House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Family and Community Services, Senator the Hon Kay Patterson)

Schedule 1 - Utilities Allowance

Summary

The amendments made by this Schedule will introduce a new payment for senior Australians, to be known as the utilities allowance. The payment will be made to recipients of income support who are of age pension or veteran pension age. The payment will be made if the person is qualified for the allowance on 20 March and 20 September of each year, commencing on 20 March 2005. In general, the new allowance will, subject to CPI indexation, be a payment of $100 a year for singles and $50 to each member of a couple. The allowance will be paid in two instalments on the person's income support payday following the 'test days' on 20 March and 20 September of each year.

Background

During the 2004 election campaign, the Government made a commitment to introduce a new payment to provide more help for older Australians on income support payments. Senior Australians on income support are entitled to receive one of a number of concession cards, which provide access to cheaper prescriptions and a range of other benefits. However, some of these older Australians can experience difficulties in saving up to pay regular household bills, such as for gas and electricity. Accordingly, the new payment will be introduced to provide assistance for older Australians in paying for such utilities.

Explanation of changes

Part 1 - Amendments relating to Family and Community Services' payment of utilities allowance

Income Tax Assessment Act 1997

Item 1 inserts a reference to the new utilities allowance in the table in section 52-10, which provides for the income tax treatment of social security payments. The effect of the amendment is that in each of the first two cases dealt with in that table, the new allowance will be exempt from income tax. In particular, case 1 applies if a person receives an ordinary payment of the allowance (that is, a payment made other than because of a person's death) unless case 2 applies. Case 2 applies if a person's partner dies, the person does not qualify for bereavement payments (because no bereavement payments are payable in relation to the allowance), and the person receives an ordinary payment of the allowance on any of the person's paydays after their partner's death. Cases 3 and 4 are not applicable to the new allowance.

Item 2 inserts a reference to the new utilities allowance in the table in section 52-40, which lists the provisions of the Social Security Act under which social security payments are made that are wholly or partly exempt from income tax.

Social Security Act 1991

Item 3 inserts a definition of 'utilities allowance' in subsection 23(1) of the Social Security Act.

Item 4 inserts new Part 2.25A into the Social Security Act to provide for the new utilities allowance.

Division 1 - Qualification for and payability of utilities allowance

New subsection 1061T provides the qualification conditions for the new allowance. First, the person must have reached 'pension age', which is defined in subsection 23(1) of the Social Security Act, as elaborated in subsections 23(5A) to (5D). Pension age is 65 years for men and is currently 62.5 years for women.

Secondly, the person must be receiving an 'income support payment', which is defined in subsection 23(1) of the Social Security Act.

Thirdly, the person must be either in Australia, or temporarily absent from Australia for a continuous period not exceeding 13 weeks.

New subsection 1061TA provides for when the new allowance is payable.

New subsection 1061TA(1) provides the general rule that the allowance is payable to a person for each utilities allowance test day (defined in new subsection 1061TA(3) as 20 March and 20 September) on which the person is qualified for the allowance.

New subsection 1061TA (2) provides that the allowance will not be payable on a utilities allowance test day if:

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service pension or income support supplement is payable to the person on that day - this recognises that a person cannot be paid two allowances if they are receiving income support payments under both the Social Security Act and the Veterans' Entitlements Act. In this case, an allowance will be payable under the Veterans' Entitlements Act only; or

•

two instalments of any combination of the new utilities allowance and the new seniors concession allowance (whether under the Social Security Act or the Veterans' Entitlements Act) have already been payable in the same financial year as the test day - this recognises that a person is not entitled to more than two payments of either or both of the new payments in any financial year, as the new payments are closely related; or

•

before that day, the person has elected not to receive the allowance, and has not withdrawn such an election - this recognises that a person has the right to not receive the payment if they so decide, but they can change their mind about this, so that that the allowance can again become payable.

New section 1061TB provides for a person's annual rate of the new allowance. The person's annual rate is $100 (subject to indexation) if the person is single or a member of an illness separated, respite care or temporarily separated couple. The person's annual rate is half of the rate specified in column 3 of item 1 (that is, $50, when the first payment is made shortly after the 20 March 2005 test day) if the person is a member of a couple (other than an illness separated, respite care or temporarily separated couple).

Items 5 and 6 provide for the indexation of each of the annual rates of utilities allowance listed in the table in new section 1061TB. In general terms, the annual rates of the allowance are indexed twice a year in line with CPI increases. Item 7 inserts new subsection 1192(6), which will have the effect that the first indexation of the allowance will occur in relation to the utilities allowance payment made for the 20 September 2005 test day.

Social Security (Administration) Act 1999

Item 8 inserts new section 12C, which provides that a claim is not required for the new utilities allowance. The new payment will be made automatically if a person is qualified for the allowance, and the allowance is payable, on a test day.

Item 9 inserts new section 48A, which provides for the payment of the new utilities allowance. New subsection 48A(1) provides that the allowance is to be paid by instalments. New subsection 48A(2) provides that an instalment of the allowance is to be paid on the person's payday (as defined in subsection 23(1) of the Social Security Act) on or after the utilities allowance test day. In effect, the allowance will be added to the person's normal income support payment on their first payday on or after 20 March or 20 September in each year.

Item 10 amends subsection 55(1) to enable the usual provisions relating to the manner of payment of a social security entitlement to apply to the new allowance.

Items 11 and 12 amend subsection 68(1) and 69(1) to provide, in effect, that the Secretary cannot give notices under section 68 or 69 in relation to a person to whom the new allowance is being paid. The reason for this is that the entitlement to the new allowance is based on receipt of an income support payment and obligations can be imposed, by way of notices under section 68 or 69 notices given in relation to that payment, which can be relied upon to determine entitlement to the new utilities allowance.

Item 13 amends paragraph 75(1)(b) to provide that the Secretary's power to request tax file numbers does not apply in relation to the new allowance.

Item 14 inserts new section 78A, which provides that Subdivision A of Division 7 does not apply in relation to the new utilities allowance and the new seniors concession allowance.

Item 15 inserts new section 90A, which provides that Subdivision A of Division 8 does not apply in relation to the new utilities allowance and the new seniors concession allowance.

Item 16 adds new paragraphs (d) and (e) to the definition of 'relevant payment' in section 123A to enable payments of the new utilities allowance and the new seniors concession allowance to be made to the payment nominee of the person entitled to those payments.

Part 2 - Amendments relating to Veterans' Affairs' payment of utilities allowance

The amendments made in this Schedule provide for the introduction of new Part VIIAC into the Veterans' Entitlements Act, providing for the payment of the utilities allowance to recipients of service pension (age, invalidity or partner) and income support supplement, who are of veteran pension age.

Pensioner males will be eligible for the allowance from 60 years of age and females will be eligible depending on their date of birth. Currently, veteran pension age for females is 57 years and 6 months and this age is increasing by 6 months every 2 years until eligibility for females is also 60 years.

The utilities allowance will initially be payable at a rate of $100 per year to a single pensioner and at a rate of $50 per year to the members of a couple with the payment to be indexed.

In the circumstances where the members of a couple separately receive income support payments from Department of Veterans' Affairs and from Centrelink, each agency will pay the utilities allowance at the member of a couple rate.

Where only one member of a couple is receiving a service pension or income support supplement (including the circumstances where the spouse is of pension age but not receiving a service pension), payment of the allowance will be at the member of a couple rate.

The utilities allowance will be payable in two instalments each year, from March 2005 and from each September and March thereafter.

The utilities allowance will be payable to eligible persons on the relevant paydays being the first pension paydays on or after 20 March and 20 September of each year.

The amount of the payment is indexed twice yearly on the basis of CPI increases and is provided for in new section 198E.

The utilities allowance will be subject to the general payment provisions of sections 122, 122A, 122B, 202, 202A and 202B relating to such matters as the manner of payment and payments to agents and trustees.

The payments will be non-taxable and amendments have been made to sections 52-65 and 52-75 of the Income Tax Assessment Act 1997.

The utilities allowance will be payable to a person who has been temporarily absent from Australia for a continuous period not exceeding 13 weeks.

As it is possible for individuals to move from receiving income support to holding a Commonwealth Seniors Health Card (and back again) over time, some people may meet the tests for both the utilities allowance and the new seniors concession allowance in any one year. To prevent 'double dipping', a person will only be entitled to be paid no more than two instalments of either of the new payments in any financial year (including the financial year commencing 1 July 2004).

The amendments also provide the cardholder with the opportunity to elect (by written notice) to not receive the allowance.

The existing debt recovery provisions in Part XII of the Veterans' Entitlements Act will provide for the recovery of a payment made to a person not entitled to receive it.

Income Tax Assessment Act 1997

Item 17 amends section 52-65. Section 52-65 contains a table setting out the income tax treatment of veterans' affairs payments.

The table setting out the income tax treatment of veterans' affairs payments is amended by the inclusion of new item 20A.1 referring to payments of the utilities allowance. The reference provides that payments of utilities allowance will be exempt from income tax.

Item 18 inserts a reference to the new utilities allowance being payable under Part VIIAC in the table in section 52-75 listing the provisions of the Veterans' Entitlements Act under which payments are made.

Social Security Act 1991

Item 19 inserts new subparagraph (viia) referring to utilities allowance payable under Part VIIAC of the Veterans' Entitlements Act in paragraph 8(8)(y). Paragraph 8(8)(y) lists Veterans' Entitlements Act payments that are to be regarded as an 'excluded amount' for the purposes of determining income under the Social Security Act.

Veterans' Entitlements Act 1986

Item 20 amends subsection 5H(8) by inserting new paragraph (ga). Subsection 5H(8) sets out the payments that are to be regarded as being an 'excluded amount' for the purposes of determining the income of a person under the Veterans' Entitlements Act.

New paragraph 5H(8)(ga) provides that all payments of utilities allowance made under Part VIIAC are to be regarded as being an 'excluded amount'.

Item 21 inserts in subsection 5Q(1) a definition of 'utilities allowance' as meaning the utilities allowance payable under new Part VIIAC.

Item 22 inserts new Part VIIAC into the Veterans' Entitlements Act.

New Part VIIAC is titled 'Utilities Allowance'.

Division 1 - Eligibility for and payability of utilities allowance

New section 118O defines the 'utilities allowance test day' for the purposes of the new Part as being either the 20 March or 20 September of each year.

New section 118OA provides the eligibility conditions for the new allowance. The conditions as set out in paragraph 118OA(1)(a) are firstly, that the person must have reached 'qualifying age' as set out in subsection 118OA(2).

Secondly, paragraph 118OA(1)(b) provides that service pension or income support supplement must be payable to the person and thirdly as provided for in paragraph 118OA(1)(c), the person must be either in Australia, or temporarily absent from Australia for a continuous period not exceeding 13 weeks.

Subsection 118OA(2) provides that qualifying age for a veteran is pension age and is therefore 60 years for men and is currently 57.5 years for women. Subsection 118OA(2) also provides that qualifying age for a person who is not a veteran will be the same as if that person were a veteran.

The Note to subsection 118OA(2) refers the reader to the pension age as being defined in section 5QA of the Veterans' Entitlements Act.

New section 118OB provides for when the new allowance is payable.

New subsection 118OB(1) provides the general rule that the allowance is payable to a person for each utilities allowance test day (as defined in new section 118O as 20 March and 20 September) on which the person is eligible for the allowance.

New subsection 118OB(2) provides that the allowance will not be payable on a utilities allowance test day if either:

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two instalments of any combination of both the new utilities allowance and the new seniors concession allowance have already been payable under the Veterans' Entitlements Act or the Social Security Act in the same financial year as the test day - this provision recognises that a person is not entitled to more than two payments of either or both of the new payments in any financial year, as the new payments are closely related; or

•

before that day, the person has elected not to receive the utilities allowance, and has not withdrawn such an election - this recognises that a person has the right to not receive the payment if they so decide, but they can change their mind about this, so that that the allowance can again become payable.

Subsection 118OB(3) refers to the making of an election not to receive payments of utilities allowance and the withdrawal of such an election. It provides that an election and the withdrawal of an election must be by document lodged at an office of the Department of Veterans' Affairs in accordance with section 5T. The lodgement of the document will be taken to have been made on a date determined under that section.

Division 2 - Rate of utilities allowance

New section 118OC provides for a person's annual rate of payment of the new allowance. The person's annual rate is $100 (subject to indexation) if the person is single or a member of an illness separated or respite care couple. The person's annual rate is half of the single rate (that is, $50, when the first payment is made shortly on or after the 20 March 2005 test day) if the person is a member of a couple (other than an illness separated or respite care couple).

The Note to section 118OC refers to the annual rate of the utilities allowance being indexed in line with increases in the CPI as provided for in section 198E.

Division 3 - Payment of utilities allowance

New section 118OD provides for the payment of the new utilities allowance. New subsection 118OD(1) provides that the allowance is to be paid in instalments.

New subsection 118OD(2) provides that an instalment of the allowance is to be paid on the person's first pension payday (as defined in subsection 5Q(1)) on or after the utilities allowance test day. In effect, the allowance will be added to the person's normal service pension or income support supplement payment on their first payday on or after 20 March or 20 September in each year.

Subsection 118OD(3) provides for the six monthly instalments of utilities allowance to be paid at a rate equivalent to one half of the annual rate.

Subsection 118OD(4) provides for an instalment of utilities allowance that is not a multiple of ten cents to be rounded up to the next ten cents.

Item 23 amends section 121 by including payments of utilities allowance in the list of payments made under the Veterans' Entitlements Act that are to excluded from the definition of a 'pension' in subsection 121(7). The effect of the exclusion is to provide that payments of utilities allowance will not be subject to the operation of the provisions of section 121.

Section 121 provides for the payment of all pensions and allowances (with the exception of the payments referred to in subsection 121(7)) under the Veterans' Entitlements Act to be paid in instalments and in arrears. The section also sets out the eligibility rules that apply to the payment of instalments.

Item 24 amends section 128A. Section 128A refers to the provision of tax file numbers by the recipients and the partners of recipients of payments made under the VEA.

Subsection 128A(1) defines the Veterans' Entitlements Act payments that are to be considered to be an 'income payment' for the purposes of the section.

Paragraph 128A(1)(d) is amended by including a reference to payments of utilities allowance and seniors concession allowance as being excluded from the definition of an 'income payment'. The effect of the exclusion is that power to request tax file numbers does not apply in relation to the new allowance.

Item 25 inserts new section 198E to provide for the indexation of each of the annual rates of utilities allowance listed in the table in new section 118OC. In general terms, the annual rates of the allowance are indexed twice a year in line with CPI increases with reference to the December and June quarters.

Subsection 198E(10) provides that the first indexation of the allowance will occur in relation to the utilities allowance payment made for the 20 September 2005 test day.