Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello MP)Chapter 1 - Medicare levy and Medicare levy surcharge low income thresholds
Outline of chapter
1.1 This Bill amends the Medicare Levy Act 1986 (MLA 1986) and the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 to increase the Medicare levy low income threshold amounts (threshold amounts) for individuals, families and pensioners below age pension age. It also increases the phase-in limits as a result of the increased threshold amounts.
Context of amendments
Medicare levy low income thresholds
1.2 The MLA 1986 provides that no Medicare levy is payable for low income individuals and families where taxable income or combined family taxable income does not exceed stated threshold amounts. The family income threshold increases by a set amount per child. The Medicare levy shades in at a rate of 20 cents in the dollar where the taxable income or combined family taxable income exceeds the threshold amounts.
Medicare levy surcharge low income threshold
1.3 A Medicare levy surcharge (the surcharge) of one per cent applies on taxable income in certain cases where taxpayers do not have private patient hospital cover (sections 8B to 8G of the MLA 1986). The surcharge of one per cent also applies to reportable fringe benefits in certain cases where taxpayers do not have private patient hospital cover (sections 12 to 16 of the A New Tax System (Medicare Levy Surcharge-Fringe Benefits) Act 1999 ). However, a family member who would otherwise be liable for the surcharge is not required to pay the surcharge where the total of that person's taxable income and reportable fringe benefits do not exceed the individual low income threshold amount. Unlike the Medicare levy, there is no shading-in of the surcharge above the threshold amount.
Summary of new law
1.4 This measure amends:
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- subsections 3(1) and 8(5) to (7) of the MLA 1986 to raise the threshold amounts and phase-in limits for individuals, families and pensioners who are under age pension age
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- paragraphs 8D(3)(c) and 8G(2)(c) and subparagraphs 8D(4)(a)(ii) and 8G(3)(a)(ii) of the MLA 1986 to raise the threshold below which a family member is not required to pay the surcharge on taxable income
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- paragraphs 15(1)(c) and 16(2)(c) of the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 to raise the threshold below which a family member is not required to pay the surcharge on reportable fringe benefits.
Detailed explanation of new law
Medicare levy low income thresholds
1.5 This Bill proposes to increase the low income thresholds for individuals and families for the 2004-05 year of income and subsequent years of income. The increases are in line with movements in the consumer price index (CPI).
1.6 Section 7 of the MLA 1986 states that no levy is payable where a taxpayer has a taxable income at or below the applicable threshold amount as specified in subsection 3(1).
1.7 The individual threshold amount specified in paragraph (c) of the definition of the 'threshold amount' in subsection 3(1) of the MLA 1986 is to be increased from $15,529 to $15,902. [Schedule 1, item 5]
1.8 The level of the 'family income threshold' referred to in subsections 8(5) to (7) of the MLA 1986 is to be increased from $26,205 to $26,834 [Schedule 1, items 6 and 8]. The family income threshold is to be increased by a further $2,464 instead of the previous figure of $2,406 for each dependent child or student [Schedule 1, item 7].
1.9 This Bill also proposes to increase the threshold amount for pensioners below age pension age for the 2004-05 year of income and subsequent years of income. The increase ensures that such pensioners do not have a Medicare levy liability where they face no income tax liability.
1.10 The threshold amount for pensioners who are under age pension age specified in paragraph (b) of the definition of the 'threshold amount' in subsection 3(1) of the MLA 1986 is to be increased from $18,141 to $19,252. [Schedule 1, item 4]
1.11 Section 7 of the MLA 1986 also provides that the Medicare levy applies at a reduced rate to taxpayers with taxable incomes above the threshold amount but not more than the phase-in limit specified in subsection 3(1). The rate of the Medicare levy payable in these circumstances is limited to 20 per cent of the excess over the threshold amount that is relevant to the particular person.
1.12 The phase-in limit for individuals contained in paragraph (c) of the definition of 'phase-in limit' in subsection 3(1) of the MLA 1986 is increased from $16,788 to $17,191. [Schedule 1, item 3]
1.13 The phase-in limit for pensioners who are under age pension age specified in paragraph (b) of the definition of 'phase-in limit' in subsection 3(1) of the MLA 1986 is increased from $19,611 to $20,812. [Schedule 1, item 2]
1.14 There is no phase-in limit stated in the MLA 1986 for families as the figure changes with the number of dependants. Instead, subsection 8(2) of the MLA 1986 contains a formula that limits the levy payable by persons with families to 20 per cent of the amount of family income that exceeds their family income threshold. This range is increased for dependants as indicated in Table 1.1.
1.15 The increased threshold amounts and phase-in ranges for the 2004-05 year of income and subsequent years of income are as shown in Table 1.1.
| Category of taxpayer | No levy payable if taxable income or family income does not exceed (figure for 2003-04) | Reduced levy if taxable income or family income is within range (inclusive) | Ordinary rate of levy payable where taxable income or family income exceeds (figure for 2003-04) |
|---|---|---|---|
| Individual taxpayer | $15,902 ($15,529) | $15,903-$17,191 | $17,191 ($16,788) |
| Pensioner under age pension age | $19,252 ($18,141) | $19,253-$20,812 | $20,812 ($19,611) |
| Families [F1] with the following children and/or students | (family income) | (family income) | (family income) |
| 0 | $26,834 ($26,205) | $26,835-$29,009 | $29,009 ($28,329) |
| 1 | $29,298 ($28,611) | $29,299-$31,673 | $31,673 ($30,930) |
| 2 | $31,762 ($31,017) | $31,763-$34,337 | $34,337 ($33,531) |
| 3 | $34,226 ($33,423) | $34,227-$37,001 | $37,001 ($36,132) |
| 4 | $36,690 ($35,829) | $36,691-$39,664 | $39,664 ($38,734) |
| 5 | $39,154 ($38,235) | $39,155-$42,328 | $42,328 ($41,335) |
| 6 | $41,618 [F2] ($40,641) | $41,619 [F3] -$44,992 [F4] | $44,992 [F5] ($43,936) |
Medicare levy surcharge low income threshold
1.16 References to the individual low income threshold amount of $15,529 in the Medicare levy surcharge provisions (in sections 8D and 8G of the MLA 1986) in respect of surcharge on taxable income are also being increased to $15,902. [Schedule 1, items 9 to 12]
1.17 References to the individual low income threshold amount of $15,529 in the Medicare levy surcharge provisions (in sections 15 and 16 of the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 ) in respect of surcharge on reportable fringe benefits are also being increased to $15,902. [Schedule 1, item 1]
Application and transitional provisions
1.18 The amendments are to apply for the 2004-05 year of income and later years of income. [Schedule 1, item 13]
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