House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer,the Hon. J. Kerin, M.P.)

Chapter 15 Medicare Levy Exemption

[Clause: 78, 85]

Overview

Makes amendments to reflect the Government's initial intention to limit exemption from the levy on account of holding a health card to blind pensioners and sickness beneficiaries.

Summary of proposed amendments

15.1. This Bill proposes to amend the Income Tax Assessment Act 1936 (the ITAA) to reflect the Government's initial intention in 1983 of limiting exemption from the levy on account of holding a health card to:

* blind pensioners; and

* sickness beneficiaries.

Background to the legislation

Current Legislation

15.2. Part VIIB of the ITAA contains the provisions governing the Medicare levy. Separate provisions detailing the rate and thresholds are contained in the Medicare Levy Act 1986 .

15.3. Paragraph 251T(a) of the Income Tax Assessment Act 1936 provides that the Medicare levy is not payable by a person who is a "prescribed person" during the whole of the year of income. Section 9 of the Medicare Levy Act reduces the levy where a person is a prescribed person during only part of the year. Subsection 251U(1) of the Act sets out six categories of taxpayers who satisfy the requirements for a prescribed person.

15.4. One of these categories of taxpayers is covered by paragraph 251U(1)(c) of the Act. This paragraph provides that taxpayers who

•

are holders of cards issued by the Commonwealth and known as Health Care Cards or Health Benefit Cards; and

•

whose eligibility for the cards was determined without having regard for the amount of income they or their spouses derived;

are prescribed persons. The Government initially intended this provision to exempt only

•

blind pensioners; and

•

sickness beneficiaries

from the Medicare levy.

15.5. At the time the provision was passed, these persons were issued with cards without income-testing. In the legislation, the reference to the holding of cards without income-testing was a convenient means of identifying blind pensioners and sickness beneficiaries. However, since that time, the range of persons to whom these cards are issued without income-testing has increased considerably. The result has been that many people have been unintentionally exempted from the Medicare levy.

Why change the law?

15.6. The amendments reflect the Government's initial intention that the particular group of taxpayers referred to by existing paragraph 251U(1)(c) is limited to:

•

blind pensioners, and

•

sickness beneficiaries.

Explanation of the proposed amendments

15.7. The amendments propose the removal of the existing paragraph 251U(1)(c). This existing provision is too broad to meet the Government's initial intention that it qualify only

•

blind pensioners, and

•

sickness beneficiaries

for exemption from the levy.

15.8. The amendments [subclause 78(1)] , with effect from 1 July 1991, will replace existing paragraph 251U(1)(c) with three paragraphs which identify the persons to be included as prescribed persons. The benefits, allowances and pensions to which the new paragraphs refer are set out in Table 1 on page 170. It is necessary to identify

•

blind pensioners, and

•

sickness beneficiaries

separately in the amendments.

15.9. Blind pensioners are provided for under the Social Security Act 1991 (SSA) where they are social security pensioners and under the Veterans' Entitlements Act 1986 (VEA) where they are service pensioners. Sickness beneficiaries are provided for under the SSA. The ITAA amendments will refer to the SSA and VEA to identify blind pensioners and the SSA to identify sickness beneficiaries.

15.10. The proposed ITAA amendments take account of the fact that the SSA is being amended by the Social Security (Disability and Sickness Support) Amendment Act 1991 . This Act has been passed in both Houses of Parliament and is awaiting Royal Assent. The amendments of the SSA provisions for blind pensioners and sickness beneficiaries will take effect from 12 November 1991.

15.11. Subclause 78(2) proposes to reflect these amendments to the SSA by:

•

amending two of the new paragraphs inserted by subclause 78(1); and

•

inserting a fourth new paragraph in subsection 251U(1).

15.12. Similar amendments have not been made to the VEA.

15.13. Prescribed persons in terms of the amendments to the ITAA in the Bill are:

•

blind pensioners and sickness beneficiaries between 1 July 1991 and 11 November 1991, and

•

blind pensioners and recipients of sickness allowance from 12 November 1991.

15.14. The following two tables set out the areas of the SSA and VEA to which new paragraphs 251U(1)(c), (ca), (caa) and (cb) refer to identify the persons to qualify as prescribed persons.

Table 1 *Corrected Table*

•

where rate of pension was calculated under section 1065 of SSA

• *

where rate of pension was calculated under subsection 43(1) of VEA

#

proposed new paragraphs/subparagraphs in subsection 251U(1) of the ITAA.

Table 2 *Corrected Table*

•

where rate of pension was calculated under section 1066B of SSA

• *

where rate of pension was calculated under subsection 43(1) of VEA

• **

where rate of pension was calculated under section 1065 of SSA

#

proposed new paragraphs/subparagraphs in subsection 251U(1) of the ITAA

Commencement date

15.15. The amendment of Section 251U to limit the provisions of existing paragraph 251U(1)(c) to

•

blind pensioners, and

•

sickness beneficiaries

will take effect from 1 July 1991.

15.16. The amendments consequent on amendment of the Social Security Act will take effect as from 12 November 1991.

Clauses involved in the proposed amendments

Subclause 78(1) : repeals existing paragraph 251U(1)(c) of the ITAA and replaces it with new paragraphs (c), (ca) and (cb):

•

Paragraph (c) proposes that a recipient of a sickness benefit under Part 2.14 of the Social Security Act will be a prescribed person.

•

Paragraph (ca) proposes that a person who was blind and received an age pension or an invalid pension under Parts 2.2 and 2.3 respectively of the Social Security Act will be a prescribed person.

•

Paragraph (cb) proposes that a person who was blind and received an age or invalid pension under the Veterans' Entitlements Act will be a prescribed person.

These provisions will qualify persons for exemption from the Medicare levy during the period they were recipients of the pensions or benefits.

Subclause 78(2) : mends new paragraphs (c) and (ca) of subsection 251U (1) inserted by subclause 78(1) and inserts new paragraph (caa) to make changes consequential to amendments of the Social Security Act. The changes, to take effect from 12 November 1991, are:

•

Paragraph (c) will be amended to take account of the replacement in that Act of the sickness benefit by the sickness allowance.

•

Subparagraph (ca)(ii) will be amended to take account of the replacement in that Act of the invalid pension by the disability support pension for blind pensioners aged 21 years or over but under age pension age.

•

New paragraph (caa) takes account of the new provision in that Act whereby a person aged under 21 years who receives a disability support pension because of blindness is to be identified as a person whose level of pension is set under section 1066B of that Act.

Clause 85: (of the amending Act) provides the timing of application of the amendments to the Act:

•

Subclause(6A) will provide that the amendments proposed in subclause 78(1) apply in relation to periods commencing on or after 1 July 1991.

•

Subclause (6B) will provide that the amendments proposed in subclause 78(2) apply in relation to periods commencing on or after 12 November 1991.