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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