House of Representatives

Explanatory Memorandum

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

MAIN FEATURES

The Bill will amend the following Acts:

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Income Tax Rates Act 1986;

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Fringe Benefits Tax Act 1986;

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Income Tax (Bearer Debentures) Act 1971;

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Trust Recoupment Tax Act 1985;

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Trust Recoupment Tax Assessment Act 1985;

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Income Tax Assessment Act 1936.

Rates of tax (Clauses 3 and 7, and Schedule)

By amending the Income Tax Rates Act 1986, the Bill will give effect to the proposal announced in the 12 April 1989 Economic Statement to reform the personal income tax rate scale. With effect from 1 July 1989 the Bill will -

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increase the top of the first rate step from $12,600 to $17,650, and introduce a new marginal rate of 21 per cent to apply in the income range of $5,101 to $17,650;

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increase the second rate step from $19,500 to $20,600, so that the existing 29 per cent marginal rate applies in the new income range $17,651 to $20,600;

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reduce the 40 per cent marginal rate to 39 per cent, to apply in the income range $20,601 to $35,000; and

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introduce a new rate of 47 per cent, to apply in the income range $35,001 to $50,000.

To give effect to the reduction - from 49 per cent to 47 per cent - in the maximum personal marginal rate that is to apply from 1 January 1990 to income in the range over $50,000, the Bill will declare a composite rate of 48 per cent to apply on assessment in respect of that income for the 1989-90 year of income, and a rate of 47 per cent for subsequent years of income.

Consequential on the changes to be made to the personal income tax rate scale, this Bill will also amend the Income Tax Rates Act 1986 to -

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apply the 29 per cent rate of tax on the first $20,600 of taxable income of a non-resident individual, and apply to taxable incomes of non-residents exceeding $20,600 the proposed new rate scale for residents, as applicable ;

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reduce the rate of further tax on uncontrolled partnership income assessed under section 94 of the Income Tax Assessment Act 1936 ("the Assessment Act") from 49 per cent to 48 per cent for 1989-90 and to 47 per cent for subsequent income years;

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reduce the rate of tax on income assessed to a trustee under section 99A of the Assessment Act from 49 per cent to 48 per cent for 1989-90 and to 47 per cent for subsequent income years; and

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reduce the rate of tax on the unearned income of minors subject to the provisions of Division 6AA of Part III of the Assessment Act from 49 per cent to 48 per cent for 1989-90 and to 47 per cent for subsequent income years, subject to shading-in arrangements on relevant income above $416.

Fringe Benefits Tax (Clauses 3 and 4, and Schedule)

The rate of tax that is to apply to employers liable to pay fringe benefits tax is to be reduced from 49 per cent to 47 per cent, for the year of tax that commences on 1 April 1990 and for each subsequent year.

Bearer debenture interest (Clause 3 and 6, and Schedule)

The rate of tax payable under section 126 of the Income Tax Assessment Act 1936 on interest paid by a company on bearer debentures, where the names and addresses of the holders are not furnished to the Commissioner of Taxation, is equivalent to the maximum rate in the personal rate scale, 49 per cent. In line with the reduction of that rate from 1 January 1990, the rate of tax payable under section 126 for interest paid or credited on or after that date is to be 47 per cent.

Trust Recoupment Tax (Clauses 3, 8 and 9, and Schedule)

Changes are also to be made to the Trust Recoupment Tax Act 1985 to apply a rate of 48 per cent on a primary or secondary taxable amount for 1989-90 and a rate of 47 per cent for subsequent income years. These changes are also in line with the reduction in the maximum personal marginal rate, and the rate to apply to income assessed to a trustee under section 99A of the Income Tax Assessment Act 1936. An amendment of the Trust Recoupment Tax Assessment Act 1985 will substitute new multipliers for the multiplier in subsection 6(3) of that Act which is used for calculating a secondary taxable amount. The new multipliers, for 1989-90 and for subsequent years respectively, reflect the rates of trust recoupment tax that will be payable in the relevant years on primary taxable amounts.

Concessional Rebates (Clauses 3 and 5, and Schedule)

The amendments proposed to the Income Tax Assessment Act 1936 will increase the levels of the rebates of tax available to taxpayers in respect of certain dependants for the 1989-90 and subsequent income years as follows:

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(As at present, the level of the rebates are increased by a further $200 where there is a dependent child or student in respect of whom a rebate of tax would have been allowable to the taxpayer but for the operation of subsection 159J(1A) of the Assessment Act.)

The Bill also proposes that the new levels of concessional rebates be indexed for the 1990-91 and subsequent income years in line with movements in the All Groups Consumer Price Index number.

Reduction of amount of instalment of provisional tax (Clauses 3 and 5, and Schedule)

The Bill will give effect to the proposal announced in the 12 April 1989 Economic Statement to modify the Quarterly Provisional Tax (QPT) System to authorise the Commissioner of Taxation, in certain circumstances, to reduce an amount otherwise payable as an instalment of provisional tax.

For this provision to apply, the Commissioner must be satisfied that taxation laws that have been or will be enacted will have the effect of reducing a taxpayer's liability to pay income tax in respect of a year of income.