Bills Digest no. 120 2010–11
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.
Bills Digest Service
23 May 2011
Tax Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Bill 2011
Date introduced: 12 May 2011
House: House of Representatives
Commencement: On Royal Assent
Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.
This Bill proposes amendments to the Medicare Levy Act 1986 (Medicare Levy Act) and the A New Tax System (Medicare Levy Surcharge—Fringe Benefits) Act 1999 (Medicare Levy Surcharge Fringe Benefits Act), so that low-income families and individuals continue to not be liable to pay the Medicare levy or Medicare levy surcharge. The amendments propose to increase the Medicare levy and Medicare levy surcharge low-income thresholds for individuals, families and pensioners below age pension age (for the latter so that it will be in line with their income tax liability), and to increase the phase-in limits that apply. The proposed increases are in line with movements in the Consumer Price Index (CPI).
The amendments will apply to the assessments for the 2010–11 income year and later income years.
Australia’s national health insurance scheme, Medicare—which provides free or subsidised health services to the Australian population—is partly funded by a 1.5 per cent levy on taxable income. Exemptions to paying the levy apply to individuals and families on low-incomes. High income earners who forego purchasing private hospital insurance are also liable for an additional 1 per cent Medicare levy surcharge.
Revenue from the combined Medicare levy and surcharge raised around $8.3 billion in 2010–11, which is around half the cost of Medicare at $16.4 billion.
The low-income threshold amounts, below which no levy is payable, are regularly adjusted in line with movements in the CPI. The low-income threshold levels differ for individuals; families (including couples with no children); and pensioners below age pension age.
The Medicare Levy Act allows for a ‘phase-in’ income range whereby the Medicare levy applies, but at a reduced rate. The phase-in limits for individuals, families and pensioners below pension age are set at different rates. For individuals with incomes above the low-income threshold but below what is called the ‘phase-in limit’, the Medicare levy is payable at a rate limited to 10 per cent of the excess over the low-income threshold amount.
The low-income threshold levels for families will vary depending on the number of children. The Medicare Levy Act contains a formula that limits the levy payable in families to 10 per cent of the amount of family income that exceeds their family income threshold.
The Bill proposes to raise the low-income thresholds and phase-in limits for the 2010–11 taxation year. For individuals, the proposed low-income threshold will be increased to $18 839; for pensioners under pension age, it will be $30 439, and for families it will be $31 789 (without children). The additional amount of threshold for each dependent child will rise to $2919. For more detail, refer to Table 1.1 of the Explanatory Memorandum.
As noted above, the 1 per cent Medicare levy surcharge applies to high income earners who do not hold private hospital insurance. The surcharge also applies to reportable fringe benefits in certain cases.
For the 2010–11 taxation year, the surcharge for individuals applies when their taxable income exceeds $77 000, while for families, the surcharge applies when their combined taxable income exceeds $154 000. The ‘phase-in’ range that applies to the Medicare levy does not apply to the Medicare levy surcharge.
An individual family member, however, may be exempt from paying the surcharge if his or her individual income falls below the Medicare levy low-income threshold, even though the family’s combined taxable income exceeds the threshold at which the Medicare levy threshold applies (although the partner or spouse may still be liable for the surcharge).
This Bill proposes to raise the Medicare levy surcharge individual low-income exemption threshold to $18 839, which keeps it in line with the increase to the Medicare levy low-income threshold as shown in Table 1.1 of the Explanatory Memorandum.
The Senate Selection of Bills Committee has deferred consideration of the Bill until its next meeting.
This measure was announced in the 2011–12 Budget.
The estimated cost to the Government in foregone revenue over the forward estimates to 2014–15, is $125 million.
Item 1 proposes to amend the Medicare Levy Surcharge Fringe Benefits Act, so that the individual low-income threshold amount would be increased from $18 488 to $18 839.
Items 2 and 3 propose to amend the definitions of ‘phase-in limit’ in the Medicare Levy Act so that for certain pensioners below age pension age the phase-in limit would be increased from $32 584 to $35 810, and for certain other individuals, that limit would be increased from $21 750 to $22 163.
Items 4 and 5 propose to amend the definition of ‘threshold amount’ in the Medicare Levy Act, so that for certain pensioners who are below the age pension age the threshold amount would be increased from $27 697 to $30 439, and for certain other individuals, that amount would be increased from $18 488 to $18 839.
Items 6, 7 and 8 propose amendments relating to the definition of ‘family income threshold’ in the Medicare Levy Act, so that the threshold amount for a person with a spouse or dependants would be increased from $31 196 to $31 789, and increased by $2 919 for each dependent of that person.
Items 9, 10, 11 and 12 propose to amend the Medicare Levy Act so that the surcharge level threshold on taxable income would be increased from $18 488 to $18 839 for certain individuals who are either married or are trustees of a trust estate.
Item 13 specifies that these amendments would apply to income tax assessments for the 2010–11 income year and later income years.
Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2514.
For copyright reasons some linked items are only available to members of Parliament.
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