FTB fine-tuning – More choice and flexibility for families

The Government has listened to Australian families who have asked for more flexibility in the Family Tax Benefit (FTB) and Child Care Benefit (CCB) system.

Today I am announcing a set of measures that will further help families match their payments to their circumstances. The announcement fine-tunes an already very generous system that has put an extra $2 billion a year in the pockets of Australian families and pays out an average $5,700 a year tax-free in FTB.

In fact, more than 260,000 families currently receive the equivalent of more than $10,000 a year tax-free in fortnightly family payments.

Importantly, the Family Tax Benefit system will continue to pay families top-up payments. Under Labor’s old system, if families over-estimated their income and were underpaid, that was just too bad.

The Family Tax Benefit System is an extension of the tax system and involves an annual payment based on a family’s taxable income. Families can choose to take the payment fortnightly or in a lump-sum. If a family wants fortnightly payments, we pay them on their estimate of the family’s taxable income for the year.

At the end of the financial year, their estimate is then reconciled with their actual taxable income. This ensures that two families with the same number of children and on the same income will get paid exactly the same amount no matter whether they are paid fortnightly or in a lump-sum.

Currently, families who tell us about an increase in their income have their payment changed to reflect their new estimate. Any overpayment is currently dealt with at the end of the year as a part of reconciliation.

Under the new measures, families will have the additional option of asking to be paid at a rate for the remainder of the year that will significantly reduce or wipe out any potential overpayment.

Families will also be given the choice to receive some of their FTB and CCB during the year and the balance at the end.

The Family Tax Benefit is made up of two payments, one which assists with the cost of children (FTB Part A), and the other which is targetted to single income families (FTB Part B). In the future, families will be able to choose to receive their FTB Part A as fortnightly payments and their FTB Part B as a lump sum at the end of the year, or vice versa. This will help single income families with a partner who is unsure if they will return to work, because they will be able to defer the payment targetted to single income families until the end of the year, while still receiving their FTB Part A payment fortnightly.

Families will also be able to defer their FTB Part A payments for their older teenagers until the end of the year while continuing their fortnightly payments for their younger children. Families are entitled to get FTB Part A for a child aged 16 or more only if the child’s income for the year is less than $8,346. Some families therefore can find that they have been overpaid FTB for older teenagers who enter the workforce part-way through the year. This measure will help these families avoid a possible overpayment. If at the end of the year, the family is still entitled to FTB for the older children they will be topped up for those children with their tax assessment.

Similarly, to assist customers in the FTB A taper zone who are unsure of their annual income, families will be able to choose to receive only the base rate of FTB Part A fortnightly, and get the rest of their annual entitlement as a lump sum at the end of the year. This will ensure that, so long as they earn less than $80,000 (for a family with one child), they will not get an overpayment.

The calculation of Child Care Benefit for families and child care centres will also be simplified. Families will be given the choice of rounding down their CCB percentage. This measure will give them a small buffer at the end of the year and will make the system easier for centres to manage and simpler for parents.

The measures I am announcing today will give families substantially greater choices to help them reduce the likelihood that they will end up with a Family Tax Benefit or Child Care Benefit overpayment at the end of the year.

These initiatives will add flexibility into the system whilst continuing the overall generosity and fairness of the system.

The measures will be made available progressively from November 2002.