EXPLANATORY STATEMENT
Select Legislative Instrument 2005 No. 161
Issued by authority of the Minister for Revenue
and Assistant Treasurer
Income Tax Assessment Act 1936
Income Tax Amendment Regulations 2005 (No. 4)
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 or permitted to be prescribed, or which are necessary or convenient to be prescribed for giving effect to the Act.
The purpose of the amending Regulations is to update:
• the calculation of the beneficiary tax offset, allowed under section 160AAA of the Act; and
• the calculation of the rebate threshold for the senior Australians tax offset, allowed under section 160AAAA of the Act
to reflect the reduction in the lowest personal income tax rate from 17 per cent to 15 per cent, which is proposed to apply from 1 July 2005.
The beneficiary tax offset
The payments to which the beneficiary tax offset applies are listed in the definition of ‘rebatable benefit’ in subsection 160AAA(1) of the Act and include a number of Centrelink payments and allowances and Commonwealth education allowances. The beneficiary tax offset ensures that an individual will pay no tax for an income year if they receive any of these payments and have no other assessable income. The offset is calculated in accordance with regulation 152 of the Income Tax Regulations 1936 (the Principal Regulations).
The Regulations amend subregulation 152(1) of the Principal Regulations to ensure that the beneficiary tax offset still covers the full tax liability that would otherwise be payable on rebatable benefits, taking into account the proposed reduction in the lowest personal income tax rate to 15 per cent.
The senior Australian tax offset
The senior Australians tax offset is a tax offset which is available to eligible Australians who are of age pension age. The offset begins to phase out once taxable income exceeds the rebate threshold, at a rate of 12.5 cents for each additional dollar of taxable income. The rebate threshold is set at the ‘effective tax free threshold’ for senior Australians; that is, the point where their entitlement to the senior Australians tax offset and the low income tax offset will exactly offset the income tax that would otherwise be payable. As a result of the proposed reduction in the lowest personal income tax rate from 17 per cent to 15 per cent, the formula to calculate the rebate threshold for single senior Australians would need to be amended to maintain the alignment between the rebate threshold and the effective tax free threshold for these senior Australians.
The Regulations amend subregulation 150AB(3) of the Principal Regulations to ensure that the rebate threshold for single senior Australians who are eligible for the senior Australians tax offset is still aligned with their effective tax free threshold. Using the formula, the rebate thresholds for the 2005‑06 year are $21,968 for a single senior Australian, $18,247 for a senior Australian who is a member of a couple and $21,167 for a senior Australian who is a member of an illness‑separated couple. In comparison, the rebate thresholds in the 2004‑05 year are $20,500 for a single senior Australian, $16,806 for a senior Australian who is a member of a couple and $19,383 for a senior Australian who is a member of an illness‑separated couple.
The Regulations commence on the commencement of the Tax Laws Amendment (Personal Income Tax Reduction) Act 2005, which is the Act that would implement the reduction in the lowest personal income tax rate from 17 per cent to 15 per cent. They apply to the 2005-06 year of income and later years of income. The Bill for this Act was introduced into Parliament on 12 May 2005, is expected to pass in the next sitting of the Senate (currently due in August 2005) and would commence on 1 July 2005.
Subsection 12(2) of the Legislative Instruments Act 2003 prohibits the retrospective operation of regulations, or a provision of regulations, which adversely affect the rights of, or impose liabilities on, a person other than the Commonwealth in respect of anything done or omitted to be done before the date of notification. The Office of Legislative Drafting has advised that the Regulations do not contravene subsection 12(2) of the Legislative Instruments Act 2003.
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
Consultation was not undertaken in relation to this instrument because it is minor or machinery of government in nature and does not substantially change the law.
Overview
The Income Tax Assessment Amendment Regulations 2005 (No. 4) were introduced to address the need for adjustments in the calculation of specific tax offsets in response to a proposed reduction in the lowest personal income tax rate from 17 per cent to 15 per cent, effective from 1 July 2005. Enacted by the Parliament of Australia, these Regulations aim to ensure that the adjustments to tax offsets, namely the beneficiary tax offset and the senior Australians tax offset, align with the new tax rate. The beneficiary tax offset, which applies to certain Centrelink payments and Commonwealth education allowances, ensures that individuals receiving these benefits do not incur tax liabilities for an income year if they have no other assessable income. Similarly, the senior Australians tax offset is available to eligible individuals of age pension age and begins to phase out once taxable income exceeds a certain threshold. The Regulations amend the existing regulations to reflect the new tax rate, ensuring the continued alignment of these offsets with the effective tax-free thresholds for the relevant groups.
These Regulations, issued by the Minister for Revenue and Assistant Treasurer, are designed to take effect from the commencement of the Tax Laws Amendment (Personal Income Tax Reduction) Act 2005. They apply to the 2005-06 income year and subsequent years, ensuring that the adjustments are implemented in a timely manner to coincide with the reduced tax rate. The Regulations do not operate retrospectively and do not contravene the Legislative Instruments Act 2003, as confirmed by the Office of Legislative Drafting. The minor and machinery nature of these Regulations means that no consultation was undertaken, as they do not substantially alter the existing law.
Scope and Application
The Income Tax Amendment Regulations 2005 (No. 4) are an amendment to the Income Tax Assessment Act 1936, issued under the authority of the Minister for Revenue and Assistant Treasurer. The Regulations update the calculation of the beneficiary tax offset and the rebate threshold for the senior Australians tax offset to reflect the proposed reduction in the lowest personal income tax rate from 17 per cent to 15 per cent, which is set to apply from 1 July 2005. These amendments ensure that the tax offsets remain effective in light of the tax rate changes and are applicable to the 2005-06 year of income and subsequent years. The Regulations do not operate retrospectively, in accordance with the provisions of the Legislative Instruments Act 2003, and consultation was deemed unnecessary as the amendments are of a minor or machinery of government nature and do not substantially alter the existing law.
Key Provisions
The Income Tax Amendment Regulations 2005 (No. 4) update the calculation of two tax offsets in the Income Tax Assessment Act 1936 (the Act). These are the beneficiary tax offset under section 160AAA and the rebate threshold for the senior Australians tax offset under section 160AAAA. The changes reflect the reduction of the lowest personal income tax rate from 17 per cent to 15 per cent, which is set to apply from 1 July 2005. The Regulations ensure that these tax offsets continue to be appropriately aligned with the new tax rate.
Section 160AAA of the Act provides for a tax offset for beneficiaries of certain payments, such as Centrelink payments and Commonwealth education allowances. The offset ensures that an individual pays no tax for an income year if they receive any of these payments and have no other assessable income. Regulation 152 of the Income Tax Regulations 1936 governs the calculation of this offset. The amending Regulations adjust subregulation 152(1) to account for the proposed tax rate reduction, ensuring the offset remains effective.
The senior Australians tax offset, as provided under section 160AAAA of the Act, is available to eligible Australians who are of age pension age. The offset phases out once taxable income exceeds the rebate threshold, at a rate of 12.5 cents for each additional dollar of taxable income. The rebate threshold is set at the 'effective tax free threshold' for senior Australians. The Regulations amend subregulation 150AB(3) to adjust the formula for calculating the rebate threshold for single senior Australians, maintaining its alignment with their effective tax free threshold. For the 2005-06 income year, the rebate thresholds are set at $21,968 for a single senior Australian, $18,247 for a senior Australian who is a member of a couple, and $21,167 for a senior Australian who is a member of an illness-separated couple.
The Regulations impose specific obligations on taxpayers and entities. Taxpayers must ensure that their calculations of the beneficiary tax offset and the rebate threshold for the senior Australians tax offset are in line with the amended regulations. They must also be aware of the new thresholds and rates applicable from the 2005-06 income year. Entities such as tax agents and financial advisors need to update their systems and advice to reflect these changes. Failure to comply with these regulations could result in incorrect tax filings and potential penalties.
Breach of the provisions in the Income Tax Assessment Act 1936 can result in various penalties and consequences. Under section 266 of the Act, individuals or entities that fail to comply with the tax regulations can be subject to civil penalties. These include fines and interest on unpaid tax. Additionally, under section 284 of the Act, individuals can be charged with criminal offences for serious breaches, such as wilfully providing false or misleading information. The maximum penalties for these offences can include substantial fines and imprisonment. It is crucial for all parties to adhere to the regulations to avoid these adverse consequences.