Senate

Revised Explanatory Memorandum

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

Chapter 9 Extension of the beneficiary tax offset to the Equine Workers Hardship Wage Supplement Payment

Outline of chapter

18.1 Schedule 9 to this Bill amends the Income Tax Assessment Act 1936 (ITAA 1936) and the Income Tax Assessment Act 1997 (ITAA 1997) to extend eligibility for the beneficiary tax offset to individuals in receipt of the Equine Workers Hardship Wage Supplement Payment (the Supplement).

Context of amendments

Equine Workers Hardship Wage Supplement Payment

18.2 The Supplement provides ex-gratia income support to individuals who can demonstrate loss of their primary source of income, which is derived from the commercial horse industry, as a direct result of the Equine Influenza outbreak and its associated quarantine and movement restrictions.

18.3 The Supplement was part of a broader Equine Influenza assistance package which was announced on 9 September 2007.

18.4 The rates of the Supplement are equivalent to the single rate, couple rate and single with dependent child rate of Newstart Allowance (Newstart) depending on the applicant's circumstances. Applicants must satisfy an income test but there are no assets or activity tests.

Taxable status

18.5 It is a general principle of income tax law that any payment received by a person as income support, or as a replacement for lost salary, wages or other assessable income, is taxable. Therefore, payments of the Supplement will be taxable in the hands of the recipient as they will be treated as ordinary income.

18.6 Newstart is also a form of income support which is received as ordinary income by the recipient. However, Newstart is a rebatable benefit to which the beneficiary tax offset applies. This ensures that any person who receives Newstart for the full year, and has no other income, pays no tax on the Newstart income.

18.7 This amendment will extend the beneficiary tax offset to the Supplement to ensure consistent taxation treatment with the taxation treatment of Newstart.

Summary of new law

18.8 This measure amends:

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subsection 160AAA(1) of the ITAA 1936 to include the Supplement in the definition of 'rebatable benefit' to which the beneficiary tax offset applies; and

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section 13-1 of the ITAA 1997 to list the Supplement as a payment that is allowed a tax offset.

Detailed explanation of new law

Include the Equine Workers Hardship Wage Supplement Payment in the definition of rebatable benefit for beneficiary tax offset purposes

18.9 Subsection 160AAA(1) of the ITAA 1936 has a definition of 'rebatable benefit' for the purposes of the beneficiary tax offset. Included in the definition of rebatable benefit are payments made under provisions of the Social Security Act 1991 such as Newstart.

18.10 This amendment to subsection 160AAA(1) of the ITAA 1936 includes the Supplement as a 'rebatable benefit' to which the beneficiary tax offset applies. This ensures that taxpayers in receipt of the Supplement are treated consistently with recipients of Newstart. [ Schedule 4, item 1, subsection 160AAA(1 )]

18.11 Subsection 160AAA(3) of the ITAA 1936 provides that where a taxpayer receives an amount of 'rebatable benefit' greater than the tax-free threshold, the taxpayer may be entitled to a tax offset.

Include the Equine Workers Hardship Wage Supplement Payment in the Division 13 guide of tax offsets

18.12 Section 13-1 of the ITAA 1997 lists payments that are allowed a tax offset and the relevant provision of the ITAA 1936 or ITAA 1997 that provides that offset. Payments are listed under headings classifying the type of payment.

18.13 The first amendment to section 13-1 of the ITAA 1997 will include the Supplement in the list of payments that attract a tax offset and direct readers to the item headed 'social security and other benefit payments'. [ Schedule 9, item 2, section 13-1 ]

18.14 The second amendment to section 13-1 lists the reference to the Supplement under the item headed 'social security and other benefit payments'. [ Schedule 9, item 3, section 13-1 ]

Application and transitional provisions

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