House of Representatives

Explanatory Memorandum

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

Chapter 16 Medicare Levy Low Income Thresholds

[Clause: Medicare Levy Amendment Bill 1991 : 1, 2, 5, 6]

Overview

Varies the taxable income levels below which persons are exempt from Medicare levy as from 1 July 1991.

Summary of proposed amendments

16.1. Persons receiving taxable income below the Medicare levy low income thresholds are not required to pay the levy. This Bill proposes to amend section 8 of the Medicare Levy Act 1986 to raise the low income threshold for married couples and sole parents.

Background to the legislation

16.2. For the income year 1990-91 the following table indicates when levy is or is not payable or is reduced:

#

Consists of combined taxable income of taxpayer and spouse.

##

The figures for married taxpayers also applied to taxpayers entitled to a sole parent, child/housekeeper or housekeeper rebate.

•

Where there were five or more dependent children or students, add $2,100 for each extra child or student.

• *

Where there were five or more dependent children or students, add $2,240 for each extra child or student.

16.3. For 1990-91 an individual whose taxable income was $12,528 or less (column 3 of the table) but more than $11,745 the levy was 20 per cent of the excess above $11,745. These two thresholds were set in section 7 of the Medicare Levy Act.

16.4. Where the sum of the couple's taxable income was more than $19,045 and up to $20,315 (column 3), the reduced levy could be calculated in accordance with section 8 of the Medicare Levy Act.

16.5. Applying the formula in subsection 8(2) of the Medicare Levy Act ensured that the levy payable was no more than 20 percent of the excess above $19,045. The lower of these thresholds was set in Section 8 of the Act and the higher was derived from the formula in subsection 8(2) of the Act.

16.6. These thresholds and provisions applied also in regard to taxable income for taxpayers entitled to a housekeeper, child-housekeeper or sole parent rebate.

16.7. The low income thresholds are usually amended each year and the amended thresholds are announced in the Budget papers.

Explanation of the proposed amendments

General

16.8. It is not proposed to change the thresholds for individuals for 1991-92.

16.9. For 1991-92 no levy will be payable by:

(a)

an individual whose taxable income does not exceed $11,745;

(b)

a married (including de facto) couple where the sum of the couple's taxable incomes does not exceed $19,674; or

(c)

a taxpayer entitled to a housekeeper, child-housekeeper or sole parent rebate where his or her taxable income does not exceed $19,674.

16.10. For each dependent child or student maintained by a taxpayer in (b) or (c) above the threshold for payment of the levy will continue to be increased by $2,100.

Levy in Cases of Individuals with Small Incomes

16.11. It is not proposed to amend section 7 in regard to the income year 1991-92. Section 7 of the Principal Act exempts from Medicare levy individual taxpayers on incomes at or below the low income threshold. It also phases in the levy for those taxpayers with taxable incomes that exceed that threshold.

Levy for Married Couples and Sole Parents

16.12. Section 8 of the Principal Act exempts from Medicare levy in respect of a year of income a person who has a family if two conditions are satisfied:

•

the person is

-

married or de facto married on the last day of the year of income; or

-

the person is entitled to a rebate in his or her assessment in respect of the year of income for a child-housekeeper or a housekeeper or as a sole parent; and

•

the family income in respect of the year of income (that is, the taxable income of the person plus that of his or her spouse, if any) does not exceed the family income threshold in relation to that person.

16.13. The basic level of the "family income threshold" (subsection 8(5) of the Principal Act) for a taxpayer is to be increased from $19,045 to $19,674 [Clause 5] . The level of that threshold in a year of income will continue to be increased by a further $2,100 for each dependent child or student. (The child or student is one in respect of whom the taxpayer or spouse would have been entitled to a dependant rebate in that year had those rebates been continued).

16.14. Clause 5 also proposes to amend subsection 8(6) of the Principal Act to account for the increase in the basic level of the family income threshold to $19,674.

16.15. Subsection 8(6) of the Principal Act places a restriction on increasing the "family income threshold" on account of a dependant in respect of a year of income. The restriction applies where the taxpayer was not a married person on the last day of the year of income. In these circumstances the "family income threshold" shall not be increased on account of another person unless family allowance under the Social Security Act 1991 was payable to the taxpayer in respect of the dependant.

16.16. The 1991-92 Medicare levy low income thresholds and shading-in ranges will therefore be as shown in the following table:

#

Consists of combined taxable income of taxpayer and spouse.

##

The figures for married taxpayers also apply to taxpayers entitled to a sole parent, child/housekeeper or housekeeper rebate.

•

Where there are five or more dependent children or students, add $2,100 for each extra child or student.

• *

Where there are five or more dependent children or students, add $2,240 for each extra child or student.

Commencement date

16.17. The amendment will take effect for the financial year commencing on 1 July 1991 [Clause 6] . That is, the changed threshold applies to the imposition of levy upon taxable income of the year of income commencing on 1 July 1991.

Clauses involved in the proposed amendments

Subclause 1(1): cites the amending Act as the Medicare Levy Amendment Act 1991 .

Subclause 1(2): facilitates references to the Medicare Levy Act 1986 which it refers to as the "Principal Act".

Clause 2: provides for the amending Act to commence on the day on which it receives Royal Assent.

Clause 5: amends section 8 of the Principal Act by omitting "$19,045" from subsections (5) and (6) and substituting "$19,674".

Clause 6: provides that amendments to section 8 of the Principal Act will apply for the financial years commencing on or after 1 July 1991.