Bills Digest No. 129 2001-02
Taxation Laws Amendment (Baby Bonus) Bill 2002
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Taxation Laws Amendment (Baby Bonus)
Bill 2002
Date Introduced:
14 March 2002
House: House
of Representatives
Portfolio: Treasury
Commencement: Royal
Assent. However, the measures will apply in respect of eligible babies
born on or after 1 July 2001.
Purpose
To provide a mechanism for a ‘refund’ of previously paid
tax on the birth of an eligible child for a maximum of five years. The
refund will be subject to minimum and maximum limits so that the ‘refund’
will also be available to those who paid no tax in the relevant year,
generally the year before the birth of the child. Subject to the maximum
limit, those eligible for the ‘refund’ on higher incomes will receive
greater benefit than those on lower income, and the available ‘refund’
will be proportioned during the year of the eligible babies birth and,
for later years, on the child supporter’s income.
Background
Government assistance to families with children is principally
provided through the Family Tax Benefit. The Family Tax Benefit Part A
is payable at a base rate of $1029 for children under 18 years and $1383
for dependent children aged 18-24. These rates are payable where the combined
income of the family is between $29 857 and $77 234 plus $3139
for each additional child after the first. Higher rates are payable where
income is below the lower figure and phases out at the rate of 30 cents
in a dollar for each dollar by which income exceeds the upper amount.
The Family Tax Benefit Part B is payable where the income of the secondary
income earner is below $10 853 per year if the youngest child is
under 5 and $8079 if the youngest child is aged between 5 and 18 years.
Thus while the Part A payment is fully income tested, the principal income
earner’s income is ignored for the Part B payment.
There are also a number of other assistance packages
available for families, including a maternity allowance, large family
supplement and a multiple birth allowance. The maternity allowance is
payable where the recipient is eligible for Family Tax Benefit Part A
within 13 weeks of the baby's birth and consists of a one off payment
of $789.36.
The ‘baby bonus’ (or First Child Tax Refund) was announced
by the Prime Minister at the launch of the coalition election campaign
for the 2001 election. The bonus will consist of a repayment of the amount
of tax paid in the previous year averaged over 5 years, so that 1/5th
of the tax paid is refunded each year. The maximum rate of refund will
be $2500 per year, which equates to an income of $52 666 (only income
from personal exertion is taken into account) while the minimum rate will
be $500 per year, which will apply to incomes up to approximately $20 000
per year. Where the parent returns to the workforce within 5 years of
the child’s birth, their entitlement will be reduced in proportion of
their income compared to that in the year on which the refund is based.
The refund is available in respect of a first child born on or after 1
July 2001, or for people who already have a child or children, for the
first child born after that date.(1)
Two notable features of the arrangement are that it is
payable regardless of the combined income of the family and that higher
amounts are received for higher income earners. An analysis of the measure
found that approximately a third of the female workforce earned $20 000
per year or less, and so will only be eligible for the minimum payment
of $500 per year, while approximately 50 per cent of the female workforce
earned $26 000 or less, at which rate of earnings they would be eligible
for a maximum of $800 per year. It was also found that only approximately
5 per cent of the female workforce would be eligible for the maximum rate
of $2500 per year.(2)
While estimating the cost of bringing up a new born baby
is difficult, the Department of Family and Community Services estimated
that the cost of raising a girl aged 3 where the man is employed full-time
and the woman is not in the labour force with a modest but adequate budget
standard was an average of $101 per week in December 1998.(3)
While the baby bonus will, depending on the level at which it is paid,
make a contribution towards the payment of this extra cost it remains
unclear as to what effect it will have on a decision to return to work.
Such a decision can be affected by a large range of matters, such as the
availability of child care, partner’s income (if relevant), career aspirations,
etc. It has recently been reported that a woman earning $30 000 per
year for five years would receive a total after tax income of $123 100,
compared to the refund of $5380 under the baby bonus scheme.(4)
The Treasurer has estimated that approximately 245 000
mothers will be eligible for the bonus in its first year, increasing to
900 000 by the fifth year and then falling to approximately 600 000
for later years.(5) The peak in the fifth year reflects the
transitional arrangements which allow claims in respect of a child other
than the first child as referred to above. According to the explanatory
memorandum to the Bill the measure will cost $85 million in 2002-03, $250
million in 2003-04, $390 million in 2004-05 and $510 million in 2005-06.
This equates to an average benefit of $347 in the first year and $567
in the fifth year. The reason for the amount payable in the first year
being less than the minimum of $500 is that the bonus is proportional
on the period of the year after which the baby was born, so that, for
example, if the baby was born in early January only approximately 50 per
cent of the bonus would be payable for that year.(6) This was
not made clear in the initial announcements.
Item 2 of Schedule 1 will insert a new subdivision
61-I into the Income Tax Assessment Act 1997 (ITAA97) dealing with
the first child tax offset. Entitlement to the tax offset is dealt with
in proposed section 61-355 which provides that a person will be
entitled to the offset if:
- the person had a child event in relation to a child (under proposed
section 61-360 a person will have a child event if they become legally
responsible for the child on or after 1 July 2001, are an Australian
resident at the time, were not legally responsible for the child before
this date and there is no other person legally responsible for the child
who also had responsibility before this date)
- the person did not have a child event in respect of another child
and at that time also satisfied the following conditions:
- the child is less than 5
- the person is legally responsible for the child and has care of the
child
- the person is an Australian resident
- the rules relating to another carer do not prevent the person from
having a primary entitlement to the tax offset, and
- if the selection rules apply, the person is selected under those rules.
The rules relating to another carer are contained in
proposed section 61-370 which provides that a person cannot have
a primary entitlement to the tax offset if another person is legally responsible
for the child and has care of the child and that person had, at any time,
an entitlement in respect of another child.
The selection rules are contained in proposed section
61-375. The rules apply if more than one person satisfies the conditions
referred to above and provide that the offset will be available in the
following order of priority:
- the natural mother
- the adoptive mother
- if only one of the people who satisfy the conditions is a woman, that
woman
- the natural father
- the adoptive father, or
- the person determined by the Commissioner.
If the child dies before 5 years of age, proposed
section 61-380 provides that the entitlement to the tax offset will
continue until the end of the year in which the death occurred and that
the person will remain eligible to receive the offset in respect of a
later baby.
A person eligible to receive the offset will be able
to transfer the payment to certain people. Such a transfer will only be
able to be made to:
- a person who was the eligible person’s spouse at all times that the
person was entitled to the offset (spouse is defined in the ITAA97 to
be a person who lives with another person on a genuine domestic basis
as the person’s husband or wife – thus excluding same sex couples)
- the person to whom eligibility is to be transferred was not entitled
to the offset in respect of that, or another, child during the year,
and
- the tax offset has not been claimed but has been transferred after
the end of the year. (proposed section 61-385).
Such a transfer cannot be changed or revoked (proposed
section 61-390).
The amount of the tax offset is calculated according
to proposed sections 61-415 to 61-430. Under proposed section 61-415
the rate of payment will depend on the person’s entitlement amount and
their entitlement days.
The entitlement amount will be calculated by multiplying
the base amount by the proportion of which the income in the year relates
to the income in the base year (basically this formula will adjust the
amount of the offset for any income earned during the year for which the
offset is claimed). The base amount will be lesser of 1/5th
of the person’s income in their base year and $2500 (thereby ensuring
a minimum annual payment
of $500) (proposed section 61-420).
The definition of entitlement days, together with the
formula contained in proposed section 61-415, effectively proportions
the amount of the available offset in the year of the baby’s birth to
the proportion of the year after the person become eligible to claim for
the tax offset (proposed subsection 61-425).
The definition of ‘base year’ is dealt with in proposed
section 61-430. It will be either the income year before the child
event occurred or, if the person elects, the year during which the event
occurs.
Concluding Comments
As a program to assist the most deserving people to cope
with the extra expense associated with the birth of a first child the
measures contained in this Bill must be subject to some doubt. The greater
rate of tax offset available to higher income earners and the lack of
a parental income test (ie the inclusion of any partner income, if relevant)
may result in the offset principally being available to higher income
families where the family can afford to have a potential income earner
out of the workforce for a period.
The restriction of the amount of the offset to the proportion
of the year after the child event occurred seems at odds with the suggestion
that the offset is designed to compensate for the initial costs of the
birth of the first child.(7)
- Stronger Families and Communities, p. 5.
- The Sydney Morning Herald, 30 October 2001.
- Department of Family and Community Services, Policy Research paper
Number 7, January 2001, p. 67.
- The Canberra Times, 4 November 2001.
- Treasurer, Press Release, 28 October 2001.
- Proposed section 61–425 of the Bill.
- The Stronger Families and Communities document states ‘If re-elected
the Coalition will provide additional assistance [to] families during
one of the hardest times for them financially, the birth of a child’.
p. 5.
Chris Field
2 May 2002
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
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