Issue
Is the taxpayer entitled to use a notional taxable income amount to determine their base year taxable income for the purposes of calculating their entitlement to the first child tax offset (baby bonus) under section 61-355 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The taxpayer is not entitled to use a notional taxable income amount to determine their base year taxable income for the purposes of calculating their entitlement to the baby bonus under section 61-355 of the ITAA 1997.
Facts
The taxpayer had a child during the 2002 income year.
The taxpayer is eligible to claim the baby bonus.
The taxpayer wishes to use the 2001 income year as their base year.
Prior to the 2001 income year, the taxpayer held a full time position. During the 2001 and 2002 income years, the taxpayer worked part time.
The taxpayer's taxable income for the 2001 and 2002 income years was therefore less than their full time annual salary entitlement.
The taxpayer wishes to use a notional amount equivalent to their full time annual salary entitlement as the amount of their base year taxable income.
The taxpayer is an Australian resident for taxation purposes and was a resident during the 2001 income year.
Reasons for Decision
Where a taxpayer satisfies the eligibility requirements contained in subsection 61-355(1) of the ITAA 1997, their baby bonus entitlement is calculated using the formula set out in section 61-415 of the ITAA 1997: 'entitlement amount * (total of the entitlement days / 365)'
The 'entitlement amount' is calculated using the following formula in subsection 61-420(1) of the ITAA 1997: 'base amount * [1 - (taxable income for the claim year / taxable income for the base year)]'
Taxable income is determined under section 4-15 of the ITAA 1997 and is equal to assessable income less allowable deductions.
The legislative provisions concerning the baby bonus do not extend or change the definition of taxable income and do not give the Commissioner the discretion to use a notional amount as the taxpayer's taxable income for the purposes of calculating the amount of their entitlement to the baby bonus.
The taxpayer earned less in the 2001 and 2002 income years than they did in previous years as they were working part time. The Commissioner does not have the discretion to allow the taxpayer to use a notional amount equivalent to their full time annual salary as their taxable income for their base year.
The taxpayer is therefore not entitled to use a notional taxable income amount in determining their taxable income for their base year for the purposes of calculating their entitlement to the baby bonus under section 61-355 of the ITAA 1997.