Explanatory Memorandum
(Circulated by the authority of the Treasurer,the Hon Peter Costello)General outline and financial impact
The Family Tax Initiative is a scheme to give new benefits to families with dependent children. It has 2 components - tax assistance, to be known as family tax assistance (FTA); and equivalent fortnightly cash payments, to be known as family tax payments (FTP).
Family tax assistance will take the form of increases in the tax-free threshold for certain taxpayers with dependant children, with consequent reductions in tax liability. Family tax payments will be fortnightly cash payments, equal in value to the tax savings from FTA, and available to certain low income earners as an alternative to FTA.
Family tax payments will be administered by the Department of Social Security, under Part 2.17AA of the Social Security Act 1991 , which will be introduced by the Family (Tax Initiative) Bill 1996.
This Bill, the Income Tax Rates Amendment (Family Tax Initiative) Bill 1996,will amend the Income Tax Rates Act 1986 to provide for family tax assistance.
Date of effect: 1 January 1997.
Proposal announced: The proposal was first announced by the Prime Minister on 18 February, 1996. The implementation of the proposal was announced by the Treasurer as part of the 1996-97 Budget on 20 August 1996.
Financial impact: The cost to the revenue of the Family Tax Initiative will be just over $1 billion in a full year.
Compliance cost impact: To establish their FTA entitlement, many taxpayers will be required to understand rules, and do new calculations - for example, taxpayers with shared custody of children will have to do pro-rating calculations to determine the amount of benefit they can claim. Many taxpayers will also be required to make agreements with their spouses, which will have to be recorded and preserved according to certain rules. There will be additional material in Taxpack relating to the FTA.
Salary and wage earners will be able to claim FTA by way of reduced tax instalment deductions. This will mean completing new employment declarations before 1 January 1997, and thereafter whenever a taxpayer's entitlements change. Additional information will be required to be provided in employment declarations, to accomodate the FTA.
Provisional taxpayers will be able to lodge provisional tax variations, if their FTA entitlements change during a year.
FTA will also impact on employers, who will need to adjust their payroll systems to take account of employees who reduce their tax instalment deductions for FTA. Employers will handle a greater number of employment declarations, as taxpayers vary their tax instalments, in line with their changing FTA entitlements.