House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Social Services, the Hon Dan Tehan MP)

Notes on Clauses

Abbreviations and acronyms used in this explanatory memorandum

•

Social Security Act means the Social Security Act 1991

•

Social Security Administration Act means the Social Security (Administration) Act 1999

•

Student Assistance Act means the Student Assistance Act 1973, and

•

YA means Youth Allowance.

Clause 1 sets out how the new Act is to be cited - that is, as the Social Services Legislation Amendment (Student Reform) Act 2018.

Clause 2 provides a table setting out the commencement dates of the various sections in, and Schedules to, the new Act.

Clause 3 provides that each Act that is specified in a Schedule is amended or repealed as set out in that Schedule, and any other item in a Schedule to the Bill has effect according to its terms.

Schedule 1 - Main amendments

Summary

This Schedule gives effect to a 2018-19 Budget measure aimed at providing improved access to YA (student) for regional students.

The Schedule also makes two technical amendments to the maintenance income test for YA.

Background

Youth Allowance (student) regional workforce independence

The YA (student) regional workforce independence criteria enable tertiary students from regional and remote areas, who need to move away from the parental home to study full-time, to be considered independent for YA purposes (and thereby avoid being subject to the parental income test).

Under current section 1067A of the Social Security Ac t, a student satisfies the regional workforce independence criteria if they have:

-

supported themselves through paid employment consisting of a period, or periods, of employment over a 14-month period since last leaving secondary school,

-

had cumulative earnings from employment during this period totaling at least 75% of Wage Level A of the National Training Wage schedule included in a modern award or that maximum rate as varied or replaced by Fair Work Australia, and

-

had parental income under $150,000 in the appropriate tax year.

Alternatively, a student can qualify as independent if they have:

-

supported themselves through part-time work of at least 15 hours per week for at least 2 years since last leaving secondary school, and

-

had parental income under $150,000 in the appropriate tax year.

This means that regional and remote students who have parental income above $150,000, but have otherwise supported themselves through paid work since leaving secondary school, cannot currently qualify for YA under the regional workforce independence criteria.

This Schedule would, from 1 January 2019, increase the parental income cut-off for students accessing the regional workforce independence criteria from $150,000 to $160,000, plus $10,000 for each additional child in the family.

By increasing the parental income cut-off, more students from regional and remote Australia who have supported themselves through work will qualify for YA, or receive a higher rate of payment (if they are already receiving dependent YA and can transition to independent YA).

This measure provides additional support to young people in regional Australia to pursue tertiary education and recognises the extra costs of raising larger families.

Under this Schedule, regional students will also be provided with additional certainty about whether they will meet the new parental income cut-off. A student's parental income will be assessed for the financial year that ends before the day on which the student begins their self-support period. This allows the student to begin a period of self-support knowing that their parental income for that year is below the cut-off.

If the student's parental income is above the cut-off for that financial year, a student may still qualify as independent under the regional workforce independence criteria if their parental income is below the cut-off in a later financial year closer to the date on which they claim YA or seek to transition from dependent YA to independent YA.

This measure will commence on 1 January 2019 or, if the Act does not receive Royal Assent before 1 January 2019, will commence on the first 1 January or 1 July to occur after the day the Act receives Royal Assent.

Consistent application of maintenance income test reconciliation process

This Schedule also amends the Social Security Administration Act to give effect to a 2018-19 Budget measure aimed at ensuring the maintenance income test reconciliation process for YA is automatically applied to all YA recipients subject to the maintenance income test.

These changes will commence on 1 January 2019 or, if the Act does not receive Royal Assent before 1 January 2019, will commence on the first 1 January, 1 April, 1 July, or 1 October to occur after the day the Act receives Royal Assent.

Changes to the maintenance income test (MIT) reducible amount

This Schedule also amends the Social Security Act to give effect to a Budget 2018-19 measure aimed at amending the formula for determining the MIT reducible amount as defined in section 1067G-E1 of the Social Security Act. The MIT reducible amount limits how much a person's YA rate can be reduced due to the maintenance income test. The amendments made by this Schedule will ensure the MIT reducible amount is aligned with the rules regarding the maintenance income test for family tax benefit.

This amendment will commence the day after the Act receives Royal Assent.

Explanation of the changes

Social Security Act

Item 1 amends paragraphs (a) and (b) of the definition of parent in subsection 5(1), consequential to item 4 below, so that the paragraph 5(b) of that definition applies to new subsection 1067A(10L) (see item 4).

Item 2 repeals and substitutes subsection 1067A(10A) to consequentially reflect the changed structure of amended paragraph 1067A(10E)(d) (see item 3).

Item 3 repeals current paragraph 1067A(10E)(d) and substitutes new paragraphs 1067A(10E)(d) and (e).

These new paragraphs replace the current requirement that a person's combined parental income (as defined in point 1067G-F10) must be below $150,000 for the appropriate tax year (as determined in Submodule 3 of the Module F of the Youth Allowance Rate Calculator) with a requirement that the person's income must be below the threshold amount set out in new subsection 1067A(10K) (see item 4).

The combined parental income must be below the threshold amount in the:

-

last tax year that ended before the start of the person's period of self-support (which will be either 2 years or 14 months depending on whether the person is seeking to qualify as independent under paragraph 1067A(10)(b) or 1067A(10)(d)), or

-

the appropriate tax year worked out under Submodule 3 of Module F of the Youth Allowance Rate Calculator in section 1067G (which is how the existing arrangements operate).

By retaining the option of assessing parental income against the threshold amount for the appropriate tax year this item ensures that the student's base tax year (see point 1067G-F5) or, in certain circumstances, the tax year after the student's base tax year (if one of points 1067G-F6, 1067G-F7 and 1067G-F8 of the Youth Allowance Rate Calculator in section 1067G apply) may be looked at when determining whether a student is qualified under the regional workforce independence criteria. If the student's combined parental income falls below the threshold amount for any one of these tax years the student may be able to qualify as independent under the regional workforce independence criteria even though their parental income was above the applicable threshold amount for the tax year that ended before the start of the person's period of self-support.

Item 4 inserts new subsections 1067A(10K) and (10L) after subsection 1067A(10J).

New subsection 1067A(10K) sets out the threshold amount for the purposes of new paragraphs 1067A(10E)(d) and (e).

New paragraphs 1067A(10K)(a) and (b) provide that the threshold amount for the person (the primary person) for a tax year is the sum of the following:

(a)

$160,000;

(b)

$10,000 for each person who is a related person (see new subsection 1067A(10L)) of the primary person on:

(i)

subject to new subparagraph 1067A(10K)(b)(ii)-30 June of that tax year, or

(ii)

if that tax year is the tax year following the base tax year because of point 1067G-F7 or 1067G-F8-the day the request was made.

New subsection 1067A(10L) determines who is a related person for the purposes of adding an additional $10,000 to the threshold amount for a person set out in new subsection 1067A(10K).

For the purposes of new paragraph 1067A(10K)(b), new paragraphs 1067A(10L)(a) and (b) state that a person (the first person) is a related person of the primary person (see above) on a day if on that day:

(a)

the first person is aged under 22, and

(b)

a parent of the first person is also a parent of the primary person regardless of whether that person lives at their parent's home or away from home.

However, new paragraph 1067A(10L)(c) excludes the following people from the definition of related person:

(i)

a person living away from the home of each parent covered by new paragraph 1067A(10L)(b) and the person is a member of a YA couple under subsection 1067C(1)

(ii)

a person living away from the home of each parent covered by new paragraph 1067A(10L)(b) if the person has a natural child, adoptive child or relationship child who is wholly or substantially dependent on the person or the person's partner (if any)

(iii)

a person receiving YA or disability support pension and is independent under subsection 1067A(9), or

(iv)

a person in State care.

A note to new subsection 1067A(10L) refers the reader to paragraph (b) of the definition of parent in subsection 5(1) which is the same definition of parent used in the parental income test in Module F of the Youth Allowance Rate Calculator in section 1067G.

Item 5 is an application provision that provides that the amendments of section 1067A apply in relation to:

(a)

working out qualification for, or the rate of, YA in relation to days occurring on or after the commencement of this item, and

(b)

working out whether a person is qualified for a relocation scholarship payment at a time on or after the commencement of this item.

This application provision ensures that existing recipients of YA, who receive YA at a rate determined on the basis that they are 'not independent' may be able to benefit from the new regional workforce independence criteria and transition to receiving YA on the basis that they are independent. In this case, the YA recipient would not need to re-claim YA but would have their rate changed if they are assessed as having met the regional workforce independence criteria.

Item 6 repeals step 1 of the method statement in point 1067G-E1 of the Youth Allowance Rate Calculator in section 1067G and substitutes a new step 1.

Step 1 of the method statement sets out the MIT reducible amount.

Currently, step 1 provides that the MIT reducible amount is worked out by subtracting the base FTB child rate in point 1067G-E2 of the Youth Allowance Rate Calculator from the maximum FTB child rate in point 1067G-E3 of the Youth Allowance Rate Calculator and then dividing the result by 26.

The new step 1 of the method statement would, rather than dividing the result by 26, multiply the result by 14 divided by 365. This is to ensure consistency with the rules regarding the maintenance income test for family tax benefit.

Item 7 is an application provision for the amendment in item 6. Item 7 provides that the amendment in item 6 applies in relation to working out the rate of YA in relation to days occurring on or after the commencement of item 7.

Social Security Administration Act

Subsection 123AB(1) of the Social Security Administration Act provides a method statement for the verification of maintenance income for the Youth Allowance Rate Calculator in section 1067G of the Social Security Act.

Item 8 repeals steps 3, 4 and 5 of the method statement in subsection 123AB(1) and substitutes new steps 3, 4 and 5.

Where a person has received YA if there is an underestimate of their parent's maintenance income, but the actual maintenance income is less than 125 per cent of the annualised maintenance income free area, then their rate of YA will not be changed.

If there is an underestimate of their parent's maintenance income, but the actual maintenance income is less than 125 per cent of the annual estimate of maintenance income, then their rate of YA will not be changed.

This ensures that debts are not created where the difference between the annual estimate of maintenance income and actual maintenance income is not significant.

These amendments ensure that a person's rate of YA may be recalculated under subsection 123AB(3) with the result that they may receive arrears of YA, in all cases where the person overestimated their parent's maintenance income.

Schedule 2 - Other amendments

Summary

This Schedule amends the Student Assistance Act to clarify that the Minister's power (under section 5D of that Act) to determine that a course (or part of a course) is a secondary course or a tertiary course includes the power to treat a course that has ceased to be a secondary course or a tertiary course, as continuing to be a secondary course or a tertiary course in relation to specified persons in specified circumstances.

Background

Section 5D of the Student Assistance Act gives the Minister the power to determine (in a legislative instrument) that a course (or part of a course) of study or instruction is a secondary or tertiary course for the purposes of student payments ('eligible course').

This Schedule amends this section to clarify that the Minister's power under subsection 5D(1) includes the power to determine that a course, that is no longer an eligible course, is to be treated as eligible for specified persons in specified circumstances.

By continuing to treat students as undertaking an eligible course, the student would continue to qualify for a student payment (provided they continue to satisfy the other qualification criteria for the payment). This allows for students to be 'grandfathered' should their course cease to be eligible for the purposes of student payments.

The amendment made by this Schedule commences on the 28th day after the Act receives Royal Assent.

Explanation of the changes

Student Assistance Act

Item 1 inserts new subsection 5D(2A). Section 5D gives the Minister the power to determine (in a legislative instrument) that a course (or part of a course) of study or instruction is a secondary or tertiary course for the purposes of student payments ('eligible course'). A person who undertakes an eligible course will, subject to satisfying other criteria, qualify for a student payment under the Social Security Act.

The purpose of this amendment is to strengthen the Minister's power under subsection 5D(1) to include the power to make provision for and in relation to a specified course, that ceases to be an eligible course, continuing to be an eligible course in relation to specified persons in specified circumstances.

By continuing to treat such students as undertaking an eligible course they would continue to qualify for a student payment (provided they continue to satisfy the other qualification criteria for the payment). This allows for students to be 'grandfathered' should their course cease to be eligible for student payments.