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Medicare Levy Amendment (Defence—East Timor Levy) Bill 2000

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1998-1999-2000

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

MEDICARE LEVY AMENDMENT (DEFENCE - EAST TIMOR LEVY) BILL 2000

 

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

(Circulated by authority of the

Treasurer, the Hon Peter Costello, MP)

 



T able of contents

General outline and financial impact.............................................. 1

Chapter 1    Defence - East Timor levy......................................... 3



 

This Bill amends the Medicare Levy Act 1986 and the Income Tax Assessment Act 1936 to introduce a temporary levy with the purpose of partially offsetting Australia’s defence costs in East Timor. The levy will be imposed only upon higher income earners at the progressive rates of 0.5% and 1% of taxable income.

Date of effect :  The Defence - East Timor levy will apply to the 2000-2001 year of income only.

Proposal announced :  The proposal was announced in Treasurer’s Press Release No. 78 of 23 November 1999.

Financial impact :  The measure will result in a gain to the revenue in the order of $900 million in the 2000-2001 year of income.

Compliance cost impact :  The imposition of the levy on 1 July 2000 coincides with general income tax reductions under the Government’s Tax Reform Document: Tax Reform: not a new tax, a new tax system . Accordingly, the collection of the levy is expected to impose minimal compliance costs as a result of the 1 July 2000 income tax reductions.  Some additional compliance costs will arise when employers are required to adjust their payroll systems to cease collecting the levy after 30 June 2001.

Summary of Regulation impact statement

The Office of Regulation Review has advised that a Regulation impact statement is not required for these changes.

 



C hapter 1

Defence - East Timor levy

Outline of Chapter

1.1         Schedule 1 to this Bill will amend the Medicare Levy Act 1986 (MLA 1986) and the Income Tax Assessment Act 1936 (ITAA 1936) to impose a temporary levy in order to partially offset Australia’s defence costs in East Timor.

Background to the legislation

1.2         The Defence - East Timor levy is a temporary levy which will apply for the 2000-2001 year of income only. The levy is intended to assist in meeting increased costs arising from the deployment of the Australian Defence Forces (ADF) in East Timor.

1.3         The levy will be imposed as an increase in the Medicare levy and will only be payable by taxpayers with higher levels of taxable income. Accordingly, the levy will only apply to those persons who are likely to have a greater capacity to contribute to Australia’s defence costs.

1.4         The levy will be imposed on a person’s taxable income only and will not be imposed upon reportable fringe benefits.

1.5         Generally, ADF members are not required to pay the Medicare levy because they are entitled to free medical treatment. However, the Defence - East Timor levy will apply to these members in the same way as other taxpayers. This ensures that all members of the community with the capacity to contribute to offset the costs of Australia’s involvement in East Timor make a contribution.

Summary of new law

1.6         The Defence - East Timor levy will apply to the taxable income of resident individuals and certain income assessed to trustees for the     2000-2001 year of income only.

1.7         In general terms, the levy will commence to be payable at the rate of 0.5% where taxpayers have taxable income above $50,000, increasing to 1% where taxpayers have taxable income above $100,000. The 0.5% levy will shade-in from $50,001 to $51,282 (inclusive). The 1% levy will shade-in from $100,001 to $102,564 (inclusive).

1.8         The levy will also apply to ADF members where their taxable income exceeds $50,000.

Comparison of key features of new law and current law

1.9         This Bill will introduce an additional amount of levy which will apply to higher income individuals at 2 different rates depending upon the level of their taxable income. Medicare levy applies at one standard rate to taxable income greater than the Medicare levy low income thresholds.

1.10       Medicare levy is imposed on all individual resident taxpayers except low income earners and certain exempt taxpayers. The Defence - East Timor levy will apply generally to higher income earners who are liable for the Medicare levy. However, ADF members who are exempt or partially exempt from the Medicare levy will potentially be required to pay the Defence - East Timor levy.

1.11       The Defence - East Timor levy will, like the Medicare levy, be based on the taxable income of individuals.

1.12       The Defence - East Timor levy will apply to certain income of trustees of trust estates similar to the operation of the Medicare levy.

Detailed explanation of new law

1.13       Diagram 1.1 summarises the operation of this Bill.





Rate of levy

1.14       The Defence - East Timor levy will generally apply to the taxable income of individuals and trustees of certain trust estates (see paragraph 1.19) at 2 progressive rates with a shade-in of the levy in accordance with Table 1.1. [New subsections 8H(1) and 8H(4)]

Table 1.1

Defence - East Timor levy payable for the 2000-2001 year of income

Taxable income

Additional Defence - East Timor levy

Below $50,001

Nil

$50,001 to $51,282 (inclusive)

20% ´ (taxable income - $50,000)

$51,283 to $100,000 (inclusive)

0.5% ´ taxable income

$100,001 to $102,564 (inclusive)

(0.5% ´ taxable income) +

(20% ´ [taxable income - $100,000]

Greater than $102,564

1% ´ taxable income

1.15       There are 2 rates of Defence - East Timor levy that will apply:

·       a 0.5% rate for taxable income greater than $50,000 but less than $100,001; and

·       a 1% rate for taxable income greater than $100,000.

1.16       Shading-in provisions are included similar to the Medicare levy so that taxpayers do not pay the full rate of levy on the whole of their taxable income immediately their taxable income exceeds the threshold. The shade-in arrangements that will apply are:

·       the 0.5% levy shades-in at 20 cents for each dollar in excess of $50,000 with the full 0.5% levy payable when taxable income exceeds $51,282; and

·       the 1% levy shades-in at 20 cents for each dollar in excess of $100,000 plus 0.5% of taxable income. The full 1% levy is payable where taxable income exceeds $102,564.

Example 1.1

Richard and Sarah are married.  They have no children.  Richard’s taxable income is $101,000 and Sarah’s taxable income is $60,000.

Richard’s Defence - East Timor levy is calculated as follows:

(0.5%  ´   $101,000)  +  (20%  ´   [$101,000 - $100,000])  = $705

Sarah’s Defence - East Timor levy is calculated as follows:

0.5% ´ $60,000 = $300

The Defence - East Timor levy that applies is in addition to the basic amount of Medicare levy that is payable.

Exemptions from the Defence - East Timor levy

1.17       Taxpayers who are prescribed persons for the whole of the   2000-2001 year of income and are therefore exempt from the Medicare levy (provided they are not ADF members, see paragraph 1.22) will be exempt from the Defence - East Timor levy (subsection 251T(1) of the ITAA 1936). Where a taxpayer is only a prescribed person (see subsection 251U(1) of the ITAA 1936) for part of the year of income, subsection 9(1) of the MLA 1986 will apply to reduce the amount of Defence - East Timor levy payable as follows:

Defence - East Timor levy payable equals:

levy payable if not a prescribed person     ´    period of days not a prescribed person

                                                       number of days in income year

1.18       Prescribed persons include, for example:

·       persons entitled to full free medical treatment under repatriation arrangements;

·       non-residents;

·       blind pensioners; and

·       sickness allowance recipients

(subsection 251U(1) of the ITAA 1936).

Trustees

1.19       Trustees who are liable to be assessed on a share of the net income of a trust estate:

·       to which a beneficiary is presently entitled but which is assessable to the trustee under section 98 of the ITAA 1936; or

·       to which no beneficiary is presently entitled and which is assessable to the trustee under section 99 of the ITAA 1936 or section 99A of the ITAA 1936,

will potentially be liable for the Defence - East Timor levy. [New subsection 8H(4)]

1.20      If, for the 2000-2001 year of income, a trustee is assessed on the net income of a trust estate:

·       to which a beneficiary is presently entitled but which is assessable to the trustee under section 98 of the ITAA 1936; and

·       to which no beneficiary is presently entitled and which is assessable to the trustee under section 99 of the ITAA 1936 or section 99A of the ITAA 1936,

then the thresholds to determine liability to the Defence - East Timor levy apply separately to each amount assessed under section 98, 99 or 99A of the ITAA 1936. [New subsection 8H(5)]

Members of the ADF

1.21       ADF members are exempt from the Medicare levy where they are entitled to full free medical treatment (see paragraph 251U(1)(a) of the ITAA 1936). Alternatively, a half rate of Medicare levy applies if any dependants of the ADF member are not entitled to full free medical treatment (see subsection 251U(3) of the ITAA 1936).

1.22       ADF members who are exempt or subject to a half Medicare levy solely because they are entitled to full free medical treatment will also be liable to pay the levy where their taxable income exceeds $50,000. [New subsection 9(2) of the MLA 1986 and new subsections 251T(2), (3) and (4) of the ITAA 1936]

1.23       To make it clear that ADF members with dependants, who are all prescribed persons, are liable to the Defence - East Timor levy, new subsection 8H(6) provides that the Defence - East Timor levy will apply to such ADF members. This is despite the fact that the basic rate of levy under subsection 6(1) of the MLA 1986 is not imposed on those ADF members.

Half levy cases

1.24       If a taxpayer is a prescribed person (other than an ADF member) but any of his or her dependants are not, then the Defence - East Timor levy will apply at half its normal rate (subsections 251U(2) and (3) of the ITAA 1936).

Exemption from Defence - East Timor levy where no Medicare levy or reduced Medicare levy applies

1.25       Taxpayers who are liable for the Medicare levy will be required to pay the Defence - East Timor levy, if their taxable income exceeds $50,000. However, there is a limited exception for taxpayers who do not pay the full rate of Medicare levy because of their Medicare levy family threshold.

1.26       The exception applies so that taxpayers will not be required to pay the Defence-East Timor levy until their family income exceeds the maximum level of family income where the taxpayer benefits from a reduction of Medicare levy [new subsection 8H(2)] . That level of family income is referred to as the Defence-East Timor levy threshold (DETLT) [new subsection 8H(3)] . DETLT is equivalent to the upper limit of family income where Medicare levy is reduced.

1.27       The DETLT is calculated by dividing the person’s family income threshold for Medicare levy purposes (see subsection 8(5) MLA 1986) by 0.925 [new paragraph 8H(3)(a)] . Where the result of this calculation includes cents the result will be rounded down to the nearest dollar [new paragraph 8H(3)(b)] .

1.28       The exemption will ensure that persons will not be liable for any amount of the Defence - East Timor levy unless they are subject to the full rate of Medicare levy. [ New subsection 8H(2)]

Example 1.2

Leon and Jane are married.  They have 13 children.  Leon’s taxable income is $50,060 and Jane’s taxable income is nil.  Therefore their family income is $50,060.

Leon does not pay the Medicare levy because his family income of $50,060 does not exceed the family income threshold of $50,165.

Leon is not required to pay the Defence - East Timor levy in these circumstances because he is not liable to pay the Medicare levy.

Note: the family income thresholds used in these examples are those for the 1999-2000 year of income as the thresholds for the 2000-2001 year of income are not yet known. In calculating the exemption from the Defence - East Timor levy the family income thresholds for the 2000-2001 year of income will apply.

Beneficiaries and reduction or exemption from Defence - East Timor levy

1.29       A trustee that is assessable under section 98 of the ITAA 1936 on a share of the net income of a trust estate to which a beneficiary is presently entitled may be entitled to an exemption from the Defence - East Timor levy on the basis of the DETLT applying to the beneficiary. [New subsection 8H(7)]

Application provisions

1.30       The amendments will apply in determining liability for the Defence - East Timor levy for the 2000-2001 year of income only. [Item 3 of Schedule 1]

1.31       The Defence - East Timor levy will only apply for one year of income. Accordingly, Schedule 2 to this Bill repeals the amendments made to the MLA 1986 and ITAA 1936 effective for the financial year commencing on 1 July 2001 and later financial years. [Items 1-5 of Schedule 2]