House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

Chapter 1 - Abolishing the mature age worker tax offset

Outline of chapter

1.1 Schedule 1 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) and the Taxation Administration Act 1953 (TAA 1953) to abolish the mature age worker tax offset (MAWTO).

Context of amendments

1.2 The MAWTO is a concessional tax offset that is intended to provide an incentive to mature age workers to remain in the workforce. The MAWTO was introduced in 2004-05 and is worth up to $500 per year.

1.3 The MAWTO was intended to reward and encourage mature age workers to remain in the workforce.

1.4 The MAWTO can be received from the first dollar of net income from working (which is generally income from personal exertion less any work related expense deductions), at the rate of five cents per dollar. Taxpayers eligible for the MAWTO may receive the maximum value of $500 while their net income from working is between $10,000 and $53,000. Once net income from working reaches $53,000, the MAWTO is withdrawn at the rate of five cents per dollar until it has completely phased out by $63,000. If the value of the offset is greater than the taxpayer's tax liability, the excess tax offset is wasted.

1.5 The former Government started to phase out the MAWTO, by restricting access to the MAWTO to taxpayers born before 1 July 1957, with effect from 1 July 2012, with an estimated gain in revenue at the time of $255 million over the then forward estimates. That is, taxpayers aged 55 years or older on or before 30 June 2012 retained eligibility to claim the MAWTO. Prior to the former Government's changes in 2012, the MAWTO was available to taxpayers who were aged 55 or over, and who had net income from working.

1.6 The MAWTO is a complicated tax offset that is not well understood and is not a cost effective way of encouraging continuing engagement in the workforce by mature age workers. This is because the $500 maximum value of itself is generally not a sufficient incentive to remain in work, and many mature age workers who benefit from the MAWTO are likely to choose to remain in the workforce regardless of whether they receive the offset or not.

1.7 In the 2014-15 Budget, the Government announced the Restart programme which will encourage employers to hire mature age job seekers. This builds on the Government's election commitment to introduce a seniors employment incentive payment that was announced in the Mid-Year Economic and Fiscal Outlook 2013-14.

1.8 Through Restart, from 1 July 2014, a subsidy of up to $10,000 will be available to employers who hire a mature age job seeker (aged 50 years or over) who has been receiving income support for a minimum of six months, on a full time basis (30 hours or more per week). Employers who hire on a part time basis (12 to 29 hours per week) will be eligible for a pro-rated subsidy commensurate with the actual hours worked.

Summary of new law

1.9 Schedule 1 to this Bill amends the ITAA 1997 and the TAA 1953 by repealing Subdivision 61-K of the ITAA 1997 (entitlement to MAWTO) and making consequential changes to the pay-as-you-go instalment rules in Schedule 1 to the TAA 1953.

Comparison of key features of new law and current law

Detailed explanation of new law

1.10 Schedule 1 to this Bill repeals Subdivision 61-K of the ITAA 1997 to abolish the MAWTO. [Schedule 1, item 2]

1.11 Subdivision 61-K entitles an Australian resident individual taxpayer to a tax offset if they were born on or before 30 June 1957 and worked during the current year.

1.12 The amount of the offset depends on the amount of the taxpayer's net income from working, but is capped at a maximum of $500 per financial year.

1.13 'Net income from working' is basically the total of amounts of assessable income that are mainly a reward for an individual's personal efforts or skills or assessable income from a business the taxpayer carries on, less any relevant income tax deductions.

1.14 The repeal of Subdivision 61-K will remove future individual entitlements to the MAWTO.

Consequential amendments

Income tax

1.15 The list of tax offsets in section 13-1 of the ITAA 1997 has been updated to reflect the removal the MAWTO. [Schedule 1, item 1]

1.16 The definition of 'net income from working' has been removed from the Dictionary in section 995-1 of the ITAA 1997. The definition is no longer required following the abolition of the MAWTO. [Schedule 1, item 3]

Taxation administration

1.17 References to the MAWTO in the pay-as-you-go instalment rules have been removed as a result of the repeal of the MAWTO. The pay-as-you-go instalment rules required the MAWTO to be disregarded when working out a taxpayer's pay as you go instalment rate. With the removal of the MAWTO, there is no longer a need to disregard the offset as it can no longer be taken into account in determining a taxpayer's instalment rate. [Schedule 1, items 4 and 5]

Application and transitional provisions

1.18 Schedule 1 commences on the day following Royal Assent and applies to the 2014-15 income year and all later income years.

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Abolishing the mature age worker tax offset

1.19 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

1.20 Schedule 1 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) and the Taxation Administration Act 1953 (TAA 1953) to abolish the mature age worker tax offset (MAWTO).

1.21 The MAWTO is a concessional tax offset that is intended to provide an incentive to mature age workers to remain in the workforce. The MAWTO is worth up to a maximum of $500 per year.

Human rights implications

1.22 This Schedule does not engage any of the applicable rights or freedoms.

1.23 However, the Parliamentary Joint Committee on Human Rights has previously raised comments around the engagement of the right to an adequate standard of living with regard to taxation measures. For the purpose of completeness, the assessment against that right has been included below.

Right to an adequate standard of living

1.24 The person's right to an adequate standard of living is contained in article 11 of the International Covenant on Economic, Social and Cultural Rights. Article 11 ensures the realisation of this right, recognising the essential importance of an adequate standard of living.

1.25 The right to an adequate standard of living, including food, water and housing provides that everyone is entitled to adequate food, clothing and housing and to the continuous improvement of living conditions.

1.26 The Committee has commented that a change in tax liabilities could limit the standard of living available to Australians.

1.27 This Schedule achieves a legitimate objective in that it contributes to the process of repairing the nation's finances.

1.28 The MAWTO is a complicated tax offset that is not well understood and is not a cost-effective way of encouraging continuing engagement in the workforce by mature age workers. This is because the $500 maximum value is not generally a sufficient incentive to remain in work of itself, and many mature age workers who benefit from the MAWTO are likely to choose to remain in the workforce regardless of the availability of the offset.

1.29 As announced in the 2014-15 Budget, the Government will strengthen incentives to encourage employers to hire mature age job seekers. From 1 July 2014, the Restart programme will provide a subsidy of up to $10,000 to employers who hire a mature age job seeker (aged 50 years or over) who has been receiving income support for a minimum of six months.

1.30 The MAWTO is not designed to provide individuals with support towards their cost of living but to instead encourage mature age individuals to remain within the workforce. The progressivity of the tax system, ensuring that those who can afford to contribute more do so, remains unchanged as does an individual's right to social security under Australia's social security laws.

1.31 The removal of the offset is reasonable, necessary and proportionate to the task of repairing the nation's finances by removing ineffective and inefficient programs. The removal of the MAWTO will have little impact on those affected.

Conclusion

1.32 This Schedule is compatible with human rights as it does not raise any human rights issues.

1.33 If this Schedule did engage the right to an adequate standard of living, the Schedule is nonetheless compatible with human rights because of the extent that it could be argued they may limit human rights; those limitations are reasonable, necessary and proportionate.