Bills Digest No. 111  1999-2000


Numerical Index | Alphabetical Index

Medicare Levy Amendment (CPI Indexation) Bill 1999

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer and Copyright Details

Passage History

Medicare Levy Amendment (CPI Indexation) Bill 1999

Date Introduced: 9 December 1999

House: House of Representatives

Portfolio: Treasury

Commencement: Royal Assent

Purpose

To raise the Medicare levy low income exemption threshold and the Medicare levy surcharge threshold in line with Consumer Price Index (CPI) movements and to adjust the 'shading-in' range.

Background

This Bill amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 to increase the low income exemption thresholds for individuals, married couples and sole parents. It also increases the 'shading-in' thresholds which apply for the purposes of the Medicare levy. The measure was announced by the Assistant Treasurer, Hon Rod Kemp, on 17 November 1999.(1)

Australian residents are liable to pay a Medicare levy based on the amount of their taxable income for the income year. The rate of the Medicare levy for the 1999/2000 income year is 1.5% of taxable income.

Since the Medicare levy was introduced in 1984, exemptions have been provided for individual, couple and sole parent low income earners. The taxable income levels below which the exemptions apply are adjusted in line with movements in the CPI. The low income exemption threshold was last adjusted in 1997.(2) In order to alleviate high marginal tax rates, 'shading-in' ranges apply. The Bill proposes that no Medicare levy will be payable by a person whose taxable income in 1999/2000 is $13,550 or less. Where the taxable income is more than $13,550 but does not exceed $14,648, the levy is 'shaded-in' at a rate of 20% of the excess over $13,550. An additional threshold applies if the taxpayer is married or is entitled to a child-housekeeper, housekeeper or sole-parent rebate. In these cases, no levy is payable if the family income does not exceed $22,865. The threshold amount increases by $2,100 for each dependent child or student for whom the taxpayer or the taxpayer's spouse is entitled to a notional dependant's rebate. A table showing the income thresholds for payment of the levy and the 'shading-in' ranges which are proposed to apply for 1999/2000 is provided in the Explanatory Memorandum to the Bill.(3)

This Bill also affects the application of the one percent Medicare levy surcharge on certain higher income earners without private patient hospital insurance, which commenced on 1 July 1997. An additional one percent surcharge is payable by an unmarried person whose taxable income and reportable fringe benefits exceeds $50,000 if the person is not covered by private patient hospital insurance.

Unlike the Medicare levy which is calculated on the taxable income of individuals, the surcharge applies to both individual and family income. The family surcharge threshold is $100,000, increased by $1,500 for each dependent child after the first. For example, in the case of a two-income family with two children not covered by private patient hospital insurance, where one parent earns a taxable income of $88,500 and the other parent a taxable income of $13,560, a one percent Medicare levy surcharge is levied on both taxable incomes, because the family's taxable income is above the threshold of $101,500 which applies to a family with two dependent children.

An exemption from the surcharge applies in the case of a taxpayer earning below the low income Medicare levy threshold even though the combined family taxable income is above the threshold at which the Medicare levy surcharge applies. Continuing the example above, if one parent earns a taxable income of $88,500 and the other parent a taxable income of $13,500 (that is, below the proposed low income threshold of $13,550), the Medicare levy surcharge does not apply to the parent earning $13,500 despite the combined taxable income of the family being above the surcharge threshold of $101,500.

The income thresholds above which the Medicare levy surcharge applies are not indexed to CPI movements. 'Shade-in' ranges do not apply to the surcharge.

Main Provisions

Amendments to A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999

Sections 15 and 16 of the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 deal with the amount of surcharge levied on a person's reportable fringe benefits. Item 1 raises the low level income exemption threshold from $13,389 to $13,550. The amendments apply to assessments for the 1999/2000 income year and subsequent years of income (item 2).

Amendments to Medicare Levy Act 1986

Item 3 increases the low level income exemption threshold from $13,389 to $13,550.

The exemption 'shade-in' threshold is the amount above which the full amount of the levy is payable. At present this amount is $14,474. Item 4 raises this amount to $14,648.

Items 5 and 6 increase the family income threshold from $22,594 to $22,865.

Items 7 to 9 raise the Medicare levy surcharge threshold from $13,389 to $13,550.

Endnotes

  1. Hon Rod Kemp, 'Increase of Medicare levy low income thresholds', Press Release, no. 57, 17 November 1999.
  2. Medicare Levy Amendment Act 1998.
  3. Medicare Levy Amendment (CPI Indexation) Bill 1999, Explanatory Memorandum, p. 6.

Contact Officer and Copyright Details

Rosemary Bell
8 February 2000
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 2000

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 2000.

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