Bills Digest no. 156 2008–09
Tax Laws Amendment (Medicare Levy and Medicare Levy
Surcharge) Bill 2009
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
Contact officer & copyright details
Passage history
Date
introduced: 28 May
2009
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. The increases are to ensure that low-income
individuals and families will continue not being required to pay
the Medicare levy or surcharge. The increases are in line with
movements in the Consumer Price Index.
The amendments will apply to the 2008 09 year of income and
later income years.
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. The Bill also 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 in the thresholds and phase-in limits are in line
with increases in the CPI.[1]
Medicare is partly funded by a levy on taxable income. When
Medicare was introduced in 1984, this levy was set at one per cent
of taxable income, with a set low income threshold amount 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 higher income earners who do
not have private patient hospital insurance. The current taxable
income thresholds above which the Medicare levy surcharge is
payable are $70 000 for singles and $140 000 for couples
and families.[2]
The Medicare levy and surcharge only contribute to part of the
total cost of Medicare. In 2007 08, Medicare levy revenue was
around $8 billion while the cost of Medicare for the same period
was around $18.9 billion.[3]
Low income earners are exempted from paying the Medicare levy
and the Medicare levy surcharge. There are also phase-in limits
which apply only to the Medicare levy and not to the surcharge.
The taxable income levels below which no Medicare levy is
payable (the low income thresholds) are specified in the MLA 1986.
These levels are regularly adjusted via legislation in line with
movements in the CPI with different low income thresholds 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
individuals with taxable incomes above the low income threshold but
below what is known as the phase-in limit , the Medicare levy is
payable at a rate of 10 per cent of the amount over the low income
threshold amount.
The low income threshold levels for families vary depending on
their number of children. The MLA 1986 contains a formula that
limits the levy paid by families to 10 per cent of the amount the
family income exceeds their family income threshold.
The Bill proposes to raise the low income thresholds and
phase-in limits for the 2008 09 taxation year as set out in Table
1.1 of the Explanatory Memorandum to the Bill (reproduced below as
Table 1).
The Medicare levy surcharge is a one per cent surcharge on
higher income earners who do not hold private patient hospital
insurance. It 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 patient hospital
insurance. For individuals, the surcharge currently applies when
taxable income exceeds $70 000. For families, the surcharge
applies when their combined taxable income exceeds $140 000.
There are no phasing-in or shading-out ranges for the Medicare levy
surcharge.
Separate bills, the Fairer Private Health Insurance Incentives
Bill 2009, Fairer Private Health Insurance Incentives (Medicare
Levy Surcharge) Bill 2009 and Fairer Private Health Insurance
Incentives (Medicare Levy Surcharge - Fringe Benefits) Bill 2009,
propose to introduce a tiered system of higher income levels for
which the Medicare levy surcharge will be payable, to introduce
increased surcharge rates for the top two income level tiers, and
to expand the definition of income that is assessed for the purpose
of determining whether the surcharge should be paid.[4] These proposed measures
would be applied to income years starting on or after 1 July
2010.
An individual family member may be exempt from paying the
surcharge if their individual income falls below the Medicare levy
low income threshold, even though the family s total taxable income
exceeds the threshold at which the surcharge applies (the partner
or spouse may still be eligible for the surcharge).
The Bill proposes to increase the Medicare levy surcharge low
income exemption threshold to $17 794, in line with the increase in
the Medicare levy low income threshold (see Table 1).
|
Category of
taxpayer
|
No levy
payable if taxable income or family income does not exceed
(figure for 2007 08)
|
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 2007 08)
|
|
Individual
taxpayer
|
$17,794 ($17,309)
|
$17,795 $20,933
|
$20,934 ($20,363)
|
|
Pensioner under age
pension age
|
$25,299 ($22,922)
|
$25,300 $29,762
|
$29,763 ($26,967)
|
|
Families(a)
with the following children and/or students
|
(family income)
|
(family income)
|
(family income)
|
|
0
|
$30,025 ($29,207)
|
$30,026 $35,322
|
$35,323 ($34,361)
|
|
1
|
$32,782 ($31,889)
|
$32,783 $38,566
|
$38,567 ($37,516)
|
|
2
|
$35,539 ($34,571)
|
$35,540 $41,809
|
$41,810 ($40,671)
|
|
3
|
$38,296 ($37,253)
|
$38,297 $45,053
|
$45,054 ($43,827)
|
|
4
|
$41,053 ($39,935)
|
$41,054 $48,296
|
$48,297 ($46,982)
|
|
5
|
$43,810 ($42,617)
|
$43,811 $51,540
|
$51,541 ($50,137)
|
|
6
|
$46,567(b)
($45,299)
|
$46,568(c)
$54,783(d)
|
$54,784(e)
($53,292)
|
- These figures also apply to taxpayers who are entitled (or
would have been entitled had the laws applicable to rebates not
been amended with effect from 1 July 2000) to a sole parent,
child-housekeeper or housekeeper rebate.
- Where there are more than six dependent children or students,
add $2757 for each extra child or student.
- See note (b).
- Where there are more than six dependent children or students,
add $3243 for each extra child or student.
- See note (d).
Source: Explanatory Memorandum, Tax Laws Amendment (Medicare
Levy and Medicare Levy Surcharge) Bill 2009, p. 8.
This measure was announced in the 2009 10 Budget.[5]
The Bill has been referred to the Senate Economics Legislation
Committee for inquiry and report by 16 June 2009.
The estimated cost to the government in foregone revenue over
four years is $205 million, as shown in Table 2.
Source: Explanatory Memorandum, Tax Laws Amendment (Medicare
Levy and Medicare Levy Surcharge) Bill 2009, p. 3.
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 $17 794.
Items 2 and 3 propose to amend the definitions
of phase-in limits in the MLA 1986[6] so that for certain pensioners under age pension
age[7] the phase-in
limit would be increased to $29 763, and for certain other
individuals, that limit would be increased to $20 934.[8]
Items 4 and 5propose to amend the definitions
of threshold amount in the MLA 1986,[9] so that for certain pensioners who are
under the age pension age,[10] the threshold amount would be increased to
$25 299, and for certain other individuals,[11] that amount would be increased
to $17 794.
Items 6, 7 and 8 propose to amend the level of
family income threshold in the MLA 1986,[12] so that the threshold amount for a
person with a spouse or dependents would be increased to
$30 025, and that amount would be increased by $2757
(currently $2682) for each dependant child or student of that
person.[13]
Items 9, 10, 11 and 12propose to amend the MLA
1986[14] so that
the surcharge level threshold on taxable income would be increased
to $17 794 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 2008 09 financial year and
later years.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277
2554.
Michael Klapdor
2 June 2009
Bills Digest Service
Parliamentary Library
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