House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Taxation Laws Amendment (Changes for Senior Australians) Bill 2001

This Bill amends the Income Tax Assessment Act 1936 to enable the rebates available for low income aged persons and certain pensioners to be increased by regulation.

The amendments give effect to the Governments announcement in the 2001-2002 Federal Budget to increase the low income aged persons rebate and the pensioner rebate for Australians of age pension age (senior Australians). This measure will enable the following classes of senior Australians to earn up to the following amounts of income without having any liability to income tax:

This Bill also amends the Medicare Levy Act 1986 to ensure that these senior Australians, who will not be subject to income tax up to these levels, will also not be subject to the Medicare levy liability on that income.

This Bill also increases the Medicare levy low income threshold for pensioners who are under the age pension age to ensure that they also do not have a Medicare levy liability when they have no income tax liability. When combined with the recent increases in the maximum pensioner rebate, this means that pensioners under age pension age can earn income without paying income tax or incurring a Medicare levy liability.

Aligning the Medicare levy low income thresholds with the increased tax-free thresholds, for senior Australians and pensioners under the age pension age, will ensure that where those persons do not have a tax liability due to the operation of the rebates, they will not be required to pay any Medicare levy either.

Finally, this Bill amends the Income Tax Assessment Act 1997 to ensure payments made by the Commonwealth and known as the one-off payment to the aged are exempt from income tax.

Date of effect: The amendments will apply to assessments for the 2000-2001 and later years of income.

Proposal announced: The changes were announced as part of the Governments 2001-2002 Federal Budget.

Financial impact: The cost to revenue is expected to be as follows:

Compliance cost impact: While annual changes to the rebates and Medicare levy thresholds are customary, there will be some costs in individuals and their advisers acquainting themselves with the measures announced in the 2001-2002 Federal Budget. There will also be cost in updating computer systems to cater for the new arrangements. It has not been possible to quantify these costs. To the extent that some individuals will now no longer need to lodge a tax return compliance costs will fall.

Summary of benefits

Levels of tax-free income

Note:

For senior Australians the Medicare levy does not become payable until taxable income exceeds $20,000.

For recipients of Commonwealth government payments, who are below age pension age, the Medicare levy does not become payable until taxable income exceeds $15,970.

For all other Australians the Medicare levy does not become payable until taxable income exceeds $13,807.