Senate

Revised Explanatory Memorandum

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

Chapter 6 Senior Australians Tax Offset and minor amendments of the MLA 1986

Outline of chapter

6.1 Schedule 6 to this bill explains the extended eligibility conditions for SATO which will allow senior Australians to benefit from SATO. Schedule 8 to this bill makes a technical correction to the MLA 1986 to correct references to the ITAA 1936.

Context of amendments

6.2 The amendments will ensure that the following senior Australians also benefit from SATO in the same way as other eligible senior Australians:

persons who did not actually receive a pension, allowance or benefit but were eligible to receive one under the VEA 1986; and

persons who did not satisfy the residency criteria but were eligible for an age pension under the SSA 1991 on alternative grounds.

Summary of new law

SATO

6.3 The eligibility test for SATO for veterans will now be based on a veterans eligibility rather than on receipt of a pension, allowance or benefit. The condition which required a veteran to be actually receiving a pension, allowance or benefit under the VEA 1986 is removed.

6.4 Similarly, the eligibility test for SATO for other senior Australians will be based on a persons eligibility to receive an age pension. The condition which required a person to satisfy a residency test is removed.

Amendments to the MLA 1986

6.5 This amendment corrects references in the MLA 1986 to the ITAA 1936.

Comparison of key features of new law and current law

Detailed explanation of new law

Veterans

Eligibility conditions for SATO

6.6 To be eligible for SATO, a veteran must:

•

be eligible to receive a pension, allowance or benefit under the VEA 1986;

•

have reached pension age as defined in the VEA 1986; and

•

not be in gaol.

[Schedule 6, item 1, paragraph 160AAAA(2)(a)]

6.7 A veteran, although eligible to receive a pension, allowance or benefit may not in fact receive one of those payments due to the application of the assets test or the income test or simply because a veteran chose not to receive a payment. Such veterans (i.e. those that satisfy the eligibility criteria but are not in receipt of any pension, allowance or benefit) will now be eligible for SATO. This ensures that veterans will be entitled to SATO on a consistent basis as other senior Australians of age pension age.

6.8 A veteran may not receive a pension, allowance or benefit under the VEA 1986 if the veteran is in gaol. Since the actual receipt of a pension is now removed from the eligibility conditions, the requirement that the taxpayer not be in gaol is included to maintain the original intention of the law.

Other senior Australians

Eligibility conditions for SATO

6.9 To be eligible for SATO, a person must:

•

be eligible to receive an age pension under SSA 1991; and

•

not be in gaol.

[Schedule 6, item 1, paragraph 160AAAA(2)(b)]

6.10 The residency test is removed as a condition for receiving SATO. Senior Australians who do not satisfy the residency test contained in the SSA 1991 but qualify for an age pension on alternative grounds will now be eligible for SATO. These senior Australians include:

•

age pensioners who received a widow B pension, a widow allowance, a mature age allowance or a partner allowance immediately before reaching pension age; and

•

age pensioners who became residents of Australia after ceasing residency of a country which had a social security international agreement with Australia under the Agreements Act.

6.11 The Agreements Act overrides the residency provisions of the SSA 1991. The Agreements Act has a different residency test to that contained in the SSA 1991. As such, those senior Australians do not necessarily have to satisfy the residency criteria in the SSA 1991 to be eligible to receive an age pension.

6.12 The requirement that other senior Australians be of pension age within the meaning of the SSA 1991 is no longer required since it is contained in the qualification for an age pension.

Trustees assessed under section 98

6.13 The amendments also apply to situations where a veteran or an age pensioner is a presently entitled beneficiary of a trust estate and is under a legal disability. [Schedule 6, item 2, paragraphs 160AAAB(2)(a) and (b)]

Amendments to the MLA 1986

6.14 Schedule 2 to the Taxation Laws Amendment (Changes for Senior Australians) Act 2001 raised the Medicare levy low income threshold for senior Australians and certain pensioners. A minor technical error was made when making reference to subsection 160AAA(2) of the ITAA 1936. This technical correction changes the existing reference to section 160AAA, in the MLA 1986, to subsection 160AAA(2). [Schedule 8, items 1 and 2]

6.15 The policy intention of the 2001-2002 Federal Budget measures was to ensure that certain senior Australians and pensioners who are not liable for income tax will also not be liable for any Medicare levy. This technical correction gives effect to that policy.

Application and transitional provisions

SATO

6.16 The amendments apply to assessments for the 2000-2001 year of income and later income years. During the processing of the income tax returns for the 2000-2001 year of income it was discovered that some senior Australians did not qualify despite being low income earners. The amendments are retrospective so that those veterans and other senior Australians who were not eligible for SATO in the 2000-2001 year of income can claim SATO by requesting an amendment to their income tax returns. [Schedule 6, item 3]

Amendments to the MLA 1986

6.17 The amendments to the MLA 1986 apply to assessments for the 2000-2001 income year and later income years. [Schedule 8, item 3]