SENATE

Explanatory Memorandum

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

Chapter 3 Medical expenses rebate

Overview

3.1 The amendments in Part 3 of Schedule 1 of the Bill will amend the Income Tax Assessment Act 1936 (the Act) to raise the threshold above which the medical expenses rebate will apply.

Summary of the amendments

Purpose of the amendments

3.2 The proposed amendments will:

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for the 1996-97 income year, raise the threshold above which the medical expenses rebate will apply from the existing level of $1,000 to $1,430; and

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for subsequent income years, raise the threshold to $1,500.

Date of effect

3.3 The raising of the threshold to $1,430 will apply to assessments in respect of the 1996-97 year of income.

3.4 The raising of the threshold to $1,500 will apply to assessments in respect of the 1997-98 and subsequent years of income.

Background to the legislation

3.5 The medical expenses rebate was introduced effective for the 1985-86 income year to replace a concessional expenditure rebate for medical expenses. Originally the rebate was calculated at the rate of 30 cents for each dollar of medical expenses in excess of $1,000. Between its introduction and the 1991-92 income year, this rate was progressively decreased to 20 cents.

3.6 Section 159P of the Actprovides for a rebate to a taxpayer whose medical expenses, net of Medicare and private health fund reimbursement, exceed $1,000 during the year of income. To qualify for the rebate the expenses must be paid by a resident taxpayer in respect of himself or a resident dependant. The rate of rebate is 20 cents for each dollar of net medical expenses above the threshold of $1,000.

Explanation of the amendments

3.7 In the 1996-97 Budget, the Government announced an increase in the medical expenses threshold from $1,000 to $1,500, with effect from the date of announcement.

3.8 For the income year 1996-97, on a pro rata basis, the threshold will therefore be $1,430. Item 10 amends paragraph 159P(3A)(b) of the Act to effect the change. This amendment applies to assessments in respect of income of the 1996-97 year of income [item 12(1)] .

3.9 For 1997-98 and subsequent income years the threshold will be $1,500. Item 11 amends paragraph 159P(3A)(b) to substitute the $1500 threshold for the pro rata rate applicable for the 1996-97 income year. This amendment applies to assessments in respect of income of the 1997-98 and all subsequent income years [item 12(2)] .