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Fairer Private Health Insurance Incentives Bill 2009

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2008-2009

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

HOUSE OF REPRESENTATIVES

 

 

FAIRER PRIVATE HEALTH INSURANCE INCENTIVES BILL 2009

FAIRER PRIVATE HEALTH INSURANCE INCENTIVES (MEDICARE LEVY SURCHARGE) BILL 2009

FAIRER PRIVATE HEALTH INSURANCE INCENTIVES (MEDICARE LEVY SURCHARGE - FRINGE BENEFITS) BILL 2009

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by the authority of the

Treasurer, the Hon Wayne Swan MP, and the Minister for Health and Ageing, the Hon Nicola Roxon MP)

 



Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 3

Chapter 1            Introduction of Private Health Insurance Incentive Tiers... 5

 

Do not remove section break.



The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

ANTS (MLS) Act 1999

A New Tax System (Medicare Levy Surcharge — Fringe Benefits) Act 1999

Commissioner

Commissioner of Taxation

ITAA 1936

Income Tax Assessment Act 1936

ITAA 1997

Income Tax Assessment Act 1997

MLA 1986

Medicare Levy Act 1986

PHIA 2007

Private Health Insurance Act 2007

TAA 1953

Taxation Administration Act 1953



Introduction of Private Health Insurance Incentives Tiers

Schedule 1 to the Fairer Private Health Insurance Incentives Bill 2009 amends various Acts to give effect to the measure, announced in the 2009-10 Budget, to introduce three new ‘Private Health Insurance Incentive Tiers’.  These changes will ensure that those with a greater capacity to pay make a larger contribution towards the cost of their private health insurance.  It will also ensure that Government support for private health insurance remains fair and sustainable in the future.

Schedule 1 to the Fairer Private Health Insurance Incentives (Medicare Levy Surcharge) Bill 2009 and the Fairer Private Health Insurance Incentives (Medicare Levy Surcharge — Fringe Benefits) Bill 2009 amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge — Fringe Benefits) Act 1999 respectively to give effect to the introduction of the three new Private Health Insurance Tiers.

Date of effect These amendments apply to income years starting on or after 1 July 2010.

Proposal announced This measure was announced in the Treasurer’s joint media release with the Minister for Health and Ageing No. 048 of 12 May 2009 ‘Rebalancing Support for Private Health Insurance’.

Financial impact This measure will have these revenue implications:

2008-09

2009-10

2010-11

2011-12

2012-13

-$1.0m

-$124.6m

$695.4m

$650.2m

$680.8m

Compliance cost impact :  This measure is expected to result in a medium overall compliance cost impact, comprising medium implementation impact and a low increase in ongoing compliance costs relative to the affected group.

 



C hapter 1     

Introduction of Private Health Insurance Incentive Tiers

Outline of chapter

1.1                   These Bills amend various Acts to implement three new Private Health Insurance Incentive Tiers.

•        Tier 1:  singles with income for surcharge purposes of more than $75,000 per annum and couples/families with income for surcharge purposes of more than $150,000 per annum (based on current projections) and who hold a complying private health insurance policy, will have their private health insurance rebate reduced by 10 percentage points.  The Medicare levy surcharge will remain at 1 per cent for those singles and couples/families that do not hold appropriate private health insurance.

•        Tier 2:  singles with income for surcharge purposes of more than $90,000 per annum and couples/families with income for surcharge purposes of more than $180,000 per annum and who hold a complying private health insurance policy, will have their private health insurance rebate reduced by 20 percentage points.  The Medicare levy surcharge will be increased by 0.25 percentage points for those singles and couples/families that do not hold appropriate private health insurance.

•        Tier 3:  singles with income for surcharge purposes of more than $120,000 per annum and couples/families with income for surcharge purposes of more than $240,000 per annum and who hold a complying private health insurance policy, will no longer receive any private health insurance rebate.  The Medicare levy surcharge will be increased by 0.5 percentage points for those singles and couples/families that do not hold appropriate private health insurance.

1.2                   Existing private health insurance rebate arrangements will remain unchanged for singles with income for surcharge purposes of less than $75,000 per annum and couples/families with a combined income for surcharge purposes of less than $150,000 per annum (based on current projections of the Medicare levy surcharge thresholds) and who hold a complying health insurance policy.  Singles and couples/families with a combined income for surcharge purposes below these thresholds will continue to not be liable for the Medicare levy surcharge if they do not hold complying health insurance.

Context of amendments

Private health insurance rebate

1.3                   The private health insurance rebate provides a reduction in the cost of private health insurance premiums for people who are eligible for Medicare and who are members of a registered health insurer.

1.4                   The amount of private health insurance rebate to which a person is entitled for an income year varies according to the age of the oldest person covered by the policy:

•        when the oldest person covered by the policy is aged less than 65 years, a taxpayer is entitled to a rebate equal to 30 per cent of the amount of premium;

•        when the oldest person covered by the policy is aged 65 years or over but less than 70 years, a taxpayer is entitled to a rebate equal to 35 per cent of the amount of the premium; and

•        when the oldest person covered by the policy is aged 70 years or over, a taxpayer is entitled to a rebate equal to 40 per cent of the amount of the premium.

1.5                   The private health insurance rebate can be claimed in relation to a complying health insurance policy offered by a registered health insurer that provides hospital cover, general treatment cover (‘ancillary’ or ‘extras’) or both (combined).

Medicare levy surcharge

1.6                   The Medicare levy surcharge imposes a 1 per cent increase in Medicare levy liability on certain taxpayers.

1.7                   A person with taxable income and reportable fringe benefits above the relevant Medicare levy surcharge threshold and who does not have complying health insurance covering themself and all of their dependents is liable for the Medicare levy surcharge.

1.8                   A complying health insurance policy is defined as one that covers hospital treatment and for which any excess payable in respect of benefits under the policy is no more than $500 in any 12 month period when one person is insured ($1,000 in any 12-month period for any other policy).

1.9                   From 1 July 2009, the income test used to determine a person’s liability for the Medicare levy surcharge will be expanded to include: taxable income, reportable fringe benefits, reportable superannuation contributions and total net investment losses.

1.10               In 2008-09, the Medicare levy surcharge threshold for individuals is $70,000 and for couples/families is $140,000 (increased by $1,500 for each dependent child after the first).

1.11               In future years, these thresholds will be indexed to average weekly ordinary time earnings and increased in $1,000 increments (rounding down).

Summary of new law

1.12               These Bills reduce the amount of private health insurance rebate an eligible taxpayer with a complying private health insurance policy is entitled to when they have income for surcharge purposes above the relevant Medicare levy surcharge threshold.

•        Singles earning between $75,001 and $90,000 and couples/families earning between $150,001 and $180,000 will receive a 20 per cent private health insurance rebate if they are aged up to 65 years (25 per cent if they are aged over 65, and 30 per cent if they are aged 70 years or over).

•        Singles earning between $90,001 and $120,000 and couples/families earning between $180,001 and $240,000 will receive a 10 per cent private health insurance rebate if they are aged up to 65 years (25 per cent if they are aged over 65, and 30 per cent if they are aged 70 years or over).

•        Singles earning above $120,000 and couples/families earning above $240,000 will not receive any private health insurance rebate, regardless of age.

1.13               For families with more than one dependent child, the relevant threshold is increased by $1,500 for each child after the first.

1.14               In future years, the singles thresholds will be indexed to average weekly ordinary time earnings and increased in $1,000 increments (rounding down).  The couples/family threshold will be double the relevant singles threshold.

1.15               These Bills also increase the rate of Medicare levy surcharge that certain taxpayers are liable for when they have income for surcharge purposes above specified thresholds and do not have complying health insurance.

•        Singles earning between $90,001 and $120,000 and couples/families earning between $180,001 and $240,000 will be liable for a 1.25 per cent Medicare levy surcharge.

•        Singles earning above $120,000 and couples/families earning above $240,000 will be liable for a 1.5 per cent Medicare levy surcharge.

1.16               For families with more than one dependent child, the relevant threshold is increased by $1,500 for each child after the first.

1.17               In future years, the singles thresholds will be indexed to average weekly ordinary time earnings and increased in $1,000 increments (rounding down).  The couples/family threshold will be double the relevant singles threshold.

Comparison of key features of new law and current law

Table 1.1 :  Private health insurance rebate

New law

Current law

Single taxpayers with income for surcharge purposes between $75,001 and $90,000 will be eligible for a 20 per cent private health insurance rebate if they are aged up to 65 years, 25 per cent if they are aged 65 to 70 years, and 30 per cent if they are aged 70 years or over.

Single taxpayers with income for surcharge purposes between $90,001 and $120,000 will be eligible for a 10 per cent private health insurance rebate if they are aged up to 65 years, 25 per cent if they are aged 65 to 70 years, and 20 per cent if they are aged 70 years or over.

Single taxpayers with income for surcharge purposes above $120,000 will not be eligible for any private health insurance rebate.

In future years, all of these thresholds will be indexed to average weekly ordinary time earnings and increased in $1,000 increments (rounding down).

Single taxpayers who hold a complying private health insurance policy and who are eligible for Medicare are entitled to a rebate of 30 per cent on the cost of their policy if they are aged up to 65 years, 35 per cent if they are aged 65 to 70 years, and 40 per cent if they are aged 70 years or above.

A taxpayer who is a member of a couple/family with no more than one child and with a combined family income for surcharge purposes of between $150,001 and $180,000 will be eligible for a 20 per cent private health insurance rebate if the oldest person covered by the policy is aged up to 65 years, 25 per cent if the oldest person covered by the policy is aged 65 to 70 years, and 30 per cent if the oldest person covered by the policy is aged 70 years or over.

A taxpayer who is a member of a couple/family with no more than one child and with a combined family income for surcharge purposes of between $180,001 and $240,000 will be eligible for a 10 per cent private health insurance rebate if the oldest person covered by the policy is aged up to 65 years, 15 per cent if the oldest person covered by the policy is aged 65 to 70 years, and 20 per cent if the oldest person covered by the policy is aged 70 years or over.

A taxpayer who is a member of a couple/family with no more than one child and with a combined family income for surcharge purposes above $240,000 will not be eligible for any private health insurance rebate.

If there is more than one dependent child, these thresholds are increased by $1,500 for each child after the first.

In future years, all of these thresholds will be double the relevant singles threshold.

A taxpayer who is a member of a couple/family covered by a complying private health insurance policy and who is eligible for Medicare is entitled to a rebate of 30 per cent on the cost of their policy if the oldest person covered by the policy is aged up to 65 years, 35 per cent if the oldest person is aged 65 to 70 years, and 40 per cent if the oldest person is aged 70 years or above.  A couple/family is entitled to only one rebate per policy.

 

Table 1.2 :  Medicare levy surcharge

New law

Current law

Single taxpayers with income for surcharge purposes between $90,001 and $120,000 and without appropriate private health insurance will be required to pay the Medicare levy surcharge at a rate of 1.25 per cent of taxable income.

Single taxpayers with income for surcharge purposes above $120,000 and without appropriate private health insurance will be required to pay the Medicare levy surcharge at a rate of 1.5 per cent of taxable income.

In future years, all of these thresholds will be indexed to average weekly ordinary time earnings and increased in $1,000 increments (rounding down).

 

Single taxpayers with taxable income plus reportable fringe benefits above the Medicare levy surcharge singles threshold ($70,000 in 2008-09) and who do not have appropriate private health insurance are required to pay the Medicare levy surcharge at a rate of 1 per cent of taxable income.

In future years, the singles threshold will be indexed to average weekly ordinary time earnings and increased in $1,000 increments (rounding down).

From 1 July 2009, the income test used to determine a person’s liability for the Medicare levy surcharge will be expanded to include:  taxable income, reportable fringe benefits, reportable superannuation contributions and total net investment losses.

Each taxpayer who is a member of a family with no more than one child with a combined family income for surcharge purposes between $180,001 and $240,000 and without appropriate private patient hospital insurance will be required to pay the Medicare levy surcharge at a rate of 1.25 per cent of taxable income if each member of the couple/family is not covered by appropriate private health insurance.

Each taxpayer who is a member of a family with no more than one child with a combined family income for surcharge purposes above $240,000 and without appropriate private patient hospital insurance will be required to pay the Medicare levy surcharge at a rate of 1.5 per cent of taxable income if each member of the couple/family is not covered by appropriate private health insurance.

If there is more than one dependent child, these thresholds are increased by $1,500 for each child after the first.

In future years, both of these thresholds will be double the relevant singles threshold.

Each taxpayer who is a member of a couple/family with no more than one child with taxable income plus reportable fringe benefits above the Medicare levy surcharge family threshold ($140,000 in 2008-09) is required to pay the Medicare levy surcharge at a rate of 1 per cent of taxable income if each member of the couple/family is not covered by appropriate private health insurance.

If there is more than one dependant child, the Medicare levy surcharge family threshold increases by $1,500 for each child after the first.

In future years, the family threshold will be double the singles threshold.

From 1 July 2009, the income test used to determine a person’s liability for the Medicare levy surcharge will be expanded to include: taxable income, reportable fringe benefits, reportable superannuation contributions and total net investment

 

Detailed explanation of new law

Amendment to the A New Tax System (Medicare Levy

Surcharge — Fringe Benefits) Act 1999

1.18               The A New Tax System (Medicare Levy Surcharge — Fringe Benefits) Act 1999 (ANTS (MLS) Act 1999) determines whether an individual is liable to pay the Medicare levy surcharge in respect of total reportable fringe benefits they or their spouse may have.

1.19               The test for whether an individual must pay the Medicare levy surcharge depends on whether the individual’s income for surcharge purposes exceeds prescribed income thresholds.

1.20               The Fairer Private Health Insurance Incentives (Medicare Levy Surcharge - Fringe Benefits) Bill inserts definitions for family tier 1 threshold, single tier 1 threshold, tier 2 earner and tier 3 earner [Schedule 1, items 1, 4, 5 and 6] .  No definition for tier 1 earner is required in this Act, as taxpayers that fall in this category are covered by existing provisions in the Act.

1.21               Family tier 1 threshold and single tier 1 threshold have the same meaning as in the Income Tax Assessment Act 1997 (ITAA 1997).

1.22               The meanings of tier 2 earner and tier 3 earner are broadly consistent with the meanings given to them in the ITAA 1997.  In determining which tier a taxpayer is categorised as, however, the references to a dependant child in the ITAA 1997 should instead be read as references to a dependant as defined by the ANTS (MLS) Act 1999, other than a dependant to whom you are married.  This is to reflect the slight differences in the definition of dependants in the ANTS (MLS) Act 1999 relative to the Private Health Insurance Act 2007 ( PHIA 2007).  [Schedule 1, item 7]

1.23               The existing definitions of singles surcharge threshold and family surcharge threshold are repealed.  [Schedule 1, items 2, 3 and 7]

1.24               Consequently, all references to ‘singles surcharge threshold’ are replaced with ‘singles tier 1 threshold’ respectively [Schedule 1, item 8] , and all references to ‘family surcharge threshold’ are replaced with ‘family tier 1 threshold’ [Schedule 1, items 10, 12, 14 and 15] .

1.25               This Bill also inserts provisions to give effect to the increase in the Medicare levy surcharge for a person assessed as a tier 2 or tier 3 earner to 1.25 per cent and 1.5 per cent respectively.  [Schedule 1, items 9, 11, 13 and 16]

Amendment to the Income Tax Assessment Act 1936

1.26               Section 264BB of the Income Tax Assessment Act 1936 (ITAA 1936) lists information the Commissioner of Taxation (Commissioner) may require a private health insurer to provide on persons covered at any time during the financial year by a complying health insurance policy issued by the insurer or on persons who paid premiums under such a policy.

1.27               The Fairer Private Health Insurance Incentives Bill 2009 amends subsection 264BB(2) to expand the list of information the Commission may require to include whether the premium has been reduced under the premiums reduction scheme (section 23-1 of the PHIA 2007), and identify the name, address and date of birth of a participant (as defined in the PHIA 2007) in the premiums reduction scheme.   [Schedule 1, item 1]

Amendment to the Income Tax Assessment Act 1997

Subdivision 61-G — Private health insurance offset

1.28               Subdivision 61-G of the ITAA 1997 allows a taxpayer to claim a tax offset for a premium, or an amount in respect of a premium, paid under a private health insurance policy instead of having the premium reduced under Division 23 of the PHIA 2007 or receiving a payment under Division 26 of the PHIA 2007.

1.29               This Bill inserts sections 61-230 and 61-235 into Subdivision 61-G of the ITAA 1997 which define the new single and family tier 1, tier 2 and tier 3 thresholds.   [Schedule 1, item 10]

1.30               In 2010-11, the single tier 1 threshold will be $75,000 (based on current estimates), the single tier 2 threshold will be $90,000 and the single tier 3 threshold will be $120,000.

1.31               In 2010-11, the family tier 1 threshold will be double the single tier 1 threshold, the family tier 2 threshold will be double the single tier 2 threshold and the family tier 3 threshold will be double the single tier 3 threshold.

1.32               This Bill also inserts section 61-225 which describes the circumstances under which singles or families will be assessed as a tier 1, tier 2 or tier 3 earner.   [Schedule 1, item 10]

1.33               The provisions in section 61-225 ensure that all members of a couple/family will assessed as being on the same tier in determining their eligibility for the private health insurance rebate, even in the circumstance that they have separate private health insurance policies.

1.34               A single taxpayer is assessed as a tier 1 earner if their income exceeds the singles tier 1 threshold and is less than or equal to the singles tier 2 threshold.  Similarly, they are a tier 2 earner if their income exceeds the singles tier 2 threshold and is less than or equal to the singles tier 3 threshold.  Finally, they are a tier 3 earner if their income exceeds the singles tier 3 threshold.

1.35               A single taxpayer is a person who does not have dependants and is not married on the last day of the year.

1.36               Each member of a couple/family is assessed as a tier 1 earner if the combined income of the couple/family exceeds the family tier 1 threshold and is less than or equal to the family tier 2 threshold.  Similarly, they are a tier 2 earner if the combined income of the couple/family exceeds the family tier 2 threshold and is less than or equal to the family tier 3 threshold.  Finally, they are a tier 3 earner if the combined income of the couple/family exceeds the family tier 3 threshold.

1.37               A person may be assessed under the family tier thresholds if:  the person is married (within the meaning of the ANTS (MLS) Act 1999) on the last day of the year; or, on any day in the year, the person contributes in a substantial way to the maintenance of one or more dependent children (within the meaning of the PHIA 2007) who is either their child, or their sibling who is dependent on them for economic support.  The circumstances intended to be covered by this second part of the test could include where there are only dependent children (within the meaning of the PHIA 2007) in a family and one dependent child pays the premiums for the other dependent children.

1.38               ‘Sibling’ in this context is intended to have a broad meaning, namely a brother, sister, half-brother, half-sister, adoptive brother, adoptive sister, stepbrother, stepsister, foster brother or foster sister.  Siblings who are not dependent on you for economic support are not included.  To be dependent on you for economic support, a sibling must look to you for their care and financial wellbeing in a general sense, not merely on particular occasions.  Merely looking after a sibling temporarily (for example, while the sibling’s principal care-giver is away) is not sufficient to constitute dependency.  Therefore the requisite dependency relationship will rarely occur in practice, and usually will only exist where there is no-one else (for example, a parent) who has general day-to-day care of the dependent child.

1.39               To give effect to the means testing of the private health insurance rebate, amendments have been made to existing provisions in Subdivision 61-G of the ITAA 1997 detailing the amount of offset to which a taxpayer is entitled.  New provisions have been inserted allowing for a taxpayer’s eligibility for the private health insurance tax offset to be reduced by 10 percentage points, 20 percentage points or removed altogether if they are assessed as a tier 1, tier 2 or tier 3 earner respectively.  [Schedule 1, items 4, 6, 7, 8 and 9]

Example 1.1  

Greg is a single 35 year old with a complying health insurance policy.  In 2010-11, Greg’s income for surcharge purposes is $95,000.  Greg will be assessed as a tier 2 earner and will receive a private health insurance rebate of 10 per cent.

Example 1.2  

Sarah is a single parent aged 45 with a complying health insurance policy that covers herself and her two children — Matt (aged 8) and Michelle (aged 10).  In 2010-11, Sarah’s income for surcharge purposes is $147,000.  Sarah will not be assessed as a tier earner as her income does not exceed any of the tier thresholds.  Sarah will receive a private health insurance rebate of 30 per cent.

Example 1.3  

Tony and Kate live together as a couple with Kate’s children — Liz (aged 15) and Alan (aged 9).  Tony is aged 40 years.  Kate is aged 48 years.  In 2010-11, Tony’s income for surcharge purposes is $120,000 and Kate’s is $50,000.  Tony has an individual policy and Kate has a family policy with her two children.  Their combined income for surcharge purposes is $170,000.  Tony and Kate will both be assessed as a tier 1 earner and will receive a private health insurance rebate of 20 per cent despite the fact Tony and Kate have separate policies.

Example 1.4  

Cid and Simon live together as a couple.  Cid is aged 55 and Simon is aged 67.  In 2010-11, Cid’s income for surcharge purposes is $60,000 and Simon’s is $150,000.  Cid and Simon have a couple complying health insurance policy.  Their combined income for surcharge purposes is $210,000.  Cid and Simon will both be assessed as a tier 2 earner and will receive a private health insurance rebate of 15 per cent (because the oldest person covered by the policy — Simon — is aged over 65 years but less than 70 years).

1.40               The Bill amends subsection 61-205(3) to ensure a taxpayer may receive an offset in situations in which they have under claimed the level of rebate to which they are entitled under either Division 23 or 26 of the PHIA 2007.  [Schedule 1, items 2 and 3]

1.41               Subsection 61-210(2) currently provides that if before 1 January 1999, a person was registered, or eligible to be registered, under the Private Health Insurance Incentives Act 1997 , they are entitled to claim the greater of the 30 per cent rebate (if they are aged under 65 years) or the incentive amount that was provided under that Act (specified in subsection 61-220(1)).  The Bill amends this provision to ensure individuals or couples/families that are assessed as tier 3 earners are not entitled to claim any offset amount under the incentive amount provisions.   [Schedule 1, item 5]

Subdivision 960-M — Indexation

1.42               This Bill inserts indexation provisions for the calculation of the singles tier thresholds in future years in Subdivision 960-M of the ITAA 1997.  [Schedule 1, items 11 to 15]

1.43               In future years, the singles tier thresholds will be indexed annually to the estimate of full-time adult average weekly ordinary time earnings.  To avoid complex results from this indexation the amount will be rounded down to the nearest $1,000.   [Schedule 1, item 15]

1.44               There are two formulas inserted into the indexation provisions in Subdivision 960-M:  the first is for calculating the singles tier 1 threshold in future years; and the second is for calculating the singles tier 2 and tier 3 thresholds in future years.

1.45               The indexation provisions relating to the singles tier 1 threshold (previously the singles surcharge threshold) were formerly contained in the Medicare Levy Act 1986 (MLA 1986) (having been inserted by Tax Laws Amendment (Medicare Levy Surcharge) Act (No. 2) 2008 .  These provisions use a 2007 reference year for calculating the indexation factor — reflecting the threshold’s introduction for the 2008-09 income year.  The new singles tier 2 and 3 thresholds created by this Bill, will in contrast use a 2009 reference year for calculating the indexation

factor — reflecting the thresholds’ introduction in the 2010-11 income year.

Subdivision 995 — Definitions

1.46               The Bill inserts definitions of single and family tier 1, tier 2 and tier 3 thresholds, and tier 1, tier 2 and tier 3 earners into the ITAA 1997.  [Schedule 1, items 16 to 18 and 21 to 26]

1.47               The Bill also inserts the definition of index number required for the calculation of the indexation factor for the singles tier 1, 2 and 3 thresholds.  [Schedule 1, items 19 and 20]

Amendment to the Medicare Levy Act 1986

1.48               The MLA 1986 determines whether an individual is liable to pay the Medicare levy surcharge in respect of their, or their spouse’s, taxable income.

1.49               The test for whether an individual must pay the Medicare levy surcharge depends on whether the individual’s income for surcharge purposes exceeds prescribed income thresholds.

1.50               The Fairer Private Health Insurance Incentives (Medicare Levy Surcharge) Bill 2009 inserts definitions for singles and family tier 1 threshold, and tiers 2 and 3 earners [Schedule 1, items 1, 3, 4 and 5] .  No definition for tier 1 earner is required in this Act, as taxpayers that fall in this category are covered by the existing provisions in the Act.

1.51               Family tier 1 threshold and single tier 1 threshold have the same meaning as in the ITAA 1997.

1.52               The meanings of tier 2 earner and tier 3 earner are broadly consistent with the meanings given to them in the ITAA 1997.  In determining which tier a taxpayer is categorised as, however, the references to a ‘dependant child’ in the ITAA 1997 should instead be read as references to a ‘dependant’ as defined by the ANTS (MLS) Act 1999, other than a dependant to whom you are married.  This is to reflect the slight differences in the definition of dependants in the ANTS (MLS) Act 1999 relative to the PHIA 2007.   [Schedule 1, item 6]

1.53               The existing definitions of ‘singles surcharge threshold’ and ‘family surcharge threshold’ are repealed.  [Schedule 1, item 2 and 6]

1.54               Consequently, all references to ‘singles surcharge threshold’ are replaced with ‘singles tier 1 threshold’ [Schedule 1, items 7 and 15] and all references to ‘family surcharge threshold’ are replaced with ‘family tier 1 threshold’ [Schedule 1, items 9, 11, 12, 13, 17, 19, 20 and 21] .

1.55               This Bill also inserts provisions to give effect to the increase in the Medicare levy surcharge for a person assessed as a tier 2 or tier 3 earner to 1.25 per cent and 1.5 per cent respectively.  [Schedule 1, items 8, 10, 14, 16, 18 and 22]

Example 1.5  

Xu is single and does not have private health insurance.  In 2010-11, Xu’s income for surcharge purposes is $130,000.  Xu will be assessed as a tier 3 earner and will be liable for the Medicare levy surcharge at a rate of 1.5 per cent of taxable income.

Example 1.6  

Johnny and Penny live together as a couple.  Both Johnny and Penny do not have private health insurance.  In 2010-11, Johnny’s income for surcharge purposes is $70,000 and Penny’s income is $90,000.  Johnny and Penny will both be assessed as a tier 1 earner and will be liable for the Medicare levy surcharge at a rate of 1 per cent of their taxable income.

Example 1.7  

Eli and Kym live together as a couple with Kym’s children - Courtney (aged 15) and Liam (aged 9).  Eli does not have private health insurance, but Kym has a policy covering herself and her two children.  In 2010-11, Eli’s income for surcharge purposes is $100,000 and Kym’s is $110,000.  Their combined income for surcharge purposes is $210,000.  Eli and Kym will both be assessed as a tier 2 earner and both will be liable for the Medicare levy surcharge at a rate of 1.25 per cent of their taxable income.

Amendment to the Private Health Insurance Act 2007

Division 23 — Premiums reduction scheme

1.56               Division 23 of the PHIA 2007 describes the amount by which premiums payable under a complying health insurance policy is reduced if a person is a participant in the premium reductions scheme.

1.57               To give effect to the means testing of the private health insurance rebate, the Fairer Private Health Insurance Incentives Bill amends the existing provisions detailing the percentage of premium reduction to which a taxpayer is entitled.  New provisions are inserted allowing for a taxpayer’s eligibility for the private health insurance premiums reduction scheme to be reduced by 10 percentage points, 20 percentage points or removed altogether if they are assessed as a tier 1, tier 2 or tier 3 earner respectively.   [Schedule 1, items 27 to 31]

Division 26 — The incentive payments scheme

1.58               Division 26 of the PHIA 2007 describes the amount of payment a person is eligible for in respect of premiums paid under a complying health insurance policy for the whole or part of the financial year and which was not reduced under Division 23 of the PHIA 2007.

1.59               To give effect to the means testing of the private health insurance rebate, the Bill amends the existing provisions detailing the percentage of premium reduction to which a taxpayer is entitled.  New provisions are inserted allowing for a taxpayer’s eligibility for the private health insurance incentive payments scheme to be reduced by 10 percentage points, 20 percentage points or removed altogether if they are assessed as a tier 1, tier 2 or tier 3 earner respectively.   [Schedule 1, items 32 to 36]

Subdivision 282-A — When and how payments can be recovered

1.60               Subdivision 282-A sets out amounts paid under the premiums reduction scheme and incentive payments scheme that are recoverable as debts due to the Commonwealth.

1.61               The Bill inserts a new Subdivision 282-AA which allows for the recovery of certain amounts of monies by the Commissioner.

1.62               The Commissioner will be responsible for the recovery of private health insurance premium reductions made to a participant in the premium reductions scheme and which exceed the amount allowable under section 23-1 of the PHIA 2007.  The Commissioner will also be responsible for the recovery of payments made under Subdivision 26-B which exceed the amount to which the person was entitled under section 26-1 of the PHIA 2007.   [Schedule 1, item 38]

1.63               The double recovery of debts under existing debt recovery provisions and the new recovery provisions in 282-AA is prevented by the insertion of new section 282-17.   [Schedule 1, item 38`]

1.64               In addition, to ensure private health insurers are not adversely impacted by the new debt recovery provisions, an amount is not recoverable if the situation giving rise to the amount was not the fault of the private health insurer.  [Schedule 1, item 37]

1.65               A general interest charge will be payable on amounts levied under Subdivision 282-AA.  [Schedule 1, item 38]

Division 323 — Disclosure of information

1.66               Section 323-1 prohibits the disclosure of protected information unless the disclosure is an authorised disclosure.  Section 323-5 lists circumstances in which a person is authorised to disclose information.

1.67               The Bill adds that a disclosure of information for the purpose of enabling a person to perform functions under the ANTS (MLS) Act 1999, MLA 1986, Subdivision 61-G of the ITAA 1997 or any other provision of the ITAA 1997, or of any other Act, to the extent that a provision relates to a provision in the above mentioned Acts, is an authorised disclosure.  [Schedule 1, items 40 and 41]

1.68               The penalty provision in section 282-25 is consequentially amended to make it an offence to use, make a record of, disclose or communicate to any person information that that relates to the affairs of another person and was acquired under the new paragraph inserted into this section.  [Schedule 1, item 39]

Schedule 1 — Dictionary

1.69               This Bill inserts definitions for general interest charge and tiers 1, 2 and 3 earners into the PHIA 2007.  [Schedule 1, items 42 to 45]

Amendment to the Taxation (Interest on Overpayments and Early Payments) Act 1983

1.70               The Bill amends the table under section 3C of the Act to include as a relevant tax liability, a liability arising under Subdivision 282-AA of the PHIA 2007.  [Schedule 1, item 49]

1.71               This will allow the Commissioner to pay interest on an overpayment where a taxpayer receives a refund as a result of a successful objection or amendment to the liability under Subdivision 282-AA.

1.72               The Bill also amends paragraphs 8E(1)(d) and 8E(2)(d) of the Act which provide for interest on overpayments resulting from assessments.  [Schedule 1, items 50 and 51]

1.73               This will ensure that interest is paid only on an actual credit amount provided to the taxpayer.

Amendment to the Taxation Administration Act 1953

1.74               Section 8AAA of the Taxation Administration Act 1953 (TAA 1953) explains how to work out the general interest charge on an amount owed to the Commissioner.  Subsection 8AAB(5) provides a list of the provisions of Acts other than the ITAA 1936 under which a general interest charge liability can be made.

1.75               The Bill inserts section 282-19 of the PHIA 2007 onto the list set out in subsection 8AAB(5).   [Schedule 1, item 46]

1.76               Subdivision 250-A of Schedule 1 to the TAA 1953 deals with the methods by which the Commissioner may collect and recover amounts of taxes and other liabilities.  Subsection 250-10(2) provides an index of each tax-related liability that can be incurred under other Acts.

1.77               The Bill inserts a liability for excess private health insurance premium reduction or refund under section 282-18 of the PHIA 2007 into the index in subsection 250-10(2).  [Schedule 1, item 47]

Application and transitional provisions

1.78               These amendments apply to assessments for the 2010-11 year of income and later years of income. 

 

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