House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

General outline and financial impact

Seasonal Labour Mobility Program - final withholding tax

Schedule 1 to this Bill creates a new final withholding tax regime that applies to income derived by non-resident workers participating in the Seasonal Labour Mobility Program (Program) by:

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inserting Subdivision 12-FC in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) which creates the obligations to withhold amounts;

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inserting Subdivision 840-S in the Income Tax Assessment Act 1997 (ITAA 1997) which establishes the liability to pay tax on income derived under the Program;

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inserting Subdivision 840-S into the Income Tax (Transitional Provisions) Act 1997 ; and

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making consequential amendments to the Income Tax Assessment Act 1936 , the ITAA 1997 and the TAA 1953.

The formal imposition of income tax, and the establishment of the applicable rate of tax, is provided for by means of the Income Tax (Seasonal Labour Mobility Program Withholding Tax) Bill 2012.

This measure reduces the compliance costs for seasonal workers participating in the Program by removing the requirement to lodge a tax return and simplifying administration for employers and the Australian Taxation Office (ATO).

Date of effect: This measure will apply with effect from 1 July 2012.

Proposal announced: This measure was announced by the then Minister for Foreign Affairs, the Minister for Employment and Workplace Relations, Financial Services and Superannuation and the Minister for Resources and Energy and Minister for Tourism's Joint Media Release of 18 December 2011.

Financial impact: This measure will have the following impact:

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 1, paragraphs 1.57 to 1.61.

Compliance cost impact: Low. This measure will only affect a small number of employers and employees. Employees are not required to lodge an income tax return. The employers and the ATO will be required to make minimal system changes as a result of the change.

Taxation of blends of gaseous and aviation fuels - further consequential amendments

Schedule 2 to this Bill amends the Excise Act 1901 so that blends of the same types of gaseous fuels or the same types of aviation fuels, where each amount of the gaseous fuel or each amount of the aviation fuel has been taxed at a different rate as a result of time-related excise phase-in arrangements or time-related carbon price changes, are not treated as excise manufacture and therefore subject to additional duty.

Date of effect: The amendments will apply from 1 July 2012.

Proposal announced: These amendments are technical in nature and ensure that the 2011 Alternative Fuels and Clean Energy legislation works as intended. They have not been announced.

Financial impact: Nil.

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 2, paragraphs 2.18 to 2.21.

Compliance cost impact: Minimal.

Low-income tax offset

Schedule 3 to this Bill amends the Income Tax Assessment Act 1936 to ensure that where a trustee is assessed on the income of a minor, the trustee will not have access to the low income tax offset in circumstances where the income is considered to be unearned income of that minor.

Date of effect: This measure applies to assessments for the 2011-12 income year and later income years.

The retrospective application date is appropriate because the Government's announcement of the measure in the 2011-12 Budget made it clear that the new arrangements would apply to all unearned income derived by minors, including through trusts.

Proposal announced: Removing eligibility for the low income tax offset on unearned income of minors was announced in the then Assistant Treasurer's Media Release No. 072 of 10 May 2011.

Financial impact: Nil.

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 3, paragraphs 3.8 to 3.10.

Compliance cost impact: Low. The measure removes the ability of a particular group of taxpayers to claim the low income tax offset on part of their income.

Clean energy payments

Schedule 4 to this Bill amends the Income Tax Assessment Act 1997 to exempt clean energy payments made to recipients of payments under the ABSTUDY scheme, Veterans' Children Education Scheme, Military Rehabilitation and Compensation Act Education and Training Scheme, the transitional family farm payment and exceptional circumstances relief payment.

Date of effect: This measure applies to assessments for the 2011-12 income year and later income years.

The amendments may have a retrospective impact but are of a beneficial nature to tax payers.

Proposal announced: This measure was announced in the Deputy Prime Minister and Treasurer's Media Release No. 083 of 10 July 2011.

Financial impact: Nil.

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.8 to 4.10.

Compliance cost impact: None. Payments will be provided automatically to recipients of the education payments covered by the amendments.

Better targeting of the employment termination payment tax offset

Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 so that access to the employment termination payment (ETP) tax offset and the amount of offset received takes into account an individual's taxable ETP as well as any other taxable income in the year they receive the ETP. From 1 July 2012, any taxable component of an ETP that takes a person's total taxable income in a year above $180,000 will be taxed at marginal rates.

Date of effect: 1 July 2012.

Proposal announced: This measure was announced in the 2012-13 Budget.

Financial impact: This measure provides savings of $196.4 million over the forward estimates period.

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 5, paragraphs 5.30 to 5.33.

Compliance cost impact: Low.

Aligning the non-resident tax rates

The Tax Laws Amendment (Income Tax Rates) Bill 2012 amends the Income Tax Rates Act 1986 to align more closely the personal income tax rates for non-residents for Australian tax purposes with the personal income tax rates for Australian resident taxpayers, by:

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merging the first two personal marginal tax rate thresholds for non-residents into a single threshold; and

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aligning the rate for this new threshold to the second marginal tax rate for residents (32.5 per cent from 1 July 2012, increasing to 33 per cent from 1 July 2015).

Date of effect: These changes will apply for the 2012-13 and later income years.

Proposal announced: This measure was announced in the 2012-13 Budget.

Financial impact: This measure will have the following revenue implications:

Human rights implications: This Bill does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 6, paragraphs 6.13 to 6.16.

Compliance cost impact: Low.