Income Tax (Working For Families Indexation - Budget Measures) Amendment Act 2012

2012 legislation extends the inflation measure used for calculating the rates of family tax credit, in particular cigarettes and tobacco products.

Sections MF 7(1)(a), (2) and (2B) of the Income Tax Act 2007

The Income Tax (Working for Families Indexation - Budget Measures) Amendment Act 2012 received Royal assent on 23 October 2012 [Indexation Amendment]. It was previously part of the Customs and Excise (Tobacco Products - Budget Measures) Amendment Bill. The Indexation Amendment was separated out at the Committee of the Whole House stage by SOP number 129.

Background

Most of the rates of family tax credit are increased whenever the cumulative rate of inflation since the previous adjustment exceeds 5%. These higher rates take effect from the following 1 April. The family tax credit rates were last increased on 1 April 2012.

In 2010, section 94 of the Taxation (Budget Measures) Act 2010 changed the measure of CPI to be used for the family tax credit from the CPI: All Groups measure to the CPI: All Groups excluding cigarettes and other tobacco products measure. This applied for the calculation of Working for Families tax credit entitlements for the 2011-12, 2012-13 and 2013-14 tax years and reflected specific increases in tobacco excise for 2010 through to 2012.

The Customs and Excise (Tobacco Products - Budget Measures) Amendment Act 2012 [the Customs Amendment] seeks to continue to discourage tobacco consumption through higher prices for tobacco by further increasing tobacco excise. The Customs Amendment provides for four cumulative increases of 10% in tobacco excise from 1 January 2013 through to 1 January 2016.

The excise increases are expected to increase the level of inflation as measured by the Consumer Price Index (CPI): All Groups measure. As with the previous 2010 to 2012 tobacco excise increases, a number of consequential amendment Acts will ensure that recipients of social assistance are not reimbursed for the increases in tobacco prices through CPI adjustments, as this would counteract the purpose of increasing the tobacco excise.

Key features

The Indexation Amendment will continue, for another four years, the change to the inflation measure to be used in calculating the rates of family tax credit. Sections MF 7(1), (2) and (2B) of the Income Tax Act 2007 have been amended so that the period for the change in CPI measure will be extended up to and including the 2017-18 tax year.

This will mean that the price changes in cigarettes and tobacco products, during 2013 to 2016 when specific tobacco excise increases occur, will not be included in the cumulative measure of inflation used for determining when, and by how much, the rates of family tax credit are increased.

Application date

The change applies for Working for Families entitlements from the 2014-15 tax year up to and including the 2017-18 tax year.