House of Representatives

Explanatory Memorandum

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

GENERAL OUTLINE AND FINANCIAL IMPACT

Personal Tax Cuts

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Amends the Income Tax Rates Act 1986 to declare the rates of tax payable by both residents and non residents for the 1993-94 and subsequent income years.

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.

Proposal announced: 17 August 1993 (1993-94 Budget), and 30 August 1993

Financial Cost:

Rebate for low-income taxpayers

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Provides for a rebate of up to $150 to low-income taxpayers whose taxable income is less than $24,450.

Date of effect: Assessments for 1993-94 and subsequent years of income

Proposal announced: 17 August (1993-94 Budget), and 30 August 1993

Financial Cost

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 )

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

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:

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the 1993-94 year of income [Clause 5] ;

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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].

CHAPTER TWO Low-Income Rebate

Summary of amendments

2.1 Purpose of the amendments: To amend the Income Tax Assessment Act 1936 to provide a rebate of up to $150 to taxpayers whose taxable income is below $24,450 [Clause 11] . The full rebate entitlement will be available to taxpayers whose taxable income does not exceed $20,700. The rebate reduces at the rate of 4 cents for each $1 of taxable income above $20,700.

2.2 Date of Effect: Assessments for the 1993-94 and later years of income.

Background to the legislation

2.3 In the 1993-94 Budget, it was announced that there would be a rebate on assessment, in the 1993-94 and later years of income, for taxpayers whose taxable income is below $23,200. On 30 August 1993, the Government announced that the rebate would be increased to $150. The $50 increase in the rebate will result in the upper taxable income threshold being increased from $23,200 to $24,450.

Taxpayers with a taxable income of up to $20,700 will be entitled to a $150 rebate. Taxpayers with taxable incomes between $20,700 and $24,450 will have the $150 rebate reduced at the rate of 4 cents for each $1 of taxable income in excess of $20,700. There will be no entitlement to the rebate where taxable income is $24,450 or greater.

Explanation of the amendments

2.4 The Bill will introduce new section 159N into the Income Tax Assessment Act 1936 to give effect to the rebate for low-income taxpayers which was announced in the 1993 Budget. Taxpayers whose taxable income on assessment is below $24,450 will be entitled to the rebate on assessment in the 1993-94 and later income years [Clauses 12 and 13].

2.5 Taxpayers with a taxable incomes of up to $20,700 will be entitled to a rebate of $150 on assessment. The rebate will be reduced at the rate of 4 cents for each dollar of taxable income in excess of $20,700 [New subsection 159N(2)] .

Example

2.6 A taxpayer with taxable income of $22,000 for the 1993-94 year of income will be entitled to a low-income rebate, calculated on assessment as follows:

(a)

Rebate before reduction: $150

(b)

Reduction in rebate [(22,000-20,700) x .04]: $ 52

(c)

Rebate entitlement on assessment for 1993-94 [(a)-(b)]: $ 98