House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Families, Community Services and Indigenous Affairs, the Hon Mal Brough MP)

Schedule 11 - Definition

Summary

The definition of 'income tax refund' is amended to include refundable tax offsets, thus reflecting the intended policy and existing administration.

Background

Debts can be recovered under the Family Assistance Administration Act using one or more of the methods set out in section 82, including the application of an income tax refund owing to the person or another person (with that other person's consent). Sections 87 and 93 of the Family Assistance Administration Act are the relevant recovery provisions.

Subsection 3(1) of the Family Assistance Administration Act defines an 'income tax refund' as an amount payable to a person in respect of an overpayment of:

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income tax imposed by the Income Tax Act 1986 ;

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Medicare levy payable in accordance with Part VIIB of the Income Tax Assessment Act 1936 ; or

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an amount payable by the person by an assessment made under Part IV of the Income Tax Assessment Act 1936 because of specified enactments that provide for higher education funding.

The existing definition does not include income tax refunds that arise through an excess of refundable tax offsets. The exclusion of refundable tax offsets from the definition is unintended, and the exclusion arises for technical reasons due to the way in which the definition was drafted.

There are three types of refundable tax offsets. These are the private health insurance rebate, the franking tax offset (which relates to dividends paid to shareholders by Australian resident companies), and the baby bonus.

The original intention, which is reflected in current debt recovery practices, was that the definition of income tax refund also includes tax refunds that arise from refundable tax offsets. This Schedule makes the relevant amendment.

Explanation of the changes

Item 1 reworks the definition of 'income tax refund' in subsection 3(1) of the Family Assistance Administration Act so that it includes a refund of a tax offset covered under the refundable tax offset rules in Division 67 of the Income Tax Assessment Act 1997 . The substance of the remaining elements of the definition has not been changed.

The first year that tax refunds were applied to FTB debts was on reconciliation for the 2001-02 income year, that is, from 1 July 2002. The commencement date of 1 July 2002 for this amendment (as set out in clause 2 of this Bill) reflects this.

For FTB debts, the amendment would apply to any FTB debts whenever determined (as outstanding previous year debts can be recovered from newly determined tax refunds) and to income tax refunds determined on or after 1 July 2002 (irrespective of the income year to which the refund relates). The relevant application provision is in subitem 2(1) of this Schedule. The provision supports current debt recovery practices.

For CCB debts, the amendment would apply to CCB debts determined on or after 1 July 2006 and to income tax refunds determined on or after 1 July 2007 (irrespective of the income year to which the refund relates). The differing approach to CCB debts is because the capacity to recover CCB debts from tax refunds becomes a recovery option from 1 July 2006, by virtue of the amendments made by Schedule 4 of the Family Assistance, Social Security and Veterans' Affairs Legislation Amendment (2005 Budget and Other Measures) Act 2006 . The relevant application provision is in subitem 2(2) of this Schedule.