Senate

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 1 - CDEP Scheme Participant Supplement

Outline of Chapter

1.1 This Bill will amend the Income Tax Assessment Act 1936 (ITAA 1936),the Taxation Administration Act 1953 (TAA 1953) and the Income Tax Rates Act 1986 (ITRA 1986) to provide for the same income tax treatment of the Community Development Employment Projects (CDEP) Scheme Participant Supplement as the equivalent payment made to Newstart and Youth Allowance recipients involved in labour market programs.

Background to the legislation

1.2 The Further 1998 Budget Measures Legislation Amendment (Social Security) Act 1999 , which received Royal Assent on 11 November 1999, provided CDEP scheme participants with a new supplement. The CDEP Scheme Participant Supplement is paid at the rate of $20 per fortnight and is designed to provide an equivalent payment to that received by Newstart and Youth Allowance recipients involved in labour market programs.

1.3 The proposed amendments will ensure that the CDEP Scheme Participant Supplement receives the same income tax treatment to the equivalent payments received by Newstart and Youth Allowance recipients.

Summary of new law

1.4 The following amendments will be made to the ITAA 1936:

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paragraph (a) of the definition of 'rebatable benefit' and paragraph (b) of the definition of 'rebatable pension' in subsection 160AAA(1) will be amended so that the CDEP Scheme Participant Supplement will be beneficiary rebatable;

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paragraphs 202CB(6)(a) and 202CE(7)(a), which cover the quotation of tax file numbers (TFNs) on employment declarations and TFN declarations, will be amended to ensure that recipients of the CDEP Scheme Participant Supplement are treated in a similar fashion to recipients of other similar Government benefits; and

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new paragraph (h) in the definition of 'salary or wages' in subsection 221A(1) will be inserted to make CDEP Scheme Participant Supplement payments subject to the current pay as you earn (PAYE) withholding arrangements.

1.5 The following technical amendment will be made to the ITRA 1986:

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to exclude the CDEP Scheme Participant Supplement from paragraph (c) of the definition of 'eligible pensioner' in subsection 16(1).

1.6 The following amendment will be made to the TAA 1953:

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new paragraph 12-110(1)(d) will be inserted to make CDEP Scheme Participant Supplement payments subject to the new pay as you go (PAYG) withholding arrangements.

Detailed explanation of new law

What is the income tax treatment of the CDEP Scheme Participant Supplement?

1.7 The CDEP Scheme Participant Supplement, which is paid under Part 3.15A of the Social Security Act 1991 , is income according to ordinary concepts. Therefore the payment is presently assessable under section 6-5 of the Income Tax Assessment Act 1997 .

1.8 The amendments to the definitions of 'rebatable benefit' and 'rebatable pension' in subsection 160AAA(1) will ensure that payments of the CDEP Scheme Participant Supplement will be subject to the beneficiary rebate under subsection 160AAA(3) on the same basis as equivalent payments made to Newstart and Youth Allowance recipients involved in labour market programs. [Schedule 1, items 1 and 2, subsection 160AAA(1)]

1.9 As a consequence of the beneficiary rebate being extended to the CDEP Scheme Participant Supplement, a technical amendment is required to paragraph (c) of the definition of 'eligible pensioner' in subsection 16(1) of the ITRA 1986 . The exclusion of the CDEP Scheme Participant Supplement from the definition of 'eligible pensioner' will ensure that CDEP participants, who are not residents for the full year of income, will have their tax-free threshold pro-rated under section 20 of the ITRA 1986. [Schedule 1, item 6, subsection 16(1)]

Will the CDEP Scheme Participant Supplement be subject to withholding?

1.10 The CDEP Scheme Participant Supplement will be subject to the current PAYE and the new PAYG withholding arrangements on the same basis as equivalent payments made to Newstart and Youth Allowance recipients involved in labour market programs.

Amendments to the PAYE provisions

1.11 This Bill proposes to insert new paragraph (h) in the definition of 'salary or wages' in subsection 221A(1) of the ITAA 1936 to make payments of the CDEP Scheme Participant Supplement subject to the PAYE arrangements. [Schedule 1, item 5, subsection 221A(1)]

Amendments to the PAYG provisions

1.12 This Bill replaces section 12-110 in Part 2-5 of Schedule 1 to the TAA 1953 as a consequence of the insertion of new paragraph 12-110(1)(d) which provides for payments of the CDEP Scheme Participant Supplement to be subject to the PAYG withholding arrangements. [Schedule 1, item 7, paragraph 12-110(1)(d)]

1.13 As a consequence of the CDEP Scheme Participant Supplement being subject to the withholding arrangements, the rules covering the quotation of TFNs on employment declarations and TFN declarations also require amendment. Paragraphs 202CB(6)(a) and 202CE(7)(a) of the ITAA 1936 are being amended to have the same TFN quotation rules for recipients of the CDEP Scheme Participant Supplements as that applying to Newstart and Youth Allowance recipients. [Schedule 1, item 3, paragraph 202CB(6)(a), item 4, paragraph 202CE(7)(a)]

Application

1.14 The amendments will apply to payments made on or after 11 November 1999 and to assessments for the 1999-2000 year of income and all later years of income. [Schedule 1, item 8]