House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Wayne Swan MP)

General outline and financial impact

Reducing personal income tax

This Bill amends the Income Tax Rates Act 1986 to increase the threshold at which the 30 per cent marginal tax rate begins to apply and to decrease the 40 per cent marginal tax rate to 38 per cent (from 1 July 2009) and to 37 per cent (from 1 July 2010).

This Bill also amends the Income Tax Assessment Act 1936 (ITAA 1936) to increase the maximum amount of low income tax offset.

In addition, this Bill amends the Medicare Levy Act 1986 to increase the income threshold at which the Medicare levy becomes payable for taxpayers who are eligible for the senior Australians tax offset.

Date of effect: Increases in the 30 per cent threshold will apply to assessments for the 2008-09, 2009-10, 2010-11 and later income years. Reduction of the 40 per cent marginal tax rate will apply to assessments for the 2009-10 income year and the 2010-11 and later income years.

Amendments to the low income tax offset and consequential amendments to the Medicare levy for senior Australians will apply to assessments for the 2008-09 income year, the 2009-10 income year and the 2010-11 and later income years.

Proposal announced: This measure was announced as an election commitment, in A Tax Plan For Australia's Future , on 19 October 2007.

Financial impact: This measure will have these revenue implications:

Compliance cost impact: Nil.