Senate

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)

CHAPTER 4 - Pensions, allowances and benefits

4.1 Section 1 of this chapter explains the amendments to the Income Tax Assessment Act 1936 (ITAA) to remove the exemption of the mature age partner allowance from income tax. Section 2 deals with minor technical amendments to the ITAA related to social welfare measures.

Section 1 - Mature age partner allowance

Overview

4.2 Part 2 of Schedule 3 of this Bill amends the ITAA to change the tax status of the mature age partner allowance (MAPA), paid to persons under age pension age, from non-taxable to taxable.

Summary of the amendments

Purpose of the amendments

4.3 The amendments will ensure that, subject to the pensioner rebate, MAPA payments will be taxable. Only supplementary amounts will be exempt from tax.

Date of effect

4.4 1 July 1995. [Item 22]

Background to the legislation

4.5 From 20 March 1994 the mature age allowance (MAA) has been available to persons aged 60 and over but less than age pension age. To be eligible for the MAA the applicant must otherwise be eligible for the newstart allowance and have been in receipt of an income support payment from either the Department of Social Security or the Department of Veterans' Affairs for longer than 12 months.

4.6 A separate benefit, the MAPA, was introduced at the same time as the MAA. The MAPA has similar entitlements to a wife pension which is payable to the wife of an age or disability support pensioner when the wife is not eligible for an age pension in her own right. Payments of the wife pension to recipients below age pension age are not exempt from tax unless the partner is a disability support pensioner.

4.7 Although it was the Government's intention that the MAPA be taxable it was inadvertently exempted from tax. Therefore an amendment of the tax legislation is necessary. However, recipients would be eligible for a pensioner rebate to offset the tax, subject to the level of other taxable income received.

Explanation of the amendments

4.8 Subsection 24ABMB(1) of the ITAA is omitted and replaced with a new subsection 24ABMB(1) so that, in respect of the mature age partner allowance, the supplementary amount is exempt from income tax and the balance is subject to income tax [item 21] . This change applies to payments received on or after 1 July 1995 [item 22] .

Section 2 - Minor technical amendments

4.9 Schedule 1 of the Bill also makes a number of minor technical amendments.

4.10 The index of social security measures to which tax treatment applies, contained in section 24AB, is being amended to omit the reference to section 24ABDA, which is being repealed. [Item 13]

4.11 Section 24ABDA exempts the pharmaceutical allowance from income tax. Part 2.22 of the Social Security Act 1991 (SSA91) to which section 24ABDA refers, has now been repealed with effect from 1 January 1993. Since that date, provisions relating to the pharmaceutical allowance have been scattered throughout SSA91. Pharmaceutical allowance is paid fortnightly as a supplementary amount in conjunction with the basic pension and certain other social security payments. Section 24ABDA is therefore obsolete and is to be repealed. [Item 15]

4.12 To continue to exempt the pharmaceutical allowance from income tax, new paragraph 24ABA(1)(aa) is to be inserted in both parts of the column headed 'Supplementary amounts' in the table of supplementary amounts in subsection 24ABA(1) [item 15] . Supplementary amounts are exempt from income tax.

4.13 Amendments made by clauses SS1, SS2 and SS3 apply to payments of pharmaceutical allowance received on or after 1 January 1993. [Item 16]

4.14 Paragraph (b) of the supplementary amounts table in subsection 24ABA(1) relates to a concept no longer used in DSS calculations and can now be omitted from the table [item 17] . The change applies to payments received on or after 1 July 1994 [item 18] .

4.15 The incentive allowance was exempt from income tax under section 23AD of the ITAA. When section 23AD was rewritten as Division 1AA of Part III (effective 1 July 1991) the reference to incentive allowance was inadvertently missed.

4.16 The incentive allowance is paid to recipients of disability support pension (DSP) as a supplementary amount in lieu of rent assistance. Recipients of DSP cannot receive both rent assistance and incentive allowance.

4.17 As payments of supplementary amount are exempt from income tax the Bill proposes to exempt the incentive allowance from income tax by inserting new paragraph 24ABA(1(d) in the table of supplementary amounts [item 19] . This change applies to incentive allowance payments received on or after 1 July 1991 [item 20] .

4.18 The youth training allowance (YTA) replaces the job search allowance (JSA) for persons aged less than 18 years. Like job search allowees, youth training allowees will be eligible for pharmaceutical allowance. In the ITAA, subsection 24ABZE(1) describes YTA supplementary amounts which subsection 24ABZF(1) exempts from income tax. When subsection 24ABZE(1) was inserted in the ITAA, the pharmaceutical allowance was inadvertently omitted. That omission is to be corrected by insertion in subsection 24ABZE(1) of new paragraph 24ABZE(1)(c) [item 23] . This change applies to payments of pharmaceutical allowance to youth training allowees received on or after 1 January 1995 [item 24] .

4.19 AUSTUDY payments made under the Student and Youth Assistance Act 1973 have always qualified for the beneficiary rebate under section 160AAA of the ITAA. However, an amendment of the ITAA in 1994 to reflect changes to the Student and Youth Assistance Act 1973 inadvertently removed the reference to AUSTUDY payments from the definition of a rebatable benefit. Item 25 corrects this and applies to AUSTUDY payments received at any time [item 26] .