheme is a loan scheme that gives tertiary students the option of borrowing money to help cover their living expenses while studying. Financial supplement is paid fortnightly in instalments by a participating financial corporation, under a formal contract, to a person who is eligible to obtain financial supplement. To be eligible, a person must be a full-time tertiary student to whom youth allowance is payable or to whom youth allowance would be payable if not for the parental income test or family actual means test. Alternatively, the person must be a full-time or concessional study-load tertiary student to whom austudy payment or pensioner education supplement is payable.

If an eligible person takes up the option of obtaining an amount of financial supplement within the allowable limits and enters into a contract for that purpose with a participating corporation, the person may vary the amount of financial supplement obtained at any time during the year or part of the year as long as it is within the limits specified on the supplement entitlement notice given to the person when his or her eligibility was determined.

The financial supplement instalments are paid to a person by a participating corporation in accordance with an agreement with the Commonwealth. The person is not liable to the corporation for interest, but the Commonwealth pays to the corporation a subsidy that includes an amount for interest. At the end of the contract period, the Commonwealth pays to the corporation any amount outstanding under the contract and is assigned the further rights - repayments will eventually be made by the person to the Commonwealth. The amount of financial supplement that will eventually have to be repaid is indexed each 1 June and the increase flowing from the indexation will be added to the person's debt to the Commonwealth.

Repayments of financial supplement are not required before the fifth year after 1 June in the calendar year following the year in which the contract was entered into, eg, a person who entered into a contract on 1 March 1994 will not have to start repayments until at least June 1999; a person whose contract date was 1 July 1994 will have the same prospective repayment date. Even so, the loan repayment actually commences only when the person's taxable income exceeds average earnings, at which point recovery through the tax system commences (along the lines of the Higher Education Contribution Scheme). However, the person may choose to make repayments earlier, whether within the period of the contract, or after that period but before repayments must commence. If the financial supplement debt is repaid in full within the period of the contract, the person has to pay only 85% of the debt.

Part 1 - Amendments commencing on Royal Assent

New section 19AB - Student financial supplement definitions

Item 2 sets up a new section 19AB containing the definitions used in new Chapter 2B, which is substituted by item 6 .

The definitions contained in new subsection 19AB(2) are generally drawn from the Dictionary at the end of the Financial Supplement Scheme.

New subsections 19AB(3) and (4) define a persons austudy payment general rate and youth allowance general rate respectively. Under the former AUSTUDY, the living allowance formed the basis of financial supplement eligibility, and amounts such as pharmaceutical allowance were paid as separate components. However, for youth allowance and austudy payment, the separate components (pharmaceutical allowance, remote area allowance and, for youth allowance, rent assistance) are included in a persons rate of payment along with the maximum basic rate, which is the social security equivalent of the living allowance. Therefore, to achieve the AUSTUDY effect, those components are notionally excluded from the persons rate for the purposes of financial supplement eligibility.

Accordingly, a persons youth allowance or austudy payment general rate is the rate that would be payable to the person if no amount were included under the Rate Calculator as one of the separate components. This rule will apply in working out the persons eligibility to obtain financial supplement under Division 2 and in working out the maximum amount available under Division 6.

New subsection 19AB(5) makes it clear that the question of whether a person is intending to undertake a course or undertaking a course is to be worked out as far as possible as it would be under section 541B in working out whether a person is undertaking study.

New Chapter 2B - Student Financial Supplement Scheme

Item 6 repeals the old Chapter 2B, under which the Financial Supplement Scheme was made, and substitutes a new Chapter 2B. Accordingly, the Scheme will lapse and will be replaced with the substantive provisions contained in the new Chapter.

Part 2B.1 - Establishment of scheme

Division 1 - Preliminary

This Division records that the object of the Chapter is to establish a Student Financial Supplement Scheme and outlines the provisions of the scheme.

Division 2 - Eligibility to obtain financial supplement

This Division sets down the eligibility criteria for a person to obtain financial supplement for the persons eligibility period.

First, the person must be undertaking or intending to undertake a tertiary course at an educational institutional throughout the eligibility period.

Second, the person must not also at that time be undertaking a primary or secondary course.

Third, the person must fall within the description of either a category 1 student or a category 2 student in respect of the eligibility period. A category 1 student is a person to whom either youth allowance, austudy payment or pensioner education supplement is payable throughout the eligibility period. For youth allowance and austudy payment, the concept of payable means payable at a notional general rate described in new subsection 19AB(3) or (4) of more than zero (if the allowance or payment were payable at a rate that constituted only one or more of the additional payment components, then this would not be sufficient for financial supplement eligibility). Furthermore, for youth allowance, it must be payable because the person is undertaking full-time study (this excludes people who are receiving youth allowance on other grounds).

A category 2 student is a person to whom youth allowance is not payable, but would be payable if not for the operation of either the parental income test or the family actual means test. Furthermore, the persons combined parental income under the Youth Allowance Rate Calculator, or the persons family actual means under the Social Security (Family Actual Means Test) Regulations 1998, as applicable, must be less than the threshold amount. The threshold amount is worked out in a similar way to the parental income free area (although starting with a much higher basic amount of $54,949, subject to indexation) and is increased by additional amounts for any children in the family other than the category 2 student. Also, the person must be undertaking full-time study.

The fourth eligibility criterion is that the amount of financial supplement that the person is eligible to obtain for the year (ie, the calendar year that is or includes the eligibility period) is not less than the minimum amount prescribed in new Division 6 ($500). Thus, a person who changes status from category 1 to category 2 part way through the year will not have to achieve $500 worth of eligibility all over again in the new category, but may build on the credit of the category 1 eligibility.

Under this Division, a person who is a category 2 student must also, to be eligible, satisfy the standard Social Security Act provisions that relate to a request for a tax file number in respect of the person or a parent. Category 1 students, including those with partners, are already covered by the standard tax file number requirements under their substantive student payment.

Division 3 - Decision and notice about eligibility to obtain financial supplement

This Division explains how a finding that a person is eligible to obtain financial supplement is given effect.

There is no claim as such for financial supplement. The process commences with a claim by the person for one of the three target substantive payments (youth allowance, austudy payment and pensioner education supplement). In the process of determining that claim, the Secretary will also decide whether the person is eligible to obtain financial supplement for the eligibility period, whether as a category 1 student or a category 2 student.

Furthermore, the Secretary must make a new decision about the eligibility of a person who is continuing his or her tertiary course into a new calendar year.

If the decision in either case is that the person is eligible, the Secretary must give the person a supplement entitlement notice to that effect. The notice must include a statement of the minimum and maximum amounts that the person may obtain.

If a decision that a person is eligible, or that certain minimum or maximum amounts apply, is varied or revoked under the review of decisions provisions of the Social Security Act after the person has been given a supplement entitlement notice, then that notice is also revoked and may not be used to apply for financial supplement. Similarly, a decision about a persons eligibility, or amounts, must lead to the Secretary giving the person a statement to that effect and, if appropriate, a new supplement entitlement notice, including the amounts available.

This Division includes a transitional rule to make it clear that, if a person held a supplement eligibility notice under the Financial Supplement and had not used the notice to apply for financial supplement, then the notice is taken to be a supplement entitlement notice under this instrument and the person is eligible under this instrument. Also, whether or not the notice had been used in an application, it is taken to be a supplement entitlement notice given under this Division.

Division 4 - Agreements between Commonwealth and financial corporations

This Division makes it clear that financial supplement is available to a person only from a financial corporation that has entered into an agreement with the Commonwealth to pay the supplement in accordance with this instrument. Having entered into such an agreement, the corporation will be a participating corporation for new Chapter 2B. The Division lays down certain formal rules for the agreement. A special rule is included to make sure that any financial supplement contract entered into under an agreement under the Financial Supplement Scheme remains valid despite the change in arrangements.

Division 5 - Application for financial supplement

This Division establishes how and when to apply for financial supplement. A person who is eligible to obtain financial supplement may apply to a participating financial corporation during the persons eligibility period.

The only way of applying for financial supplement is by completing an application form approved by the Secretary (which will be available from the participating corporation) and lodging the form with the supplement entitlement notice at a branch office of the corporation.

Once a person has applied for financial supplement of a particular amount, he or she may lodge another application to increase or decrease the amount of financial supplement obtained (within the limits of his or her minimum and maximum amounts).

Division 6 - Amount of financial supplement

Subdivision A - Category 1 students

This Subdivision sets down the maximum amount of financial supplement available to an eligible person who is a category 1 student.

If the person has an eligibility period of one year, the maximum amount is either $7,000 or a proportion of that amount worked out as specified, whichever is less.

The proportional amount is worked out by establishing the total amount of the persons substantive payment (based on the youth allowance or austudy payment general rate if applicable) that would be payable for the eligibility period if no financial supplement were to be sought. Then certain amounts are deducted: any amount of advance payment deductions to be made in the period; any amount of overpayments recoverable for the period; any amount of compulsory tax deductions to be made for the period; and any amount of the substantive payment already paid to the person for the period. The result of this equation is then doubled (since the amount of financial supplement available is double the amount by which a persons payment is to be reduced) and rounded up to the nearest dollar.

Before applying this calculation, it is necessary to work out the persons eligibility period. This is the period for which the person satisfies the eligibility criteria (see Division 2), ie, generally, the period for which the substantive payment is payable and the study requirement satisfied.

If the persons eligibility period is less than one year, then the maximum amount of financial supplement is the lesser of the proportional amount worked out as above and an amount worked out as a proportion of the $7,000 relative to the length of the persons eligibility period.

Subdivision B - Category 2 students

This Subdivision sets down the maximum amount of financial supplement available to an eligible person who is a category 2 student.

If the person is not undertaking, or intending to undertake, a short course, and has an eligibility period of one year, the maximum amount of financial supplement is $2,000.

If the person is undertaking, or intending to undertake, a short course, or if the person is not undertaking, or intending to undertake, a short course and has an eligibility period of less than a year, then the maximum amount of financial supplement is the amount worked out as a proportion of the $2,000 relative to the length of the persons eligibility period.

Once again, as for a category 1 student, it is first necessary to work out the persons eligibility period. This is generally the period for which the person satisfies the eligibility criteria (see Division 2), ie, generally, the period for which the substantive payment is payable and the study requirement satisfied.

However, for a category 2 student who is not undertaking, or intending to undertake, a short course, a different, shorter eligibility period will be used if the person applied for financial supplement after 31 May in a year but before 1 October. Consistently, an even shorter eligibility period will be used if the person applied on or after 1 October. However, in each case, the Secretary may decide not to change the original eligibility period if satisfied that the person took reasonable steps to apply within 4 weeks of being given a supplement entitlement notice, but could not do so for reasons beyond his or her control, and applied as soon as possible after that.

A category 2 student who is undertaking, or intending to undertake, a short course has a similar modification imposed, although it is imposed if the person applied for financial supplement more than 4 weeks after being given the supplement entitlement notice and after the usual eligibility period would have started. The Secretary has the same discretion to waive this rule.

Subdivision C - Provisions applying to both category 1 and category 2 students

The minimum amount of financial supplement in respect of a person is $500. In keeping with Division 2, this figure applies to a person in respect of any tertiary study undertaken during the year, whether in category 1 or category 2. If the persons eligible amount is not at least $500 overall, then the person is not eligible for financial supplement.

Also under this Subdivision, if a person undertakes, or intends to undertake, more than one tertiary course in the same period in a year, the persons maximum amount of financial supplement is the maximum amount worked out under the Division for one of the courses.

Division 7 - Trading in youth allowance, austudy payment or pensioner education supplement for financial supplement

Financial supplement is generally made available to a person in exchange for a reduction in the rate of the persons substantive payment. This is called trading in the payment.

This Division provides that the amount by which the persons rate of payment is reduced is half the amount of financial supplement paid for the same instalment period.

Because a category 2 student does not have a substantive payment to trade in, this Part applies only to category 1 students.

Division 8 - Obtaining or increasing financial supplement by trading back youth allowance, austudy payment or pensioner education supplement

This Division provides for a person who is eligible to obtain financial supplement to repay some or all of the substantive payment already paid to the person, in order to obtain, or to obtain a higher amount of, financial supplement. This is called trading back the payment.

Once again, since a category 2 student will not have been paid any substantive payment that could be traded back, this Part applies only to category 1 students. It is quite likely that such a student will both trade in future payments under Division 7 and trade back past payments under this Division to obtain the required amount of financial supplement.

The payment that may be traded back must have been payable to the person originally during the payment period (ie, the period 1 January to 31 May in a year or the period 1 July to 30 September in a year). The trade back, for a person who is not currently obtaining financial supplement, must generally also be made within that payment period, although it may be made after that period if the person took reasonable steps to make it on time but could not do so for reasons beyond his or her control and makes it as soon as practicable after the period and within the year.

If an amount is traded back, it is taken never to have been paid to the person. This ensures that the amount of financial supplement calculated under Division 6 to be available to the person is not limited by the original payment of the amount. In effect, the person is put in the same position as a person who is only trading in his or her payment.

However, it is made clear that trade back does not affect the operation of the debt recovery provisions of the Social Security Act in respect of the substantive payment.

Division 9 - Financial supplement contracts

This Division describes the legal relationship between the participating corporation and the person.

If a person who is eligible to obtain financial supplement applies to the corporation under Division 5 for the supplement, the corporation must accept the application in writing - this forms the contract. A special transitional rule ensures that contracts entered into under the former AUSTUDY arrangements or under the Financial Supplement Scheme remain valid and are covered by the new provisions.

There are certain requirements that the contract must meet. It must: be for the making of a loan under this Division; be for the amount for which the person asks (within the limits of his or her entitlement); allow but not compel early repayments; and name a termination date (which is the last day of the contract period, which in turn is the period starting when the contract is made and ending on 31 May in the fifth year after the year in which the contract was made).

This Division gives the corporation the right to rely on advice given by the Commonwealth so that any amount paid by the corporation under the contract on the basis of advice from the Commonwealth constitutes financial supplement, regardless of the persons actual eligibility or otherwise. However, Part 2B.2 (which authorises the early recovery of certain amounts if there has been a specified contravention of the rules, or similar) may override this.

The Division also deals with the relationship between the contract and certain other laws (eg, relating to bankruptcy). It also makes it clear that the contract is valid on its own terms regardless of the persons not having been eligible to obtain financial supplement when the contract was made, or later becoming ineligible. However, Part 2B.2 may have certain related effects in some of these cases.

The Division also includes provisions relating to the cooling off period under the scheme.

A person has a right to cancel a financial supplement contract if he or she lodges written notice to this effect at a branch office of the corporation, within 14 days of the contracts having been made. Generally, the corporation is not to make any payments to the person within the cooling off period. However, if it does so, or if it makes any payments after the period and if the person has exercised the right to cancel the contract, then the payments are taken not to be financial supplement if repaid within 7 days by the person. Otherwise, the payments will proceed to eventual recovery through the usual five or so year process.

Alternatively, the person may waive the right to cancel the contract by specified written notice given to the corporation immediately after the contract is made.

The last rules in this Division are that State or Territory credit type laws do not apply to a financial supplement contract, and that the contract or application is generally not affected by State or Territory tax laws.

Division 10 - Payment of financial supplement

This Division comprises machinery provisions about the payment of financial supplement, modelled on sections 559A and 559C to 559F of the Social Security Act for youth allowance.

Financial supplement is to be paid by instalments for periods, and at times, determined by the Secretary. An instalment is to be rounded off as described. Then, it is to be paid to the person specified. For a category 1 student, this will be to whomever the young persons substantive payment is, or was, being paid. Generally, this will be the young person himself or herself. However, for non-independent under 18 year old youth allowance recipients, this will usually be the young persons parent. Alternatively, the Secretary might have decided to make the payment to someone else on the young persons behalf.

Financial supplement for a category 2 student is to be paid to the person to whom the young persons youth allowance would have been paid had youth allowance been payable.

However, even if the payments of financial supplement are made to someone other than the young person, the liability eventually to make repayments under the scheme will still be the young persons.

Financial supplement is to be paid into a bank account nominated and maintained by the person to whom it is to be paid.

Division 11 - Protection of financial supplement

This Division constitutes relevant equivalents of youth allowance sections 560 and 560A.

It is made clear that financial supplement, in common with social security payments, is absolutely inalienable.

Also, a certain protection from garnishment is given to financial supplement paid into an account. The amount protected is, in keeping with the usual social security payment arrangement, the amount of financial supplement paid into the account within the 4 weeks before the order came into force, minus any amount withdrawn from the account in that time.

Division 12 - Obligations of category 2 students

Subdivision A - Statements about tax file numbers

This Subdivision provides the standard social security tax file number provisions under which the Secretary may request a person who is obtaining financial supplement to give a statement of the persons or the parents tax file number.

As indicated under Division 2 above, these provisions are applicable only to category 2 students because category 1 students are already subject to such rules under their substantive payments. It should also be noted that, apart from a category 2 students own TFN, it would be relevant to the Commonwealth to seek the TFN of only the students parent and not his or her partner - a category 2 student will never have a partner because he or she must be precluded from youth allowance on the basis of the parental income test or the family actual means test, and this can only happen if he or she is not independent; having a partner would make him or her independent.

Subdivision B - Notice of events or changes in circumstances

On a similar basis to Subdivision A, it is necessary to provide the standard social security range of information gathering powers for category 2 students only. Category 1 students will already be adequately covered by the equivalent provisions for their substantive payments, since the factors that govern financial supplement eligibility and entitlement are the same as those that govern the payment of their substantive payments.

Accordingly, this Subdivision provides for the Secretary to give a category 2 student a notice that requires the person to notify a stated event or change of circumstances, or to notify becoming aware that such an event or change is likely to happen (this is the recipient notification notice).

Similarly, a notice may be given to the person requiring a statement about a matter that might affect the payment of financial supplement (the recipient statement notice).

These provisions are based on sections 561B and 561C of the Social Security Act for youth allowance.

Division 13 - Early repayments of financial supplement

The rules for this Division are taken from Part 13 of the Financial Supplement Scheme. They provide for a person to make voluntary repayments of financial supplement before the end of the contract period. If the person takes up this option, there are certain discounts given on the total debt.

The first part of the process is to calculate the amount outstanding under the contract at any particular time. This is basically done by adding together the amount of the repayments and the discounts and subtracting the result from the principal sum. After the first year, the effect of indexation on the debt is built into the equation.

The person must be given each 1 June a notice recording what the amount outstanding is at that date.

Should the person accidentally pay more than the amount outstanding, the balance must be repaid by the corporation to the person.

There is provision to work out the amount to be repaid by the person, taking into account the amount repaid, the discount and the effects of indexation.

The discount is worked out using two separate formulae which provide a lower rate of discount if less than the full amount outstanding is repaid, and a higher rate if the full amount is repaid.

If the whole debt is repaid in this way, the corporations rights and liabilities are transferred to the Commonwealth immediately after the repayment. Otherwise, the standard end of contract arrangements apply which are also provided by this Division.

These are that, at the end of the contract period, the Commonwealth assumes the corporations rights under the contract and pays to the corporation any outstanding amount of the principal sum. The Commonwealth then proceeds with the recovery process directly with the person. A termination notice is to be given to the person, stating certain formal matters, including what FS debt or FS debts the person now owes to the Commonwealth, that the person is entitled to make repayments of those amounts at any time and that any balance will be recovered through the taxation system.

Since the notice forms the basis of the recovery of the debt, it is important, and provisions are made, to ensure that both parties agree about the details.

Part 2B.2 - Payments of financial supplement under scheme to stop in certain circumstances

This extensive Part is taken from Part 14 of the Financial Supplement Scheme. Ordinarily, payments of financial supplement will continue during the course of the contract and recovery will occur some five years or more into the future. However, this Part deals with when payments of financial supplement should stop during the course of the contract and when payments should be subject to immediate recovery action.

There are five circumstances in which payments should stop. The corporation will be bound in accordance with its agreement with the Commonwealth to stop making payments accordingly.

Then there are certain further provisions, in respect of three of these cessation provisions, which call for recovery of certain amounts paid. These recovery provisions will operate if there has been some kind of contravention (either a failure to comply with an information gathering notice or the provision of false or misleading information) that had caused payments to be made, or to be made for too high an amount.

The three Divisions that contain recovery provisions, and the recovery provisions that they contain, are:

Division 2 - Payments to stop if the maximum amount of financial supplement is reduced to the amount already paid or a lesser amount

Subdivision A - Notice that payments are to stop

Subdivision B - Original amount paid because person failed to notify change of circumstances

Subdivision C - Original amount paid because of false or misleading information

Division 3 - Payments to stop if person ceases to be eligible to obtain financial supplement

Subdivision A - Notice that payments are to stop

Subdivision B - Financial supplement paid because person failed to notify change of circumstances

Division 4 - Payments to stop if person is found never to have been eligible for financial supplement

Subdivision A - Notice that payments are to stop

Subdivision B - Financial supplement paid because of false or misleading information

In each of the discrete circumstances addressed by these three Divisions, the process is similar. First, the Secretary must give the person and the corporation a notice about stopping the payments. The corporation is discharged from having to make further payments but, if it should continue to make payments, the payments are taken not to be financial supplement and are recoverable between the person and the corporation. In the normal course of events, the FS debt will be recovered eventually through the tax system.

However, should one of the recovery provisions operate because of a specified contravention (including under the Financial Supplement Scheme mentioned by the special transitional rules), then a further notice must be given to the person and the corporation. The effect of this second notice is that the Commonwealth assumes the corporations rights under the contract, the Commonwealth must pay to the corporation the amount of financial supplement paid that is attributable to the contravention (in the case of Division 4, this is the whole amount of financial supplement paid), and the person becomes liable to the Commonwealth for that amount plus interest. Any remaining legitimate FS debt will be recovered in the usual longer term way.

In addition, there are two provisions to stop the payment of financial supplement, but where recovery provisions are not appropriate - these apply when the person asks for the payments to stop and when the person dies.

In the first of these two cases, the person may simply give a notice to the corporation in order to stop the payments and the corporation is discharged from having to make any further payments (although, as above, if it does so, it may recover the amounts directly from the person).

In the second case, the Secretary must give notice to the corporation if he or she becomes aware that the person has died. The corporations liability to make further payments is discharged as usual and any excess payments are recoverable by it from the persons estate. The Commonwealth assumes the corporations rights and, in return, must pay the corporation a representative amount. Lastly, the liability of the person under the contract is discharged.

Part 2B.3 - Repayment of financial supplement through taxation system after termination date

This Part is based on Part 15 of the Financial Supplement Scheme. It provides for the recovery through the tax system of a persons financial supplement debt at the end of 4 years beginning on 1 June in the year following the year the contract was made.

Division 2 establishes what an FS debt and an accumulated FS debt are. An FS debt is the outstanding amount at the termination date, indexed as applicable. An accumulated FS debt is incurred on 1 June in a year if the person had or has an FS debt, or FS debts, at that date that was/is not, or did/do not include, an FS debt that existed on the previous 1 June. If the person had or has an FS debt on 1 June that did/does include a previous FS debt, then the accumulated FS debt is incurred on the later 1 June.

Division 3 requires the Secretary to give notice to the Commissioner of Taxation, as soon as practicable after a termination date, about a person who has an FS debt. The information contained in the notice will allow the Commissioner to proceed with the recovery of the debt through the tax system. The notice must be updated if believed not to be correct in any way and the Secretary must give a written certificate further to the information required in the statement if the Commissioner so requires.

Division 4 continues the option available throughout the scheme for a person to make voluntary payments to reduce the debt. However, by this stage, the payments must be made to the Commissioner.

Division 5 sets down in detail when and by how much a person must make payments to reduce his or her debt. It is compulsory for the person to make such payments only if his or her taxable income for a tax year is more than the minimum prescribed amount ($29,307 for the year ending 30 June 1998 and indexed by AWE for subsequent years) and if the person had an accumulated FS debt on 1 June immediately before his or her income is assessed for that tax year.

The amount required to be repaid is 2% of taxable income if the persons income is no more than the intermediate prescribed amount for that year ($33,305 for the year ending 30 June 1998 and indexed by AWE for subsequent years). The amount required is 3% if taxable income is more than the intermediate amount but not more than the maximum prescribed amount ($46,629 for the year ending 30 June 1998 and also indexed for subsequent years). The amount required is 4% if taxable income is more than the maximum prescribed amount.

Division 6 records the application of certain pieces of related taxation legislation. It is these pieces of legislation that provide the process of recovery. Division 7 gives the Commissioner the power to make assessments for the purposes of this Part and to serve notice about these assessments along with a persons normal income assessment notice. Division 8 sets down the powers of the Commissioner to delay making an assessment under this Part, or amend an assessment, in response to a written application by a person, if hardship would otherwise be caused to the person, or for other special reasons. There are also formal notice and review requirements attached to decisions under Division 8. Division 9 provides that there is an avenue of appeal to the Administrative Appeals Tribunal in relation to a decision of the Commissioner.

Division 10 records that financial supplement payments are generally not taxable, although the corporation may be liable to taxation for certain amounts paid to it under this instrument. Other formal matters are dealt with, including to make it clear that the death of a person who owes a debt, other than an FS assessment debt, under this Part discharges the debt.

Part 2B.4 - Miscellaneous

This Part deals with general matters, namely: how the Bankruptcy Act 1966 applies; how the setting aside or variation of a decision under Chapter 6 of the Social Security Act affects this instrument; that there is a general requirement to give written notice when the rights of a participating financial corporation are transferred to the Commonwealth and that such a transfer or anything else done under the instrument is not subject to State or Territory tax.

Item 3 provides a new definition of financial supplement so that provisions in the new Chapter and elsewhere in the Social Security Act operate correctly in view of the transition between the Financial Supplement Scheme and the new Chapter.

Items 4 and 5 make minor consequential amendments to reflect the new category 2 student information gathering provisions in the definitions of recipient notification notice and recipient statement notice in subsection 23(1).

Item 7 inserts a new section 1361A relating to the status as evidentiary certificates of certain documents relating to financial supplement (in line with subsection 51(2) of the Student Assistance Act 1973 for the identical student financial supplement scheme that operates in that Act).

Part 2 - Amendments commencing on 1 July 1999

Part 2 of the Schedule makes minor amendments commencing on 1 July 1999 to reflect the changes made by the Social Security and Veterans Affairs Legislation Amendment (Payment Processing) Act 1998 . Those changes introduced a 14 day fortnight basis (instead of 10 day) for social security payments. The same change needs to be reflected for financial supplement so that, in working out the maximum amount that a person is eligible to obtain, the correct result is achieved. Accordingly, the current weekday basis to the calculation is to be eliminated.

5. Commencement

This Schedule will commence on Royal Assent, except for the amendments made by Part 2, which will commence on 1 July 1999.

Schedule 3 - Family actual means test

1. Summary of proposed changes

This Schedule amends the Social Security Act 1991 (the Social Security Act) to incorporate youth allowance family actual means test provisions currently contained in the Social Security (Family Actual Means Test) Regulations 1998 (the FAMT Regulations). Those Regulations will lapse on the repeal by this Schedule of the present enabling provision.

2. Background

As a general principle, the family actual means test provisions are to be moved in this way without making any change in their effect. Those provisions themselves were originally set up with the intention of preserving the effect of the pre-existing AUSTUDY provisions so that students did not suffer any disruption to their payments because of the youth allowance changes, which happened half way through the academic year.

However, the new family actual means test provisions have been drafted on the basis that:

•

the drafting style and structure of the new provisions be more in keeping with the rest of the Social Security Act, including the standard provisions already set up there;

•

modifications be made to certain of the provisions to improve their structure and clarify their intent; and

•

certain technical and other minor changes be made to ensure that the original AUSTUDY provisions are correctly reflected and to refine certain aspects of the provisions, as outlined in detail below.

For the most part, there is no change in effect between the provisions of the FAMT Regulations and those of the new Module G of the Youth Allowance Rate Calculator. Only the following technical and minor departures have been made:

1

For the definition of designated parent, the various criteria are to be measured against the base tax year (ie, the tax year ending in the calendar year before the current one), rather than the appropriate tax year (which may be the base tax year or the following tax year). (This is in line with the pre-existing AUSTUDY provisions.)

2

The definition of the after-tax income concession for a secondary student has been redefined to reflect more succinctly the longstanding policy intent. The intent is to identify the costs of boarding a secondary student away from home, ie, the difference between the away from home and the at home rates, taking into account tax and Medicare levy. This figure is used in an exclusion from a persons actual means.

3

The rule about spending by a person other than a family member of a student for the benefit of the student being taken to be spending by the student (and therefore to be included in actual means) has been refined (in line with the pre-existing AUSTUDY provision).

3. Clauses and Schedule involved in the changes

4. Explanation of the changes

Background

One of the elements of the rate calculation process for youth allowance under the Youth Allowance Rate Calculator in section 1067G of Social Security Act is the family actual means test. This test may apply to a youth allowance claimant or recipient who is not independent (within the meaning of section 1067A of the Social Security Act).

The effect of the family actual means test on a person's youth allowance rate is described at Steps 10, 11 and 13(c) and (d) of the overall rate calculation method statement in point 1067G-A1. If the person is not independent and the family actual means test is applicable, the person's reduction for actual means is worked out under Module G and taken away from the maximum payment rate to give the actual means test reduced rate. If this rate should be nil, then youth allowance is not payable to the person. The person's youth allowance rate is assessed under both the family actual means test and the parental income test under Module F. Whichever of these would produce the lower youth allowance rate is the test that is applied to the person.

The new Module G provides the details necessary for the operation of the family actual means test.

New section 10B - Family actual means test definitions

Item 2 sets up a new section 10B containing the definitions used in new Module G of the Youth Allowance Rate Calculator, which is substituted by item 3 .

The definitions contained in new subsection 10B(2) are generally drawn from FAMT Regulation 4.

New subsection 10B(3) contains the definition of designated parent, which is drawn from FAMT Regulation 5. The definition is necessary for new point 1067G-G2, which specifies to whom the family actual means test applies. (It applies to a person who claims or receives youth allowance, is not independent and has a parent who is a designated parent.) A parent of a youth allowance customer is a designated parent if one of a number of circumstances applies. These circumstances are indicators that the parent might have financial means that should be taken into account in working out the young persons youth allowance entitlement, eg, having an interest in assets outside Australia or in a company, deriving certain income from a source outside Australia, being able to claim a tax deduction for a business loss or being self-employed or a member of a partnership.

New subsection 10B(4) contains the meaning of income assistance, drawn from FAMT Regulation 6. This is a term needed for new point 1067G-G9 in which certain amounts are excluded from a persons actual means. It means a specified kind of income support, whether youth allowance, austudy payment, an untaxable social security or veterans affairs payment, a payment under a Student Financial Supplement Scheme, ABSTUDY or the Assistance for Isolated Children Scheme, a payment of the former AUSTUDY, a scholarship or a State or Territory education payment.

New subsection 10B(5) defines savings, drawing on the former definition in FAMT Regulation 7. Savings are normally part of a persons actual means under new point 1067G-G8. The definition makes it clear that savings include certain amounts, although they are not limited to these amounts. The amounts included are a persons share in any profit retained by a company or partnership of which the person is a director, shareholder or member (respectively) if the person has a substantial influence over the distribution of the profit that could potentially benefit the person or a member of the family. Similarly, savings includes any undistributed trust profit if the trust is attributable to the person or if the person is a trustee or beneficiary of the trust who has specified controlling powers under the trust or substantial influence over the potentially beneficial distribution of the trust profit. New subsection 10B(6) describes for this purpose when a person controls a trust.

New Module G - Family actual means test

Item 3 repeals the old Module G of the Youth Allowance Rate Calculator, under which the FAMT Regulations were made, and substitutes a new Module G. Accordingly, the Regulations will lapse and will be replaced with the substantive provisions contained in the new Module.

Submodule 1 - Preliminary

This new Submodule describes the overall structure of the family actual means test, in which it is necessary to work out: whether the test applies to a person; the appropriate tax year that applies in respect of the person; the actual means of the persons family for that year; the persons family actual means free area; and the persons reduction for family actual means.

Submodule 2 - Persons to whom family actual means test applies

This new Submodule provides that the family actual means test applies to a person who claims or receives youth allowance, is not independent (as provided by section 1067A) and has a parent (as provided by paragraph (b) of the definition of parent in subsection 5(1)) who is a designated parent (as provided by new subsection 10B(3)).

However, certain people are excluded from the application of the family actual means test. The test does not apply while a family member of the person is receiving an exceptional circumstances relief payment under the Farm Household Support Act 1992 . Nor does it apply for the remainder of the calendar year after the relief payment stops. In this sense, exceptional circumstances relief payment includes the former drought relief payment.

Submodule 3 - Identification of appropriate tax year

The appropriate tax year is the period in respect of which a persons family actual means are calculated. The same period applies under the youth allowance parental income test in Module F of the Youth Allowance Rate Calculator. Under new point 1067G-G4, the appropriate tax year for a particular youth allowance payment period is generally the base tax year. The latter term (defined in parental income test point 1067G-F5) is the tax year that ended on 30 June in the calendar year that came immediately before the calendar year in which the youth allowance payment period ends. However, if a determination of the appropriate tax year has been made by the Secretary under point 1067G-G6, the tax year so determined is the appropriate tax year.

If new point 1067G-G5 applies to a person, then the person may, under new point 1067G-G6, request the Secretary to determine that the appropriate tax year is the tax year following the base tax year. This is designed to allow a person the benefit of having a lower family actual means figure taken into account if that lower figure would result from using the tax year following the base tax year as the basis for the assessment.

For this concession to be available, it must first be the case either that youth allowance would not be payable because of the rate being nil under the family actual means test or that the rate would be reduced under the test.

The person must give evidence or an estimate that his or her amount of family actual means is substantially less in the year following the base tax year than it was in the base tax year for one of three reasons - because of an event that is beyond the control of the person and family, because the person or a family member is undertaking full-time study in the tax year following the base tax year or because a designated parent has ceased to fall within one of the specified categories of the definition of designated parent.

The person must give evidence of the reason mentioned above and, if the decrease in actual means is based on an estimate, give an agreement to have his or her rate of youth allowance recalculated if the actual means for the tax year ends up being more than the amount estimated.

The amount of family actual means must be unlikely to increase beyond that reduced evidenced or estimated level for 2 years following the specified date.

It is also made clear that an expected decrease in the profitability of a business is not ordinarily to be taken to be an event that is beyond control, for the purposes of one of the acceptable reasons for the application of this Submodule.

Lastly, the request must be made in accordance with an approved form.

If the Secretary receives such a request, he or she must determine the persons appropriate tax year to be the tax year following the base tax year for a youth allowance payment period specified. However, if the request is based on an estimate, the Secretary may not make such a determination unless he or she is satisfied that the estimate is current and reasonable.

Submodule 4 - Actual means of persons family

New point 1067G-G7 explains the basic principle that the actual means of the family of a person (known here as the claimant/recipient) is worked out by first calculating, under this Submodule, the individual actual means of the claimant/recipient and of each person who is a family member of the claimant/recipient. (Having done that, the formula in new subpoint 1067G-G13(1) provides for each individual amount of actual means to be added together to form part of the calculation of the actual means of the family of the claimant/recipient.)

Accordingly, the following provisions of the new Submodule generally apply equally to any relevant person, ie, the claimant/recipient or a family member.

New point 1067G-G8 lays down the meaning of the actual means of a relevant person (again, a person who is either the youth allowance customer or a family member of customer). The actual means of a relevant person for the appropriate tax year is the total amount of the spending and savings of the person in that tax year.

Furthermore, an amount of spending or savings is taken to have been spent or saved in the appropriate tax year if the Secretary considers that the amount should be so taken.

New point 1067G-G9 adds to the meaning of actual means laid down above by recording certain amounts that are not to be included in a persons actual means for the appropriate tax year.

Not to be included are amounts such as spending or savings from any income assistance (see new subsection 10B(4)) received in the appropriate tax year, maintenance payments, certain costs of boarding away from home a family member who is studying, money spent to assist with a disability, money spent from any arms length loan received in that year, any loan repayments (or interest payments) on another kind of loan, spending or savings from certain liquidation proceeds or from a windfall gain that is not a gift, spending or savings of up to $6,000 from certain tax-exempt income and spending or savings from a tax-exempt part of a compensation payment.

Further, the amount of the income or resources of a business of the relevant person that is tax deductible as an expense necessarily incurred in carrying on the business is not to be included in actual means. However, certain amounts are not drawn into this exemption - any business losses carried forward from a previous tax year and any superannuation contribution from the business that exceeds a specified level for an employee or for a person engaged other than as an employee.

Nor is the amount of any reduction in liquid assets held by the person at the beginning of the appropriate tax year and not already taken into account above to be included in actual means.

New point 1067G-G10 provides a further exclusion from actual means for the appropriate tax year for a person who is a particular family member of a youth allowance customer (a family member described in one of three particular subparagraphs of the definition of family member in subsection 23(15) of the Social Security Act). This exclusion is spending or savings of up to $6,000 from any income of that family member from independent employment (defined in new subsection 10B(2)).

New point 1067G-G11 is to specify what the term after-tax income concession for a secondary student means. This term is used in subparagraph 1067G-G9(2)(d)(v) in calculating the amount of spending, in certain cases of boarding away from home a family member who is a secondary student, that is excluded from actual means. The concession is worked out under a formula that aims to identify the costs of boarding a secondary student away from home, ie, the difference between the away-from-home and the at-home rates of youth allowance, taking into account tax and Medicare levy. To do this, the after-tax income of the family is compared to a notional after-tax income that would apply if the student were not boarded away from home.

New point 1067G-G12 gives the Secretary a discretion to consider whether an amount of spending that would otherwise be included in a relevant persons actual means represents fair market value. If not so satisfied, the Secretary must assess the fair market value of the matter - the resulting amount is the amount that will be included in the persons actual means.

Furthermore, the Secretary has the discretion to consider whether spending by someone other than a family member of a relevant person is spending for the benefit of the relevant person. If so satisfied, the Secretary must assess the fair market value of the spending - the resulting amount will be included in the relevant persons actual means.

Having worked out, under the preceding points, the individual actual means of the youth allowance customer and of each family member, new point 1067G-G13 provides the culminating rule of how to calculate the family actual means of the youth allowance customer.

It is worked out using a formula which has regard to the following factors: GAM, being the sum of the actual means of each person in the family; TNITML, being the sum of the notional amounts of tax and medicare levy payable by each parent to achieve an after-tax income of half of GAM; TFTI, being a percentage of the family tax assistance increased tax-free threshold calculated under the Income Tax Rates Act 1986 ; and NPBL, being any net passive business loss (which takes its meaning from parental income test subpoint 1067G-F11(4)) of each parent.

Submodule 5 - Family actual means free area

This new Submodule is to identify the amount of family actual means a person may have without it affecting his or her youth allowance entitlement. The free area in this case is exactly the same as the parental income free area under Module F of the Youth Allowance Rate Calculator. Thus, the relative outcomes under both tests may be compared to ascertain which one should apply to the person (ie, the one that would produce the lower rate of youth allowance).

Submodule 6 - Reduction for family actual means

This new Submodule provides for a youth allowance customers rate of payment to be reduced for excess family actual means. A persons family actual means excess for the appropriate tax year (ie, the difference between the actual means of the persons family for that year and the free area) is divided by 4 and rounded down as described. The result is then converted to a fortnightly figure for the youth allowance rate calculation.

5. Commencement

This Schedule will commence on Royal Assent.

Schedule 4 - Youth allowance and austudy payment

1. Summary of proposed changes

This Schedule amends the Social Security Act 1991 (the Social Security Act) to address certain technical issues identified during the implementation of the youth allowance package.

2. Background

The technical amendments made by this Schedule generally make minor drafting clarifications and technical refinements to ensure that the youth allowance package operates in line with the original policy intentions, including the alignment where appropriate with the pre-existing AUSTUDY provisions.

3. Clauses and Schedule involved in the changes

4. Explanation of the changes

Part 1 - Amendments commencing on Royal Assent

Item 1 amends the youth allowance administrative exclusion provision so that it also applies if a person does not attend as directed a particular place for a particular purpose (eg, a jobs network office), in line with the equivalent newstart allowance provision.

Items 2 and 3 include reference to the Assistance for Isolated Children Scheme in the list of payments receipt of which will preclude a young person from youth allowance and austudy payment.

Items 4 and 5 clarify that information gathering notices may be given to a youth allowance recipient regardless of whether the allowance is being paid to the young person, a parent or a nominee (currently, the latter is unintentionally excluded).

Items 6 and 29 consolidate the provisions under which debts arise:

(a)

where a youth allowance recipients combined parental income or family actual means exceed the amount estimated as the basis for the rate calculation; and

(b)

where the persons combined parental income increases by 25% or more.

Item 7 relaxes the requirement for a statement to be given about a persons substantial physical disability for the purpose of 25% concessional study-load status, so that an appropriate medical officer may give the statement as an alternative to the Commonwealth Rehabilitation Service.

Item 8 clarifies the overall time for which a student may attract austudy payment if the student becomes a 25% concessional study-load student after doing some of the study on another basis. This is consistent with the rules for students who change status the other way around.

Items 9, 10, 27 and 28 align the rates of under 21 year old disability support pension with youth allowance rates instead of with newstart allowance rates, which are no longer applicable to this age group, including the correct indexation treatment.

Items 11 and 12 clarify the period over which a person must have supported himself or herself through paid employment to meet the test of independence and remove the requirement for that employment to have been in Australia.

Items 13 to 19 provide special rates of:

(a)

youth allowance and austudy payment for partnered long-term income support students; and

(b)

austudy payment for sole parents with youth allowance recipient children;

in line with pre-existing AUSTUDY rates. These people have continued to be paid the correct rates since 1 July 1998 on an ex-gratia basis, pending this legislation.

Items 20 and 21 clarify that guardian allowance is not to be included in the family allowance rate of a family whose only FA child or children are over 16, as is the case with rent assistance, and in keeping with the original policy intention.

Item 22 clarifies for the family allowance income test that only a youth allowance recipient child aged under 18 may be an FA child for the income free area. This is consistent with the treatment given to child recipients of other relevant student payments.

Items 23, 24 and 25 extend the standard disposal of assets provisions to family members of non-independent youth allowance recipients and claimants for the purposes of the youth allowance family assets test. This is on a similar basis to the treatment for all payments of partners who dispose of assets, with the overall result that the full value of assets disposed of beyond the disposal limit are taken into account under the test.

Item 26 makes a minor technical correction.

Part 2 - Amendments commencing on 1 July 1998

Items 31 and 32 clarify the reduced application of the definitions of homeless person and independent young person now that the youth allowance definition of independent covers much of the field.

Items 34, 39, 40 and 43 to 46 correct existing references to the ABSTUDY Scheme to reflect the current structure.

Item 36 omits the requirement for a person who has claimed disability support pension to be subject to the youth allowance activity test, or be exempted from it, before youth allowance may be accessed while the disability support pension assessment proceeds.

Item 37 clarifies the Governments intention that 16, or 15 if independent, is the youngest that a person may be to receive youth allowance, to close a technical loophole.

Items 38 and 42 relax the youth allowance and austudy payment activity test breach provisions to allow for a reasonable excuse.

Items 47 and 48 make a beneficial technical correction to clarify that 16 rather than 18 remains the relevant age for the purpose of excluding a student from special benefit if the person is not a homeless person.

Item 49 brings family allowance qualification for a student child into line with youth allowance study criteria for consistency.

Item 50 consolidates provisions allowing a higher rate of family allowance to be paid to a family as an alternative to youth allowance with effect from the date of an earlier youth allowance claim. This will ensure that the provisions apply for subsequent FA children as well as for the first FA child in the family (as currently provided).

Item 51 refines the drafting (without any change in effect) of a provision inserted as a non-Government amendment during passage of the youth allowance package relating to independence on the ground of it being unreasonable to live at home due to a lack of stable accommodation.

Item 52 corrects, in the self-support test of youth allowance independence, the existing reference to the 18 month period in respect of which a Commonwealth training award applies as a measurement of self-support. This will ensure that customers may get the benefit of the provision where appropriate.

Items 53 and 58 clarify the duration of the 39 week period over which a persons status as a long term income support student is measured for youth allowance and austudy payment rate purposes.

Item 57 adds austudy payment to the list of payments receipt of which by a young persons partner will exempt the young person from the youth allowance assets test, and by a young persons parent will exempt the young person from the youth allowance parental income test.

Items 59 to 69 make a series of technical amendments to Benefit Rate Calculator B to reflect the fact that the rate of a former newstart or sickness allowance recipient aged under 21 is now worked out under the Youth Allowance Rate Calculator.

Items 70, 71 and 72 make technical amendments to include reference to youth allowance in provisions relating to the family allowance income hardship provisions and fringe benefits provisions, in view of the fact that youth allowance has subsumed many of the student and youth payments previously covered for young people.

Item 73 amends the existing provision that dictates the order in which compensation reductions and various means test rate reductions are made to accommodate the youth allowance parental income test and family actual means test.

Items 74 to 77 make technical corrections to a number of indexation provisions to ensure the correct operation and drafting of those provisions.

Items 30, 33, 35, 41, 54, 55, 56, 78, 79, 80 and 81 make certain minor technical corrections.

Part 3 - Amendment commencing on 20 September 1998

Item 82 makes a minor technical correction.

Part 4 - Amendments commencing on 1 January 1999

Items 83 to 86 refine the drafting (without any change in effect) of provisions inserted as non-Government amendments during the passage of the youth allowance package. The provisions relate to the exemption for a person under 18 from the full-time study requirement, and will be refined with effect from the commencement of those amendments.

Part 5 - Amendment commencing on 1 July 1999

Item 87 amends the payment by instalments provision for austudy payment to bring it into line with amendments made by the Social Security and Veterans Affairs Legislation Amendment (Payment Processing) Act 1998 to other social security programs.

Part 6 - Amendments commencing on 1 July 2000

Items 88 and 89 include reference to the Ready Reserve Education Assistance Scheme in the list of payments receipt of which will preclude a young person from youth allowance and austudy payment.

5. Commencement

The amendments in this Schedule will commence on Royal Assent or on such other date as is specified in the heading of the Part in which they appear.

Schedule 5 - Youth allowance and the student financial supplement scheme

1. Summary of proposed changes

This Schedule amends legislation other than the Social Security Act 1991 (the Social Security Act) to reflect the new placement and structure of the student financial supplement scheme provisions (see Schedule 2 to this Bill) and as a minor consequence of the commencement of youth allowance.

2. Background

This Schedule is strictly technical, as indicated under 1 above.

3. Clauses and Schedule involved in the changes

4. Explanation of the changes

Items 1, 2, 3, 4, 5, 10, 11 and 12 are all to reflect in relevant data-matching and tax legislation the new structure and location of the provisions relating to the student financial supplement scheme provided by the Social Security Act. Those provisions have been relocated by Schedule 2 to this Bill from a disallowable instrument under the Social Security Act into the Act itself. Item 12 amends a provision introduced in the Taxation Laws Amendment (No. 5) Bill 1998, and so this amendment is expressed as an amendment to the yet to be enacted provision.

Items 6, 7, 8 and 9 make minor amendments to the farm household support legislation as a consequence of the commencement of youth allowance. Youth allowance is being reflected, alongside newstart allowance in that legislation, as a determinant of the rate of exceptional circumstances relief payment and restart income support, now that the younger newstart allowance group is covered by the youth allowance provisions.

5. Commencement

The amendments in this Schedule will commence on Royal Assent or on such other date as is specified in the heading of the Part in which they appear.