House of Representatives

Explanatory Memorandum

(Circulation by authority of the Treasurer, the Hon. P.J. Keating, M.P.)

Main features

The Income Tax Assessment Amendment Bill (No. 3) 1983 will amend the provisions of the income tax law which allow a rebate of tax for home loan interest payments during the first five years of occupancy of a taxpayer's sole or principal residence. The effect of the amendments is that -

(a)

there will be no new entrants to the rebate scheme after 30 September 1983, subject to some transitional measures; and

(b)

entitlement to a rebate after that date will be subject to an income test.

At present, the rebate is 30 cents in the dollar of qualifying interest, subject to an upper limit of $500 in the first full year of occupancy, reducing by $100 per year during the following four years. The upper limit is increased by $200 where the dwelling is also the home of a dependent child or dependent student of the taxpayer. This increase is available on a pro-rata basis if the dwelling is the home of the dependant for only part of the year.

Broadly, the Bill proposes that taxpayers who qualify under the rebate scheme on or before 30 September 1983, that is, those who have first occupied a dwelling as their sole or principal residence on or after 1 July 1977 and on or before 30 September 1983, will continue to receive the benefits of the existing scheme, but subject to the operation of an income test. The income test will apply in such a way that benefits under the scheme after 30 September 1983 will be available in full to taxpayers whose "family incomes" in the 1982-83 income year are $24,300 or less, shading out proportionately for family incomes up to $27,900. No rebate will be available after 30 September 1983 where a taxpayer's family income is $27,900 or greater.

The income that will be taken into account for the purpose of the income test will be the combined 1982-83 taxable income of the taxpayer and the person (if any) who is his or her spouse on 1 October 1983.

For the 1983-84 year of income, only the rebate entitlement attributable to the period after 30 September 1983 is to be income tested. The rebate otherwise available for the whole year in accordance with the existing law will be apportioned over the periods up to and after 30 September 1983 on the basis of the number of whole months in each of those two periods during which the taxpayer is an owner-occupier of a dwelling which is his or her sole or principal residence and in respect of which rebatable interest is paid.

The Bill extends the operation of the provisions to taxpayers who, although they enter the rebate scheme by taking up occupation of a dwelling after 30 September 1983, have contracted to acquire or build or commence to build on or before that date the dwelling they ultimately occupy. This transitional measure will protect those first home buyers who will not be eligible under the proposed system of income-tested periodic cash payments to first home buyers who contract to purchase or build their principal residence on or after 1 October 1983. Because of differences in the tests which must be satisfied under the two schemes, some first home buyers would not without this extension be entitled to the benefits of either scheme. Where such a taxpayer comes within the rebate scheme the income test will apply to the combined 1982-83 taxable income of the taxpayer and the person (if any) who is his or her spouse on the day the dwelling is occupied.

A more detailed explanation of the Bill is contained in the following notes.