Bills Digest No. 13 2001-02
Taxation Laws Amendment (Changes for Senior Australians) Bill
2001
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
Taxation Laws Amendment (Changes for
Senior Australians) Bill 2001
Date Introduced: 22 May 2001
House: House of Representatives
Portfolio: Treasury
Commencement: Royal Assent
To give effect to
measures announced in the 2001-2002 Budget by:
- amending the Income Tax Assessment Act 1936 to enable
an increase in the tax rebate available to senior Australians to be
implemented by regulation
- amending the Medicare Levy Act 1986 to ensure that
senior Australians who are entitled to the increased rebates as a
result of this Bill do not pay the Medicare levy if their taxable
income in less than $20 000, and
- amending the Income Tax Assessment Act 1997 to exempt
the one-off $300 payment made to senior Australians.
The 2001-2002 Budget provided a number of
benefits to Australians of aged pension age (senior Australians).
These included:
- an increase in the low income aged persons rebate and the
pensioner rebate, which effectively lifts the income that an
eligible single person of aged pension age can earn before paying
tax to $20 000
- a one-off $300 payment to aged pension recipients and single
people of pension age earning less than $20 000,(1)
and
- easier access to the Commonwealth Seniors Health Card, which
gives holders cheap pharmaceuticals and a $17.20 quarterly
telephone allowance.
The Treasurer, Hon Peter Costello, said in his
budget speech that the measurers were both affordable and good for
the economy, and 'most of all, our older Australians deserve
it'.(2) However, in the days following the speech, the
measures generated some confusion and debate in the media about who
would benefit and who misses out.(3)
A Rebate not a Tax Threshold
The Treasurer said in his budget speech
that:
The increase I am announcing tonight will mean
that in the current financial year qualifying single self-funded
retirees and age pensioners will have an effective tax free
threshold of $20,000. They will pay no income tax unless their
income (including the pension) exceeds that amount.
The effective tax free threshold for a couple on
equal income will be lifted to $32,612. Qualifying couples will pay
no income tax until their combined income exceeds that
amount.(4)
A number of commentators appear to have taken
this to mean that the individuals in question would be able to earn
their first $20 000 of income tax-free.(5) This is
not the case because the taxation measure to be facilitated by this
Bill is structured as a tax offset or rebate, rather than as a rise
in the tax-free threshold. What the Treasurer announced was an
increase in the low-income aged person's rebate. Individuals of
aged pension age who are classified as low-income earners will
receive a tax offset, or rebate, of $2,230. (They will also receive
the $150 low-income rebate that all low-income earners, regardless
of age, are entitled to, so their total rebate will be $2,380.)
However, other self-funded retirees who are not low-income earners
may not benefit. The low-income aged person's rebate is reduced by
12.5 cents for every dollar of income a retiree earns above
$20 000. By the time a retiree earns $37 840 of taxable
income, the rebate is reduced to nil, and a retiree in this
situation will not receive the first $20 000 tax-free.
Who is a 'senior Australian'?
The terms 'senior Australian' and 'self-funded
retiree' are generally used in a fairly loose way and are not
defined in legislation. Pension age in Australia is 65 for men and
between 60 and 65 for women, depending on when they were born. The
Social Security Act 1991 does not set the age of a
self-funded retiree, although the Government has, on occasions,
defined retirees for other forms of compensation payments as those
over 55. One recent example is the self-funded retirees
supplementary bonus which was extended to people over the age of 55
years on 1 July 2000, provided that they met certain qualifying
conditions.(6)
Initial commentary on the Government's budget
measures suggested that the tax benefits might go to all
self-funded retirees. The Opposition accused the Government of
misleading retirees by implying they would all receive the
benefits, when on the Government's own definition, only about 35
per cent of retirees would gain the rebate.(7) The Prime
Minister, Hon John Howard, was reported as dismissing the
objections and saying that the 'normal understanding' of the
expression 'self-funded retiree' is of a person 'who is
self-supporting and who is of pension age or
beyond'.(8)
Amendments to the Income Tax
Assessment Act 1936
Item 1 of Schedule 1 defines
who is eligible to receive a low income rebate. To be eligible
- a man must be aged 65 years or more, and a woman aged 61.5
years or more, OR
- a veteran receiving a service pension or a war widow or widower
receiving an income support supplement from the Department of
Veterans' Affairs, and aged 60 years or more if a man, or 56.5
years or more if a woman.
In addition, to be eligible
- an individual must have been an Australian resident for 10
years or have a residence exemption for age pension purposes (an
example might be a refugee who has been an Australian resident for
less than 10 years), AND
- have a level of taxable income specified in regulations
(item 2).
- People who are in gaol are not eligible.
The effect of the amendment included in
item 2 of Schedule 1 is that all
low income aged persons, whether they are pensioners or self-funded
retirees, will be covered by the one rebate.
Item 4 of Schedule
1 amends subsection 160AAAB(2). The amendment has the
effect of providing that trustees of beneficiaries who receive a
service pension, allowance or benefit from the Department of
Veterans' Affairs and who have reached pension age, are entitled to
the same rebate as trustees of a beneficiary who is a low income
aged person under the Social Security Act 1991.
Item 5 provides that the levels of taxable income
where a trustee qualifies for a rebate under section 160AAAB will
be specified in regulations.
Item 11 provides that the
amendments made by Schedule 1 will apply to the
2000-2001 year of income and to all subsequent years of income.
Amendments to the Medicare Levy
Act 1986
Schedule 2 amends the
Medicare Levy Act 1986 to raise the Medicare levy low
income thresholds for senior Australians and certain pensioners who
receive the Commonwealth pension and are under aged pension age.
The effect of the measure is to align the Medicare low income
threshold with the low income aged person's rebate of
$20 000.
The Bill introduces two new definitions into
subsection 3(1) of the Medicare Levy Act 1986. The first
is introduced by item 1. The 'phase-in
limit' sets the limit above which the Medicare levy
is payable at the full rate. It is:
- $21 621 for a person entitled to a low income aged
person's rebate or a pension rebate, where the person has reached
aged pension age
- $17 264 for a person below aged pension age and entitled
to a pension rebate, or
- $14 926 for all other people.
Item 2 defines a
'threshold amount' which set the limit
above which the Medicare levy first becomes payable at the reduced
rate. This is:
- $20 000 for a person entitled to a low income aged
person's rebate or a pension rebate, where the person has reached
aged pension age
- $15 970 for a person below aged pension age and entitled
to a pension rebate, or
- $13 807 for all other people.
Item 8 provides that the
amendments made by Schedule 2 will apply to
assessments for the 2000-2001 income year and later income
years.
Amendments to the Income Tax
Assessment Act 1997
Schedule 3 amends the
Income Tax Assessment Act 1997 to exempt from income tax
the one-off payment of $300 made to all senior Australians and
announced in the 2001-2002 Budget (item 1).
Item 2 provides that the amendment made by
Schedule 3 will apply to the 2000-2001 year
of income and to
later years of income.
- For more information on this measure see the Bills Digest
prepared on the Family and Community Services Legislation Amendment
(One-off Payment to the Aged) Bill 2001 by Ian Ireland, Bills
Digest, no. 134, 2000-01.
- Costello, Hon Peter, Second Reading Speech, Appropriation Bill
(No. 1) 2001-2001, House of Representatives, Debates, 22
May 2001, p. 25755.
- See for example: Annette Sampson, 'Budget 2001: Retirees:
Self-funded become the big winners', Sydney Morning
Herald, 23 May 2001; Tom Allard, 'Budget 2001: Older
Australia: Tax break just the medicine', Sydney Morning
Herald, 23 May 2001; Sid Marris, 'PM defends restrictions on
retiree rebate', Australian, 25 May 2001; Simon Hoyle,
'Tax-free 'threshold' not such a great ride for retirees',
Australian Financial Review, 26 May 2001.
- Costello, Hon Peter, op cit., p. 25755.
- For example: "The Budget was loaded with handouts for
self-funded retirees, who can now earn up to $20,000 a year
tax-free - or up to $32,612 for couples", 'Nothing in it for me: a
worker's lament', Sydney Morning Herald, 25 May 2001.
- A New Tax System (Bonuses for Older Australians) Act
1999.
- Marris, Sid, 'PM defends restrictions on retiree rebate',
Australian, 25 May 2001
- ibid.
Rosemary Bell
1 August 2001
Bills Digest Service
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ISSN 1328-8091
© Commonwealth of Australia 2000
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2001.
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