House of Representatives

Explanatory Memorandum

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

Chapter 1 - Increasing the dependent spouse tax offset

Outline of chapter

1.1 Part 1 of Schedule 1 to this Bill amends the Income Tax Assessment Act 1936 to increase the dependent spouse tax offset to $2,100.

Summary of new law

1.2 These amendments will provide for an increase in the dependent spouse tax offset.

1.3 The full dependent spouse tax offset is available to a resident taxpayer who contributes to the maintenance of a resident spouse whose separate net income does not exceed $282. The tax offset is reduced by $1 for every $4 by which the dependent spouse's separate net income exceeds $282.

1.4 The dependent spouse tax offset is increased each year by reference to the consumer price index, in accordance with the indexation provisions set out in section 159HA.

1.5 There are several other related tax offsets that are also affected by the indexation provisions, including: child-housekeeper, invalid relative, parent, housekeeper, the notional sole parent and the notional dependent spouse with child tax offsets.

Detailed explanation of new law

1.6 The 2007-08 amounts for the dependent spouse tax offset, child-housekeeper tax offset, parent tax offset and the invalid relative tax offset are set out in the revised table in subsection 159J(2). The new amounts for the child-housekeeper tax offset, parent tax offset and the invalid relative tax offset have been calculated as if the indexation provisions set out in section 159HA applied for the 2007-08 income year. [ Schedule 1, Part 1, item 7 ]

1.7 The indexation rule set out in section 159HA will not apply for the 2007-08 income year and will recommence for the 2008-09 income year. [ Schedule 1, Part 1, item 5 ]

Application and transitional provisions

1.8 These changes apply to assessments for the 2007-08 income year and later income years. [ Schedule 1, Part 1, item 13 ]

Consequential amendments

1.9 The change to the indexation provisions requires that all other related tax offset amounts in sections 159HA, 159J, 159K and 159L be replaced with the amounts to apply for the 2007-08 income year. The new amounts have been calculated as if the indexation provisions set out in section 159HA applied for the 2007-08 income year. [ Schedule 1, Part 1, items 4, 6 and 8 to 12 ]

1.10 The notional dependent spouse with child tax offset is relevant for the calculation of the tax offset for persons serving overseas with an armed force under the control of:

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the United Nations under section 23AB;

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the zone tax offset under section 79A; and

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the tax offset for defence force members serving overseas.

Amendments are required to these provisions to reflect the increased amount of the dependent spouse tax offset. The notional dependent spouse with child tax offset can only be claimed through the zone tax offset and the overseas forces tax offset. [ Schedule 1, Part 1, items 1 to 3 ]