Senate

Explanatory Memorandum

Circulated By the Authority of the Minister for Families, Housing, Community Services and Indigenous Affairs, the Hon Jenny Macklin MP

Background

This bill amends various Commonwealth Acts as a consequence of the introduction of the Paid Parental Leave Bill 2010, and provides for certain transitional matters.

The Paid Parental Leave Bill 2010

The Paid Parental Leave Bill 2010 introduces Australia's first national, Government-funded Paid Parental Leave scheme (the scheme) from 1 January 2011. Parental leave pay of up to 18 weeks at the national minimum wage will be paid to eligible primary carers who have or adopt a child on or after 1 January 2011 and who can satisfy work, income and residency tests. In most cases, the mother will be the primary carer, but allowance is also made for the transfer of all or part of the payment to the other parent, or to another carer, in exceptional circumstances.

From 1 October 2010, parental leave pay may be claimed through the Family Assistance Office, along with other family assistance payments, up to three months before the birth or adoption. The Government will fund employers to pay their eligible long-term employees as part of the scheme. Eligible claimants who are not paid by their employers will be paid by the Family Assistance Office.

This bill

This bill makes consequential amendments to various Commonwealth Acts. The bill also provides for certain transitional matters, including provisions to ensure that the requirement for employers to pay parental leave pay to their employees will take effect for children born or adopted on or after 1 July 2011 (although employers will be able to opt in to provide any eligible employees with parental leave pay from 1 January 2011).

This bill includes a range of consequential amendments to:

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exclude parental leave pay from the general definition of income for social security and veterans' entitlements purposes;

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ensure that parental leave pay is counted under the social security low-income health care card income test;

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clarify that parental leave pay is not a leave payment for the purposes of the social security income maintenance provisions;

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clarify that parental leave pay is included as 'PBBP employment income' and therefore disregarded in calculating a person's pension bonus bereavement payment;

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enable parental leave pay debts to be recovered from social security, family assistance and veterans' entitlements payments;

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enable amounts due under a maintenance liability and child support debts to be paid or recovered from parental leave pay;

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ensure that a person and their partner cannot receive both baby bonus and parental leave pay for a child, and make related baby bonus changes;

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ensure that a person and their partner cannot receive family tax benefit Part B for a child for the period for which parental leave pay is payable in relation to the child;

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provide for early claims for family tax benefit, baby bonus and maternity immunisation allowance; and

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include parental leave pay within the compliance activities provided for in the data-matching program.

This bill also makes changes to various taxation laws. These include amendments to ensure that:

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a taxpayer would generally not be entitled to a dependent spouse, child-housekeeper or housekeeper rebate for that part of the income year for which parental leave pay was payable to the taxpayer or their spouse;

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parental leave pay is subject to PAYG withholding;

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employees can salary sacrifice their parental leave pay for non-cash remuneration where that arrangement is offered by the employer;

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parental leave pay is appropriately covered within the system of tax file numbers established under taxation laws;

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taxpayer information can be disclosed for the purposes of administration of the new Paid Parental Leave Act 2010 ;

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tax withheld from parental leave pay that was not payable can be refunded; and

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incorrect payments of parental leave pay are not included on the taxpayer's payment summary if the error is detected in time, or, if not detected in time, notice is given that an issued payment summary is not correct.

Consequences of the Paid Parental Leave Bill 2010 that do not require legislation

This bill provides necessary consequential amendments and transitional arrangements associated with the introduction of what will become the Paid Parental Leave Act 2010 . However, there are also some consequences that flow from the nature and structure of the scheme that do not involve or require legislative amendment. These are described below.

Parental leave pay will be taxable in the hands of an individual. Parental leave pay will be regular, expected and able to be relied upon, and would therefore be regarded as income under ordinary concepts for tax purposes. Parental leave pay would therefore also be included in a person's adjusted taxable income for family assistance and child support purposes, and could affect other payments or concession cards with income tests that are linked to taxable income.

PPL funding amounts paid by the Secretary to an employer to fund the payment of parental leave pay by the employer will be assessable for employers as ordinary income. This is because the amounts become the property of the employer, once paid (although the employer would also have an obligation to provide parental leave pay to their employee). A tax deduction would be available on the payment of parental leave pay, and reasonable costs of complying with the scheme would also be deductible.

The payment of PPL funding amounts to an employer and the payment of parental leave pay to an individual are not intended to give rise to any goods and services tax or capital gains tax implications for the employer or the individual.

An employer will not be obliged to make superannuation guarantee payments on parental leave pay paid to an employee (by virtue of the Superannuation Guarantee (Administration) Amendment Regulations 2009 (No. 1 )).