Bills Digest No. 152  1999-2000A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Amendment Bill 2000


Numerical Index | Alphabetical Index

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 & Copyright Details

Passage History

A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Amendment Bill 2000

Date Introduced: 9 March 2000

House: House of Representatives

Portfolio: Treasury

Commencement: Royal Assent. However, the amendments contained in the Bill will have effect for the 1999-2000 and later income years.

Purpose

The Bill makes minor amendments to the method of the calculation of the potential liability of families who receive fringe benefits to pay the Medicare surcharge. The amendments are of a technical nature and do not alter the substantive grounds for liability to pay the surcharge.

Background

The Medicare levy surcharge was introduced to provide a disincentive for higher income earners to rely on the Medicare system and not take out private health insurance. The surcharge, which is not payable where a person or family has private insurance which covers fees and charges for hospital treatment, has applied from the 1997-98 year of income and is payable by:

  • an individual without dependants when their income exceeds $50 000 pa (subject to indexation), and
  • $100 000 pa (subject to indexation) where the family surcharge threshold applies.

In the latter case, where there are 2 or more dependent children, the threshold is increased by $1 500 for each additional child.

In addition to potential liability for the surcharge, during 2000-01 higher income earners will also be liable for an increase in the levy of 0.5% or 1%, depending on income, for the 'East Timor levy'. As with the basic levy, there are phasing-in thresholds for the surcharge and East Timor levy to ensure that the additional payments do not result in lower net income once the threshold level is reached.

As an incentive for people to retain or take up private health insurance, a 30% rebate on premiums for hospital and ancillary cover was introduced from 1 January 1999. For 1999-2000, the rebate is estimated to cost $1.617 billion(1) As at 31 December 1999, approximately 6 million people were covered by private hospital membership.(2)

For the 1999-2000 and later income years, employers have been required to detail the amount of certain fringe benefits on group certificates. The requirement applies to fringe benefits other than those with a value of less than $1 000, car parking, meal entertainment, remote area housing and a limited number of other, minor benefits. The value of the non-exempt benefits is not included in assessable income but is used for a number of other calculations, including the Medicare levy surcharge. The result is that where a person engages in salary sacrifice to lower their assessable income they will have the value of the fringe benefits provided as part of the salary sacrifice included to determine if they are liable for the surcharge (A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999).

Main Provisions

In calculating the family assessable income to determine if the surcharge is payable, the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 provides that both the person's and their spouse's taxable income and reportable fringe benefits are to be taken into account. The calculation of income can include amounts from a number of sources, and section 15 deals with situations where the family threshold applies for the whole of the year while section 16 applies if the family threshold applies for only part of the year.

Items 2 and 4 of the Bill will amend these sections to clarify how a spouse's income that includes amounts calculated as a presently entitled beneficiary of a trust estate is to be treated. (Such an amount is currently taxed in the hands of the trustee as it has not been distributed to the beneficiary even though the beneficiary is presently entitled to the amount. This way of taxation is an anti-avoidance measure.) The clarification does not affect the amount that is to be included in the calculation and is substantially the same as that currently contained in subsection 16(5) of the Act. The amendments mean that the treatment of such amounts will be consistent regardless of whether the amount falls within section 15 or 16.

The other amendments proposed by the Bill replace the current dollar expression of the amount above which the surcharge is payable for a family with the expression 'the family surcharge threshold'. This will allow the amount as expressed in this Act to be automatically altered when the threshold is altered either in the legislation dealing directly with the level of the threshold or by indexation.

Endnotes

  1. Department of Health and Aged Care.

  2. Private Health Insurance Administration Council December 1999 Report PHIAC.

Contact Officer and Copyright Details

Chris Field
11 April 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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