Senate

Explanatory Memorandum

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

Schedule 5 - Family tax benefit

Summary

The amendments made by this Schedule ensure that students studying overseas full-time are treated for family tax benefit (FTB) purposes in the same way as full-time students undertaking Australian study.

Background

An FTB child , in relation to FTB, has the meaning given in Subdivision A of Division 1 of Part 3 of the A New Tax System (Family Assistance) Act 1999 (Family Assistance Act) - see section 3. An FTB child may be aged up to 24 - see section 22.

The Family Assistance Legislation Amendment (Participation Requirement) Act 2009 introduced an activity test for the first time for children aged 16 to 20, commencing for most claimants on 1 July 2010, although the measure came into effect for new claimants from 1 January 2010. However, the measure unintentionally excluded from the definition of FTB child those children or young people who were studying overseas full-time.

The amendments made by this Schedule extend entitlement for these claimants in respect of such children or young people.

Under subsection 22(3) of the Family Assistance Act, an individual aged 16 to 17 is an FTB child of an adult who has care of the individual, provided the individual meets certain residence requirements and satisfies or is exempt from the FTB activity test. Equally, under subsection 22(4) of the Family Assistance Act, an individual aged 18 to 20 is an FTB child of an adult who has care of the individual, provided the individual meets certain residence requirements and satisfies or is exempt from the FTB activity test. The concept 'satisfies the FTB activity test' is defined in section 17B of the Family Assistance Act. Amendments will ensure that the FTB activity test may be met by a student studying overseas full-time.

Under subsection 22(6) of the Family Assistance Act, an individual aged 21 to 24 is an FTB child of an adult who has care of the individual, provided the individual meets certain residence requirements and is undertaking full-time study. Amendments will provide that studying overseas full-time will also result in a young person in this age-group being an FTB child.

An individual who is aged five or more and less than 16 cannot be an FTB child of an adult if the individual is not undertaking full-time study or primary education and has adjusted taxable income that equals or exceeds the cut-out amount (see item 1 of the table in subsection 22A(1) of the Family Assistance Act and supporting definitions in section 22A). The amendments will ensure that income over the cut-out amount is not a disqualifying factor if the student is studying overseas full-time.

There are similar rules that define the concept of an eligible child where an approved care organisation claims payment of FTB in respect of a child. These rules are set out in sections 34 and 35 of the Family Assistance Act. Amendments will provide for studying overseas full-time to substitute for the existing rules relating to undertaking Australian study.

If an FTB child dies and, immediately prior to the child's death, an individual was eligible for FTB in respect of the child, then the individual remains eligible for FTB for a bereavement period of 14 weeks after the child's death. However, the bereavement period does not include any day on or after the day upon which the young person would have turned 25, and the requirement is repeated that the young person must have been undertaking full-time study (see paragraph 31(3)(a)). The amendments similarly extend the bereavement period for those young people studying overseas full-time.

Where an FTB child has died, section 32 provides that a lump sum of FTB may be payable in substitution for the continuing 14 weeks of eligibility under section 31. The calculation of the bereavement lump sum is dealt with by section 65, and repeats the requirement that the FTB child be aged under 25 and undertaking full-time study (see paragraph 65(2)(a)). The amendments also extend the calculation of the bereavement lump sum to include those young people studying overseas full-time.

The rate calculation for FTB is dealt with in Schedule 1 to the Family Assistance Act. The rate calculation process for FTB Part B disregards an FTB child who has turned 16 years of age unless the child is undertaking full-time study and the calendar year in which the child turned 18 has not ended. The relevant rule is in subclause 29(3) of Schedule 1 to the Family Assistance Act. Similarly, in calculating the amount of multiple-birth allowance as part of FTB rate, a child aged 16 or more is disregarded unless they are undertaking full-time study (paragraph 36(2)(b) of Schedule 1). For the purposes of the rate calculation process for FTB Part B and for multiple birth allowance, amendments will include an FTB child where the child is studying overseas full-time and meets all the other criteria.

Additionally, the term 'undertaking full-time study' is used in paragraph 32K(1)(b) of the A New Tax System (Family Assistance) (Administration) Act 1999 (Family Assistance Administration Act) in relation to the relevant reconciliation time for FTB eligibility in respect of a child or young person who is not undertaking full-time study but who has an income (that is, the situation mentioned in table item 1 of subsection 22A(1) of the Family Assistance Act). The amendments will provide for the relevant reconciliation time under section 32K in respect of a child or young person who is not studying overseas full-time and whose income is then relevant to FTB eligibility.

The amendments made by this Schedule commence on the day of Royal Assent.

Explanation of the changes

Amendments to the Family Assistance Act

Item 1 inserts a definition of the new term studying overseas full - time into subsection 3(1) of the Family Assistance Act, the meaning of which is set out in new section 3C (inserted by item 2 ).

Studying overseas full-time in new section 3C of the Family Assistance Act has the meaning given by a legislative instrument made by the Minister for the purposes of this section.

Item 3 inserts new paragraph 17B(1)(c) as an alternative way to satisfy the FTB activity test in subsection 17B(1) of the Family Assistance Act.

New paragraph 17B(1)(c) provides that an individual may satisfy the FTB activity test by studying overseas full-time in a way that would, in the Secretary's opinion, assist or allow the individual to complete his or her final year of secondary school or an equivalent level of education.

Item 4 is a consequential amendment to item 3

Item 5 amends paragraph 17B(4)(a) of the Family Assistance Act to provide authority for the Secretary to set guidelines, by legislative instrument, for the exercise of the Secretary's discretion under new paragraph 17B(1)(c).

Item 6 amends subsection 17B(5) of the Family Assistance Act to require the Secretary to have regard to any such guidelines.

Item 7 inserts the words 'or is studying overseas full-time' into paragraph 22(6)(d) of the Family Assistance Act. This has the effect of extending the definition of FTB child to include 21 to 24 year-olds who are studying overseas full-time.

A note provides for the heading to subsection 22(6) to be amended to include reference to studying overseas full-time.

Item 8 repeals and substitutes paragraph (a) of a particular cell of table item 1 of subsection 22A(1) of the Family Assistance Act. The effect of this is to include within the definition of FTB child individuals who are aged five or more and less than 16 if they have adjusted taxable income that equals or exceeds the cut-out amount but are studying overseas full-time.

Item 9 inserts the words 'or was studying overseas full-time' after the words 'undertaking full-time study' as they appear in paragraph 31(3)(a) of the Family Assistance Act, relating to the bereavement period. Paragraph 31(3)(a) of the Family Assistance Act currently excludes from continued eligibility for FTB those individuals, among others, whose FTB child would have been aged 25 or over if he or she had not died and was undertaking full-time study. This amendment will extend eligibility in respect of young people studying overseas full-time, and is consistent with the above amendments to the definition of FTB child for 21 to 24 year olds.

Item 10 inserts the words 'or is studying overseas full-time' after the words 'undertaking full-time study' as they appear in subparagraph 34(1)(a)(iii). This insertion will result in an approved care organisation being eligible for FTB in respect of an individual aged 21 to 24 who is studying overseas full-time and meets the other prescribed requirements.

Item 11 repeals and substitutes paragraph (a) of a particular cell of table item 1 of subsection 35(1) of the Family Assistance Act to include reference to studying overseas full-time. The effect of this is that an approved care organisation may be eligible for FTB for an individual aged five or more and less than 16 despite the fact the individual has adjusted taxable income that equals or exceeds the cut-out amount if the individual is studying overseas full-time.

Item 12 inserts the words 'or was studying overseas full-time' after the words 'undertaking full-time study' as they appear in paragraph 65(2)(a) of the Family Assistance Act.

The calculation of the lump sum payable where an FTB child has died is dealt with by section 65. This insertion prevents the exclusion of days from the lump sum period where an FTB child aged under 25 was studying overseas full-time.

Item 13 inserts the words 'or is studying overseas full-time' after the words 'undertaking full-time study' as they appear in paragraph 29(3)(a) of Schedule 1 to the Family Assistance Act.

The rate calculation process for FTB Part B currently disregards an FTB child who has turned 16 unless the child is undertaking full-time study and the calendar year in which the child turned 18 has not ended (subclause 29(3) of Schedule 1 to the Family Assistance Act refers). This amendment will allow the inclusion of an FTB child who is studying overseas full-time.

Items 14 and 15 insert the words 'or is studying overseas full-time' after the words 'undertaking full-time study' as they appear in subparagraphs 36(2)(b)(i) and 36(2)(b)(ii) of Schedule 1 to the Family Assistance Act.

In calculating the amount of multiple-birth allowance as part of an individual's rate of FTB, a child aged 16 or more is disregarded unless he or she is undertaking full-time study and the calendar year in which the first born of the children in the multiple birth who are undertaking full-time study turned 18 has not ended (paragraph 36(2)(b) of Schedule 1 of the Family Assistance Act refers). This amendment will allow the inclusion of an FTB child who is studying overseas full-time.

Amendments to the Family Assistance Administration Act

Item 16 repeals and substitutes paragraph 32K(1)(b) of the Family Assistance Administration Act. Section 32K currently sets out the relevant reconciliation time for FTB eligibility in respect of an FTB child who is not undertaking full-time study or primary education. This amendment will extend the provision to provide for the reconciliation time for FTB eligibility in respect of FTB children who are not studying overseas full-time.

Application

Item 17 sets out the application rules for the amendments made by Schedule 5.

Subitem 17(1) provides that the amendments made by items 3 to 8, 10, 11 and 13 to 16 , apply in relation to working out an individual's or approved care organisation's entitlement (if any) to FTB in respect of days occurring on or after the commencement of those items (that is, on Royal Assent).

Subitem 17(2) provides that the amendments made by items 9 and 12 (relating to the bereavement period and the bereavement lump sum) apply in relation to deaths occurring on or after the commencement of those items (that is, on Royal Assent).