Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 2 - Medicare levy thresholds
Outline of chapter
2.1 Schedule 2 to this Bill amends the Medicare Levy Act 1986 (MLA 1986) to raise the Medicare levy low income thresholds for senior Australians and certain pensioners who receive the Commonwealth pension and are under the age pension age. This measure ensures that the Medicare levy low income thresholds are aligned with the higher income tax-free thresholds announced by the Government in the 2001-2002 Federal Budget. The effect of this measure is that it allows senior Australians and certain pensioners to be free from both income tax and the Medicare levy.
Summary of new law
2.2 This amendment raises the Medicare levy low income threshold for senior Australians to $20,000. This will enable senior Australians (which include pension age Commonwealth pension recipients and self-funded retirees) to earn up to $20,000 before they begin to incur a Medicare levy liability.
2.3 This amendment also raises the Medicare levy low income threshold for certain other pensioners (who receive Commonwealth pensions and are under the age pension age) to $15,970. This will enable these pensioners to earn up to $15,970 before they begin to incur a Medicare levy liability.
2.4 The phase-in limit (above which people start to pay the Medicare levy at the full rate) has also been raised for senior Australians and certain pensioners to correspond with the proposed higher Medicare levy low income thresholds. This ensures that people who enjoy the higher Medicare levy low income thresholds are phased into the Medicare levy regime, at a reduced rate, when their income level goes above the threshold. This proposal is consistent with the phase-in rule for all other Australians who ease into the Medicare levy regime.
Comparison of key features of new law and current law
| New law | Current law | |||
|---|---|---|---|---|
| Class of people | Medicare levy low income threshold (no Medicare levy payable at or below this level) | Phase-in limit (level above which the Medicare levy is payable at the full rate) | Medicare levy low income threshold (no Medicare levy payable at or below this level) | Phase-in limit (level above which the Medicare levy is payable at the full rate) |
| Senior Australians | $20,000 | $21,621 | $13,807 | $14,926 |
| Certain pensioners (under the age pension age) | $15,970 | $17,264 | $13,807 | $14,926 |
| All other Australians | $13,807 | $14,926 | $13,807 | $14,926 |
Detailed explanation of new law
2.5 This Bill introduces 2 new definitions into subsection 3(1) of the MLA 1986. The first definition of a phase-in limit sets a higher upper limit for senior Australians and certain pensioners before the Medicare levy is applied at the full rate. This amendment complements the proposed higher Medicare levy low income thresholds for these people (refer to paragraph 2.6). It also ensures that the reduced rate of the Medicare levy is applicable to senior Australians and certain pensioners when they enter the Medicare levy regime. [Schedule 2, item 1]
2.6 The phase-in limit sets the limit above which the Medicare levy is payable at the full rate:
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- for a person entitled to a low income aged persons rebate or a pension rebate, where the person has reached age pension age (senior Australians) - $21,621;
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- for a person entitled to a pension rebate (below age pension age) - $17,264; or
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- for all other people - $14,926.
2.7 The second definition of a threshold amount sets a higher Medicare levy low income threshold for senior Australians and certain pensioners to ensure they can earn a higher level of income before they are liable for any Medicare levy. The higher thresholds allow senior Australians to earn up to and including $20,000 before they are liable for any Medicare levy. It also means that Commonwealth pension recipients under the age pension age can earn up to and including $15,970 before they are liable for any Medicare levy. All other Australians will continue to enjoy the current Medicare levy low income threshold of $13,807. [Schedule 2, item 2]
2.8 The threshold amount sets the limit above which the Medicare levy first becomes payable at the reduced rate:
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- for a person entitled to a low income aged persons rebate or a pension rebate, where the person has reached age pension age (senior Australians) - $20,000;
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- for a person entitled to a pension rebate (below age pension age) - $15,970; or
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- all other people - $13,807.
2.9 This Bill makes minor technical amendments to support the change from a single Medicare levy low income threshold (of $13,807 for all Australians) to higher threshold rates for senior Australians and certain pensioners by replacing the amount of $13,807 with the term threshold amount. [Schedule 2, items 3 and 4]
2.10 This Bill makes another technical amendment to support the higher phase-in limits (where the Medicare levy is applied at the full rate) applicable to senior Australians and certain pensioners by replacing the amount of $14,926 with the term phase-in limit. [Schedule 2, item 5]
2.11 This Bill also amends the definition of family income threshold for a person who is entitled to a rebate under section 160AAAA (a person of age pension age) to mean $31,729, increased by $2,140 for each dependent. This ensures that a person will not be liable to any Medicare levy where their family income is below $31,729 even though their individual income may exceed $20,000. [Schedule 2, item 6]
2.12 This Bill amends section 10 of the MLA 1986 to ensure that where a beneficiary would have been entitled to a low income aged persons rebate or a pension rebate, that benefit will be available to the trustee. In other words, this amendment allows senior Australians to earn a higher level of income before they are liable for any Medicare levy. [Schedule 2, item 7]
Application and transitional provisions
2.13 This amendment applies to assessments for the 2000-2001 income year and later income years. [Schedule 2, item 8]