Bills Digest No. 153 2001-02
Taxation Laws Amendment (Medicare Levy and Medicare Levy
Surcharge) Bill 2002
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
Taxation Laws Amendment (Medicare Levy
and Medicare Levy Surcharge) Bill 2002
Date Introduced: 14 May 2002
House: House of Representatives
Portfolio: Treasury
Commencement: On Royal Assent
Purpose
The stated aims
of the Taxation Laws Amendment (Medicare Levy and Medicare Levy
Surcharge) Bill 2002 ( the Bill ) are:
-
- To increase the Medicare levy low income thresholds for
individuals, married people and sole parents, in line with
movements in the Consumer Price Index;
-
- To increase the Medicare levy low income threshold for
pensioners below the age pension age, to ensure that where those
pensioners do not have an income tax liability they will also not
have a Medicare levy liability;
-
- To increase the Medicare levy surcharge low income threshold,
in line with movements in the Consumer Price Index; and
-
- To allow a family income threshold to apply to a taxpayer where
s/he is entitled to a child-housekeeper rebate or a housekeeper
rebate;
-
- To correct a cross-referencing error in relation to the
Medicare levy.
The changes will be introduced by amending
relevant provisions of the Medicare Levy Act 1986 ( the
ML Act ) A New Tax System (Medicare Levy Surcharge
Fringe Benefits Act) 1999 ( the MLS-FB Act ) and the
Income Tax Assessment Act 1936 ( the ITA Act
).
These changes were announced in the 2002-03
Federal Budget. They are expected to cost revenue $42.8 million in
2002-03, $21.4 million in 2003-04, $21.4 million in 2004-05 and
$21.4 million in 2005-06.(1)
Background(2)
Since 1984, Australian residents have been
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
2001-2002 income year is 1.5% of taxable income.(3)
Since the Medicare levy was introduced in 1984,
low income individuals and families have been exempt from paying
the levy. The taxable income levels below which the exemptions
apply (the low income exemption threshold) is regularly adjusted in
line with movements in the CPI.(4) Different low income
exemption thresholds apply for individuals, married people and
single parents.(5) The threshold for people with
dependant children increases by a set amount per child.
Where an individual, married person or single
parent's taxable income is within a certain range above the low
income exemption threshold, the Medicare levy applies, but at a
reduced rate. This is known as 'shading-out' the exemption. Above
the low income exemption threshold, but below what is termed the
phase-in limit, the Medicare levy is payable at a maximum rate of
20 cents in every dollar where the taxable income exceeds the low
income exemption threshold. The phase-in limit varies according to
whether the taxpayer is single or married, and increases by a
specified amount according to the number of dependant children. The
phase-in limit is also regularly adjusted in line with movements in
the CPI.
This Bill will increase both the low income
exemption thresholds and the phase-in limits that apply to
individuals, married people, single parents and pensioners below
age pension age, for the 2001-02 year of income and subsequent
years. The increases are set out in a table provided in the
Explanatory Memorandum to the Bill.(6) The
current figures for 2000-01 are shown in parentheses in the
table.
Since 1 July 1997, a Medicare levy surcharge of
one percent has been imposed on certain higher income earners
without private patient hospital insurance. Different income
thresholds apply for the purpose of this surcharge, depending on
whether the taxpayer is married and/or has dependants. Both taxable
income and reportable fringe benefits are assessed to determine
whether a taxpayer reaches the applicable income threshold. The
income thresholds above which the Medicare levy surcharge applies
are not routinely indexed to movements in the CPI, nor do
'shade-out' ranges apply.
This Bill will increase the Medicare levy
surcharge exemption threshold, in line with the individual low
income exemption threshold for the Medicare levy. (if any)
Subsection 7(1) of the ML Act provides
that no Medicare 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 ML Act.
Item 6 of Schedule 1 of the
Bill changes the threshold amount specified in paragraph (c) of
that subsection 3(1) definition, increasing it from $13 807 to
$14 539. This raises the threshold amount applicable to
individual taxpayers.
Item 5 of Schedule 1 changes
the threshold amount specified in paragraph (b) of that subsection
3(1) definition, increasing it from $15 970 to $16 570.
This change ensures that pensioners who are under age pension age
will not have a Medicare levy liability where they have no income
tax liability.
Subsections 8(5)-(7) of the ML Act
establish the low income threshold at, or below, which married
people and those with dependants are not liable to pay the Medicare
levy. Items 7, 9 and 10 of Schedule 1 will
increase this family income threshold from $23 299 to
$24 534. Item 8 of Schedule 1 will increase
the family income threshold by a further $2253 for each dependent
child or student, instead of the current $2 140 per dependant.
Item 15 of Schedule 1 provides
that these changes to the Medicare levy low income thresholds apply
to assessments for the 2001-02 year of income and to later years of
income.
Subsection 7(2) of the ML Act provides
that the Medicare levy is payable at a reduced rate where a
taxpayer has a taxable income above the threshold amount, but not
more than the phase-in limit specified in subsection 3(1) of the
ML Act.
Item 4 of Schedule 1 of the
Bill changes the phase-in limit for individual taxpayers to whom
paragraph (c) of that subsection 3(1) definition applies,
increasing the phase-in limit from $14 926 to
$15 717.
Item 3 of Schedule 1 changes
the phase-in limit for pensioners who are under age pension age to
whom paragraph (b) of the subsection 3(1) definition applies,
increasing the phase-in limit from $17 264 to
$17 913.
Subsection 8(2) of the ML Act
establishes a formula that limits the Medicare levy payable by
married people and those with dependants, to 20% of the amount by
which their family income exceeds their family income threshold.
The increases in the family income threshold already discussed -
i.e. the changes introduced by Items 7-10 of
Schedule 1 - will raise the lower end of the income range
within which a reduced Medicare levy is payable.(7)
Item 15 of Schedule 1 provides
that these changes to the phase-in limits apply to assessments for
the 2001-02 year of income and to later years of income.
Items 11 to 14 of Schedule 1 of
the Bill increase the individual low income threshold amount in the
Medicare levy surcharge provisions, in relation to the surcharge
payable in respect of taxable income. The relevant provisions are
paragraph 8D(3)(c), subparagraph 8D(4)(a)(ii) and paragraph
8G(2)(c) of the ML Act. The threshold amount will increase
from $13 807 to $14 539.
Items 1 and 2 of Schedule 1
increase the individual low income threshold amount in the Medicare
levy surcharge provisions, in relation to the surcharge payable in
respect of reportable fringe benefits. The relevant provisions are
sections 15 and 16 of the MLS_FB Act. This threshold
amount will also increase from $13 807 to $14 539.
Item 15 of Schedule 1 provides
that these changes to the individual low income threshold amount
for the purpose of the Medicare levy surcharge apply to assessments
for the 2001-02 year of income and to later years of income.
Schedule 2 of the Bill
introduces two further changes, described as minor technical
amendments .
The first of these is contained in Items
4-7 of Schedule 2. These items amend paragraphs 8(1)(b),
8(1)(d), 8(2)(b) and 8(2)(d) of the ML Act. The effect of
these changes is that where a taxpayer is entitled to a
child-housekeeper or housekeeper rebate, the taxpayer is also
allowed a family income threshold for the purposes of calculating
his or her Medicare levy liability. Item 8 of Schedule
2 provides that this change applies to assessments for the
2000-01 year of income and later years of income.
The second amendment is contained in
Items 1 and 2 of Schedule 2.
These items amend paragraph 251U(1)(cb) and subparagraph
251U(1)(cc)(ii) of the ITA Act, to correct a
cross-referencing error:(8)
[The amendment will] correct references to the
[Veterans Entitlement Act 1986] as a result of the
references being repealed in 1997 when new Schedule 6 [to that Act]
was created. The amendment will ensure that the classes of
taxpayers that were previously prescribed persons in respect of
Medicare levy will continue to be prescribed persons .This
amendment is purely technical in nature and is designed to correct
a cross-referencing error which has occurred as a result of the
1997 amendment [to that Act]. The method used for calculating the
pension rate has not changed and this amendment merely corrects
references to the [Veterans Entitlement Act 1986] (as
amended). This amendment will not have any detrimental effect.
Item 3 of Schedule 2 provides
that this change applies to assessments for the 1997-98 year of
income and later years of assessment i.e. this change is
retrospective in application.
-
- Explanatory Memorandum, p. 4.
- The Background section of this Digest draws to an extent on the
Bills Digest by Katrine Del Villar on the Medicare Levy Amendment
(CPI Indexation) Bill (No 2) 2000 (Bills Digest No 74 of 2000 01).
- Medicare Levy Act 1986, s 6.
- See Medicare Levy Amendment Bill (No 2) 1997, Medicare Levy
Amendment (CPI Indexation) Bill 1999, Medicare Levy Amendment (CPI
Indexation) Bill (No 2) 2000. Almost a decade ago, the (then)
Leader of the Australian Democrats noted that [i]t is normal
practice to increase the Medicare levy low income threshold at
every budget, and that is what we are doing. Thank goodness that
for once there is something we are not fighting about : Senate
Hansard, 19 October 1993, p. 2145.
- See Medicare Levy Act 1986, s 8(1).
- Explanatory Memorandum, p. 8 (Table 1.1).
- See further Explanatory Memorandum, p. 8 (Table 1.1).
- Explanatory Memorandum, pp. 9 10.
Natasha Cica
29 May 2002
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
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