2016-2017-2018-2019

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the
Assistant Treasurer, the Hon Stuart Robert MP)

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

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

Chapter 1              Medicare levy and Medicare levy surcharge low‑income thresholds        5

Chapter 2              Statement of Compatibility with Human Rights............ 11

 

 

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

Abbreviation	Definition
Bill	Treasury Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Bill 2019
CPI	Consumer price index
SAPTO	Seniors and pensioners tax offset
Surcharge	Medicare levy surcharge
Threshold amount	Medicare levy and Medicare levy surcharge low‑income threshold amount

Medicare levy and Medicare levy surcharge low-income thresholds

The Bill amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge —Fringe Benefits) Act 1999 to increase:

•               the Medicare levy low‑income thresholds for individuals and families (along with the dependent child/student component of the family threshold) in line with movements in the CPI;

•               the Medicare levy low-income thresholds for individuals and families eligible for the SAPTO (along with the dependent child/student component of the family threshold), in line with movements in the CPI; and

•               the Medicare levy surcharge low‑income threshold in line with movements in the CPI.

Date of effect:  This measure applies to the 2018-19 income year and later income years.

Proposal announced:  This measure was announced in the 2019-20 Budget on 2 April 2019 as ‘Personal income tax — increasing the Medicare levy low-income thresholds’.

Financial impact:  As at the 2019-20 Budget, the measure is estimated to have a cost to revenue of $250 million over the forward estimates period comprising:

2018-19	2019-20	2020-21	2021-22	2022-23
-	-$100m	-$50m	-$50m	-$50m

- Nil

Human rights implications:  This Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights — paragraphs 2.1 to 2.5.

Compliance cost impact:  This measure will not have any ongoing compliance cost impact or additional impact on regulatory burden.

 

Outline of chapter

1.1                  The Bill amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge — Fringe Benefits) Act 1999 to increase:

•       the Medicare levy low-income thresholds for individuals and families (along with the dependent child/student component of the family threshold) in line with movements in the CPI;

•       the Medicare levy low-income thresholds for individuals and families eligible for the SAPTO (along with the dependent child/student component of the family threshold), in line with movements in the CPI; and

•       the Medicare levy surcharge low-income threshold in line with movements in the CPI.

Context of amendments

Medicare levy low-income thresholds

1.2                  The Medicare Levy Act 1986 provides that no Medicare levy is payable by low-income individuals and families where their taxable income or combined family taxable income does not exceed the stated threshold amounts.

1.3                  The Medicare levy phases in at a rate of 10 cents in the dollar where the taxable income or combined family taxable income exceeds the threshold amounts (section 7 of the Medicare Levy Act 1986).

Medicare levy surcharge low-income threshold

1.4                  A surcharge of between one and one and a half per cent applies on taxable income in certain cases where taxpayers do not have appropriate private patient hospital cover (sections 8B to 8G of the Medicare Levy Act 1986). The surcharge also applies to reportable fringe benefits in certain cases where taxpayers do not have appropriate private patient hospital cover (sections 12 to 16 of the A New Tax System (Medicare Levy Surcharge — Fringe Benefits) Act 1999).

1.5                  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 income for surcharge purposes does not exceed the individual low-income threshold amount. Unlike the Medicare levy, there is no phase-in of the surcharge above the threshold amount.

Summary of new law

1.6                  This Bill amends:

•       subsections 3(1) and 8(5) to 8(7) of the Medicare Levy Act 1986 to increase the threshold amounts and phase‑in limits for individuals, families and individual taxpayers and families eligible for the SAPTO;

•       paragraphs 8D(3)(c) and 8G(2)(c) and subparagraphs 8D(4)(a)(ii) and 8G(3)(a)(ii) of the Medicare Levy Act 1986 to raise the threshold below which a family member is not required to pay the surcharge on taxable income; and

•       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.

Comparison of key features of new law and current law

New law	Current law
Medicare levy low-income thresholds
The individual income threshold for the 2018-19 income year is $22,398.	The individual income threshold for the 2017-18 income year is $21,980.
The family income threshold for the 2018‑19 income year is $37,794.	The family income threshold for the 2017‑18 income year is $37,089.
The income threshold for individual taxpayers eligible for the SAPTO for the 2018‑19 income year is $35,418.	The income threshold for individual taxpayers eligible for the SAPTO for the 2017‑18 income year is $34,758.
The income threshold for families eligible for the SAPTO for the 2018‑19 income year is $49,304.	The income threshold for families eligible for the SAPTO for the 2017‑18 income year is $48,385.
The child‑student component of the income threshold for families (whether eligible for SAPTO or not) for the 2018‑19 income year is $3,471.	The child‑student component of the income threshold for families (whether eligible for SAPTO or not) for the 2017‑18 income year is $3,406.
Phase‑in limit
The individual phase‑in limit for the 2018‑19 income year is $27,997.	The individual phase‑in limit for the 2017‑18 income year is $27,475.
The phase‑in limit for individual taxpayers eligible for the SAPTO for the 2018‑19 income year is $44,272.	The phase‑in limit for individual taxpayers eligible for the SAPTO for the 2017‑18 income year is $43,447.

Detailed explanation of new law

Medicare levy low‑income thresholds

1.7                  This Bill increases the low-income thresholds for individuals and families (including the dependent child-student component of the family threshold) in line with annual movements in the CPI.

1.8                  Section 7 of the Medicare Levy Act 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) of the Medicare Levy Act 1986.

1.9                  The individual threshold amount (specified in paragraph (c) of the definition of the ‘threshold amount’ in subsection 3(1) of the Medicare Levy Act 1986) increases from $21,980 to $22,398. [Schedule 1, item 5, paragraph (c) of the definition of ‘threshold amount’ in subsection 3(1) of the Medicare Levy Act 1986]

1.10              The level of the ‘family income threshold’ referred to in subsections 8(5) to 8(7) of the Medicare Levy Act 1986 increases from $37,089 to $37,794. For each dependent child or student, the family income threshold increases by a further $3,471, instead of the previous amount of $3,406. [Schedule 1, items 6 to 8, the definition of ‘family income threshold’ in subsection 8(5), and subsections 8(6) and (7) of the Medicare Levy Act 1986]

1.11              This Bill also increases the threshold amount for individual taxpayers eligible for the SAPTO for the 2018-19 income year. The increase ensures that these people do not have a Medicare levy liability if they are not liable for income tax.

1.12              The threshold amount for individual taxpayers eligible for the SAPTO (specified in paragraph (a) of the definition of the ‘threshold amount’ in subsection 3(1) of the Medicare Levy Act 1986) increases from $34,758 to $35,418. [Schedule 1, item 4, paragraph (a) of the definition of ‘threshold amount’ in subsection 3(1) of the Medicare Levy Act 1986]

1.13              The threshold amount for families eligible for SAPTO increases from $48,385 to $49,304. For each dependent child or student, the income threshold increases by a further $3,471, instead of the previous figure of $3,406. [Schedule 1, item 9, subsection 8(7) of the Medicare Levy Act 1986] 

Phase‑in limits

1.14              Section 7 of the Medicare Levy Act 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 Medicare levy payable in these circumstances is limited to 10 per cent of the excess over the threshold amount that is relevant to the particular person.

1.15              The phase‑in limit for individuals (specified in paragraph (c) of the definition of ‘phase‑in limit’ in subsection 3(1) of the Medicare Levy Act 1986) increases from $27,475 to $27,997. [Schedule 1, item 3, paragraph (c) of the definition of ‘phase-in limit’ in subsection 3(1) of the Medicare Levy Act 1986]

1.16              The phase‑in limit for individual taxpayers eligible for SAPTO (specified in paragraph (a) of the definition of ‘phase‑in limit’ in subsection 3(1) of the Medicare Levy Act 1986) increases from $43,447 to $44,272. [Schedule 1, item 2, paragraph (a) of the definition of ‘phase-in limit’ in subsection 3(1) of the Medicare Levy Act 1986]

1.17              There is no phase‑in limit for families in the Medicare Levy Act 1986, as the limit changes with the number of dependants. Instead, subsection 8(2) of the Medicare Levy Act 1986 contains a formula that limits the levy payable by persons with families to 10 per cent of the amount of family income that exceeds their family income threshold.

1.18              The increased threshold amounts and phase‑in ranges for the 2018-19 income year are as shown in Table 1.1.

Table 1.1: 2018-19 Medicare levy low-income threshold amounts and phasing‑in ranges

Category of taxpayer	No levy payable in 2018-19 if taxable income or family income does not exceed (figure for 2017-18)	Reduced levy in 2018-19 (if taxable income or family income is within range (inclusive)	Ordinary rate of levy payable in 2018-19 where taxable income or family income is equal to or exceeds (figure for 2017‑18)
Individual taxpayer	$22,398 ($21,980)	$22,399-$27,997	$27,998 ($27,476)
Individual taxpayers eligible for the SAPTO	$35,418 ($34,758)	$35,419-$44,272	$44,273 ($43,448)
Families eligible for the SAPTO	$49,304 ($48,385)	$49,305-$61,630	$61,631 ($60,482)
Families with the following number of children and/or students	(family income)	(family income)	(family income)
0	$37,794 ($37,089)	$37,795-$47,242	$47,243 ($46,362)
1	$41,265 ($40,495)	$41,266-$51,581	$51,582 ($50,619)
2	$44,736 ($43,901)	$44,737-$55,920	$55,921 ($54,877)
3	$48,207 ($47,307)	$48,208-$60,258	$60,259 ($59,134)
4	$51,678 ($50,713)	$51,679-$64,597	$64,598 ($63,392)
5	$55,149 ($54,119)	$55,150-$68,936	$68,937 ($67,649)

 

Medicare levy surcharge low‑income threshold

1.19              References to the individual low‑income threshold amount of $21,980 in the Medicare levy surcharge provisions (in sections 8D and 8G of the Medicare Levy Act 1986) in respect of the surcharge payable on taxable income for a person who is married (or both married and a beneficiary of a trust) are also increased to $22,398. [Schedule 1, items 10  to 13, paragraphs 8D(3)(c) and 8G(2)(c) and subparagraphs 8D(4)(a)(ii) and 8G(3)(a)(ii) of the Medicare Levy Act 1986]

1.20              References to the individual low‑income threshold amount of $21,980 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 the surcharge on reportable fringe benefits are also increased to $22,398. [Schedule 1, item 1, paragraphs 15(1)(c) and 16(2)(c) of the A New Tax System (Medicare Levy Surcharge — Fringe Benefits) Act 1999]

Application and commencement provisions

1.21              This Bill commences on the day after it receives Royal Assent. [Clause 2]

1.22              The amendments apply retrospectively from the start of the 2018-19 income year. However, they are beneficial to all affected taxpayers as they retrospectively reduce or remove liability for Medicare levy and the surcharge that would otherwise apply to affected taxpayers.

1.23              This Bill applies to assessments for the 2018-19 income year and later income years. [Schedule 1, item 14]

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

TREASURY LAWS AMENDMENT (MEDICARE LEVY AND MEDICARE LEVY SURCHARGE) BILL 2019

2.1                  This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

2.2                  The Bill amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge — Fringe Benefits) Act 1999 to:

•               increase the Medicare levy low‑income thresholds for individuals and families (along with the dependent child‑student component of the family threshold) in line with movements in the CPI;

•               increase the Medicare levy low‑income thresholds for individuals and families eligible for the seniors and pensioners tax offset (along with the dependent child‑student component of the family threshold), in line with movements in the CPI; and

•               increase the Medicare levy surcharge low‑income threshold in line with movements in the CPI.

2.3                  This will ensure that low-income individuals, families, seniors and pensioners who were exempt from the Medicare levy in the 2017‑18 income year continue to be exempt in the 2018-19 income year if their income has increased in line with, or less than, movements in the CPI.

Human rights implications

2.4                  This Bill does not engage any of the applicable rights or freedoms.

Conclusion

2.5                  This Bill is compatible with human rights as it does not raise any human rights issues.