PACMATE Part 3 Division 5: Other taxation obligations

Division 5: Other taxation obligations

3.28   Income tax
3.29   Members of the Reserves
3.30   Superannuation surcharge
3.31   Child support obligations
3.32   Higher Education Contribution Scheme (HECS)

3.28 Income tax

Most salary and wages are subject to Pay-As-You-Go (PAYG) Withholding tax. However some salary and wages are exempt.

The pay and allowances of members of the Reserves are exempt from income tax. The exemption applies to pay and allowances for part-time service, including pay for part-time training. The income tax exemption does not apply to members on continuous full-time service, even if the member volunteered for full-time service.

Exempt income may be taken into account in calculating the rate of tax payable by the member on assessable income derived by the member. Thus, exempt income may result in a member being subject to income tax at a higher tax rate on assessable income, known as ‘exemption with progression’.

See: Section 51–5, item 1.4 of the Income Tax Assessment Act 1997.

Some benefits for members of the Reserves such as awards in the form of valuable goods may constitute a fringe benefit despite their income being exempt from income tax. Awards in trophy form such as medals, plaques and cups are not subject to fringe benefits tax.

See: Division 4 clause 3.25 for information about the Medicare levy for members of the Reserves.

3.30 Superannuation surcharge

1.	The superannuation surcharge is not paid by members. Instead, the superannuation fund that receives a member’s superannuation contributions is liable for the superannuation surcharge. Members of a defined benefits superannuation fund such as the Military Superannuation and Benefits Scheme (‘Military Super’) are generally notified of their accumulated liability for superannuation surcharge which will reduce the superannuation benefits available to the member when receiving a benefit from their fund.
2.	For those who are members of a defined benefits superannuation fund such as Military Super, a member’s surchargeable contributions are actuarially calculated and notified to the member by the fund. A member’s own after-tax contributions to Military Super are not surchargeable contributions.
3.	The rate of superannuation surcharge is worked out as follows.
	a.	If a member’s adjusted taxable income is less than the lower income amount of $99,710 for the 2004/2005 income year, the member’s rate of superannuation surcharge is nil.
	b.	If a member’s adjusted taxable income exceeds the lower income amount of $99,710 for 2004/2005, the member’s surchargeable contributions are subject to the superannuation surcharge at a rate determined according to the member’s adjusted taxable income.
4.	A member’s adjusted taxable income is usually equal to the total of these three items.
	a.	Their taxable income.
	b.	Their total surchargeable contributions.
	c.	The reportable fringe benefits amounts (RFBA) shown on their Payment Summary.
5.	A member’s adjusted taxable income is increased for certain trust distributions subject to family trust distributions tax or ultimate beneficiary non-disclosure tax. It is reduced by most eligible termination payment (ETP) amounts rolled over into superannuation funds, and lump sum payments for unused annual and long service leave received because the member has ceased service because of a bona fide redundancy, invalidity or approved early retirement scheme.
6.	If a member has received an ETP paid by their employer, the member’s adjusted taxable income is adjusted depending upon whether or not the ETP exceeds the higher income amount for the year, as follows.
	a.	If the member’s adjusted taxable income is between $99,710 and $121,075 for 2004/2005, the member’s rate of superannuation surcharge will be worked out by this formula. (Adjusted taxable income - $99,710) divided by 1,709.20000
		The denominator (1,709.20000) is calculated by: (the higher income amount minus the lower income amount) divided by (the maximum surcharge rate times 100). The higher and lower income amounts are indexed annually.
	b.	If the member’s adjusted taxable income exceeds the higher income amount of $121,075 for 2004/2005, the member’s rate of superannuation surcharge will be the maximum surcharge rate. The maximum surcharge rate for 2004/2005 is 12.5% which will be reduced to 10% in 2005/2006 and beyond.
7.	The table in subclause 10 summarises the applicable superannuation surcharge rate for the various adjusted taxable income thresholds.
8.	A superannuation fund’s superannuation surcharge liability in respect of a member is determined by multiplying the member’s surcharge rate by their surchargable contributions (not the member’s adjusted taxable income).
9.	As stated earlier, for those who are members of a defined benefits superannuation fund such as Military Super, a member’s surchargeable contributions are actuarially calculated and notified by the fund. The defined benefits fund is not required to pay a member’s superannuation surcharge liability until the member’s superannuation benefits are paid.
10.	Interest (at the 10-year Treasury bond rate) is charged to a member’s accumulated superannuation surcharge debt annually to ensure members are not advantaged by deferring the payment of their surcharge liability. A member can choose to pay an amount to their superannuation fund to reduce their superannuation surcharge debt.

Item	If the member’s adjusted taxable income is between...	the applicable surcharge rate is... (%)
1.	Nil and $99,710	nil.
2.	$99,711 and $121,075	(adjusted taxable income - $99,710) ÷ 1,709.20
3.	Above $121,075	12.5%

Example: A member’s adjusted taxable income is $108,256 (including surchargeable contributions of $20,000 as calculated and notified by the member’s defined benefits fund). The member’s surcharge rate is 5.00000% [($108,256 - $99,710) ÷ 1,709.20]. The member’s superannuation surcharge liability is $1,000 (5% of $20,000) which is added to the member’s accumulated surcharge debt account maintained by the superannuation fund.

Note: The Treasurer announced in the Budget Speech 2005-06 that the Government will abolish the superannuation surcharge on contributions made after 1 July 2005.

3.31 Child support obligations

1.	Parents with children who have separated may be required to pay, or entitled to receive, child support payments towards the expenses associated with their children’s maintenance, education and other similar costs. Child support payments may be determined by an agreement, a court decision or an assessment by the Child Support Agency.
2.	The amount a parent is required to pay or entitled to receive in relation to child support may depend upon a number of factors including the child support income of both parents.
3.	The level of child support is generally assessed on the total of taxable income and reportable fringe benefits amount. Rental property losses and foreign employment income that is exempt from Australian income tax are also generally included.
4.	A parent may be able to apply to the Child Support Agency to change the child support assessment if there is an unjust and inequitable determination of financial support. When considering the assessment, the Child Support Registrar may, in certain circumstances, take into account non-reportable benefits. Examples: Benefits that Defence is not required to report, including housing assistance and reunion travel for a member’s dependants.
5.	A member serving in a warlike zone receives tax-free salary and additional allowances. If a change of assessment application is made in relation to such a member, the member’s child support income amount may be increased by the amount of their tax-exempt salary but is generally not increased by the value of additional non-taxable allowances. See: Policy Guideline 14/2000 of Child Support Agency Australia (CSA’s ‘The Guide’ Part 2.6.14: Reason 8 – income, earning capacity, property and financial resources of parents). Members may also refer to www.csa.gov.au or call 131 272.
6.	A parent may also be able to apply to the Child Support Agency to change the child support assessment if the parent’s income has decreased by 15% or more from the income used in an earlier assessment. A parent may be liable for an estimate penalty if a parent’s actual income is at least 10% higher than the estimate of income for child support purposes.
7.	The adjusted income amount used to calculate the child support payments is capped at $130,767 unless a court order removes the limit on the maximum child support income amount.

3.32 Higher Education Contribution Scheme (HECS)

1.	Defence pays for members’ costs of study in most cases. This means that a Higher Education Contribution Scheme (HECS) debt will not arise for those members.
2.	If a member is studying and incurs a HECS or similar debt, these arrangements apply.
		They start repaying their HECS debt when their HECS repayment income exceeds the minimum threshold for compulsory repayment. For the 2004/2005 income year the threshold is $35,000. Any postgraduate education loans scheme (PELS) debts and Open Learning Deferred Payment Scheme (OLDPS) debts are added to a member’s HECS debt and are subject to the same repayment arrangements.
		From 1 June 2006, all existing HECS debts become accumulated Higher Education Loan Program (HELP) debts.
		If a member is a pre-2005 HECS student and chose to defer any of their HECS contribution for studies undertaken before 1 January 2005, they will have incurred a HECS debt. This debt will still be called a HECS debt until 1 June 2006.
		If they study after 1 January 2005 and chooses to defer any of their HECS contribution, the member will have a HELP debt. Any HECS-HELP, FEE-HELP (replacing PELS and OLDPS debts) and OS-HELP (overseas study assistance) debts a member incurs from 1 January 2005 are HELP debts and will be added together with their HECS debt to become one accumulated HELP debt on 1 June 2006. A member must start repaying their accumulated HELP debt when their repayment income is above the minimum threshold which is $36,184 for 2005/2006.
3.	Repayments under the HECS apply if a student has enrolled in an award course in a higher education institution and has opted to defer paying contributions towards the cost of their study until their income exceeds the HECS repayment income threshold.
4.	If a member has incurred a HECS debt, the HECS repayment income is calculated as the member’s taxable income plus net rental losses plus reportable fringe benefits amount (RFBA) for the relevant income tax year.
5.	A member’s HELP repayment income for the 2005/2006 income year will also include exempt foreign employment income.
6.	The various HECS repayment rates for the various levels of income are available from www.goingtouni.gov.au.

PACMATE AL3 (September 2005) Part 3 ‑ Division 5 – 1