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One-off Bonuses On 12 February 2009, the Government introduced the Tax Bonus for Working Australian Bill (No 2) 2009 and the Household Stimulus Package Bill (No 2) 2009 into Parliament. The Bills were passed by the House of Representatives without any amendments on 12 February 2009. The Senate passed the Bills without amendment on 13 February 2009. The Bills are awaiting Royal Assent. The Bills implement the one-off bonuses which were announced in the Government’s Nation Building and Jobs Plan released on 3 February 2009. A discussion of the Bills follows. Tax Bonus for Working Australians Bill (No 2) 2009 The Bill authorises the Commissioner to pay the Tax Bonus for Working Australians (the Bonus) to eligible taxpayers who have paid tax for the 2007/08 income year after taking into account available tax offsets and imputation credits. The amount of bonus payable will depend on a taxpayer’s taxable income for that income year:
Eligibility requirements Eligibility for the Bonus will be automatically determined by the Tax Office. A taxpayer will be eligible to receive the Bonus if the following conditions are satisfied:
A minor (ie a person who is less than 18 years of age) will be eligible for the Bonus if the minor is an excepted person or an excepted assessable income. The list of excepted persons includes a minor engaged in a full-time occupation on the last day of an income year and a minor in receipt of a disability support pension. The categories of excepted assessable income include employment income, business income, income from deceased estates and partnership income. The adjusted income tax liability is determined by the sum of a taxpayer’s income tax liability, plus the Medicare levy and the Medicare levy surcharge reduced by any tax offsets and imputation credits available to the taxpayer. (See Sample) Treatment of the Bonus The Bonus is not included in a taxpayer’s assessable income, ie non-assessable non-exempt income. It is also not included in the taxpayer’s income for social security and veterans’ entitlements purposes. A taxpayer who receives a payment to which he or she is not entitled, or a payment that is greater than his or her entitlement, will be required to pay that money back to the Commissioner. Any debts arising from an overpayment will be subject to GIC. The taxpayer will not be able to use the Bonus to offset her or his tax debts or liabilities. Household Stimulus Package Bill (No 2) 2009 The Bill implements the four one-off bonuses which were announced in the Nation Building and Jobs Plan:
The Bonuses will not count as income for social security, family assistance, farm household support and veterans’ entitlements purposes, and will be income tax-free. Single Income Family Bonus Families who were entitled to Family Tax Benefits Part B (FTB-B) on 3 February 2009 will be eligible for the one-off bonus payment of $900. For families receiving fortnightly instalments of FTB-B, the Bonus will be paid automatically by Centrelink in the fortnight commencing 11 March 2009. For families who claim FTB-B as a lump sum, the Bonus will be paid by Centrelink in the financial years 2009/10 and 2010/11 after their 2008/09 tax returns have been lodged and processed by the Tax Office. Note that if the FTB-B was shared between two people under the usual rules for that payment, the payment will be similarly shared. The example below is modified from the Explanatory Memorandum accompanying the Bill:
Farmers Hardship Bonus The Bonus is a one-off payment to farmers and rural-dependent small business owners receiving exceptional circumstances related income support. A lump-sum payment of $950 will be made to farmers and rural-dependent small business owners who, on 3 February 2009, were receiving:
The payments will be made in the fortnight commencing 24 March 2009. Back to School Bonus The $950 Back to School Bonus will provide a one-off payment to be paid to families who were eligible for Family Tax Benefit Part A (FTB-A) on 3 February 2009 for each eligible child of school age (ie aged 4 to 18 on 3 February 2009). The Bonus will also be available to individuals who received disability support pension or carer payment on 3 February 2009 where the recipient was aged less than 19 years old on that date. If FTB-A for 3 February 2009 was shared between two people under the usual rules for that payment, the relevant payment will be similarly shared. The following example is from the Explanatory Memorandum accompanying the Bill:
Training and Learning Bonus This Bonus will provide a one-off payment to assist eligible students with costs for the 2009 academic year. It will also provide a temporary additional incentive (until June 2010) for social security recipients to return to education and training. One-off Bonus A one-off $950 bonus is available for recipients who, on 3 February 2009, were receiving the following social security payments:
A recipient receiving Youth Allowance only qualifies if, on 3 February 2009, the recipient was undertaking full-time study or was qualified for the allowance as a new apprentice. The Bonus will be paid automatically by Centrelink in the fortnight commencing 24 March 2009. If a recipient attracts the Back to School Bonus, the recipient is not eligible for the Training and Learning Bonus.
Temporary supplement A temporary additional supplement of $950 for eligible social security recipients to return to education and training for the period 1 January 2009 to 30 June 2010 will be provided. This is in addition to the existing Education Entry Payment (EdEP) of $208, which provides assistance with the costs of training courses, for income support recipients who are returning to study. The EdEP requirement that recipients must have been receiving social security payments for 12 months will be temporarily relaxed to one month for the period 1 January 2009 to 30 June 2010. The EdEP will also be temporarily extended to Youth Allowance (other) for the same period. Youth Allowance (other) is the youth allowance payable to a person who is not undertaking full-time study and who is not a new apprentice. Date of effect Generally, the amendments contained in the Bill will commence on Royal Assent. Small business entities and the Allowance Uncertainty exists in whether small businesses entities that elected to use the capital allowance concessions contained in Subdiv 328-D of ITAA 1997 will be eligible for the Allowance. The Treasurer’s Media Release accompanying the Small Business and General Business Tax Break stated that:
Potentially, a small business entity that chooses to apply the Subdiv 328-D capital allowance rules may possibly be excluded from the Allowance. Depreciating assets acquired by the small business entity are automatically allocated to either a general small business pool or long life small business pool: s 328-185(3) of ITAA 1997. It seems odd that the Allowance, which has been proposed to be small business entities ‘friendly’, would not be accessible by small business entities. It is expected that the draft legislation to be released by Treasury will provide clarification on this issue. Main Residence Exemption The AAT has held that the CGT main residence exemption was not available to a husband and wife (the taxpayers) on a unit they acquired with the intention of it being their main residence, but which they ultimately never lived in: [2009] AATA 41, Re Couch and FCT (the Couch case). Background The husband was in the Australian Defence Force and, between January 1995 and January 2006, was posted to various locations in Australia, Papua New Guinea and East Timor. The taxpayers acquired a unit in South Australia in June 2000 with the intention of residing in it as their matrimonial home. The taxpayers contended that it only became practicable for them to reside in the unit when they returned to Adelaide in January 2006. They claimed that, because of the husband’s postings, there had been no prior opportunity for them to live there. At the last minute, they decided to return, but the unit was still subject to a lease. They subsequently decided that the unit would not be suitable as a family home and, in December 2006, they sold it without having resided in it. In a private binding ruling, the Commissioner ruled that the capital gain derived on the disposal was subject to CGT and that the taxpayers were not entitled to the main residence exemption. He disallowed the taxpayer’s objection to the ruling. The Tribunal said the salient issue was whether the capital gain made on the disposal should be disregarded pursuant to s 118-110 of ITAA 1997 because the residence was considered to be their main residence for the entire ownership period. Decision The Tribunal was of the opinion that the taxpayers did not move into the unit when it was first practicable to do so. It said the evidence showed the taxpayers acquired the unit and were legally entitled to move into it immediately after settlement on 16 June 2000. However, they chose to lease the property out. It found that while the taxpayers had an intention to move into the unit at some time, they only moved into it when it became convenient for them to do so. The taxpayers also contended that there were reasons beyond their control that prevented them from moving into the unit. In the Tribunal’s opinion, the fact that the unit was continually leased and that the taxpayers were unable to occupy it because of the husband’s postings outside of the state were not sufficient to invoke the provisions of s 118-135. The Tribunal concluded that it was not satisfied that the main residence exemption in s 118-110 was available to the taxpayers in respect of the disposal of the unit and affirmed the Commissioner’s objection decision. Main residence exemption Subdivision 118-B of ITAA 1997 provides an automatic exemption from CGT for a capital gain or loss that arises when a CGT event happens to a taxpayer’s dwelling (or the taxpayer’s ownership interest in it) if the dwelling qualifies as the taxpayer’s main residence. The term ‘main residence’ is not defined in either ITAA 1936 or ITAA 1997. However, in Taxation Determination TD 51, the Commissioner provides a list of relevant factors to assist taxpayers in deciding whether a dwelling is their main residence:
The emphasis to be given to each of the factors will depend upon the circumstances of each particular case. The Commissioner acknowledges that there may also be other relevant factors which are not stated in the list. Therefore, the Commissioner says that whether a dwelling is a taxpayer’s main residence will depend on the facts and circumstances of each case. It is important to note that in the Determination, the Commissioner states that a mere intention to construct a dwelling or to occupy a dwelling as a sole or principal residence, but without actually doing so, is insufficient to obtain the exemption. The Couch case affirms the Commissioner’s view. Receipts and Education Tax Refund In two separate but related media releases, the Treasurer and the Acting Tax Commissioner Ms Jennie Granger have reminded parents to keep receipts relating to expenses incurred on their children’s education if they wish to claim the Education Tax Refund. Education Tax Refund The Education Tax Refund was introduced by the Tax Laws Amendment (Education Refund) Act 2008, which received Royal Assent on 9 December 2008. The Bill inserted Subdiv 61-M into ITAA 1997 which contained the provisions relating to the refund. From 1 July 2008, eligible families can claim up to 50% for eligible education expenses every year up to:
Families who receive Family Tax Benefit (FTB Part A) with one or more children undertaking primary or secondary studies and satisfy the schooling requirement (see below) are eligible for the refund. Families who would be eligible for FTB Part A in respect of a child but for the fact that they or the child are in receipt of payments under a prescribed educational scheme (eg Abstudy, the Veterans’ Children Education Scheme, the Student Financial Supplement Scheme or the scheme under s 258 of the Military Rehabilitation and Compensation Act 2004), a social security pension (eg carer payment, sole parent pension, widow B pension or disability wage supplement), a social security benefit (eg youth allowance, Austudy payment, Newstart allowance or sickness allowance) or a payment under a Labour Market Program are also eligible for the refund. Independent students (aged under 25) undertaking secondary studies at an educational institution such as TAFE may also be eligible. However, students attending general TAFE courses and/or university are not eligible. The list of eligible education expenses is contained in s 61-640 and includes the following:
The acquisition cost of an item can be by way of purchase, lease or hire-purchase. Where applicable, the cost of an item can include associated costs such as repair and maintenance, and establishment costs. The Tax Office has released a detailed FAQs on the refund which states that parents can only claim for items which they have paid for themselves. For example, a computer paid for by grandparents would not be eligible. An expense is not eligible for the refund to the extent that the expense is deductible under another provision of ITAA 1997 or ITAA 1936, is subject to another tax offset, or a claimant received or is entitled to receive payment or property for the expenses: see s 61-640. The Tax Office’s FAQs states that if an item is used for different purposes (eg education and business) only the amount that relates to the education of the child is eligible for the refund. The Tax Office has also stated various items which it considers not eligible for the refund. These include computer games and consoles, school fees, sporting equipment, musical instruments, tuck shop expenses and transport. The refund is claimed through the tax system on lodgment of an income tax return. Those not required to lodge an income tax return can claim the refund through the Tax Office by lodging a separate form at the end of the income year. The Tax Office expects this form to be available from July 2009. Schooling requirement A child satisfies the schooling requirement contained in s 61-630 if the child undertakes primary or secondary studies (which can include home schooling) on at least one day in a six-month period beginning on 1 July or 1 January. The division of a financial year into two lots of six-month periods means that a taxpayer will still qualify for the refund, albeit a partial refund, if the child enters or leaves school part-way through the financial year, or for another reason only satisfies the criteria for one-half of the financial year. It is important to note that where a child transitions from primary to secondary school in the same financial year, the secondary school limit of $750 will apply. In a case where a child ceases full-time study, a partial refund is available for that part of the financial year that the child meets the schooling requirement. It is also a requirement that the Commissioner must be satisfied that the child would have been an ‘FTB child’ for the year, disregarding any adjusted taxable income that equals or exceeds the cut-out amount. Calculation of refund The amount of refund that a taxpayer can claim in a financial year is the lesser of either:
Any eligible expenses above a taxpayer’s refund limit for a financial year can be carried forward to the following financial year as long as the taxpayer is still eligible. It is of paramount importance to realise that any excess can only be carried forward for one year. Eligible expenses not claimed will automatically lapse. Whether a taxpayer has excess eligible expenses is determined by comparing half of the taxpayer’s education expenses to his or her refund limit. The excess amount is then doubled to restore the amount to its original value and carried forward to the following financial year. The refund limit is calculated using a four-step method as prescribed by s 61-660: 1. Start with the maximum offset limit, that is, $750 for a secondary school student or $375 for a primary school student. 2. Add up the days in the financial year in which the taxpayer satisfies the entitlement criteria for the refund. 3. Divide the result of step 2 by the number of days in the financial year rounding the result to two decimal places. 4. Multiply the applicable limit by the result in step 3. Beware — Tax Refund Scam The Tax Office has issued two separate but related media releases in which it warns taxpayers of two e-mail scams purporting to offer a refund. The scams operate by requesting for a taxpayer’s credit card and personal details. Generally, the subject heading of the emails are titled:
The Tax Office does not send e-mails requesting personal information including credit card details. |