Explanatory Memorandum
(Circulated by the authority of the Treasurerthe Hon John Dawkins, M.P.)CHAPTER ONE Personal Tax Rate Cuts
Summary of amendments
1.1 Purpose of amendment: To bring forward the 1994-95 tax cuts and to defer the tax cuts which were to apply from 1 January 1996.
1.2 Date of Effect: When Royal Assent has been received for the accompanying package of Sales Tax (Deficit Reduction) Bills and Taxation (Deficit Reduction) Bill (No.1) 1993 [Subclauses 2(2) and 2(4)].
Background to the legislation
1.3 In the 1993 Budget, it was announced that the rates of tax scheduled to commence on 1 July 1994 would be brought forward to 1 November 1993. On 30 August 1993, the Government announced that the payment of the tax cuts will be delayed from 1 November to 15 November 1993. Further, the tax rates scheduled to commence on 1 January 1996 would be deferred.
1.4 The current and proposed future personal income tax scales for residents will be as shown in the Table below -
1.5 Current and Future Income Tax Rate Scales for Residents )
| Current | Future | Parts of Taxable Income($pa) | Marginal Rate % | Parts of Taxable Income($pa) | Marginal Rate (%) | ||
|---|---|---|---|---|---|---|---|
| 0-5400 | 0 | 0-5400 | 0 | ||||
| 5400-20700 | 20 | 5400-20700 | 20 | ||||
| 20700-36000 | 38 | 20700-38000 | 34 | ||||
| 36000-50000 | 46 | 38000-50000 | 43 | ||||
| Over 50000 | 47 | Over 50000 | 47 | ||||
1.6 The rates of tax for non-residents will be as shown in the above table with the exception that a tax rate of 29% applies to taxable income in the range $0 to $20,700.
1.7 Because the 1994-95 tax cuts are being brought forward the Bill will also declare composite rates to apply, for both residents and non-residents, in respect of taxable income for the 1993-94 year of income. The composite rates for residents, based on the current and future rates shown in the above table and assuming a 15 November 1993 'changover', will be as follows -
1.8 Composite Income Tax Rate Scales for 1993-94
| Parts of Taxable Income($pa) | Marginal Rate (%) | |
|---|---|---|
| 0- 5400 | 0 | |
| 5400-20700 | 20 | |
| 20700-36000 | 35.5 | |
| 36000-38000 | 38.5 | |
| 38000-50000 | 44.125 | |
| Over 50000 | 47 |
1.9 The rates of tax for non-residents for the 1993-94 income year will be as shown in the above table with the exception that a tax rate of 29% will apply to taxable income in the range $0 to $20,700.
Explanation of the Amendments
1.10 The Bill will amend the Income Tax Rates Act 1986 to bring forward the 1994-95 personal tax cuts. The amendments will also defer the tax cuts which were to commence on 1 January 1996. The reductions in personal income tax rates affect the marginal rates of personal income tax that now apply in the income range of $20,700 to $50,000.
1.11 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 1993-94 year of income [Clause 5] ;
- •
- the 1994-95 and subsequent years of income [Clause 6] .
1.12 In addition, the Bill will declare the rates of tax to apply to a future prescribed year of income (after 1994-95) and years of income after that prescribed year [Subclause 2(3) and Clause 7].<2hp2>
1.13 The amendments will also repeal the Tax Legislation Amendment Act 1992 which was enacted last year to declare the rates of tax to apply for the 1994-95 and subsequent years of income [Clauses 8 and 9].