Income Tax Regulations (Amendment)

EXPLANATORY STATEMENT

STATUTORY RULES 1990 NO. 192

Issued By The Authority Of The Treasurer

INCOME TAX ASSESSMENT ACT 1936

INCOME TAX REGULATIONS (Amendment)

The amending regulations insert a new Part VII - Rebates in Respect of Certain Pensions and Benefits - in the Income Tax Regulations to determine the rebates of tax allowable under section 160AAA of the Income Tax Assessment Act 1936 (the Act). The rebates of tax are operative for the 1989-90 and subsequent income years.

Section 160AAA of the Act authorises the making of regulations to determine:

(a) the amount of the rebate of tax (the pensioner rebate) allowable to the recipient of certain social security pensions, benefits or allowances (other than unemployment, sickness or special benefits) or service pensions (subsection 160AAA(2)), where the pension, benefit or allowance is included in the assessable income of the recipient; and

(b) the amount of the rebate of tax (the beneficiary rebate) allowable to the recipient of social security unemployment, sickness or special benefits, the Job Search Allowance, the Formal Training Allowance or allowances payable under certain Commonwealth education schemes (subsection 160AAA(3)), where the benefit or allowance is included in the assessable income of the recipient.

Also, subsection 160AAA(5) of the Act overrides the provisions of the Acts Interpretations Act 1901 which would otherwise prevent the making of regulations to apply retrospectively. As a consequence, the regulations for the purpose of section 160AAA of the Act may apply in relation to a year of income any part of which occurred before the notification of the regulations.

Pensioner rebate

Under the amending regulations different levels of the pensioner rebate of tax are available in respect of a year of income for -

• married pensioners, where the pensioner receives the married-rate of pension during the year;

• married pensioners, where the pensioner receives the single-rate of pension during the year, because the couple are unable to live together due to infirmity or illness; and

2.

single pensioners, where the pensioner receives the single-rate of pension during the year.

The rebates will allow a married pensioner couple to receive, in addition to the pension, a combined amount of non-pension income of $70 per week ($3,640 for a year) in 1989-90 and 1990-91, before becoming liable for tax. For single pensioners, the rebate is set to allow them to receive, in addition to the pension, $25 per week ($1,300 for the year) non-pension income in 1989-90, and $40 per week ($2,080 for the year) in 1990-91, before becoming liable for tax. For 1991-92 and subsequent years, the amount of the non-pension income that can be received by both married or single pensioners before becoming liable for tax will be subject to indexation, as provided for by the law that authorises the payment of the pension.

The level of each rebate will be reduced where the taxable income of a pensioner exceeds a certain taxable income threshold. The threshold is, in effect, the maximum level of taxable income below which a pensioner is not required to pay tax. The rebates shade-out at a rate of 12.5 cents for each dollar of taxable income in excess of the level of the threshold.

For married pensioners, any unused portion of a rebate will be transferred to the spouse.

A pensioner who is eligible for more than one level of rebate because, during the year of income, he or she receives more than one of the rates of pension outlined, is to be entitled to the rebate which gives the greatest benefit.

Beneficiary Rebates

The beneficiary rebates ascertained under the amending regulations will provide for different levels of rebates in respect of a year of income as a consequence of a recipient receiving a benefit or allowance if he or she is in any of the following categories:

• single, under 18 years and living at home;

• single, under 18 years and living away from home;

• single, aged 18 to 20 years;

• single, 21 years and over;

• single, aged 60 to 64 years and in receipt of unemployment benefits for six months or more; and

• married.

The rebates shade-out at a rate of 12.5 cents for each

dollar of taxable income in excess of the level of the appropriate shade-out threshold.

A beneficiary who is eligible for more than one level of rebate will be entitled to the rebate which gives the greatest benefit.

Deduction of car expenses

Section 82KX of the Act enables a taxpayer to elect an arbitrary basis of deduction in relation to a car that is owned or leased by the taxpayer and used for the purpose of producing assessable income in respect of a year of income, where the number of kilometres travelled for that purpose is more than 5,000 in the year.

The deduction allowable under section 82KX is equal to the number of business kilometres multiplied by the prescribed rate of cents per kilometre applicable to the engine type and size of the car, expressed in cubic centimetres.

These regulations prescribe the relevant rates for the purposes of section 82KX that are to apply for the year of income commencing on 1 July 1989.

Renumbering of regulations

Finally, the amending regulations provide for minor drafting changes in, and for the renumbering and relettering of, the Income Tax Regulations.

Details of the amending regulations are set out in below.

Commencement

By regulation 1 the amendments to the Income Tax Regulations come into effect on 1 July 1990.

Principal Regulations

Regulation 2 facilitates reference to the Income Tax Regulations which, in the amending regulations, are referred to as the “Principal Regulations”.

New Part

Regulation 3 inserted in the Principal Regulations a new Part VII - Rebate in Respect of Certain Pensions and Benefits - which sets out the method by which the pensioner and beneficiary rebates are to be determined for the purpose of section 160AAA of the Income Tax Assessment Act 1936 (the Act).

Details of Part VII are as follows:

Interpretation

New regulation 57 of the Principal Regulations defines certain terms relevant to the calculation of the rebates of tax to which a taxpayer may be entitled under proposed new regulations 58AB or 58AC:

“Dependent spouse-rate benefit” means an unemployment or sickness benefit for which a person with a dependent spouse is eligible under the Social Security Act 1947. The benefit under subsection 118(1) of the Social Security Act is increased for eligible persons by subsection 118(2) of that Act, by an amount not exceeding the level of benefit provided by paragraph 118(1)(f). The term will also apply to the other categories of rebatable benefit - including a special benefit paid under section 129 of the Social Security Act - if the benefit applies to married persons. The recipient of a benefit defined by the term will be entitled to a beneficiary rebate determined under new regulation 58AC.

The term “rebatable benefit” used in certain definitions in this regulation and defined in subsection 160AAA(1) of the Act, means a payment:

(a)                by way of benefit under Part XIII of the Social Security Act (an unemployment, sickness or special benefit or Job Search Allowance);

(b)                by way of benefit under Part III of the Student Assistance Act 1973 (Austudy);

(c)                by way of income under:

(i) the Assistance for Isolated Children Scheme;

(ii) the Veterans’ Children Education Scheme;

(d)                under the Aboriginal Study Assistance Scheme (Abstudy); or

(e)                as Formal Training Allowance.

“Lowest marginal tax rate” for a year of income will be the lowest rate of tax specified for that year in the table in Part 1 of Schedule 7 to the Income Tax Rates Act 1986, expressed as a decimal fraction. The rate of tax is a component of the formula for the calculation of a taxpayer’s rebate threshold (new subregulations 58AB(2) and 58AC(2)) and a taxpayer’s rebate amount (new subregulations 58AB(3) and 58AC(3)). The rate is 21% for the 1989-90 year of income.

“Married-rate pension” means a married-rate service pension or a married-rate social security pension, as defined in this regulation.

“Married-rate service pension” means a rebatable pension as defined in subsection 160AAA(1) of the Act paid to a person who is married within the meaning of the Veterans’ Entitlements Act 1986. The rate of the pension is specified in paragraph 47(1)(b) of the Act. A recipient of this pension will be entitled to a pensioner rebate determined under new regulation 58AB.

The term “rebatable pension” used in certain definitions in these regulations and defined in subsection 160AAA(1) of the Act, means a pension, allowance or benefit:

(a) paid under of the Veterans’ Entitlements Act (service, wives’ service and carers’ service pensions) other than Part VII; or

(b) paid under the Social Security Act (age, wives’ carers’ and sole parents’ pensions) other than Part XIII.

“Married-rate social security pension” means a rebatable pension as defined in subsection 160AAA(1) of the Act paid to a person who is married within the meaning of the Social Security Act. The rate of the pension is specified in paragraph 33(1)(b) of the Act. The term is necessary for the operation of new regulation 58AB.

“Paragraph 118(1)(a)-rate benefit” means an unemployment or sickness benefit payable to an unmarried person with no dependants, aged under 18 years and living at home. The level of the benefit is specified in paragraph 118(1)(a) of the Social Security Act. The term will also include the other categories of rebatable benefit as defined in subsection 160AAA(1) of the Act - including a special benefit paid under section 129 of the Social Security Act - where the recipient is of the same age (i.e., under 18 years). The term is necessary for the operation of new regulation 58AC.

“Paragraph 118(1)(aa)-rate benefit” means an unemployment or sickness benefit the level of which is specified in paragraph 118(1)(aa) of the Social Security Act. The benefit is payable to beneficiaries who are homeless or independent, unmarried with no dependants and aged under 18 years. The term will also include the other categories of rebatable benefit (as defined).

(a) is aged under 18 years; and

(b) receives a special benefit under section 129 of the Social Security ACT or a prescribed allowance (defined elsewhere in regulation 57).

The term is necessary for the operation of new regulation 58AC.

“Paragraph 118(1)(b)-rate benefit” means an unemployment or sickness benefit the level of which is specified in paragraph 118(1)(b) of the Social Security Act. The benefit is payable to an unmarried person with no dependants, aged 18 to 20 years. It will also include the other categories of rebatable benefit - including a special benefit paid under section 129 of the Social Security Act - where the recipient is aged 18 to 20 years. This term is necessary for the operation of new regulation 58AC.

“Paragraph 118(1)(c)-rate benefit” means an unemployment or sickness benefit the level of which is specified in paragraph 118(1)(c) of the Social Security Act. The benefit is payable to an unmarried person with no dependants, aged 21 and over, except for certain persons eligible for a benefit at the level specified in paragraph 118(1)(d) of the Social Security Act. The term also includes the other categories of rebatable benefit - including a special benefit payable under section 129 of the Social Security Act - where the recipient is aged 21 and over. This term is necessary for the operation of new regulation 58AC.

“Paragraph 118(1)(d)-rate benefit” means an unemployment or sickness benefit the level of which is specified in paragraph 118(1)(d) of the Social Security Act. The benefit is payable to unmarried persons with a dependant and to unmarried male persons aged 60 to 64 years who have been unemployed for six months or more. This term is necessary for the operation of new regulation 58AC.

“Prescribed allowance” means an allowance paid to a person who is living away from home or who has independent status under the educational schemes known as ABSTUDY, AUSTUDY or the Veterans’ Children Education scheme. The term also includes a living component of the Formal Training Allowance where the recipient is a homeless person or an independent person within the meaning of Part XIII of the Social Security Act. The term is used in the definition of a “paragraph 118(1)(aa)-rate benefit” in this regulation.

“Rebatable benefit”, as indicated earlier, is defined by reference to section 160AAA of the Act and means an amount -

(a) paid by way of a benefit under Part XIII of the Social Security Act (i.e., an unemployment, sickness or special benefit or the Job Search Allowance);

(b) paid by way of a benefit under Part III of the Student Assistance Act 1973 (i.e., the living allowance paid under the scheme known as Austudy);

(c) paid by way of income derived under -

(i) the scheme known as the Assistance for Isolated Children Scheme which provides education assistance for children living in isolated areas;

(ii) the scheme known as the Veterans’ Children Education Scheme (provided under Part VII of the Veterans’ Entitlements Act 1986);

(a) received under the scheme known as the Aboriginal Study Assistance Scheme (Abstudy); or

(b) received as Formal Training Allowance (a scheme to encourage unemployed persons to acquire occupational skills).

“Rebatable pension” is defined by reference to section 160AAA of the Act and effectively means a pension, allowance or benefit paid as -

(a) service pension (age), wife’s service pension or carer’s service pension under Part III of the Veterans’ Entitlements Act; or

(b) age, wives’ or carers’ pension paid under Part IV, sole parent’s pension paid under Part V or widowed person’s allowance paid under Part VI of the Social Security Act.

“Separated-rate pension” means a separated-rate service pension or a separated-rate social security pension, as defined below.

“Separated-rate service pension” means a rebatable pension (as defined) paid to a person under the Veterans’ Entitlements Act at the rate specified in paragraph 47(1)(a) of that Act, and where subsection 47(2) applies. This rate of pension may be paid to a pensioner couple who are unable to live together due to infirmity or illness.

“Separated-rate social security pension” means a rebatable pension (as defined) paid to a person under the Social Security Act at the rate specified in paragraph 33(1)(a) of that Act, and where subsection 33(2) applies. This rate of pension may be paid to a pensioner couple who are unable to live together due to infirmity or illness.

“Single-rate pension” means a single-rate service pension or a single-rate social security pension, as defined below.

“Single-rate service pension” means a rebatable pension (as defined) paid to a person, generally unmarried, under the Veterans’ Entitlements Act at the rate specified in paragraph 47(1)(a) of that Act, and where subsection 47(2) does not apply.

“Single-rate social security pension” means a rebatable pension (as defined) paid to a person, generally unmarried, under the Social Security Act at the rate specified in paragraph 33(1)(a) of that Act, and where subsection 33(2) does not apply.

“Tax free threshold” in relation to a year of income means the lowest amount referred to in the table in Part I of Schedule 7 to the Income Tax Rates Act 1986. For the 1989-90 income year the amount is $5,100. The “tax-free threshold” is a component of the formulae in proposed new subregulations 58AB(2) and 58AC(2) (taxpayer’s rebate threshold) and subregulations 58AB(3) and 58AC(3) (taxpayer’s rebate amount).

Amount of rebate of tax

By new regulation 58, and for the purposes of section 160AAA of the Act, the amount of a (pensioner or beneficiary) rebate of tax is to be ascertained in accordance with Part VII to be inserted in the Principal Regulations.

Application of this Part

Regulation 58AA states that new Part VII applies to a year of income ending after 30 June 1989, i.e., for the 1989-90 and subsequent income years.

Rebate in respect of certain pensions

Regulation 58AB sets out the basis for determining the level of the rebate of tax to which recipients of rebatable pensions (as defined in regulation 57) are entitled. It will also provide the basis of calculating the taxable income threshold above which the rebate shades-out.

Subregulation 58AB(1) states that where the assessable income of a taxpayer of a year of income includes an amount paid as rebatable pension (defined in regulation 57), the taxpayer is entitled in his or her assessment to a rebate of tax. Where the taxable income of the taxpayer in the year does not exceed the taxpayer’s rebate threshold (as calculated under subregulation (2)), the rebate of tax will be equal to the taxpayer’s rebate amount (as calculated under subregulation (3)). If the taxable income of the taxpayer in the year

exceeds the taxpayer’s rebate threshold, the rebate of tax will be equal to the taxpayer’s rebate amount less 12.5 cents for each dollar of the excess.

Subregulation 58AB(2) sets out a formula for the calculation of the rebate threshold for a year of income above which a taxpayer’s rebate amount, calculated by subregulation (3), begins to shade out. The formula is:

Tax-free threshold + Taxpayer’s rebate amount

Lowest marginal tax rate

Two components of the formula, “tax-free threshold” and “lowest marginal tax rebate” are defined in regulation 57 (refer earlier notes). The third component of the formula “taxpayer’s rebate amount” is to be calculated by a formula in new subregulation 58AB(3).

If the rebate threshold calculated using the formula is not an amount of whole dollars, the amount is to be rounded up to the nearest whole dollar.

Example: Applicable for the 1989-90 income year.

Taxpayer received a single-rate service pension during the year.

= $5,100 + $664

.21

Rebate threshold = $8,262 (rounded up to the nearest

whole dollar)

Subregulation 58AB(3) sets out a formula by which a taxpayer’s rebate amount for a year of income is to be calculated. The rebate amount is the amount of rebate of tax to which a taxpayer is entitled under subregulation (1), subject to a reduction in the amount where the taxpayer’s taxable income exceeds the rebate threshold calculated under subregulation (2). The formula is:

Two components of the formula, “lowest marginal tax rate” and “tax-free threshold” are defined in new regulation 57.

The component “annual pension amount” is to be determined in accordance with paragraphs (a), (b), (c) and (d) of new subregulation 58AB(4). The component “non-pension income limit” is as set out in paragraph (e) of subregulation 58AB(4) (broadly, the income test free area in the social security and repatriation laws).

If the amount calculated using the formula is not an amount of whole dollars, the amount is to be rounded up to the nearest whole dollar.

Example: Applicable for the 1989-90 income year.

Taxpayer received a single-rate service pension

during the year.

= .21 x [$6,959 + $1,300 - $5,100]

Rebate amount = $664 (rounded up to the nearest

whole dollar)

Subregulation 58AB(4) defines, by reference, the terms “annual pension amount” and “non-pension income limit” for the purposes of subregulation (3). It also defines the terms “marital partner”, “adjusted rebate amount” and “adjusted annual pension amount” which are relevant in determining any unused rebate amount of a pensioner for transfer to his or her spouse (refer subregulation (6)).

The “annual pension amount” determined in each of paragraphs 58AB(4)(a), (b) and (c) is the amount of pension a pensioner would have received in a year of income if he or she had received the particular type of pension referred to therein during the whole of the year of income.

A pensioner who would otherwise be eligible for more than one level of rebate amount under subregulation (3) because, during the year of income, he or she receives more than one of the types of pension defined in new regulation 57 (or has a rebate amount transferred from a marital partner), will be entitled to the rebate amount which gives the greatest benefit by the operation of subregulation (5). Thus, if during a year of income a married pensioner becomes separated from his or her spouse because of illness or infirmity and receives the higher separated-rate pension which provides a higher rebate amount, he or she will be entitled to a rebate amount based on the separated-rate pension.

Paragraphs (a) to (c) of subregulation 58AB(4) provide the

means of determining the relevant level of the “annual pension amount” in regard to a particular type of pension received at some time during an income year.

Because of the differences in timing of paydays of service and social security pensions one group of pensioner receives indexation adjustments earlier than the other and, therefore, a higher level of total pension in a year. The higher level of pension is used in the calculation of the rebate amount to apply to both groups. This result is achieved in paragraphs 58AB(4)(a) to (c).

Paragraphs 58AB(4)(a), (b) and (c) each relate to a different rate of pension. In each paragraph two types of pension, a service pension and a social security pension, are considered as follows:

Where a taxpayer in a year of income receives a rate of pension listed in more than one paragraph, and therefore, would have more than one annual pension amount, subregulation (5) applies so that the greatest rebate amount resulting from application of the formula in subregulation 58AB(3) is the annual rebate amount.

Paragraph (d) will round down to the nearest whole dollar an annual pension amount determined in accordance with paragraphs 58AB(4)(a),(b) or (c).

Paragraph (e) of subregulation 58AB(4) determines the “non-pension income limit” of a year of income for the purpose of the formula used to calculate a taxpayer’s rebate amount in subregulation 58AB(3). In effect, it is the non-pension income a pensioner will be allowed to receive, in addition to the pension, and not be liable to income tax in a year of income.

For recipients of married-rate and separated-rate service pensions referred to in subparagraphs (a)(i) or (b)(i) of subregulation 58AB(4), the relevant amount is specified in sub-subparagraph 47(5)(a)(i)(B) of the Veterans’ Entitlements Act for the financial year to which the year of income relates (in 1989-90 and 1990-91, $35 per week - $1,820 for the year).

For recipients of married-rate and separated-rate social security pensions referred to in subparagraphs (a)(ii) or (b)(ii) of subregulation 58AB(4), the relevant amount is specified in sub-subparagraph 33(12)(a)(i)(B) of the Social Security Act for the financial year to which the year of income relates (in 1989-90 and 1990-91, also $35 per week - $1,820 for the year).

In respect of single-rate pensions received under the Veterans’ Entitlements Act or the Social Security Act referred to in subparagraph (c)(i) and (c)(ii) of subregulation 58AB(4), respectively, the non-pension income limit for the 1989-90 income year is $25 per week or $1300 for the year. In subsequent years, the amount will be that prescribed in sub-subparagraph 47(5)(a)(i)(A) of the Veterans’ Entitlements Act or sub-subparagraph 33(12)(a)(i)(A) of the Social Security Act, respectively, ($40 per week for 1990-91 or $2080 for the year).

In 1991-92 and subsequent years, all the relevant amounts will be indexed under provisions of the Acts mentioned.

Paragraph (f) of subregulation 58AB(4) identifies a marital partner of a taxpayer for the purposes of proposed subregulation (6) dealing with the transfer of an excess rebate amount between spouses. Subparagraph (f)(i) of subregulation 58AB(4) will identify a marital partner of a taxpayer where assessable income of the taxpayer of the year of income includes an amount paid as a married-rate or separated-rate social security pension. Sub-subparagraph (f)(i)(A) states that if on the last day of income a person was the wife or husband of the taxpayer within the meaning of the Social Security Act, a reference to a marital partner will be a reference to that person. Sub-subparagraph (f)(i)(B) states that if during the year of income the death occurred of the last person who was the wife or husband of the taxpayer within the meaning of the Social Security Act, that person is to be taken as the marital partner of the taxpayer.

Where subparagraph (f)(1) does not apply, subparagraph (f)(ii) identifies a marital partner of a taxpayer where the assessable income of the taxpayer of the year of income includes an amount paid as a married-rate or separated-rate service pension. If on the last day of the year of income a person is a wife or husband of a taxpayer within the meaning of the Part III of the Veterans’ Entitlements Act, that person is the marital partner referred to. Where the death occurred during a year of income of the last person who, within the meaning of Part III of the Veterans’ Entitlements Act, was the wife or husband of the taxpayer that person is to be taken as the marital partner of the taxpayer.

Paragraphs (a) and (h) of subregulation 58AB(4) define two new terms to be used in subregulation (6) dealing with the transfer of a rebate between spouses.

The first term “adjusted rebate amount” in paragraph (g) depends on the definition of “adjusted annual pension amount” in paragraph (h) in that it is the result of the adjusted annual pension amount being used, instead of the greatest of the annual pension amounts determined under paragraphs (a), (b) or (c) of subregulation 58(4), in calculating the taxpayer’s rebate amount under subregulation 58AB(3).

The adjusted rebate amount is used in paragraph (6)(d) as part of determining the excess rebate of tax available to be transferred to a spouse.

The purpose of the concept of an “adjusted annual pension amount” is to ensure that where a married taxpayer may be entitled to a rebate calculated on the basis of a single-rate pension (as defined), then for the purpose of transferring the whole or part of a rebate amount to a spouse, a rebate is transferable only if the taxpayer’s assessable income also includes an amount of separated-rate pension or married-rate pension.

In such a case, the adjusted rebate amount (i.e., the notional rebate amount) of the taxpayer is to be calculated by using an annual pension amount taken from paragraph (4)(b), if the taxpayer’s assessable income included a separated-rate pension. Where that rate of pension was not received then, if the married-rate was received, the annual pension amount taken from paragraph (4)(a) is to be used. Of course, if the taxpayer received only a single-rate pension, any excess rebate amount is not transferable to a marital partner.

Subregulation 58AB(5) determines for the purposes of regulation 58AB a taxpayer’s rebate amount where the assessable income of the taxpayer for a year of income includes more than one type of pension. The taxpayer’s rebate amount for a year is the greatest amount calculated in accordance with subregulation 58AB(3).

However, where a rebate amount (or amounts) of a taxpayer is increased by the operation of subregulation 58AB(6), the increased rebate amount (or amounts) is to be used in subregulation (5) to determine the greatest rebate amount for the year.

Subregulation 58AB(6) establishes the means for the transfer of any unused rebate from one marital partner to the other. For the transfer to be available, paragraphs (6)(a) to (e) must be satisfied.

The ‘first taxpayer’ referred to in paragraph (a) is the taxpayer whose rebate amount exceeds his or her tax payable in accordance with the terms of paragraph (d), and is thus available for transfer. This person’s assessable income for a year of income must include an amount paid as a married-rate pension or a separated-rate pension (as defined in regulation 57). In deciding whether such a pension is included in the assessable income of the first taxpayer regard is to be had to subregulation (7) which will, for the purposes of subregulation (6), include certain exempt pension income in the first taxpayer’s assessable income.

Paragraph (b) requires that the assessable income of a taxpayer, being the marital partner of the first taxpayer and the one to whom any unused rebate amount is to be transferred, include a married-rate pension or separated-rate pension. This taxpayer is called the “second taxpayer” - the term “marital partner” is defined in paragraph 58AB(4)(f).

Paragraph (c) requires the second taxpayer’s rebate entitlement under subregulation 58AB(1) in relation to the year of income be less than his or her rebate amount for that year. In other words, the second taxpayer’s rebate of tax would be reduced as a result of his or her taxable income being in excess of the rebate threshold (calculated under subregulation 58AB(2).

Paragraph (d) states that the first taxpayer’s adjusted rebate amount (as defined in paragraph 58AB(4)(g)) for the year of income must exceed his or her tax payable in respect of income of that year. That is, in these circumstances the first taxpayer has used none or only part of his or her rebate. In this calculation any credits or other rebates are to be disregarded.

In calculating the tax payable for the year of income by the first taxpayer (the transferor), and in deciding his or her adjusted rebate amount and adjusted annual pension amount (paragraphs 58AB(4)(g) and (f)), exempt pension income referred to in subregulation (7) (if any) must be taken into account.

By paragraph (e) any excess rebate amount of a first taxpayer for a year of income cannot be transferred to a second taxpayer (the spouse) who is receiving an unemployment, sickness or special benefit under the Social Security Act on the last day of the year of income.

Where the conditions in paragraphs (a) - (e) are satisfied:

(a) paragraph (f) reduces the rebate amount to which the

first taxpayer is entitled under subregulation 58AB(1) for the year of income by the excess referred to in paragraph (d). That is, the first taxpayer’s rebate amount is reduced to the extent it is not necessary to extinguish his or her tax liability (or notional liability where exempt income is taken into account) for the year of income; and

(b) paragraph (g) increases the second taxpayer’s rebate amount for the year of income by the excess rebate amount of the first taxpayer for the year of income. Any such excess is not to be used to increase any rebate amount arising from the receipt of a single-rate pension.

EXAMPLE:

Taxpayer (A) and spouse (B) receive a married-rate service pension in 1989-90.

Income -

A - pension $5,300, non-pension income $1,560 = Total $6,860

B - pension $5,300, non-pension income $4,080 = Total $9,380

1. A’s tax payable and rebate of tax

2. B’s tax payable and rebate of tax

Subregulation (7) is concerned with the situation where the first taxpayer, as defined in paragraph (6)(a) (the transferor), is the recipient of any of the nominated

pensions which are exempt from income tax under section 23AD of the Act. In this situation, the assessable income of the first taxpayer is, for the purposes of subregulation (6), to be taken to include the amount of exempt pension. This will be relevant in determining for paragraph (6)(a) whether the assessable income includes the relevant rate of pension and, as indicated earlier, the tax payable in respect of income of the year for the purposes of paragraph (6)(d) and, under paragraphs (4)(g) and (h) the adjusted rebate amount and the adjusted annual pension amount.

The inclusion of exempt income in deciding whether a taxpayer has an excess rebate will allow pensioners receiving exempt pensions, such as invalid pensions, to be in a position to transfer an amount of rebate to a spouse.

The pensions referred to in subregulation (7) that are not included in a taxpayer’s assessable income, include:

(a)                an invalid pension and equivalent service pension paid to a man less than 65 years of age, or a woman less than 60 years of age;

(b)                a carer’s pension and carer’s service pension where both the carer and the pensioner being cared for is either a woman less than 60 years of age, or a man less than 65 years of age;

(c)                a wives’ pension where it is paid to the wife of an invalid pensioner (including a service pensioner) and the woman is less than 60 years of age and the pensioner being cared for is a man less than 65 years of age.

Rebate in respect of certain benefits

Regulation 58AC provides the means of determining the level of the rebate of tax to which recipients of rebatable benefits (defined in regulation 57) are entitled. It also provides the basis of calculating the taxable income threshold above which the rebate shades-out.

By subregulation 58AC(1) where the assessable income of a taxpayer of a year of income includes an amount paid as rebatable benefit, the taxpayer is entitled to a rebate of tax. Where the taxpayer’s taxable income does not exceed his or her rebate threshold the rebate is to be equal to the taxpayer’s rebate amount (calculated by subregulation (3)). If the taxable income of the taxpayer exceeds the taxpayer’s rebate threshold (calculated by subregulation (2)), the rebate of tax is equal to the taxpayer’s rebate amount reduced by 12.5 cents for each dollar of the excess.

Subregulation 58AC(2) sets out a formula for calculating the taxpayer’s rebate threshold for a year of income above which the taxpayer’s rebate amount begins to shade-out. The formula is:

Taxpayer’s rebate + Applicable spouse

Tax-free threshold +      amount               rebate amount

Lowest marginal tax rate

Two components of the formula, “tax-free threshold” and “lowest marginal tax rate” are defined in new regulation 57. For the purpose of the formula the lowest marginal tax rate is expressed as a decimal fraction i.e., for the 1989-90 year of income, .21.

The third component “applicable spouse rebate amount” is defined by paragraph 58AC(4)(a) and the other component “taxpayer’s rebate amount”, is to be calculated by a formula in subregulation 58AC(3).

If the rebate threshold calculated using the formula is not an amount of whole dollars, the amount is to be rounded up to the nearest dollar.

Example:

Applicable for the 1989-90 income year.

Taxpayer received the married-rate (ie., the dependant spouse-rate benefit) social security benefit during the year.

= $5,100 + $456 + $1,000

.21

Rebate threshold = $12,034 (rounded up to the nearest whole dollar)

Subregulation 58AC(3) sets out a formula by which the taxpayer’s rebate amount for a year of income will be calculated. The formula is:

Two components of the formula, the “tax-free threshold” and the “lowest marginal tax rate” are defined in new regulation 57.

The component, “annual benefit amount” is to be determined from paragraphs (a) to (h) of subregulation 58AC(5).

The other component “applicable spouse rebate amount” is defined by subregulation 58AC(4) and refers to a particular rebate for a taxpayer in a year of income in respect of a dependent spouse. A taxpayer legally or de-facto married is entitled to this rebate where the spouse is dependent on the taxpayer. The level of the rebate is specified in subsection 159J(2) of the Act for a person included in class 1 in that subsection. (For 1989-90 this amount is $1,000.)

The component is equal to the amount of the spouse rebate where paragraph 58AC(5)(a) applies. That is, where the taxpayer’s annual benefit amount is determined because he or she received a “dependant spouse-rate benefit” (refer regulation 57). In any other case the amount is zero.

Example:

Applicable for the 1989-90 income year.

Taxpayer received a married-rate (i.e., the dependant spouse-rate benefit) social security benefit during the year.

= .21 x ($ 12,031 - 5,100) - $1,000

Rebate amount = $456 (rounded up to the nearest whole

dollar)

Subregulation 58AC(5) will provide the basis of arriving at the component “annual benefit amount” to be used in the formula in subregulation (3).

Paragraph (a) specifies the amount of the annual benefit amount of a taxpayer where at any time during a year of income the taxpayer was a married person within the meaning of the Social Security Act. Such a person includes a de facto spouse, but does not include a legally married person living separately and apart on a permanent basis.

The annual benefit amount for the married person in a year of income is, where his or her assessable income of the year of income includes an amount paid as a “dependant spouse-rate benefit” (defined by regulation 57), the amount of benefit that would have been included in the assessable income if the taxpayer had received the relevant benefit paid under the Social Security Act throughout the year. The term “dependant

spouse-rate benefit” is defined in new regulation 57.

Paragraph (b) stipulates the amount of the annual benefit amount where the unmarried taxpayer is aged 16 or 17 years on 30 June in the year and received a benefit paid as a “paragraph 118(1)(a) - rate benefit”, as defined in regulation 57, while he or she was living at home during the year of income. The annual benefit amount is equal to the unemployment/sickness benefit provided under paragraph 118(1)(a) of the Social Security Act.

Paragraph (c) specifies the amount of the annual benefit amount where the unmarried taxpayer is aged 16 or 17 years on 30 June in the year and received a benefit paid as:

(a)                a “paragraph 118(1)(aa) - rate benefit”; or

(b)                a “paragraph 118(1)(d) - rate benefit”.

The annual benefit referred to in paragraph (a) above is paid where the taxpayer was living away from home or independent. The benefit in paragraph (b) is, for the relevant age group, paid to unmarried persons with a dependant. The annual benefit amount is equal to the unemployment/sickness benefit provided under paragraph 118(1)(a) of the Social Security Act.

Paragraph (d) specifies the annual benefit amount for a year of income for a double orphan aged 16 or 17 years on 30 June in the year who receives a living allowance under the Veterans’ Childrens Education Scheme. Such a person is eligible for a pension under subsection 13(4) of the Veterans’ Entitlements Act if not in receipt of a living allowance under the AUSTUDY scheme, the Assistance for Isolated Children’s Scheme, the ABSTUDY scheme or the Post-Graduate Awards Scheme. The annual benefit amount is to be the amount that would have been included in the taxpayer’s assessable income if the unemployment benefit specified in paragraph 118(1)(b) of the Social Security Act for the year of income, attributable to persons aged 18 to 20 years had been received throughout the year of income.

Paragraph (e) stipulates the annual benefit amount for a year of income for an unmarried taxpayer aged 18 to 20 years on 30 June in the year who received a benefit paid as a “paragraph 118(1)(b)-rate benefit” or a “paragraph 118(1)(d)-rate benefit” during the year. The annual benefit amount will be the amount that would have been included in the taxpayer’s assessable income for the year of income if an unemployment benefit, the level of which is specified in paragraph 118(1)(b) of the Social Security Act, had been received throughout the year of income.

Paragraph (f) specifies the annual benefit amount for a year of income for a double orphan aged 20 years on 30 June 1990 in the year who received a living allowance under the Veterans’ Children Education Scheme and who would, but for receipt of that allowance, have been eligible for a double orphan pension under subsection 13(4) of the Veterans’ Entitlements Act. The annual benefit amount in 1989-90 is to be the amount that would have been included in the taxpayer’s assessable income if the unemployment benefit specified in paragraph 118(1)(c) of the Social Security Act for the year of income, attributable to persons 21 years or over, had been received throughout the year of income.

Paragraph (g) will specify the annual benefit amount for a year of income for a taxpayer who, on 30 June in the year of income, was

(a)                aged 60 to 64 years;

(b)                had been in receipt of unemployment benefit continuously for a period of at least six months wholly or partly within the year of income; and

(c)                whose assessable income includes a benefit paid as a “paragraph 118(1)(d) - rate benefit” (defined in regulation 57).

The annual benefit amount is to be the amount that would have been included in the taxpayer’s assessable income if the unemployment benefit specified in paragraph 118(1)(d) of the Social Security Act had been received throughout the year of income.

Paragraph (h) will specify the annual benefit amount for an unmarried taxpayer aged 21 or over on 30 June (other than a taxpayer covered by paragraph (g)) in the year of income who received a benefit paid as a “paragraph 118(1)(c)-rate benefit” or a “paragraph 118(1)(d)-rate benefit” during the year. The annual benefit amount is the amount that would have been included in the taxpayer’s income if an unemployment benefit, the level of which is specified under paragraph 118(1)(b) of the Social Security Act for the year of income, had been received throughout the year of income.

Subregulation 58AC(6) determines for the purposes of regulation 58AC a taxpayer’s rebate amount where the assessable income of the taxpayer for the year of income includes more than one type of benefit referred to in subregulation (5). The taxpayer’s rebate amount for a year is the greatest amount calculated in accordance with subregulation 58AC(3).

Subregulation 58AC(7) rounds down to the nearest whole dollar an annual benefit amount determined in accordance with subregulation (5).

Headings of Schedules of the Principal Regulations

The title of the first, second, third and seventh Schedule of the Principal Regulations are amended by regulations 4, 5, 6 and 7 by heading them Schedules 1, 2, 3 and 7, respectively.

Schedule 8

Regulation 8 amended Schedule 8 of the Principal Regulations by inserting, after Part III, a new Part IV.

Part IV of Schedule 8 is relevant to the operation of section 82KX of the Act which enables a taxpayer to elect an arbitrary basis of deduction in relation to a car that is owned or leased by the taxpayer and used for the purpose of producing assessable income, where the number of kilometres travelled for that purpose is not more than 5,000 in a year of income.

The deduction allowable under section 82KX is equal to the number of business kilometres multiplied by the prescribed rate of cents per kilometre applicable to the engine type and size of the car, expressed in cubic centimeters.

The purpose of the amendment by Regulation 8 to add Part IV to Schedule 8 of the Principal Regulations is to prescribe the relevant rates for the purposes of section 82KX that are to apply for the year of income that commenced on 1 July 1989.

The rates per kilometre prescribed by Regulation 8 are also used to calculate the taxable value of a number of fringe benefits (such as remote area holiday travel) provided in the fringe benefits tax year ended 31 March 1990.

The prescribed rates are based on the private motor vehicle allowance rates payable to members of the Australian Public Service.

The regulation will not affect the rights of any person (other than the Commonwealth) in a manner prejudicial to that person, nor do they impose any liability on such a person.

Minor amendments of the Principal Regulations

Regulation 9 amends the Principal Regulations to make certain drafting changes as set out in the Schedule to the regulations.

Renumbering and relettering of the Income Tax Regulations Regulation 10 renumbers the Income Tax Regulations.