Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 6 - Deductions for United Medical Protection Limited support payments
Outline of chapter
6.1 Schedule 6 to this bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to ensure that all individuals who make United Medical Protection Limited (UMP) support payments under Division 1 to Part 3 of the Medical Indemnity Act 2002 will be entitled to an income tax deduction for the amount of their contributions in that income year.
Context of amendments
6.2 Under the Medical Indemnity Act 2002 the Australian Government introduced a scheme to address the unfunded incurred but not reported (IBNR) liabilities of medical defence organisations and under the Medical Indemnity (IBNR Indemnity) Contribution Act 2002 it introduced a contribution scheme which imposes a liability on doctors to fund the scheme. The IBNR contribution scheme is one of several components of the Australian Government's medical indemnity package, announced on 23 October 2002.
6.3 The Australian Government announced on 17 December 2003 that the IBNR contribution would be replaced by the UMP support payments. The Medical Indemnity Amendment Act 2004 and the Medical Indemnity (IBNR Indemnity) Contribution Amendment Act 2004 bring into effect these changes.
6.4 A reference to a UMP support payment may include a reference to an IBNR contribution for some purposes of the Medical Indemnity Amendment Act 2004 (see Schedule 1, item 6, subsection (3E)).
6.5 IBNR contributions made by doctors during 2003 were refunded, so it is expected that there will be no IBNR contributions for which a person could seek an allowable deduction.
Summary of new law
6.6 This amendment will allow individuals who are required to pay UMP support payments to deduct the amount of their payment from assessable income. This section will apply if a deduction would not otherwise be available.
Comparison of key features of new law and current law
| New law | Current law |
|---|---|
| All individuals who are required to pay UMP support payments will be entitled to deduct the amount of their payments. | Certain individuals who are required to pay UMP support payments may be entitled to deduct the amount of their payments under the general deduction provisions. |
Detailed explanation of new law
6.7 This amendment inserts a specific deduction into the ITAA 1997 to ensure that all individuals who are required to pay UMP support payments will be entitled to deduct the amount of their payments.
6.8 Contributions may already be deductible under section 8-1 of the ITAA 1997 to the extent that they are incurred in gaining or producing the taxpayer's assessable income. However, these payments may not presently be deductible for all practitioners, including some individuals who have left the profession or retired.
6.9 This deduction will apply to those taxpayers who are not otherwise entitled to a deduction for their contributions. A taxpayer will not be entitled to a deduction under the new section if he or she is entitled to a deduction under a different provision of the tax law. This ensures that taxpayers cannot claim a deduction for their contribution amounts twice. [Schedule 6, item 2]
6.10 The allowable deduction in any particular income year will be equal to the amount or amounts actually paid in that income year. [Schedule 6, item 2]
Application and transitional provisions
6.11 The amendment applies to UMP support payments made from 1 July 2003. No UMP support payments were made before this time. [Schedule 6, item 4]
Consequential amendments
6.12 The amendment also inserts the definition of 'United Medical Protection Limited support payments' into the dictionary definitions in subsection 995-1(1) of the ITAA 1997. [Schedule 6, item 3]