Bills Digest no. 117 2007–08
Tax Laws Amendment (Medicare Levy and Medicare Levy
Surcharge) Bill 2008
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
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Tax
Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Bill
2008
Date
introduced: 27 May
2008
House: House of Representatives
Portfolio: Treasury
Commencement:
Royal
Assent
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The Bill proposes increases to
the Medicare levy low-income thresholds for individuals and
families, and to the low-income threshold in the Medicare levy
surcharge provisions, to ensure that low-income individuals and
families will continue not being required to pay the Medicare levy
or surcharge.
The amendments will apply to the 2007 08 year and later years of
income.
The Bill amends the Medicare Levy
Act 1986 (MLA 1986) to raise the Medicare levy low income
threshold amounts and phase-in limits for individuals, families and
pensioners below age pension age, and amends the A New Tax
System (Medicare Levy Surcharge-Fringe Benefits) Act 1999
(MLS-FBA 1999) to increase the Medicare levy surcharge low income
threshold. The increases are in line with movements in the consumer
price index (CPI).[1]
When Medicare was introduced in 1984, the scheme was part-funded
by the imposition of a Medicare levy, originally set at one per
cent of taxable income, with a low income cut-off threshold below
which no levy was payable. In 1995, the Medicare levy was increased
to its current level of 1.5 per cent of taxable income.
The Medicare levy surcharge is an additional one per cent
surcharge on taxable income imposed on high-income earners who do
not have private hospital insurance, currently set at $50 000
for individuals and $100 000 for couples and families.
Increases to the surcharge thresholds are proposed in a separate
Bill.[2]
The Medicare levy and surcharge only partially fund the total
cost of Medicare. In 2006 07, the levy and surcharge raised around
$7.2 billion in revenue, while the cost of Medicare for the same
period was $17.2 billion.[3]
There are exemptions for low income earners for the Medicare
levy and the Medicare levy surcharge, as well as phase-in limits
which only apply to the levy. These are detailed below.
The taxable income levels below which no Medicare levy is
payable (known as the low income thresholds) are regularly adjusted
in line with movements in the CPI, with different low income
threshold levels set for individuals, families (including couples
with no children) and pensioners under age pension age.
The MLA 1986 also provides for a phasing-in or shading out range
wherein the Medicare levy applies, but at a reduced rate. For
individual taxpayers 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 vary depending on
the number of children. The MLA 1986 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 as set out in Table 1.1 of the Explanatory
Memorandum to the Bill (reproduced on pages 4 and 5 of this digest)
for the 2007 08 taxation year.
As noted above, the surcharge is a one per cent surcharge on
high income earners where they do not hold private hospital
insurance and is paid in addition to the Medicare levy.
The surcharge also applies to reportable fringe benefits in certain
cases.
The surcharge applies to both individual and family taxable
income where the taxpayers do not hold private hospital cover. For
individuals, the surcharge currently applies when their taxable
income exceeds $50 000, while for families, the surcharge
applies when their combined taxable income exceeds $100 000.
Phasing-in or shading-out ranges do not apply to the Medicare levy
surcharge. A separate bill, the Tax Laws Amendment (Medicare Levy
Surcharge Thresholds) Bill 2008 proposes increases to these
surcharge thresholds.[4]
An individual family member maybe exempt from paying the
surcharge if their 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 increase the Medicare levy surcharge low
income exemption threshold to $17 309, in line with the
increase in the Medicare levy low income threshold as shown in the
table in the Explanatory Memorandum (and reproduced below). The
current threshold levels (2006 07) are shown in parentheses.
Table: 2007 08 Medicare levy low-income threshold
amounts and shading-in ranges
|
Category of
taxpayer
|
No levy payable if
taxable income or family income does not exceed
(figure for 2006 07)
|
Reduced levy if
taxable income or family income is within range
(inclusive)
|
Ordinary rate of
levy payable where taxable income or family income exceeds
(figure for 2006 07)
|
|
Individual taxpayer
|
$17,309 ($16,740)
|
$17,310 $20,363
|
$20,363 ($19,694)
|
|
Pensioner under age
pension age
|
$22,922 ($21,637)
|
$22,923 $26,967
|
$26,967 ($25,455)
|
|
Families[5] with the following children/and or
students
|
(family income)
|
(family income)
|
(family income)
|
|
0
|
$29,207 ($28,247)
|
$29,208 $34,361
|
$34,361 ($33,231)
|
|
1
|
$31,889 ($30,841)
|
$31,890 $37,516
|
$37,516($36283)
|
|
2
|
$34,571 ($33,435)
|
$34,572 $40,671
|
$40,671 ($39,335)
|
|
3
|
$37,253 ($36,029)
|
$37,254 $43,827
|
$43,827 ($42,387)
|
|
4
|
$39,935 ($38,623)
|
$39,936 $46,982
|
$46,982 ($45,438)
|
|
5
|
$42,617 ($41,217)
|
$42,618 $50,137
|
$50,137 ($48,490)
|
|
6
|
$45,299[6] ($43,811)
|
$45,300[7] $53,292[8]
|
$53,292[9] ($$51,542)
|
This measure was announced in the 2008 09 Budget.[10]
The projected cost to the government in foregone revenue over
four years is $170 million over the forward estimates, as shown in
the following table.[11]
|
2007
08
|
2008
09
|
2009
10
|
2010
2011
|
2011
12
|
|
|
$65m
|
$35m
|
$35m
|
$35m
|
Item 1 proposes to amend the Medicare levy
surcharge provisions in MLS-FBA 1999, so that the
individual low income threshold amount would be increased to $17
309.
Items 2 and 3 propose to amend the definitions
of phase-in limits in the MLA 1986, [12] so that for certain pensioners
who are under the age pension age,[13] the phase-in limit would be increased
to $26 967, and for certain other individuals,[14] that limit would be
increased to $20 363.
Items 4 and 5propose to amend the definitions
of threshold amount in the MLA 1986,[15] so that for certain pensioners who
are under the age pension age,[16] the threshold amount would be increased to
$22 922, and for certain other individuals,[17] that amount would be increased
to $17 309.
Items 6, 7 and
8 propose to amend the level of family income
threshold in the MLA 1986,[18] so that the threshold amount for a person with a spouse
or dependants would be increased to $29 207, and that amount
would be increased by $2682 for each dependant child or student of
that person.[19]
Items 9, 10, 11 and 12 propose
to amend the MLA 1986,[20] so that the surcharge level threshold on taxable income
would be increased to $17 309 for certain individuals who are
either married or are trustees thereof.
Item 13 specifies that these amendments would
apply to income tax assessments for the 2007 08 financial year and
later years.
Concluding comments
The amendments proposed in this Bill increase the low income
threshold amounts and phase-in limits for the Medicare levy and
surcharge in line with changes to the CPI.
Amanda Biggs
2 June 2008
Bills Digest Service
Parliamentary Library
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