Bills Digest no. 99 2014–15
PDF version [649KB]
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.
Bernard Pulle and Kai Swoboda
Economics Section
11 May 2014
Contents
The
Bills at a glance
Current position and proposed changes
Committee consideration
Policy position of non-government parties/independents
Position of major interest groups
Financial implications
Statement of Compatibility with Human Rights
Key issues and provisions
Date introduced: 26
March 2015
House: House of
Representatives
Portfolio: Treasury
Commencement: 1 July
2016.
Links: The links to the Bills, their
Explanatory Memoranda and second reading speeches can be found on the Bills’
home pages for the Tax
and Superannuation Laws Amendment (Norfolk Island Reforms) Bill 2015 and
the A
New Tax System (Medicare Levy Surcharge—Fringe Benefits) Amendment Bill 2015,
or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent, they
become Acts, which can be found at the ComLaw
website.
The Tax and Superannuation Laws
Amendment (Norfolk Island Reforms) Bill 2015 and the A New Tax System (Medicare
Levy Surcharge—Fringe Benefits) Amendment Bill 2015 are part of a package of
eight Bills. The package proposes reforms to the governance arrangements for
Norfolk Island and the extension of mainland social security, health, Medicare,
immigration and taxation arrangements to the Island.
The package of Bills is dealt with in three Bills Digests.
An overview of the purpose of the whole package is to be
found in the Bills Digest for the main Bill, the Norfolk Island Legislation
Amendment Bill 2015.[1]
Most of the substantive changes to governance, social security, health and
immigration arrangements are made by that Bill.
The Bills that are the subject of this Bills Digest
concern taxes and levies and, for Constitutional reasons, must be separate.[2]
The purpose of the Tax
and Superannuation Laws Amendment (Norfolk Island Reforms) Bill 2015[3]
is to amend the Income Tax Assessment Act 1997 (ITAA 1997), the Income
Tax Assessment Act 1936 (ITAA 1936), the Income Tax (Transitional
Provisions) Act 1997 and the Superannuation Guarantee (Administration)
Act 1992 (SGAA) to:
-
repeal the income tax exemptions that apply to Norfolk Island
resident individuals, companies and trustees in relation to their Norfolk
Island sourced income and their foreign sourced income
- fix a date of 30 July 2016 as the assumed date of
acquisition for capital gains tax (CGT) assets not previously subject to
Australian income tax
- repeal
the Medicare levy exemptions that apply to Norfolk Island residents
- repeal the superannuation guarantee charge exemptions that apply
to Norfolk Island employers and employees in relation to work performed on
Norfolk Island and
- establish
transitional arrangements to phase in the superannuation guarantee charge over
a 12-year period.
The purpose of the A
New Tax System (Medicare Levy Surcharge—Fringe Benefits) Amendment Bill 2015[4]
is to amend the A New Tax System (Medicare Levy Surcharge —Fringe Benefits)
Act 1999 to repeal the current exemption of residents of Norfolk Island
from paying the Medicare levy surcharge.
A third Bills Digest for the five Bills that relate to
consequential amendments to extend health and aged care related tax and levy
measures to Norfolk Island covers these Bills:
- Aged
Care (Accommodation Payment Security) Levy Amendment (Norfolk Island) Bill 2015
- Health
and Other Services (Compensation) Care Charges Amendment (Norfolk Island) Bill
2015
- Health Insurance (Approved Pathology Specimen Collection Centres)
Tax Amendment (Norfolk Island) Bill 2015
- Health
Insurance (Pathology) (Fees) Amendment (Norfolk Island) Bill 2015 and
- Private
Health Insurance (Risk Equalisation Levy) Amendment (Norfolk Island) Bill 2015.[5]
Tax and Superannuation Laws
Amendment (Norfolk Island Reforms) Bill 2015
The Bill proposes to remove a number of specific exemptions
from income tax, the Medicare Levy and the superannuation guarantee charge that
apply to residents of Norfolk Island. The Bill also introduces transitional
arrangements for capital gains tax and the superannuation guarantee to
facilitate their introduction.
Income tax and capital gains tax
The Australian income tax system extends to Norfolk Island
and includes Norfolk Island as part of Australia. However, there are specific exemptions
for certain Norfolk Island residents for their income sourced from Norfolk
Island and from outside Australia.[6]
These exemptions also apply to Norfolk Island resident
companies, so that dividend distributions are unfrankable (that is, a recipient
of a distribution cannot claim a credit for tax already paid by the company).[7]
Administrative arrangements relating to these exemptions include that a tax
file number (TFN) is deemed to have been given by a recipient to an investment
body (such as a bank) or to their employer where the income they receive from
that body or employer is exempt from Australian income tax.[8]
For Australia generally, capital gains tax (CGT) is a tax
applied at an individual’s marginal income tax rate to the difference between the
purchase price and sale price of a CGT asset. For CGT assets acquired before
CGT was introduced, the purchase price is calculated at 20 September 1985,
the date on which the CGT first applied.[9]
A CGT was applied to the Cocos (Keeling) Islands from 30 June 1991.[10]
The implementation of a CGT for Norfolk Island will require a nominated start
date so that capital gains can be calculated as applying from that date. That
date is 1 July 2016.
This Bill removes exemptions relating to Norfolk Island
residents and amends arrangements so that dividend distributions and
requirements for TFNs are consistent with those arrangements that apply to
Australian taxpayers generally.
Medicare Levy
The Medicare Levy (currently two per cent) is imposed
on taxable income subject to certain conditions, including income thresholds.
Under current arrangements, Norfolk Island residents are given a specific
exclusion in the ITAA 1936 from the payment of the Medicare Levy.[11]
Individual taxpayers identify themselves in their annual tax
return as being exempt from the Medicare Levy as a resident of Norfolk Island.[12]
The Tax and Superannuation Laws Amendment (Norfolk Island
Reforms) Bill 2015 would remove this exemption.[13]
While Norfolk Island residents are exempt from the Medicare
Levy, they do pay a separate ‘Norfolk Island Healthcare Levy’ and a ‘Medivac
Levy’ to the Norfolk Island administration to partly fund the provision of health
services. Around 1,300 people on Norfolk Island currently pay these levies.[14]
Economic modelling of the impact of imposing the Medicare
levy on Norfolk Island residents included the assumption that, on the
introduction of Medicare the Norfolk Island Healthcare Levy and Medivac Levy would
be made redundant.[15]
In late 2014, the Administrator of Norfolk Island confirmed that the Medicare
Levy would replace the Norfolk Island health levy of $1,200 per year as part of
the proposed changes.[16]
The economic modelling assumed that households would lose
income through the payment of the Medicare Levy but avoid out of pocket health
care costs and the payment of the Healthcare Levy and the Medivac Levy. The
change was expected to produce benefits in 2023–24 of a 21 per cent
increase in consumption, a six per cent increase in employment and an eight per
cent increase in economic activity.[17]
Superannuation guarantee
Under the SGAA, employers are generally liable to
make quarterly superannuation contributions on behalf of their employees
(subject to certain exemptions) at a specified proportion of their wages or
salary. If they do not do so, an employer is liable to pay the Australian
Taxation Office an equivalent superannuation guarantee charge plus a penalty
for any shortfall.
Specific exemptions for the application of the
superannuation guarantee to Norfolk Island were only recently inserted into the
SGAA by the Treasury
Legislation Amendment (Repeal Day) Act 2015 (Repeal Day Act 2015).[18]
It included the provisions—now proposed for repeal in this Bill—as part of a
broader package of changes to simplify the meaning of ‘Australia’ for the
purposes of the income tax law.
Under these provisions, salary or wages paid to an
employee who is a resident of Norfolk Island for work done in Norfolk Island or
outside Australia are exempt.[19]
Salary or wages paid by an employer who is a resident of Norfolk Island to an
employee who is a resident of Australia for work done in Norfolk Island are
also exempt.[20]
The inclusion of these new specific exemptions for Norfolk
Island, by the Repeal Day Act 2015, did not however have any material
impact as the SGAA, as previously drafted, did not extend to Norfolk
Island, but only to the Cocos (Keeling) Islands and the Territory of Christmas
Island (see superseded drafting of section 4 of the Act).[21]
This was confirmed by the Australian Taxation Office in a tax determination
issued in 1994:
Does the Superannuation Guarantee (Administration) Act
1992 (SGAA) apply to Norfolk Island?
1. No. Legislation has no effect on an external territory
unless the legislation makes clear provision for such an effect. The only clear
provision made in the SGAA is in section 4 which provides that the SGAA extends
to the Territories of Cocos (Keeling) Islands and Christmas Island and has
effect as if those Territories were part of Australia. Therefore, the SGAA does
not extend to Norfolk Island.
2. Accordingly, the SGAA does not apply to salary or wages
paid by a Norfolk Island resident employer to a Norfolk Island resident employee
for work done in Norfolk Island.[22]
Changes proposed by the Tax and Superannuation Laws
Amendment (Norfolk Island Reforms) Bill 2015 would remove this exemption and
put in place a transitional schedule to phase in the superannuation guarantee
rate over a 12-year period.[23]
An analysis that examined the economic impact of
implementing a range of tax and other changes for Norfolk Island noted that
under current arrangements, some employers on Norfolk Island already implement
a superannuation type scheme and that the imposition of the Australian
superannuation guarantee would not necessarily equate to an equivalent increase
in net labour costs for all sectors.[24]
Modelling indicated that the impact of imposing the
superannuation guarantee (assuming the burden was shared equally by employers
and employees) would differ across employers, from the application of the full
9.5 per cent for private employers (where no contribution was previously
paid) to 3.8 per cent for public employers.[25]
The economic impact of the superannuation changes (modelled as part of other
tax and welfare changes) was for employers to experience higher wage rates,
contracting employment and a decline in economic activity of around three to
four per cent. Households would however have higher disposable income in
retirement and hence lead to higher future consumption.[26]
A New Tax System (Medicare Levy
Surcharge—Fringe Benefits) Amendment Bill 2015
The Medicare Levy Surcharge is imposed on taxpayers who do
not have an appropriate level of private patient hospital cover for any period
during the year that they did not have this cover. The surcharge is imposed by
the A New Tax System (Medicare Levy Surcharge—Fringe Benefits) Act 1999
on the ‘reportable fringe benefits total’.[27]
This Bill makes amendments to remove the exemption from the
Medicare surcharge for Norfolk Island residents consequent upon the repeal of
Norfolk Island’s Medicare levy exemption by the Tax and Superannuation Laws
Amendment (Norfolk Island Reforms) Bill 2015. These changes apply from 1 July
2016.
On 26 March 2015, the Senate Selection of Bills
Committee recommended that the Norfolk Island package of Bills not be referred
to a committee.[28]
The Committee’s report was subsequently endorsed by the Senate on the same day.[29]
Senate Standing Committee for the
Scrutiny of Bills
At the time of writing the Senate Standing Committee for
the Scrutiny of Bills had not reported on the Bill. [30]
Parliamentary Joint Committee on
Human Rights
At the time of writing the Parliamentary Joint Committee on
Human Rights had not reported on the Bill. [31]
For these two Bills, no public statements by
non-government parties and independents have been found. See the Bills Digest
for the Norfolk Island Legislation Amendment Bill 2015, for an overview of the
responses of non‑government parties and independents to the proposed
reforms in governance arrangements more broadly.[32]
For these two Bills, no public statements by major
interest groups have been found. See the Bills Digest for the Norfolk Island
Legislation Amendment Bill 2015, for an overview of the positions of major
interest groups to the broader reforms.[33]
The total Norfolk Island reform package is estimated to
cost the Commonwealth $136.2 million over the forward estimates, according the
Explanatory Memorandum.[34]
However, potential revenue from the collection of levies and taxes is not
separately identified.
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed these
Bills’ compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The
Government considers that these Bills are compatible.[35]
Tax and Superannuation Laws
Amendment (Norfolk Island Reforms) Bill 2015
Schedule 1—Removing income tax and
Medicare Levy exemptions and capital gains tax transitional arrangements
Item 1 of Schedule 1 of the Bill repeals
existing Division 1A of Part III of the ITAA 1936, which establishes the
arrangements for exempting certain Norfolk Island residents from income tax for
their income sourced from Norfolk Island and from outside Australia.[36]
The repeal of this exemption requires a number of consequential amendments
which rely on this Division to provide certain arrangements for Norfolk Island
residents. This change applies from the 2016–17 income year onwards (item 19).
Capital gains tax
Item 18 amends the Income Tax (Transitional
Provisions) Act 1997 (ITTPA) to insert proposed section 102-25.[37]
This new section provides a transitional arrangement for the imposition of
capital gains tax (CGT) for entities resident in Norfolk Island so that CGT
only applies to capital gains that accrue after 1 July 2016 unless those
assets were already subject to Australian income tax.[38]
Items 10 to 13 are consequential to this and
amend the ITAA 1997 make references to the transitional arrangements in
the ITTPA.[39]
Exemptions for Norfolk Island
residents to quote their tax file number
Item 4 repeals section 202EF of the ITAA 1936
which provides that a recipient is taken to have quoted a TFN where their
eligible pay as you go (PAYG) payments would be exempt from income tax under
the existing Division 1A of Part III (proposed for repeal by this Bill by item
1).
With the proposed repeal of section 202EF, items 2
and 3 are consequential, removing references to this section under
provisions relating to the quotation of TFNs for indirectly held investments.
Unfrankable distributions
Item 15 of Schedule 1 repeals paragraph
202-45(b) of the ITAA 1997. Section
202-45 lists types of distributions by corporate entities that are unfrankable.
Paragraph 202-45(b) provides that a distribution by certain corporate
tax entities from sources in Norfolk Island are unfrankable.
Medicare Levy
Items 5 to 8 of the Bill are consequential
amendments to remove references to the exemptions created under Division 1A
that is repealed by item 1 of Schedule 1.
Schedule 2—Superannuation guarantee
Item 1 of Schedule 2 of the Bill repeals
paragraphs 27(1)(b) and (c) of the SGAA, which provide the exemption from
the superannuation guarantee charge for certain salary or wages paid to Norfolk
Island employees.[40]
Item 2 establishes a transitional arrangement to
incrementally increase the superannuation guarantee charge for ‘Norfolk Island
salary or wages’. It starts at one per cent for the year commencing on
1 July 2016 and increases by one percentage point each July until it
reaches the rate of 12 per cent, as legislated in the SGAA for
2027–28 (Figure 1). The definition of ‘Norfolk Island salary or wages’ covers
salary or wages that were previously exempt from the superannuation guarantee.
Figure 1 Transitional superannuation guarantee rate for
Norfolk Island salary or wages, 2016–17 to 2027–28
Source: Explanatory Memorandum, p. 72.
A New Tax System (Medicare Levy
Surcharge—Fringe Benefits) Amendment Bill 2015
Section 10 of Part 2 of the A New Tax System (Medicare
Levy Surcharge—Fringe Benefits) Act 1999 imposes the Medicare Levy
surcharge on reportable fringe benefits.[41]
Subsection 10(3) provides an exception for residents of
Norfolk Island.
Item 3 of Schedule 1 repeals subsection
10(3) to remove the current exemption given to residents of Norfolk Island.
Item 4 of Schedule 1 provides that the
amendments apply in relation to the 2016–17 year of income and later income
years.
Members, Senators and Parliamentary staff can obtain
further information from the Parliamentary Library on (02) 6277 2500.
[1]. The
Bills Digest is available at the Bill homepage - see Parliament
of Australia, ‘Norfolk
Island Legislation Amendment Bill 2015 homepage’, Australian Parliament
website, accessed 7 May 2015.
[2]. Section
55 of the Australian Constitution provides that ‘Laws imposing taxation
shall deal only with the imposition of taxation, and any provision therein
dealing with any other matter shall be of no effect’.
[3]. Parliament
of Australia, ‘Tax
and Superannuation Laws Amendment (Norfolk Island Reforms) Bill 2015 homepage’,
Australian Parliament website, accessed 8 May 2015.
[4]. Parliament
of Australia, ‘A
New Tax System (Medicare Levy Surcharge—Fringe Benefits) Amendment Bill 2015
homepage’, Australian Parliament website, accessed 8 May 2015.
[5]. A
Biggs and A Grove, Aged
Care (Accommodation Payment Security) Levy Amendment (Norfolk Island) Bill 2015
[and associated Health and Aged Care Bills], Bills digest, 98, 2014–15,
Parliamentary Library, Canberra, 2015, accessed 8 May 2015.
[6]. Income Tax Assessment
Act 1936, Part III Division 1A (Provisions relating to certain external
territories), accessed 29 April 2015.
[7]. Income Tax Assessment
Act 1997, paragraph 202-45(b), accessed 8 May 2015.
[8]. Income Tax Assessment
Act 1936, sections 202DD (Investor excused from quoting tax file number
in certain circumstances), 202DDB and 202EF, accessed 29 April 2015.
[9]. The
decision to implement a capital gains tax regime was announced on this date by
the Treasurer. Legislation was subsequently passed in mid-1986 (the Income Tax Assessment
Amendment (Capital Gains) Act 1986, accessed 30 April 2015).
[10]. Taxation Laws Amendment
Act (No. 2) 1991, accessed 30 April 2015.
[11]. Income Tax Assessment
Act 1936, sections 251S, 251T and 251U, accessed 29 April 2015.
[12]. Australian
Taxation Office (ATO), ‘Individual
tax return instructions 2014: M1 Medicare levy reduction or exemption 2014’,
ATO website, accessed 8 April 2015.
[13]. Tax
and Superannuation Laws Amendment (Norfolk Island Reforms) Bill 2015, Schedule
1, items 5, 6, 7 and 8.
[14]. Centre
for International Economics (CIE), Final
report: economic impact of Norfolk Island reform scenarios,
prepared for the Department of Infrastructure and Regional Development,
November 2014, p. 14, accessed 29 April 2015.
[15]. Ibid.,
p. 31.
[16]. G
Hardgrave (Administrator of Norfolk Island), Norfolk
Island reforms, media release, 4 December 2014, accessed
29 April 2015.
[17]. Centre
for International Economics, op. cit., pp. 46–47.
[18]. Treasury Legislation
Amendment (Repeal Day) Act 2015, accessed 8 May 2015.
[19]. Superannuation Guarantee
(Administration) Act 1992, subparagraph 27(1)(b)(ii), accessed 8 May
2015.
[20]. Superannuation
Guarantee (Administration) Act 1992, subparagraph 27(1)(c)(ii).
[21]. Superannuation
Guarantee (Administration) Act 1992 (as at
20 February 2015), section 4, accessed 8 May 2015.
[22]. Australian
Taxation Office (ATO), ‘Superannuation
Guarantee Determination: does the Superannuation Guarantee (Administration) Act
1992 (SGAA) apply to Norfolk Island?’, ATO
website, SGD 94/3, p. 1, accessed 6 May 2015.
[23]. Tax
and Superannuation Laws Amendment (Norfolk Island Reforms) Bill 2015, Schedule
2, items 1 and 2.
[24]. CIE,
Final
report: economic impact of Norfolk Island reform scenarios, op.
cit., p. 32.
[25]. Ibid.,
pp. 32–33. The modelling however used a different schedule for the phased
increase in the superannuation guarantee rate of three per cent in 2016–17
to reach 9.5 per cent in 2021.
[26]. Ibid.,
p. 47.
[27]. A New Tax System
(Medicare Levy Surcharge—Fringe Benefits) Act 1999, section 10,
accessed 5 May 2015. The term ‘reportable fringe benefits total’ is
defined in the Fringe
Benefits Tax Assessment Act 1986 (Part XIB) and generally covers the
grossed up value of the sum of an employee’s individual fringe benefits amount
from all of their employers.
[28]. Senate
Selection of Bills Committee, Report
No. 4 for 2015, The Senate, 26 March 2015, p. 3, accessed
6 May 2015.
[29]. Australia,
Senate, Journals,
90, 26 March 2015, p. 2458, accessed 5 May 2015.
[30]. Senate
Standing Committee on Scrutiny of Bills, Committee
homepage, accessed 8 May 2015.
[31]. Parliamentary
Joint Committee on Human Rights, Committee homepage,
accessed 8 May 2015.
[32]. The
Bills Digest is available at the Bill homepage. See: Parliament of Australia, ‘Norfolk
Island Legislation Amendment Bill 2015 homepage’, Australian Parliament
website, accessed 7 May 2015.
[33]. Ibid.
[34]. Explanatory
Memorandum, p. 8.
[35]. The
Statement of Compatibility with Human Rights can be found on page 9 of the
Explanatory Memorandum to the Bills.
[36]. Income Tax Assessment
Act 1936, accessed 29 April 2015.
[37]. Income Tax (Transitional
Provisions) Act 1997, accessed 9 May 2015.
[38]. The
amendment also includes the existing transitional provision relating to certain
Cocos (Keeling) Islands assets where the CGT asset is deemed to have been
acquired on 30 June 1991.
[39]. Income Tax Assessment
Act 1997, accessed 8 May 2015.
[40]. Superannuation Guarantee
(Administration) Act 1992, accessed 8 May 2015.
[41]. A New Tax System
(Medicare Levy Surcharge—Fringe Benefits) Act 1999, accessed 5 May
2015.
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