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Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011

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2010-2011

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

SENATE

 

 

Tax Laws amendment (temporary flood AND CYCLONE RECONSTRUCTION levy) bill 2011

income tax rates amendment (temporary flood AND CYCLONE RECONSTRUCTION levy) bill 2011

 

 

REVISED EXPLANATORY MEMORANDUM

 

 

 

(Circulated by the authority of the

Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

 

THIS MEMORANDUM TAKES ACCOUNT OF AMENDMENTS MADE BY THE HOUSE OF REPRESENTATIVES TO THE BILLS AS INTRODUCED

 



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

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

Chapter 1               Introduction of the Temporary Flood and Cyclone Reconstruction Levy  5

Index................................................................................................................. 11



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

Abbreviation

Definition

Commissioner

Commissioner of Taxation

IT(TP) Act 1997

Income Tax (Transitional Provisions) Act 1997

ITAA 1997

Income Tax Assessment Act 1997

ITRA 1986

Income Tax Rates Act 1986



Introduction of the Temporary Flood and Cyclone Reconstruction Levy

The Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011 and the Income Tax Rates Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011 amend the Income Tax Assessment Act 1997 (ITAA 1997), the Income Tax Rates Act 1986 (ITRA 1986) and the Income Tax (Transitional Provisions) Act 1997 (IT(TP) Act 1997) to introduce a one-year progressive flood and cyclone reconstruction levy in the form of additional income tax on Australian resident and foreign resident individuals in the 2011-12 financial year.  These changes will ensure that those with a greater capacity to pay make a larger contribution to the rebuilding of disaster affected regions of Australia through revenue raised by the levy. 

Date of effect The levy is payable for the 2011-12 financial year. 

Proposal announced This measure was announced by the Prime Minister in Media Release, Rebuilding after the floods of 27 January 2011.

Financial impact This measure will have these revenue implications:

2010-11

2011-12

2012-13

2013-14

2014-15

Nil

$1,560m

$235m

Nil

Nil

Compliance cost impact :  This measure is expected to result in a very minor overall compliance impact, comprising a very minor increase in compliance costs for some individuals and employers with pay as you go withholding obligations with respect to the 2011-12 financial year.



Outline of chapter

1.1                   The Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011 and the Income Tax Rates Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011, amend the Income Tax Assessment Act 1997  (ITAA 1997 ) , the Income Tax Rates Act 1986 (ITRA 1986) and the Income Tax (Transitional Provisions) Act 1997 (IT(TP) Act 1997) to implement a one-year progressive flood and cyclone reconstruction levy (levy) in the form of additional income tax in the 2011-12 financial year only.

1.2                   The amount of levy payable is at the rate of 0.5 per cent where the taxpayer has a taxable income of between $50,001 and $100,000, and 1.0 per cent where the taxpayer has a taxable income in excess of $100,000.  No levy is payable where the taxpayer has a taxable income of $50,000 or less or where they fall into an exemption category. 

Context of amendments

Income tax rates and thresholds and tax liability

1.3                   The income tax rates and thresholds determine the rates that are applied to an individual’s taxable income.

1.4                   The income tax liability of an individual is determined by the application of the income tax rates and thresholds to an individual’s taxable income, which is usually reduced by any available tax offsets (see subsection 4-10(3) of the ITAA 1997).

1.5                   A progressive tax liability occurs when an individual’s rate of tax liability increases when their income increases. 

Reconstruction funding

1.6                   Significant damage has been caused by natural disasters in Australia. 

1.7                   Applying an additional income tax will raise revenue to provide funding toward the reconstruction cost.

Summary of new law

1.8                   The effect of these Bills is to introduce an additional income tax in the form of a one-year progressive levy to taxable income in the 2011-12 financial year only.

•        Individuals with a taxable income of $50,000 or less in the 2011-12 financial year will not pay the levy.

•        Individuals with a taxable income between $50,001 and $100,000 will pay a 0.5 per cent levy on that part of taxable income above $50,000 in the 2011-12 financial year only.

•        Individuals with a taxable income of $100,001 or more will pay a 0.5 per cent levy on that part of their taxable income between $50,001 and $100,000 and a 1.0 per cent levy on that part of their taxable income above $100,000 in the 2011-12 financial year only.

1.9                   Individuals who are in a class specified in a legislative instrument made by the Minister for the purpose of the levy will be exempt from the levy. 

1.10               In making the instrument, the Minister can only list a class of individuals as exempt if they were affected by a natural disaster in Australia in the 2010-11 and 2011-12 financial years.

1.11               A legislative instrument provides the flexibility to act quickly in providing tax relief to individuals who have been adversely affected by the ad hoc and unpredictable natural disasters that occur in Australia. 

1.12               The Minister may include in the instrument a class of individuals such as recipients of an Australian Government Disaster Relief Payment. 

1.13               When a trustee has income that is taxed as if the income was of an individual, they will be liable for the levy.  This will ensure that trustees who pay tax in substitute of an individual will bear the same level of taxation as if the individual paid tax themselves. 

1.14               The levy cannot be reduced by non-refundable tax offsets.  That is, the taxpayer’s income tax liability for the 2011-12 financial year is calculated as the taxpayer’s basic income tax liability on taxable income less their tax offsets, to which the levy liability is then added. 

1.15               Where a taxpayer has a tax liability (as a result of the levy) and is also entitled to credits, which may include an entitlement to a refund of excess refundable tax offset and pay as you go withheld amounts, the Commissioner of Taxation (Commissioner) will apply the taxpayer’s credit entitlement against the levy liability under Division 3 of Part IIB of the Taxation Administration Act 1953

1.16               For those taxpayers whose employer withholds tax throughout the year according to Australian Taxation Office withholding schedules, new withholding schedules will be issued by the Commissioner to take account of the levy throughout the year. 

1.17               Upon enactment of these Bills, the Commissioner will generally be able to take account of the levy in determining the pay as you go instalment amounts. 

Comparison of key features of new law and current law

New Law

Current law

For that part of the taxable income of the taxpayer that:

•        exceeds $50,000 but does not exceed $100,000 the levy rate is 0.5 per cent;

•        exceeds $100,000 the rate is 1.0 per cent.

No equivalent.

Detailed explanation of new law

1.18               These Bills introduce an additional income tax in the form of a one-year progressive levy. 

1.19               The levy will be payable by individuals on their taxable income in the 2011-12 financial year only.  [Schedule 1, item 3, paragraph 4-10(1)(a), Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011]

1.20               The levy is worked out on the taxpayer’s income for the 2011-12 financial year at the rate shown at section 12B of the ITRA 1986.  [Schedule 1, item 3, subsection 4-10(4), Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011]

1.21               Individuals with a taxable income of $50,000 or less in the 2011-12 financial year will not be liable for the levy.  [Schedule 1, item 3, paragraph 4-10(1)(b), Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011]

1.22               Individuals with a taxable income between $50,001 and $100,000 will pay a 0.5 per cent levy on that part of taxable income above $50,000 in the 2011-12 financial year only.  [Schedule 1, item 1, Income Tax Rates Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011]

1.23               Individuals with a taxable income of $100,001 or more will pay a 0.5 per cent levy on that part of taxable income between $50,001 and $100,000 and a 1.0 per cent levy on that part of their taxable income above $100,000 in the 2011-12 financial year only.  [Schedule 1, item 1, Income Tax Rates Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011]

1.24               A number of individuals who have an income above $50,000 will be exempt from the levy.  For the individuals to be exempt they must be in a class specified by the Minister in a legislative instrument for the purpose of the levy.  [Schedule 1, item 3, subsection 4-10(2), Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011 ]

1.25               In making the instrument, the Minister can only list a class of individuals as exempt if they were affected by a natural disaster in Australia in the 2010-11 and 2011-12 financial years.  [Schedule 1, item 3, subsection 4-10(3), Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011]

1.26               In calculating an individual’s tax liability the levy is not included in the taxpayer’s basic income tax liability for the purposes of applying any tax offsets against the levy.  [Schedule 1, item 3, subsection 4-10(5), Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011]

1.27               The methodology that should be applied to work out the taxpayer’s basic income tax liability is set out in subsection 4-10(3) of the ITAA 1997.  The levy liability is not included in the taxpayer’s basic income tax liability and the levy liability must be calculated in addition to the amount of basic income tax liability set out in subsection 4-10(3) of the ITAA 1997.  [Schedule 1, item 3, subsection 4-10(6), Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011]

1.28               In working out the tax liability of an individual under section 4-10 of the ITAA 1997 taxpayers are reminded by a note that they may have to pay the levy in addition to the tax liability they calculated under that section.  [Schedule 1, items 1 and 2, Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011]

Administration

1.29               As the levy is additional income tax it will be administered and collected as part of the existing tax framework. 

Consequential amendments

1.30               For the purposes of the foreign income tax offset rules (section 770-75 of the ITAA 1997) the levy is to be disregarded in determining the foreign income tax offset limit for the 2011-12 financial year.  [Schedule 1, item 3, subsection 4-10(7), Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011]

Application and transitional provisions

1.31               These amendments apply to the 2011-12 financial year only. 

1.32               These amendments will be repealed on 1 July 2016.  [Schedule 2, items 1 to 3, Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011 and Schedule 2, item 1, Income Tax Rates Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011]



Schedule 1:  Main amendments

Bill reference

Paragraph number

Item 1, Income Tax Rates Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011

1.22, 1.23

Items 1 and 2, Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011

1.28

Item 3, paragraph 4-10(1)(a), Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011

1.19

Item 3, paragraph 4-10(1)(b), Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011

1.21

Item 3, subsection 4-10(2), Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011

1.24

Item 3, subsection 4-10(3), Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011

1.25

Item 3, subsection 4-10(4), Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011

1.20

Item 3, subsection 4-10(5), Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011

1.26

Item 3, subsection 4-10(7), Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011

1.30

Schedule 2:  Sunsetting

Bill reference

Paragraph number

Item 1, Income Tax Rates Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011

1.32

Items 1 to 3, Tax Laws Amendment (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011

1.32