Income Tax Amendment Regulation 2012 (No. 3)

Administered by Department of the Treasury

Legislation au F2012L01557 Regulations Not in force Legislative Instrument

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EXPLANATORY STATEMENT

Select Legislative Instrument 2012 No. 174

Issued by authority of the Treasurer

Income Tax Amendment Regulation 2012 (No. 3)

Income Tax Assessment Act 1936

Income Tax Regulations 1936

Section 266 of the Income Tax Assessment Act 1936 (the Act) provides, in part, that the Governor-General may make regulations not inconsistent with the Act, prescribing all matters which by the Act are required to be prescribed, or necessary or convenient to be prescribed for giving effect to the Act.

The purpose of the amending Regulation is to take account of the legislative amendments to the personal income tax rates and thresholds, which were part of the Government’s Clean Energy Future Plan.

The Income Tax Amendment Regulation 2012 (No. 1), which took effect on 1 July 2012, amended the Income Tax Regulations 1936 (the Principal Regulations) to reflect the merger of the pensioner tax offset (PTO) and the senior Australians tax offset (SATO) into the new seniors and pensioners tax offset (SAPTO).

The amending Regulation amended the Principal Regulations in order to ensure that couples that were able to transfer amounts of PTO between themselves continue to be able to transfer amounts of SAPTO between themselves after 1 July 2012.

Section 160AAA of the Income Tax Assessment Act 1936 (ITAA 1936) provided for the PTO. Subsection 160AAA(2) allowed recipients of certain pensions, allowances and benefits under the Social Security Act 1991 and the Veterans’ Entitlements Act 1986, which are known as ‘rebatable pensions’, to receive the PTO.

Prior to 1 July 2012, a person may have received the PTO if their pension were treated as taxable income. These pensions, allowances and benefits are generally taxable income if the recipient is of Age Pension age or above, and are exempt for tax purposes if the recipient is below Age Pension age.

The amount of PTO a person was entitled to receive was determined under Division 2 of Part 8 of the Principal Regulations. The amount varied depending on the person’s ‘rebate income’ and the rate of pension they were receiving.

Subregulation 151(6) in Division 2 of Part 8 of the Principal Regulations prescribed the way in which an unused amount of PTO could be transferred from one member of a couple to another who was also eligible for either the PTO or the SATO.

Subregulation 151(7) in Division 2 of Part 8 of the Principal Regulations allowed a recipient of certain exempt payments to receive an amount of the PTO solely for the purposes of transferring the amount to their partner who was eligible for the PTO or the SATO. This was because the original recipient was not entitled to any PTO in their own right, because their payment was exempt for tax purposes.

The Income Tax Amendment Regulation 2012 (No. 1) amended the Principal Regulations to omit Division 2 of Part 8 entirely. In the absence of a clarifying Regulation, this would mean that a recipient of an exempt payment would not receive any SAPTO to transfer to their partner who is eligible for the SAPTO.

The amending Regulation amended the Principal Regulations to ensure that the transferability of PTO is retained now that the PTO and the SATO have been replaced by the SAPTO.

Regulations 150AE and 150AF of the Principal Regulations allow unused amounts of the offset to be transferred to a person’s spouse if that spouse is entitled to the SATO.

Items 1 and 2 of Schedule 1 to the amending Regulation amended the formulae used to determine a SAPTO recipient’s rebate threshold to explicitly take account of the additional SAPTO a person may receive from their partner. This means that a member of a couple who receives additional SAPTO from their partner will have their rebate threshold calculated taking into account the additional SAPTO they receive. This will ensure that their SAPTO begins to be withdrawn once their income exceeds the higher, effective tax‑free threshold that the formulae give them.

Items 3 and 4 of Schedule 1 to the amending Regulation inserted a subregulation into Regulation 150AE and Regulation 150AF that reflects the omitted subregulation 151(7), and allows recipients of pensions that are made under Part 2.3, 2.4 or 2.5 of the Social Security Act 1991 or under Division 4 or 5 of Part III of the Veterans’ Entitlements Act 1986, and that are exempt from tax, to receive some SAPTO solely so that they may transfer it to their partner who is eligible for SAPTO.

A Regulation Impact Statement was prepared by the Department of Climate Change and Energy Efficiency and has been assessed as adequate by the Office of Best Practice Regulation.

No consultation was undertaken as the amendments are minor and machinery in nature. Although the amending Regulation will apply retrospectively from 1 July 2012, it will only affect taxpayers on lodgement and assessment of their income tax returns for the 2012‑13 income year. Taxpayers who may be affected by the amending Regulation will consequently pay less tax.

A statement of compatibility with human rights is provided at Attachment A.

The Act specifies no conditions that need to be met before the power to make the proposed Regulations may be exercised.

The amending Regulation would be a legislative instrument for the purposes of the Legislative Instruments Act 2003.

The amending Regulation is taken to have commenced on 1 July 2012. This retrospection is not detrimental.

ATTACHMENT A

Overview

The Income Tax Amendment Regulation 2012 (No. 3) was enacted to address the legislative gap created by the merger of the pensioner tax offset (PTO) and the senior Australians tax offset (SATO) into the new seniors and pensioners tax offset (SAPTO), as part of the Government’s Clean Energy Future Plan. Issued by authority of the Treasurer, this regulation amends the Income Tax Regulations 1936 to ensure that the transferability of the PTO is retained now that the PTO and SATO have been replaced by the SAPTO. The policy objective is to provide a seamless transition for couples that were previously able to transfer amounts of PTO between themselves, allowing them to continue transferring amounts of SAPTO post-1 July 2012. The regulation also adjusts the formulae used to determine a SAPTO recipient’s rebate threshold to explicitly take account of the additional SAPTO a person may receive from their partner. The amendments apply retrospectively from 1 July 2012 but will only affect taxpayers on the lodgement and assessment of their income tax returns for the 2012-13 income year, potentially reducing their tax liability.

Scope and Application

The Income Tax Amendment Regulation 2012 (No. 3) applies to individuals and couples affected by the legislative changes to personal income tax rates and thresholds under the Government’s Clean Energy Future Plan. Specifically, it pertains to taxpayers who are eligible for the seniors and pensioners tax offset (SAPTO) and their partners who may receive transferred SAPTO. This Regulation ensures that the transferability of tax offsets between partners remains intact despite the merger of the pensioner tax offset (PTO) and the senior Australians tax offset (SATO) into the SAPTO. It is a Commonwealth regulation under the Income Tax Assessment Act 1936, applicable to all taxpayers in Australia. The Regulation impacts those who are recipients of certain pensions, allowances, and benefits that are exempt from tax, allowing them to receive SAPTO for the purpose of transferring it to their eligible partners. The Regulation does not specify any exclusions or exemptions and extends its application through subordinate instruments, ensuring the necessary adjustments are made to reflect the new tax offset system.

Key Provisions

The Income Tax Amendment Regulation 2012 (No. 3) amends the Income Tax Regulations 1936 to account for the legislative amendments to personal income tax rates and thresholds, particularly the merger of the pensioner tax offset (PTO) and the senior Australians tax offset (SATO) into the new seniors and pensioners tax offset (SAPTO). The amendment ensures that couples retain the ability to transfer amounts of SAPTO between themselves, as they could with PTO and SATO, thus maintaining a benefit intended to assist low-income earners (Sections 150AE and 150AF). This change was necessary following the replacement of PTO and SATO with SAPTO, which could have otherwise disrupted the transferability of tax offsets between partners. The amending Regulation imposes obligations on taxpayers and the Australian Taxation Office (ATO). For taxpayers, the primary obligation is to ensure that their tax returns for the 2012-13 income year reflect the changes to the SAPTO, particularly if they are part of a couple where one partner receives an exempt pension or benefit that qualifies for the transfer of SAPTO. The ATO is required to process these returns in accordance with the amended regulations, ensuring that the correct amount of SAPTO is calculated and applied. Both parties must comply with the new formulae specified in Items 1 and 2 of Schedule 1, which account for the additional SAPTO a person may receive from their partner. The amending Regulation does not explicitly state any offences, penalties, or civil/criminal consequences for non-compliance with its provisions. However, taxpayers who fail to correctly apply the new SAPTO provisions in their tax returns may be subject to the general provisions of the Income Tax Assessment Act 1936, which could include penalties for underpayment of tax. The maximum penalties for such offences can be significant and may include fines or imprisonment, depending on the severity and intent of the non-compliance. It is important for taxpayers to ensure they understand and correctly apply the new regulations to avoid potential penalties.

Area of Law: Taxation Law
Instrument: Regulation
Concepts: Definitions & Interpretation; Repeal & Amendment; Transitional Provisions

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