Explanatory Memorandum
(Circulated by authority of the Minister for Family and Community Services, Senator the Hon Amanda Vanstone)Outline, financial impact statement and notes on clauses
This Bill amends the A New Tax System (Family Assistance) (Administration) Act 1999 as follows:
- •
- The time limits for making past period (lump sum) claims for family tax benefit (FTB) and child care benefit are extended by 12 months.
- •
- The time frame for payment of top-ups of FTB as a result of income reconciliation will be extended from one to two years after the end of the income year to which the payments relate.
- •
- The time frames relating to the exchange, use and destruction of tax file number data for income reconciliation purposes is extended from two to three years, in keeping with the extended time frames for claiming and top-ups.
The Bill also makes consequential amendments to the Income Tax Assessment Act 1997 to enable families who use the services of a recognised tax adviser to make past period claims from 1 July 2003 to 30 June 2004 to continue to be able to claim the adviser's fee as a tax deduction.
Administered costs of the measures in this Bill are estimated at:
- $45.1m in 2003-2004;
- $45.2m in 2004-2005;
- $45.4m in 2005-2006; and
- $45.6m in 2006-2007.
Clause 1 sets out how the Act is to be cited, that is, the Family Assistance Legislation Amendment (Extension of Time Limits) Act 2003.
Clause 2 provides that the Act commences on the day on which it receives the Royal Assent.
Clause 3 provides that each Act that is specified in a Schedule is amended or repealed as set out in that Schedule and that any other Schedule item has effect according to its terms.
Schedule 1 - Extension of time limits relating to family tax benefit and child care benefit
Part 1 - Amendment of the A New Tax System (Family Assistance) (Administration) Act 1999
Part 1 contains three measures:
- A.
- Time limits for past period claims for family tax benefit (FTB) and child care benefit (CCB) are extended.
- B.
- The time frame for payment of top-ups of FTB as a result of income reconciliation will be extended from one to two years after the end of the income year to which the payments relate.
- C.
- A consequential change is made to extend the time frames relating to the exchange, use and destruction of tax file number date for income reconciliation purposes.
A. Extend time limit for past period claims
The only way a person can become entitled to be paid FTB is by making an "effective" claim.
Subsection 10(2) of the A New Tax System (Family Assistance) (Administration) Act 1999 (the Family Assistance Administration Act) provides that a claim for FTB for a past period is not effective if the claim relates to a particular income year and the claim is made after the end of the following income year.
Item 1 amends subsection 10(2) to allow individuals an additional 12 months in which to make a past period claim. A past period claim would be ineffective under amended subsection 10(2) if the claim relates to a particular income year and is made after the end of two income years after that particular income year.
Item 6(1) provides that the amendments made by item 1 will apply to past period claims for FTB for the 2001-2002 income year and later income years.
A similar time limit applies in relation to past period claims for CCB by an individual for care provided by an approved child care service. Subsection 49J(2) of the Family Assistance Administration Act provides that such a claim is not effective if, among other things, the claim relates to a particular income year and is made after the end of the following income year.
Item 3 amends subsection 49J(2) to allow individuals an additional 12 months in which to make a past period claim for CCB for care provided by an approved child care service. A past period claim would be ineffective under the amended subsection 49J(2) if the claim relates to a particular income year and is made after the end of two income years after that particular income year.
Item 6(2) provides that the amendments made by item 3 will apply to past period claims for CCB for the 2001-2002 income year and later income years.
B. Extend time limit for payment of top-ups of FTB
Section 28 of the Family Assistance Administration Act requires the Secretary to vary a determination under section 16 (that a claimant is entitled to be paid FTB by instalment) or section 17 (that a claimant is entitled to be paid FTB for a past period) in certain circumstances.
In broad terms, subsection 28(1) applies where a person is entitled to be paid FTB by instalment or for a past period in respect of a particular income year and the person (and the person's partner if applicable) have not lodged their tax returns by the end of the following income year. Where this happens, the Secretary is required to vary the instalment or past period determination so that it has the effect that the person was not entitled to FTB for that particular income year. The variation occurs under subsection 28(2).
By way of example, if a person was paid FTB by instalment in respect of the 2001-2002 income year and has not lodged the relevant tax returns by 30 June 2003, then the person ceases to be entitled to FTB for 2001-2002.
Subsection 28(3) currently requires the Secretary to undo the determination of "no entitlement" where the relevant tax returns are subsequently lodged and an assessment of taxable income is made by the Commissioner of Taxation. However, the effect of the undoing is that the person is entitled to the lesser of the amount of FTB actually received and the amount to which the person is entitled after income reconciliation. There is no capacity in the current subsection 28(3) to pay a top-up of FTB.
Item 2 recasts subsection 28(3) so as to enable top-ups of FTB to be paid where the relevant tax returns are not lodged on time (in accordance with the requirements of subsection 28(1)) but are lodged within the following 12 months period. Where this happens, the person is entitled to their full entitlement of FTB. This extended time frame and the capacity to pay top-ups is provided for in new paragraph 28(3)(c).
If the relevant tax returns are not lodged within the extended time frame, then new paragraph 28(3)(d) would apply with the effect that the person is entitled to the lesser of the amount of FTB actually received and the amount to which the person is entitled after income reconciliation. This is the current rule in subsection 28(3).
New subsection 28(3) would work in the following manner. A person is paid FTB by instalment in 2001-2002. The person does not lodge their tax return by 30 June 2003. Subsections 28(1) and (2) would apply with the effect that the person ceases to be entitled to FTB for the 2001-2002 income year.
If the person subsequently lodges their tax return by 30 June 2004, the Commissioner of Taxation makes an assessment of the person's taxable income and the Secretary decides that the person is entitled to FTB for the 2001-2002 income year, then the "no entitlement" determination would be again varied with the effect that the person is entitled to the full amount of their FTB entitlement. If the person over-estimated their income for the 2001-2002 income year, then the person would be entitled to a top-up.
If the person lodges their tax return after 30 June 2004, the equivalent of the current rules would apply and the person would not be entitled to a top-up.
Item 6(2) provides that the amendment made by item 2 applies to a variation under section 28 that relates to the 2001-2002 income year and later income years. In effect, this means that a top-up will be available in respect of the 2001-2002 income year for customers who lodge the relevant tax returns by 30 June 2004.
C. Consequential amendment - data de-linking
In broad terms, section 154A of the Family Assistance Administration Act provides authority for the exchange of tax file number (TFN) data between the Secretary and the Commissioner of Taxation for the purpose of income reconciliation. At the end of each income year, families paid on an estimate of their adjusted taxable income and required to lodge income tax returns have their actual income, as assessed by the Commissioner of Taxation, reconciled with the income they estimated. The purpose of reconciliation is to ensure that correct family assistance entitlements have been paid for a particular income year. As the Australian Taxation Office (ATO) uses TFNs as the unique identifier for its customers, using TFNs is the most reliable and timely means by which to reconcile the ATO's income details with family assistance payment details.
Under these disclosure rules in section 154A, the Secretary may provide the Commissioner of Taxation with a TFN for the purpose of being informed of an individual's taxable income. In return, subsection 154A(3) provides that the Commissioner of Taxation may provide the Secretary with particulars of the individual's taxable income, together with the individual's TFN, if the Commissioner determines the taxable income before the end of two years after the end of the relevant income year.
Importantly, subsection 154A(4) requires the Commissioner to destroy the Commissioner's TFN record in respect of a particular income year two years after the end of that income year.
Because the time frames for past period claims and payment of top-ups are being extended by 12 months, items 4 and 5 also extend the time frames set in subsections 154A(3) and (4) by 12 months.
Item 4 amends subsection 154A(3) to enable the Commissioner of Taxation to provide the Secretary with an individual's income details and TFN if the Commissioner determines taxable income before the end of three (instead of two) years after the end of the relevant income year.
It follows that TFN data held by the Commissioner should then be destroyed three (instead of two) years after the end of the relevant income year. Item 5 provides for this to happen.
Item 6(4) provides that the amendment made by item 4 applies to a determination of taxable income by the Commissioner of Taxation made on or after 1 July 2003. This enables the Commissioner to provide the Secretary with income details and TFNs relating to the 2001-2002 income year up to 30 June 2005.
Item 6(5) provides that the amendment made by item 5 applies to TFNs provided in respect of the 2001-2002 income year and later years. In effect this means that a TFN provided under section 154A of the Family Assistance Administration Act in respect of the 2001-2002 income year will need to be destroyed by the Commissioner of Taxation by 30 June 2005.
Part 2 - Amendment of the Income Tax Assessment Act 1997
Part 2 amends the Income Tax Assessment Act 1997 (the Tax Act) to enable families who use the services of a recognised tax adviser to make FTB past period claims for the 2001-2002 income year made from 1 July 2003 to 30 June 2004, to continue to be able to claim the adviser's fee as a tax deduction.
Currently, FTB past period claims for the 2001-2002 income year made after 30 June 2003 are ineffective and therefore automatically rejected by the ATO systems.
Because the extended time frames for top-ups and past period claims will be effective for the 2001-2002 income year, a transitional administrative arrangement will be introduced for families who claimed, or intend to claim, their 2001-2002 FTB entitlement as a lump sum through the tax system after 30 June 2003. As changes to the ATO systems cannot be made retrospectively, these families will be advised to make their claim directly through Centrelink.
Under section 25-7 of the Tax Act, if a recognised tax adviser provides advice in relation to a claim for FTB and the claim is lodged with an officer of the ATO, the fee for that advice is deductible. However, advice provided in relation to an FTB claim lodged with Centrelink does not currently attract a deduction.
Items 7 and 8 ensure that families who use the services of a recognised tax adviser to make lump-sum claims for the 2001-2002 income year made from 1 July 2003 to 30 June 2004, continue to be able to claim the adviser's fee as a tax deduction.
Item 7 amends paragraph 25-7(b) to remove the condition for the claim to be lodged with an officer of the ATO with respect to lump sum claims that relate to the 2001-2002 income year.
Item 8 adds a new paragraph to address the treatment of tax advisers' fees for lump sum claims that relate to the 2001-2002 income year.
New subparagraph 25-7(c)(i) ensures that claims made on or before 30 June 2003 are lodged with an officer of the ATO for the adviser's fee to be tax deductible.
New subparagraph 25-7(c)(ii) allows the adviser's fee to be tax deductible for claims lodged between 1 July 2003 and 30 June 2004 with an officer of Centrelink.
Item 9 provides that the amendments made to the Tax Act by this Part will apply to past period (lump sum) claims for FTB for the 2001-2002 income year made during the 2003-2004 income year.