House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. John Howard, M.P.)

Notes on Clauses

Clause 1: Short title

This clause provides for the short title of the amending Act and refers to the Income Tax Assessment Act, which it amends, as the Principal Act.

Clause 2: Commencement

Section 5(1A) of the Acts Interpretation Act 1901 provides that unless the contrary intention appears every Act shall come into operation on the 28th day after the day on which it receives Royal Assent. By this clause, the amendments, which are to apply from the beginning of the 1978-79 income year, will come into operation on the day of Royal Assent.

Clause 3: Interpretation

This clause amends section 251R of the Principal Act which contains definitions of expressions used in the health insurance levy provisions of that Act.

Paragraph (a) of sub-clause (1) formally provides that the provisions of sub-section (2) of section 251R of the Principal Act - which sets out the circumstances in which one person is to be taken, for purposes of the levy, as being a dependant of another person - are to be subject to the provisions of new sub-section (3A) which is being inserted in that section by paragraph (b).

New sub-section (3A) of section 251R provides, in effect, that where the parents of a child are divorced or separated (paragraph (a) of the sub-section) and the child would otherwise be taken to be a dependant for levy purposes of each of those parents during a period after they became divorced or were separated (paragraph (b)) then the child is to be taken as being a dependant during the period concerned solely of the parent who was entitled, in that period, to family allowances (child endowment) for the child.

Paragraph (c) of sub-clause (1) proposes a technical amendment of sub-section (6) of section 251R of the Principal Act. That sub-section provides, in broad terms, that references to rebates for income tax purposes do not include references to the rebate of health insurance levy that is allowed under section 251U of that Act. A rebate of levy may also now be allowed under the Health Insurance Levy Act and, as a consequence, it is proposed by paragraph (c) to provide that this rebate is also to be excluded from references to rebates for income tax purposes.

By sub-clause (2) of clause 3 the amendments that are being made by sub-clause (1) will apply to assessments made in respect of income of 1978-79 and subsequent income years.

Clause 4: Excess tax rebates to be allowed against levy

This clause proposes two technical amendments of section 251U of the Principal Act. That section has the broad effect that any excess of income tax concessional rebates over the amount of income tax payable may be set off against health insurance levy.

Paragraph (a) of sub-clause (1) will omit the word "other" from section 251U(1), to remove the possibility of it being misinterpreted as allowing a double set-off of concessional rebates.

Paragraph (b) will omit from section 251U present sub-sections (2) and (3) and insert a new sub-section (2).

Existing sub-section (2) of section 251U of the Principal Act is a measure associated, in the special case of a person in receipt of certain partnership income derived in a tax avoidance context, with the general concessional rebate of tax that was allowed for 1976-77 and earlier income years but which is not part of the present income tax system. That sub-section is therefore redundant and paragraph (b) proposes that it be repealed.

Sub-section (3) of section 251U of the Principal Act, which paragraph (b) proposes be repealed, limits the amount of the rebates of levy that a person may be allowed under that section to the amount of levy otherwise payable by the person. Proposed new sub-section (2) is basically a re-expression of existing sub-section (3). As re-expressed, the sub-section will limit the total of the rebates of levy allowable under section 251U and under an Act imposing levy for a year of income, to the amount of levy that would be payable if rebates of levy were not allowable. This amendment is consequential on the introduction of a rebate in the Act imposing levy for the 1977-78 income year, i.e., the Health Insurance Levy Act 1977.

Sub-clause (2) of clause 4 will apply the amendments made by sub-clause (1) to assessments made in respect of income of 1978-79 and subsequent income years.

Clause 5: Prescribed persons

This clause amends section 251V of the Principal Act. That section contains a definition of the term "prescribed person". Broadly stated, this term is a description of categories of persons entitled to exemption from the levy, e.g., through having appropriate private hospital and medical insurance cover or as a repatriation beneficiary or member of the defence force.

Paragraph (a) of sub-clause (1) is a drafting measure consequential on the proposed insertion, by paragraph (b), of new paragraph (e) in sub-section (1) of section 251V of the Principal Act.

New paragraph (e) of sub-section (1) will have the effect that foreign Government representatives and their families will, in general, be taken to be prescribed persons for the purposes of the health insurance levy provisions and, accordingly, as exempt from the levy. Such a person would not be exempt from levy under new paragraph (e) or under that paragraph when it is read in conjunction with the other provisions of section 251V, where the person or his dependants, if any, are Australian citizens or ordinarily reside in Australia.

As a consequence of the proposed insertion of new paragraph (e) in sub-section (1) of section 251V it is proposed by paragraph (c) of sub-clause (1) to insert a new sub-section - sub-section (1A) - in that section. Sub-section (1A) is a drafting measure which provides that expressions used in section 251V that are defined by the Vienna Convention on Diplomatic Relations (paragraph (a) of sub-section (1A)) or the Vienna Convention on Consular Relations (paragraph (b)) are to have the same respective meanings in section 251V as those expressions have in the relevant Convention.

Sub-clause (2) provides for the amendments proposed by sub-clause (1) to apply to assessments made in respect of income of 1978-79 and subsequent income years.