AUSTUDY Regulations (Amendment) 1997 No. 159
EXPLANATORY STATEMENT
Statutory Rules 1997 No. 159
Issued by the Authority of the Minister for Employment, Education, Training and Youth Affairs
Student and Youth Assistance Act 1973
AUSTUDY Regulations (Amendment)
The Student and Youth Assistance Act 1973 (the Act) provides the legislative authority for the AUSTUDY scheme. Section 56 of the Act provides that the Governor-General may make regulations for the purposes of the Act.
The Actual Means Test (AMT) was introduced with effect from 1 January 1996 to supplement the AUSTUDY income and assets tests in an ongoing effort to direct AUSTUDY to those most in need, Under the AMT, the total expenditure and savings of a family with a parent in a designated category is taken to be the family's actual means. This is compared to the after tax income of a similar, notional parent. A student with a designated parent passes the test if the actual means of his or her family is less than the minimum after tax income of the notional family that would make a notional student ineligible for AUSTUDY. The AMT also applies where a student or a student's spouse is in a designated category.
OUTLINE OF REGULATIONS
These regulations continue to refine the AMT by excluding certain people from the test, excluding certain expenditure and savings from actual means and providing that the entitlement of an AMT person is based on "equivalent" income derived from actual means. The regulations are detailed in the Attachment.
In relation to persons who are subject to the AMT because they have an "interest" in a trust the regulations clarify the meaning of "interest" by setting out the less obvious interests associated with trust relationships which will continue to trigger the AMT (regulation 3).
The regulations exclude certain types of trusts which are not regarded as being appropriate to trigger the application of the AMT. The following trusts are excluded by the regulations:
* trusts in relation to bank accounts held only for the benefit of dependant children;
* trusts created under will or as a result of bankruptcy proceedings;
* trusts in relation to public superannuation funds;
* public unit trusts;
* trusts relating to trust accounts which are required by law (eg solicitor's trust accounts);
* charitable trusts, and
* constructive trusts (regulation 3).
The regulations also exempt from the AMT, wage and salary earners who claim negative gearing losses that relate only to rental properties (regulations 5, 7 and 9).
The regulations exclude from the actual means of a designated parent, spouse or student a range of expenditure items or purposes which are more fully set out in the Attachment (regulations 6, 8, 10 and 11).
The regulations provide that AUSTUDY entitlement is based on "equivalent" income which is derived from actual means (regulations 12, 14, 16 and 17).
The regulations make a number of other minor changes to the regulations that result from the proposed changes outlined above (regulations 3, 4, 15 and 18 and subregulations 6.1, 6.2, 6.3, 6.5, 8.1, 8.2, 8.3, 8.5, 10.1, 10.2, 10.3, 10.5, 11.1, 11.2, 11.3, 11.5, 13.1 and 13.2).
REGULATION IMPACT STATEMENT
A Regulation Impact Statement is not required as the regulations do not impact on the operation of businesses.
COMMENCEMENT
Regulation 1 provides that the regulations are taken to have commenced on 1 January 1997. As the changes do not disadvantage clients, this does not contravene subsection 48(2) of the Acts Interpretation Act 1901.
These changes do not disadvantage clients because the changes will either merely clarify where there has been uncertainty in the existing arrangements or narrow down the operation of the AMT.
Authority: Section 56 of the Student and
Youth Assistance Act 1973
Attachment
DETAILS OF THE AUSTUDY REGULATIONS (AMENDMENT)
Regulation 1 Commencement
Subregulation 1.1 provides that the regulations are taken to have commenced on 1 January 1997. As the changes made by these regulations do not disadvantage clients, this does not contravene subsection 48(2) of the Acts Interpretation Act 1901.
Regulation 2 Amendment
Subregulation 2.1 provides that the AUSTUDY Regulations are amended as set out in these regulations.
AMENDMENTS MADE BY THESE REGULATIONS
(A) CHANGES TO DESIGNATED CATEGORIES
The regulations clarify matters relating to some of the designated categories.
Clarification of matters relating to trusts
Background
Subregulations 12L(1), 12S(1) and 12Y(1) require that all persons who have an interest in a trust are subject to the AMT. "Interest", in relation to a trust and "trust" are not currently defined in the regulations which has created some uncertainty about who is subject to the AMT. These regulations clarify the meaning of "interest", in relation to a trust, and exclude particular types of trust arrangements from the scope of the AMT.
Amendments made by these regulations
Regulation 3 amends regulation 12F to provide that, for the purposes of the AMT:
* "trust" does not include:
- a trust in relation to an account held in a bank or other financial institution only for the benefit of a dependant child of the trustee; or
- a trust under which the property of the estate of a deceased person, or a person who is insolvent under administration, is distributed; or
- a trust in relation to a superannuation fund within the meaning of the Superannuation Industry (Supervision) Act 1993 that is not an excluded fund within the meaning of that Act (i.e. a superannuation fund that has 5 or more members),- or
- a public unit trust in which units are held by 50 or more persons who are not members of the trustee's family (where family means the relevant AMT family), or are offered for subscription or purchase to the public; or
- the trust for a trust account that the trustee is required by law to establish; or
- a charitable trust; or
- or a trust created by operation of law; and
* "interest", in relation to a trust:
- includes:
* the interest of a settlor in the trust, but only where the settlor retains an interest in property subject to the trust, and
* a power of appointment under the trust; and
* a power to rescind or vary a provision of, or the effect of the exercise of a power under the trust; and
an interest which is conditional, contingent or deferred- but
- does not include the interest of:
* an agent or creditor of the trustee; or
* a person employed by the trustee.
Persons who have a business loss that is only a negative gearing loss
Background
Subregulations 12L(1), 12S(1) and 12Y(1) provide that a person who derives income from a salary or wage and has claimed, or will claim, a tax deduction for a business loss (whether current or carried forward) is a designated parent, spouse or student (as the case may be). The Government has decided that salary or wage earners who claim negative gearing losses that relate only to rental properties are not to be subject to the AMT.
Amendments made by these regulations
Regulation 5 amends subparagraph 12L(1)(d)(iii) to provide that a person who derives income from a salary or wage and claims, or will claim, a tax deduction for a business loss (whether current or carried forward) that does not consist only of a net rental property loss is a designated parent. Regulations 7 and 9 amend subparagraphs 12S(1)(d)(iii) and 12Y(1)(d)(iii) respectively to make similar provisions in relation to a designated spouse, a designated student with a spouse and a designated student without a spouse.
A person who would be subject to the AMT only because of their net rental property loss would be excluded from the test by these provisions. However, these provisions do not exclude from the test a person who has a net rental property loss and is also in another designated category.
To complement these changes, regulation 3 provides that:
* net rental property loss" means the amount by which expenses in relation to a rental property exceed the gross income from the property; and
* "rental property" means residential or commercial property (whether inside or outside Australia) from which an amount or premium is received as rent.
(B) EXCLUSIONS FROM ACTUAL MEANS
Subregulations 12N(1), 12U(1), 12ZA(1) and 12ZF(1) provide that the actual means of a designated parent, spouse or student are taken to be the amount that equates to total expenditure and savings made in that period by the parent or spouse and his or her family. These regulations exclude certain expenditure and savings from the actual means of a designated parent, spouse or student.
Expenditure relating to the trading of property
Background
Actual means includes expenditure and savings relating to the trading of property. The Government intends that, where the total value of the property of a designated parent, spouse or student or a family member does not increase as a result of a trade of property, any expenditure that is the purchase price of the property is excluded from actual means.
Amendments made by these regulation
Subregulation 6.2 omits paragraph 12N(1A)(a) and substitutes a new paragraph 12N(1A)(a) to provide that expenditure by a designated parent or a family member that is the purchase price of an interest in property that does not increase the total value of the property of the parent, or family member, is excluded from actual means.
This works so that, for example, if a parent trades a boat for a car of the same value the expenditure that is the purchase price of the car is excluded from actual means, as the overall value of the parent's property has not increased. Similarly, if a parent has $10,000 cash and sells a painting for $30,000 and spends the total $40,000 to purchase a share portfolio the transactions have not increased the overall value of the parent's property. The expenditure to purchase the share portfolio is excluded from actual means. However, in all cases, any associated costs (such as stamp duty to acquire the car or the share portfolio) or to sell the painting (such as agent's fees, if applicable) will continue to be included in actual means.
Subregulations 8.2, 10.2 and 11.2 amend paragraphs 12U(1A)(a), 12ZA(2)(a) and 12ZF(2)(a) respectively to make similar provisions in relation to a designated spouse, a designated student with a spouse and a designated student without a spouse.
Expenditure on essential items for persons with disabilities
Background
Regulation 16 excludes from the Assets Test items for use by a person with a disability. Where a designated person, or a member of his or her family, has a disability, the person's assets do not include any personal property designed for use by the person with the disability and any modification to personal property to enable it to be used by the person. The Government intends that a similar concession should apply in the AMT.
"rental property" means residential or commercial property (whether inside or outside Australia) from which an amount or premium is received as rent.
(B) EXCLUSIONS FROM ACTUAL MEANS
Subregulations 12N(1), 12U(1), 12ZA(1) and 12ZF(1) provide that the actual means of a designated parent, spouse or student are taken to be the amount that equates to total expenditure and savings made in that period by the parent or spouse and his or her family. These regulations exclude certain expenditure and savings from the actual means of a designated parent, spouse or student.
Expenditure relating to the trading of property
Background
Actual means includes expenditure and savings relating to the trading of property. The Government intends that, where the total value of the property of a designated parent, spouse or student or a family member does not increase as a result of a trade of property, any expenditure that is the purchase price of the property is excluded from actual means.
Amendments made by these regulations
Subregulation 6.2 omits paragraph 12N(1A)(a) and substitutes a new paragraph 12N(1A)(a) to provide that expenditure by a designated parent or a family member that is the purchase price of an interest in property that does not increase the total value of the property of the parent, or family member, is excluded from actual means.
This works so that, for example, if a parent trades a boat for a car of the same value the expenditure that is the purchase price of the car is excluded from actual means, as the overall value of the parent's property has not increased. Similarly, if a parent has $10,000 cash and sells a painting for $30,000 and spends the total $40,000 to purchase a share portfolio the transactions have not increased the overall value of the parent's property. The expenditure to purchase the share portfolio is excluded from actual means. However, in all cases, any associated costs (such as stamp duty to acquire the car or the share portfolio) or to sell the painting (such as agent's fees, if applicable) will continue to be included in actual means.
Subregulations 8.2, 10.2 and 11.2 amend paragraphs 12U(1A)(a), 12ZA(2)(a) and 12ZF(2)(a) respectively to make similar provisions in relation to a designated spouse, a designated student with a spouse and a designated student without a spouse.
Expenditure on essential items for persons with disabilities
Background
Regulation 16 excludes from the Assets Test items for use by a person with a disability. Where a designated person, or a member of his or her family, has a disability, the person's assets do not include any personal property designed for use by the person with the disability and any modification to personal property to enable it to be used by the person. The Government intends that a similar concession should apply in the AMT.
Amendments made by these regulations
Subregulation 6.4 amends subregulation 12N(1A) by inserting new paragraph (e) to provide that, if a designated parent or a family member is a person with a disability, expenditure by the person or family member to acquire, or modify, any property for the person to assist him or her to overcome the disability is excluded from actual means. This means that expenditure by a physically disabled person to purchase, for instance, a wheelchair or to modify, for instance, a motor vehicle to assist him or her overcome the disability will be excluded from actual means. The exclusion extends to any associated costs such as stamp duty and agent's fees.
Subregulations 8.4, 10.4 and 11.4 amend subregulations 12U(1A), 12ZA(2) and 12ZF(2) respectively to make similar provisions in relation to a designated spouse, a designated student with a spouse and a designated student without a spouse.
Expenditure relating to loans
Background
Subregulations 12N(1), 12U(1), 12ZA(1) and 12ZF(1) require that expenditure funded by loans is included in actual means, as are repayments of the principal and any interest relating to a loan. This creates scope for "double counting" when calculating actual means. The Government has decided to clarify the treatment of loans to overcome this problem.
Amendments made by these regulations
Subregulation 6.4 inserts into subregulation 12N(1A) new paragraphs (f) and (g) to provide that the following expenditure relating to loans is excluded from actual means:
(a) expenditure by the parent or family member of money borrowed by the parent or family member for the purchase price of.
(i) the sole or principal residence of the parent or family member; or
(ii) an interest in land, or in a building not mentioned in paragraph (i); or
(iii) a motor vehicle, or a powered aircraft or watercraft; and
(b) expenditure to repay the principal or interest in relation to money borrowed by the parent or family member for any other purpose.
Subregulations 8.4, 10.4 and 11.4 amend subregulations 12U(1A), 12ZA(2) and 12ZF(2) respectively to make similar provisions in relation to a designated spouse, a designated student with a spouse and a designated student without a spouse.
This approach means that actual means continue to include:
* expenditure to repay the principal or interest in relation to loans covered by paragraph (a) above; and
* expenditure of the loan amount in relation to loans covered by paragraph (b) above.
Expenditure from anticipated AUSTUDY and Financial Supplement
Background
Subregulations 12N(1), 12U(1), 12ZA(1) and 12ZF(1) require that expenditure from an amount of anticipated AUSTUDY benefits (under Part 2 of the Student and Youth Assistance Act 1973 (the Act)) or Financial Supplement (under Part 4A of the Act) a designated person or a family member expects to receive in a period of eligibility is included in actual means. In practice these amounts are not included in actual means. The regulations have been amended to reflect this.
Amendments made by these regulations
Subregulation 6.4 inserts into subregulation 12N(1A) new paragraphs (h) and (i) to provide that the actual means of a designated parent does not include expenditure or savings from an amount of AUSTUDY or Financial Supplement to which the parent or a family member is, or may be, entitled to under either Part 2 or Part 4A of the Act.
Subregulations 8.4, 10.4 and 11.4 amend subregulations 12U(1A), 12ZA(2) and 12ZF(2) respectively to make similar provisions in relation to a designated spouse, a designated student with a spouse and a designated student without a spouse.
Expenditure relating to business activities
Background
The AMT is administered on the basis that business expenditure is excluded from actual means. Subregulations UN(1A), 12U(1A), 12ZA(2) and 12ZF(2) do not currently provide that business expenditure is excluded from actual means. The regulations have been amended to clarify that certain business expenditure is excluded from actual means.
Amendments made by these regulations
Subregulation 6.4 inserts into subregulation 12N(1A) new paragraph (j) to exclude from the actual means of a designated parent expenditure spent on a business activity of either the parent or a family member where that expenditure was from income of that business activity.
Subregulations 8.4, 10.4 and 11.4 amend subregulations 12U(1A), 12ZA(2) and 12ZF(2) respectively to make similar provisions in relation to a designated spouse, a designated student with a spouse and a designated student without a spouse.
To complement these changes, regulation 3 inserts a definition of "business" into regulation 12F to clarify that business includes primary production, the provision of professional services and the earning of investment income, but does not include employment, whether or not for salary or wages. Regulation 3 also inserts a definition of "business activity" into regulation 12F to provide that a business in which a person is usually engaged for at least 171/2 hours a week is a business activity. These definitions apply within Division 1B - Actual Means Test.
Expenditure from Defence Force Reserve part-time income
Background
Subregulations 12N(1A), 12U(1A) and 12ZA(2) provide for the exclusion from actual means of expenditure and savings by a designated parent, spouse or student respectively or a family member, from taxable income received from independent employment (which is defined in subregulations 12N(5), 12U(5) and 12ZA(5) to mean employment not provided by a member of the person's family or a company, partnership or trust in which the person or a member of his or her family has an interest).
The Government has decided that, where a designated parent, spouse or student or a family member receives Defence Force Reserve or Ready Reserve Part-time income, up to $6,000 of that income may be excluded from actual means.
Although this income is "independent employment" income as defined, Defence Force Reserve pay and Ready Reserve Part-time pay are exempt income within the meaning of the Income Tax Assessment Act 1936 so would not form part of taxable income. Therefore, specific exclusion of these amounts is required.
Amendments made by these regulations
Subregulation 6.4 inserts into subregulation 12N(1A) new paragraph (k) to provide that expenditure and savings of up to $6,000 derived from pay and allowances mentioned in paragraph 23 (s) of the Income Tax Assessment Act 1936 (relating to part-time Army Reserve, Air Force Reserve and Navy Reserve pay and allowances) is excluded from actual means.
Subregulations 8.4, 10.4 and 11.4 amend subregulations 12U(1A), 12ZA(2) and 12ZF(2) respectively to make similar provisions in relation to a designated spouse, a designated student with a spouse and a designated student without a spouse.
(C) USING ACTUAL MEANS TO DETERMINE A STUDENT'S AUSTUDY ENTITLEMENT
The regulations change the way in which the actual means of a designated parent, spouse or student is used to determine the amount of AUSTUDY a student will get.
Calculation of AUSTUDY entitlement
Background
Subregulation 82(113) provides that "income" for a single independent student who is eligible for AUSTUDY is the greater of the amount worked out under subregulation 82(1A) (the student income test) or the amount worked out using the formula in subregulation 82(1B) (which takes actual means worked out under regulation 12ZF and derives an "equivalent" income figure). Regulations 87A and 94B make similar provision in the parental and spouse income tests.
In practice, however, this comparison is not made and entitlement is calculated on the basis of the 11 equivalent" income figure. The regulations have been amended to reflect this position.
Amendments made by these regulations
Subregulation 12.1 amends subregulation 82(1B) to provide that the income of a student who is a designated student is calculated by reference to a formula which determines the student's ,"equivalent" income from actual means. Subregulations 14.1, 16.1 and 17.1 amend subregulations 87(A)(1), 94A(1) and 94B(1) respectively to make similar provisions in relation to a designated spouse, a designated student with a spouse and a designated student without a spouse.
(D) MISCELLANEOUS CHANGES AS A RESULT OF THE CHANGES TO THE AMT
A number of minor amendments to the regulations, resulting from the changes to the AMT discussed above, have also been made by these regulations. These amendments are not expected to change the operation of the AMTs in any way.
Regulation 3 omits regulation 12F (Application of this Division) and substitutes a new regulation 12F (Interpretation) to provide definitions of "net rental property loss", "rental property", "business", "business activity", "interest" in relation to a trust, and "trust" discussed above.
Regulation 4 inserts a new subregulation 12G(1A) to provide that Division 1 B - Actual Means Test applies only to applications for AUSTUDY for a period starting on or after 1 January 1996. This provision is currently in regulation 12F (Application of this Division) which has been replaced by regulation 3.
Subregulations 6.1, 8.1, 10.1 and 11.1 amend subregulations 12N(1), 12U(1), 12ZA(1) and 12ZF(1) respectively to insert "each member of' after "the parent".
Subregulations 6.2, 8.2, 10.2 and 11.2, aside from amendments discussed above, also provide that "family member" means "a member of his or her family". The expression "family member" is then used throughout the regulations.
Subregulations 6.3, 8.3, 10.3 and 11.3 omit from paragraphs 12N(1A)(c) and (d), paragraphs 12U(1A)(c) and (d), paragraphs 12ZA(2)(c) and (d) and paragraphs 12ZF(2)(c) and (d) respectively "or his or her family" and substitute "or a family member´.
Subregulations 6.5 and 8.5 amend subregulations 12N(1B) and 12U(1B) respectively by emitting "paragraph (1A)(a)" and substituting "paragraph (1A)(1)".
Subregulations 10.5 and 11.5 amend subregulations 12ZA(3) and 12ZF(3) by omitting paragraph (2)(a)" and substituting "paragraph (2)(1)".
Subregulation 13.1 amend subregulation 86(1) to make it consistent with the definition of "net rental property loss" inserted by subregulation 3.1.
Subregulation 13.2 and regulation 15 amend paragraphs 86(1A)(a) and 94 (1AA)(a) respectively to make them consistent with the definition of "rental property" inserted by subregulation 3.1.
Regulation 18 amends subregulation 113 (1) to add definitions of "net rental property loss" and "rental property". This means that these expressions apply for the purposes of the AUSTUDY regulations.