House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer,the Hon. John Dawkins, M.P.)

Reductions in the rate of income tax

Summary of proposed amendments

Purpose of amendment: to declare the rates of tax payable by both residents and non residents for the 1994/95 and subsequent years of income.

Date of Effect: 1 July 1994

Background to the legislation

The current and proposed future personal income tax scales for residents from 1 July 1994 and 1 January 1996 respectively are as shown in the Table below -

Current and Future Income Tax Rate Scales

The current and proposed future rates of tax for non residents are as in the above Table with the exception that a tax rate of 29% applies to income in the range $0 - 20,700.

Because the subsequent reductions to personal tax rates will apply from 1 January 1996, the Bill will also declare composite rates to apply, for both residents and non residents, on assessment in respect of income for the 1995-96 year of income. The composite rates for residents are as follows -

Composite Income Tax Rate Scales for 1995-96

The proposed rates of tax for non residents for the 1995/96 income year are as in the above Table with the exception that a tax rate of 29% will apply to income which is currently free of tax and income which is subject to tax at the 20% rate.

Explanation of proposed amendments

Part 2 of the Bill will amend the Income Tax Rates Act 1986 to give effect to the proposal announced by the Prime Minister in the One Nation Statement on 26 February 1992. The income tax rate reductions affect the marginal rates of personal income tax that now apply in the income range of $20700 to $50000.

With effect from 1 July 1994, the Bill will declare the rates of personal income tax which will apply, to both residents and non residents, for assessments in respect of -

•

the 1994-95 year of income [Clause 4] ;

•

for the 1995-96 year of income [Clause 5] ; and

•

for the 1996-97 and later years of income [Clause 6] .