EXPLANATORY STATEMENT

Family Assistance (Present Value of Unpaid Amount – Interest Rate) Determination 2000

Summary

This determination is made under subsection 100(6) of the A New Tax System (Family Assistance) (Administration) Act 1999 (the Administration Act).

The purpose of this determination is to specify an annual rate of interest used in calculating the “ present value” of  the outstanding balance of a debt for the purposes of determining whether the debtor’s offer of  part payment may be accepted in full satisfaction of the debt.

Background

Section 100 of the Administration Act provides for the waiver of certain debts where there has been a settlement agreed either through civil action or before the Administrative Appeals Tribunal.  Under this section, the Secretary may recover part of a debt in full satisfaction of the whole debt in certain circumstances.  Part of the debt may be waived, for example, where a debtor makes a current offer in full settlement of a debt and the amount offered is greater than the “present value” of the outstanding balance of the debt.  The concept of “present value” recognises that it may be cost effective to accept a smaller sum of money rather than pursue a larger sum of money as a series of instalments over a future period.

Subsection 100(6) of the Administration Act provides a formula for calculating the “present value” of the outstanding balance of the debt.  Part of this formula requires the Minister to specify an annual rate of interest by written determination. 

Accordingly, this Determination sets the annual rate of interest at 10%.  This rate is a reasonable compromise between the competing objectives of protecting the public purse and the desirability of setting the interest rate at a level that provides an incentive to repay debts early.  The rate is also consistent with the interest rate determined by the Minister under subsection 1237AAB(6) of the Social Security

Act 1991 (the social security equivalent of subsection 100(6) of the Administration Act).

Explanation of the provisions

Section 1 states the name of the determination and section 2 states that the determination commences on 1 July 2000, which is the date on which section 100 of the Administration Act begins to operate.  Section 3 contains interpretations provisions.

Section 4  specifies the annual interest rate of 10% for the purposes of the definition of “interest” in subsection 100(6) of the Administration Act.