House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. P. J. Keating, M.P.)

GENERAL OUTLINE

TAXATION LAWS AMENDMENT (RATES AND PROVISIONAL TAX) BILL 1990

This Bill will amend two taxation Acts to give effect to a number of proposals :

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the Income Tax Rates Act 1986

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Personal rates of tax for residents

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to declare the rates of tax payable by resident individuals, and trustees generally, to give effect to the announcement in the 21 February 1990 Economic Statement to reduce the rates of tax from 1 January 1991 by -

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increasing the level of the threshold at or below which no tax is payable from $5,100 to $5,400;

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increasing the top of the first rate step from $17,650 to $20,700 and abolishing the 29 per cent rate, so that the 21 per cent rate applies in the income range $5,401 to $20,700;

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reducing the 39 per cent rate to 38 per cent, to apply in the income range $20,701 to $36,000;

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introducing a new rate of 46 per cent to apply in the income range $36,001 to $50,000;

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applying the existing top marginal rate of 47 per cent only to incomes over $50,000.

A table comparing the proposed rates of tax (including changes to the income ranges at which the proposed rates apply) with existing rates is set out below.

A composite rate scale will apply for the 1990-91 financial year. That scale will comprise a weighted average of one- half of the existing rate scale applying from 1 July 1990 to 31 December 1990 and one-half of the proposed new rate scale that is to apply from 1 January 1991 to 30 June 1991.

Personal rates of tax for non-residents

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to declare the rates of tax payable by non-resident individuals, and by trustees in respect of a non-resident beneficiary or non-resident trust estate, to give effect to the 1990-91 Budget announcement to adjust the rates of tax from 1 January 1991 by -

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increasing the top of the first rate step from $20,600 to $20,700 and retaining the existing lowest marginal rate of 29 per cent to apply in the income range $1 - $20,700;

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applying the new rates for residents in the income ranges above $20,700.

A table comparing the proposed rates of tax (including changes to the income ranges at which the proposed rates apply) with existing rates is set out below.

On the same basis as for resident taxpayers a composite rate scale will apply for the 1990-91 financial year.

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the Income Tax Assessment Act 1936

Medical Expenses Rebate

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to reduce the level of the rebate of tax for net medical expenses over $1,000 from 29 per cent to 21 per cent effective for the 1991-92 and subsequent income years (1990- 91 Budget announcement). The level of the rebate for the 1990-91 income year will be 25 per cent.

Provisional Tax

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to provide a method of calculating provisional tax for the 1990-91 and subsequent income years, including the payment of provisional tax on certain salary or wages (1990- 91 Budget announcement).

INCOME TAX AMENDMENT BILL 1990

This Bill will formally impose income tax payable for the 1990-91 financial year and, until the Parliament otherwise provides, the 1991-92 financial year at the rates declared by the Income Tax Rates Act 1986.

MEDICARE LEVY AMENDMENT BILL 1990

This Bill will amend the Medicare Levy Act 1986 -

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to impose a basic rate of Medicare levy of 1.25 per cent for the 1990-91 financial year and, until the Parliament otherwise provides, the 1991-92 financial year; and

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to exempt from the levy individuals with taxable incomes of $11,745 or less and families and sole parents with family incomes of $19,045 or less; the family or sole parent threshold is raised by a further $2,100 for each dependent child or student (1990-91 Budget announcement).