House of Representatives

Explanatory Memorandum

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

General Outline

Income Tax Rates Bill 1986

This Bill will:

•

declare the rates of tax payable by individuals, and by trustees generally, for the 1986-87 financial year and for the 1987-88 and subsequent financial years to give effect to the September 1985 Taxation Reform announcement, as modified by the 1986-87 Budget, to reform the personal income tax rate scale in the following two stages -

with effect from 1 December 1986, by -

• .

increasing the tax-free threshold from $4,595 to $5,100;

• .

increasing the first rate step from $12,500 to $12,600;

• .

reducing the rate in the income range to $12,600 (previously $12,500) from 25 per cent to 24 per cent;

• .

reducing the rate in the income range $12,601 (previously $12,501) to $19,500 from 30 per cent to 29 per cent;

• .

reducing the rate in the income range $19,501 to $28,000 from 46 per cent to 43 per cent;

• .

reducing the rate in the income range $28,001 to $35,000 from 48 per cent to 46 per cent; and

• .

reducing the rate on income over $35,000 from 60 per cent to 55 per cent; and

with effect from 1 July 1987, by -

• .

reducing the 43 per cent and 46 per cent rates to 40 per cent; and

• .

reducing the 55 per cent rate to 49 per cent;

•

declare new rates of tax payable by individuals, and by trustees, on the unearned income of minors above $35,000 for 1986-87, and on all unearned income of minors for 1987-88 and subsequent years (subject to shading-in arrangements);

•

give effect to the September 1985 Tax Reform announcement to allow the tax-free threshold only on a pro-rata basis to certain taxpayers; and

•

declare the rates of tax payable for the 1986-87 financial year by companies and registered organisations and by trustees of prescribed unit trusts, superannuation funds and certain other trusts.

Income Tax Bill 1986

This Bill will -

•

formally impose tax payable for the 1986-87 financial year by individuals, and by trustees generally, at the rates to be declared by the Income Tax Rates Act 1986;

•

formally impose tax payable for the 1986-87 financial year by companies and registered organisations, and by trustees of prescribed unit trusts, superannuation funds and certain other trusts, at the rates to be declared by the Income Tax Rates Act 1986;

•

formally impose provisional tax for the 1986-87 year of income; and

•

authorise the collection of instalments of tax payable by companies and prescribed unit trusts on income of the 1986-87 year of income.

Taxation Laws (Miscellaneous Provisions) Bill 1986

This Bill will amend various Acts to make a number of changes to rates of tax and rebates of tax mainly as a consequence of the changes proposed to the personal rates of tax by the Income Tax Rates Bill 1986. In particular, the Bill will amend -

•

the Income Tax Assessment Act 1936

• .

to reduce the rate at which rebates of tax are available for net medical expenses in excess of $1,000, payments of home loan interest by a first home buyer and the assessable proceeds of certain short-term life assurance policies;

• .

to increase the income level at which the existing pensioner rebate begins to shade-out;

• .

to increase from $220 to $280 for married taxpayers including de facto marrieds and from $170 to $190 for other taxpayers the existing rebates of tax (and the income levels above which they shade-out) available for taxpayers wholly or mainly dependent on social security unemployment, sickness or special benefits; and to extend the rebates to recipients of certain educational allowances;

• .

to adjust the rebate provisions that effectively limit the rate of tax payable on certain employment termination payments to account for the operation of the new personal income tax rate scale;

• .

to reduce the rate of withholding tax on payments made by mining companies to Aboriginal councils; and

• .

to make a technical amendment to the provisions relating to instalments of company tax consequential upon a change in format of the Bills declaring and imposing the rates of tax payable by companies.

•

the Income Tax (Bearer Debentures) Act 1971

• .

to reduce the basic rate of tax payable under section 126 of the Income Tax Assessment Act on interest paid or credited on or after 1 December 1986 by a company on bearer debentures, where the names and addresses of the holders of the debentures are not furnished to the Commissioner of Taxation.

•

the Income Tax (Mining Withholding Tax) Act 1979

• .

to reduce the rate of tax imposed on mining payments made to Aboriginal councils on or after 1 December 1986.

•

the Trust Recoupment Tax Act 1985 and

•

the Trust Recoupment Tax Assessment Act 1985

• .

to reduce the rate of tax payable on a primary taxable amount or a secondary taxable amount.

•

the Income Tax (Rates) Act 1982

• .

to ensure that the rates of tax declared by that Act for individuals and trustees generally for the 1985-86 and subsequent financial years will not apply after the 1985-86 financial year.

Medicare Levy Bill 1986

This Bill will -

•

declare and impose the basic rate of Medicare levy of 1.145 per cent for 1986-87 and, until the Parliament otherwise provides, of 1.25 per cent for 1987-88 (1986-87 Budget announcement);

•

exempt from the levy individuals with taxable incomes of $8,030 or less and families and sole parents with family incomes of $13,370 or less; the family or sole parent threshold to be raised by a further $1,660 for each dependent child or student (1986-87 Budget announcement); and

•

reduce the levy otherwise payable by veterans, war widows, Defence Force personnel, holders on a non-income tested basis of pensioner health benefits cards, health benefit cards and health care cards, and other "prescribed persons" who are exempt from the levy for part of a year, or who are required to pay the levy because they have dependants eligible for Medicare benefits.