INCOME TAX REGULATIONS (AMENDMENT) 1994 NO. 127

INCOME TAX REGULATIONS (AMENDMENT) 1994 NO. 127

Income Tax Regulations (Amendment)

The amending regulations amend Part 8 of the Income Tax Regulations to incorporate the new mature age allowance and the mature age partner allowance. They also provide for separate levels of rebate where the number of pension paydays for social security pensioners differs from that for service pensioners.

Section 266 of the Income Tax Assessment Act 1936 (the Act) provides that the Governor-General may make regulations prescribing matters required for giving effect to the Act Section 160AAA of the Act authorises the making of regulations to determine the amount of the rebate of tax allowable to the recipients of social security pension and allowance and of service pension.

Subsection 160AAA(5) of the Act overrides provisions of the Acts Interpretation Act 1901 that would otherwise prevent the making of regulations to apply retrospectively. The regulations for the purpose of section 160AAA may apply in relation to a year of income any part of which occurred before the notification of the regulations.

Part 8 of the Income Tax Regulations cross-refers to a large degree to the Social Security Act 1991 (SSA91)and the Veterans Entitlements Act 1986 (VEA). Almost all the amendments relate to regulation 151 which determines the various levels of pensioner rebate.

In the 1993-94 Budget the Government announced the introduction of the mature age allowance (MAA). The MAA will be paid to persons aged 60 to age pension age who have been unemployed and in receipt of income support for 12 months or more. It would be paid at the same level as the age pension and be subject to the same tax treatment as the age pension.

The Government also decided to provide an allowance similar to the wife pension to a partner of the MAA recipient. This allowance will be called the mature age partner allowance (MAPA). The MAPA would be subject to tax treatment similar to that of the wife pension.

If the recipient of the MAPA is below pension age the MAPA is exempt from income tax. However for the purposes of subregulation 151(6), subregulation 151(7) provides for exempt wife pension payments to be treated as if assessable. Subregulation 151(6) provides for the transfer between partners of unused pensioner rebate.

It was not necessary to amend section 160AAA of the Act to extend the pensioner rebate to recipients of MAA and MAPA. However it is necessary to take these measures in to account in the definition of "prescribed pension" in regulation 148. The receipt of a prescribed pension by a partner may affect the level of beneficiary rebate for which a partnered recipient of certain allowances is eligible. It is also necessary to provide for the MAPA in the transfer of unused rebate in subregulation 151(7). The amending regulations achieve this.

In the 1989-90 Budget the Treasurer announced that the maximum pensioner rebate would be set to free from tax service and social security pensioners with non-pension income up to the income test-free area. The rebates would be at three levels, single, partnered and illness-separated.

Part 8 of the Regulations was introduced to apply initially to pensioner and beneficiary rebates received during the 198990 income year. For that income year the amount of the service and social security pensions differed slightly because of the effective date of indexing. Consequently, subregulation 151(4) was designed to provide that, where the level of social security pension differs from that of the corresponding service pension, the rebate will be based on the greater pension amount. This was done for simplicity to avoid doubling the number of rebate levels from 3 to 6.

However, in 1993-94 there will be 27 social security pension paydays and 26 service pension paydays. The social security pension amounts for 1993-94 income year will therefore be considerably higher than the corresponding service pension amounts. It has been decided to amend the regulations so that there will be separate levels of rebate for social security and service pensioners for income years where the numbers of pension paydays for social security and service pensioners differ. The amending regulations achieve this which is consistent with the intention of freeing from tax a full. rate pensioner with non-pension income up to the income test-free area. The following table illustrates the differing rebate levels for 19934-94 compared with 1992-93:

Rebate levels

Existing subregulation 151(3) contains a formula for calculating the pensioner taxpayer's rebate amount. This amount is that to which the taxpayer pensioner would be entitled if in receipt of the full pension; that is, where he or she has no non-pension income in excess of the social security income-test-free area (the non-pension income limit). This subregulation also provides that, where the formula results in an amount not of whole dollars, the amount be rounded up to the next whole dollar. The formula for the rebate is:

Where:

L = lowest marginal tax rate (at present 20 cents per dollar of taxable income)

A = annual pension amount determined in accordance with paragraphs (a), (b), (c) and (d), respectively of subregulation 15 1(4)

N = non-pension income limit determined in accordance with paragraph 151(4)(e)

T = tax-free threshold (at present $5,400)

Subject to paragraph 151(4)(d), paragraphs 151(4) (a), (b) and (c) determine the annual pension amount for partnered-rate, illness-separated-rate and single-rate pensions, respectively. Where there is a difference between the levels of social security and service pensions, these provisions determine that the annual pension amount selected for the formula will be the higher.

Paragraph 151(4)(d) provides that, where the annual pension amount is not a whole dollar amount, that amount is rounded down to the next lowest whole dollar. This rounding down is provided for because the pensioner, in filling out his or her income tax return, will round down in accordance with subsection 170B(2) of the Act.

Paragraph 154(4)(e) determines the non-pension income limit for each type of pensioner. At present the amounts determined are the same for single social security and service pensioners and the same for both partnered and illness-separated social security and service pensioners. The non-pension income limit is the amount of non-pension income a pensioner can receive without losing any pensioner rebate. It corresponds to the income-test free area for social security and service pensioners.

Details of the amendments are set out in an Attachment.

Commencement

Subregulation 1.1 provides that the amendments contained in amending regulation 3 and subregulation 4.7 will be taken to have commenced on 20 March 1994. These amendments relate to the mature age allowance and the mature age partner allowance.

Subregulation 1.2 Provides that the amendments contained in amending regulation 4 other than subregulation 4.7 will be taken to have commenced on 1 July 1993. These amendments provide for the different levels of rebate for social security and service pensions where there is a difference in the number of paydays for the two categories.

Subregulation 2.1 provides that the Income Tax Regulations be amended as set out in the amending regulations.

Subregulation 3.1 provides that the mature age allowance and the mature age partner allowance be added to the list of pensions and allowances that are included in the definition of a "prescribed pension" in regulation 148 for the purpose of defining a dependent-partner-rate benefit.

Subregulation 4.1 inserts in paragraphs 151(4)(a), (b) and (c) a proviso relating to the annual pension amounts determined in accordance with those paragraphs. The proviso is that the determinations are subject to subregulation 151(4A) which determines the pension amounts when there is an unequal number of social security and service pension paydays in a year of income.

Subparagraph 4.2 inserts in subparagraph 151(4)(e)(i) of the regulations a reference to paragraph 151(4A) (a) or (c). Subparagraph 151(4)(e)(i) determines the level of nonpension income limit for an ordinary partnered or illness-separated service pensioner. The insertion will determine the level where the number of social security and service pension paydays is unequal.

Subparagraph 4.3 inserts in subparagraph 151(4)(e)(ii) of the regulations a reference to paragraph 151(4A) (b) or (d). Subparagraph 151(4)(e)(ii) determines the level of nonpension income limit for an ordinary partnered or illness-separated social security pensioner. The insertion will determine the level where the number of social security and service pension paydays is unequal.

Subparagraph 4.4 inserts in subparagraph 151(4)(e)(iii) of the regulations a reference to paragraph 151(4A) (e). Subparagraph 151(4)(e)(iii) determines the level of nonpension income limit for a single service pensioner. The insertion will determine the level where the number of social security and service pension paydays is unequal.

Subparagraph 4.5 inserts in subparagraph 151(4)(e)(iv) of the regulations a reference to paragraph 151(4A) (f). Subparagraph 151(4)(e)(iv) determines the level of nonpension income limit for a single social security pensioner. The insertion will determine the level where the number of social security and service pension paydays is unequal.

Subregulation 4.6 inserts a new subregulation 151(4A) applying to the situation where the number of paydays for social security pensioners is different from that for service pensioners in an income year. Where this occurs, the annual pension amount is that which would be included in a pensioner's assessable income if he or she had received that pension throughout the year of income.

Subregulation 4.7 adds to paragraph 151(7)(a) a reference to Part 2.12A of SSA91. Part 2.12A deals with mature age allowance and mature age partner allowance but the reference is effectively limited to the mature age partner allowance (MAPA) by existing paragraph 151(7)(b). The purpose of subregulation 151(7) is to facilitate the transfer of a notional unused rebate from an exempt pensioner to a taxable pensioner. The MAPA is exempt from income tax where the recipient is below pension age.