House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Wayne Swan MP)

Chapter 5 - Early completion bonuses for apprentices

Outline of chapter

5.1 Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to exempt from income tax the first $1,000 of an early completion bonus paid to an apprentice by a State or Territory government.

Context of amendments

5.2 Early completion bonuses are payments made to apprentices who complete their apprenticeship more quickly than normal. Currently, only the Queensland Government pays an early completion bonus to apprentices.

5.3 The Queensland Government offers an early completion bonus of $1,000 to apprentices in skill-shortage occupations listed on an Eligible Skill Shortage Occupation List . The bonus is designed to increase the supply of skilled tradespersons.

5.4 To be eligible for the bonus under the Queensland scheme, full-time apprentices must complete their apprenticeship at least six months prior to their original nominal completion date and part-time apprentices must complete their apprenticeship at least 12 months prior to their original nominal completion date.

5.5 It is a general principle of income tax law that remuneration or rewards for personal services, whether received in the capacity of employee or otherwise, are ordinary income. This would usually include payments in the nature of an early completion bonus.

Summary of new law

5.6 This measure provides an income tax exemption for the first $1,000 of an early completion bonus received by an apprentice, in an occupation of a kind to be specified in Australian Government regulations if the apprenticeship is finished within a time frame specified in the regulations for apprenticeships of that kind.

Comparison of key features of new law and current law

Detailed explanation of new law

5.7 These amendments introduce an income tax exemption for the first $1,000 of an early completion bonus paid by a State or Territory government to an apprentice in a listed occupation.

5.8 The first $1,000 of a bonus paid for early completion of certain apprenticeships will be exempt from income tax. [Schedule 5, item 2, section 51-10]

5.9 The bonus must be provided under a scheme provided by a State or Territory, and the scheme must be specified in an Australian Government regulation for the purpose of this subsection. [Schedule 5, item 3, subsection 51-42(1)]

5.10 The apprenticeship must also be for an occupation of a kind specified in the regulations. This ensures that the bonus is only exempt if paid to apprentices in occupations with skill shortages. [Schedule 5, item 3, paragraph 51-42(2)(a)]

5.11 The apprenticeship must be completed within a time frame specified in the regulations for apprenticeships of that kind. This ensures that the bonus is only exempt if the apprenticeship is completed in a period of time that is shorter than normal. [Schedule 5, subitem 3(2 ), paragraph 51-42(2)(b)]

5.12 It is intended that regulations to list the Queensland early completion bonus to apprentices be made as soon as this Bill receives Royal Assent.

Application and transitional provisions

5.13 These amendments apply to assessments for the 2007-08 income year and later income years.

Consequential amendments

5.14 Early completion bonuses for apprentices are added to the non-operative list of ordinary or statutory income which is exempt if derived by certain entities. [Schedule 5, item 1, section 11-15]