Senate

Supplementary Explanatory Memorandum

Amendments and New Clauses to be Moved on Behalf of the Government(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)

CHAPTER 2 - AMENDMENTS 3 to 9 - SOCIAL SECURITY PAYMENTS

Home child care allowance and dependant rebate

Overview

2.1 These amendments, which were foreshadowed by the Assistant Treasurer in his Second Reading Speech, will allow taxpayers the choice of claiming the 'without child' dependent spouse rebate instead of claiming for the home child care allowance (HCCA).

2.2 The amendments will also simplify the arrangements and remove any adverse consequences for a family choosing the HCCA payments in lieu of the taxpayer claiming the 'without child' dependent spouse rebate.

2.3 This is achieved by allowing taxpayers to calculate their dependent spouse rebate entitlement by determining the notional rebate they would have been entitled to and then, subtracting from that notional rebate, any HCCA payments received during the relevant period.

2.4 Amendments are also required to the 1994-95 transitional year arrangements to ensure entitlement to the 'with child' dependent spouse rebate for the period from 1 July to 29 September 1994 is retained.

Explanation of the amendments

Amendment 3

2.5 This amendment will amend the object clause [clause 51] to make it clear that a taxpayer's entitlement to a dependent spouse rebate is now reduced, in addition to the normal reductions, when their dependent spouse is actually paid HCCA.

Amendment 4

2.6 This amendment replaces clause 57 with a new clause containing the following paragraphs:

paragraph (a) removes the 'with child' dependent spouse rebate as is the case in the Bill;

paragraph (b) introduces new subsection 159J(5E) which provides that, in calculating the dependent spouse rebate, a taxpayer will reduce the rebate otherwise calculated (if any) by any HCCA paid to their dependent spouse during the year of income. The rebate otherwise calculated could have been reduced because of the spouse's separate net income [under subsection 159J(4)] or the fact that the taxpayer maintained the spouse for part of a year of income [under subsection 159J(3)]; and

paragraph (c) excludes HCCA from the definition of 'separate net income' as is the case in the Bill.

Amendment 5

2.7 This amendment replaces proposed subparagraph (pa)(iii) of the definition of "Qualifying reductions" [clause 58, paragraph (c)], so that a taxpayer whose spouse was not being paid HCCA in respect of 30 June of the preceding year of income is entitled to a reduction, in his or her provisional tax calculation for the current year of income, in respect of a dependent spouse rebate. This compares with the arrangements in the Bill which rely on the period when the taxpayer's spouse did not qualify for the HCCA.

Amendments 6 to 9

2.8 These amendments make the necessary adjustments to the transitional clause [clause 60] to accommodate the new approach outlined above.

2.9 The explanatory memorandum to the Bill contained examples, at pages 86 to 88, demonstrating the application of the transitional year formula to a taxpayer entitled to the dependent spouse rebate (with or without child).

2.10 While the amendments proposed will not affect the comparisons made between the current and proposed arrangements, the method of calculating the rebate entitlement under the proposed arrangements is based on the HCCA payments received compared to the period when the spouse qualified for HCCA.

2.11 The proposed arrangements for example 1 are reworked below:

Example 1

A taxpayer has a dependent spouse and child during 1994-95. HCCA payments are made from 29September 1994. The spouse's separate net income, and income for HCCA purposes, is $3120 ($60/wk) earned evenly throughout the year.

Proposed arrangements

For the transitional year, a taxpayer's maximum rebate entitlement is $1270 [$1452 * 90/365 + $1211 * 275/365]. The part year thresholds for applying the separate net income test to the Pre and Post September rebate components will be $70 and $212 respectively.

The Post-28 Sep component (new law) is nil because the rebate of $380, which is calculated after applying the part year separate net income test, is less than the HCCA payments of $654 received during the period from 29September to 30 June 1995. The $380 rebate represents $912[$1211*275/365] less $532 [(2340-212)/4].

The total rebate and HCCA under the amendments proposed of $835 ($181 + $654) compares to the rebate of $743 that would have been the rebate entitlement under the existing arrangements.