House of Representatives

Taxation Laws Amendment (Rates and Provisional Tax) Bill 1990

Taxation Laws Amendment (Rates and Provisional Tax) Act 1990

Income Tax Amendment Bill 1990

Income Tax Amendment Act 1990

Medicare Levy Amendment Bill 1990

Medicare Levy Amendment Act 1990

Explanatory Memorandum

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

MAIN FEATURES

The main features of the Bills are as follows :

TAXATION LAWS AMENDMENT (RATES AND PROVISIONAL TAX) BILL 1990

This Bill will amend the Income Tax Rates Act 1986 and the Income Tax Assessment Act 1936.

Rates of tax (Clauses 3 and 4, and Schedules 1 and 2)

The Bill amends the Income Tax Rates Act 1986 to give effect to the proposal announced in the 21 February 1990 Economic Statement to reform the personal income tax rate scale for resident taxpayers. With effect from 1 January 1991 the Bill will-

increase the level of the tax-free threshold from $5,100 to $5,400 and increase the top of the first rate step from $17,650 to $20,700, so that the lowest marginal rate of 21 per cent applies in the income range $5,401 to $20,700;
increase the top of the second rate step from $20,600 to $36,000, remove the 29 per cent marginal rate and reduce the existing 39 per cent rate to 38 per cent, so that a 38 per cent marginal rate applies in the income range $20,701 to $36,000;
increase the top of the third rate step from $35,000 to $50,000 so that a new marginal rate of 46 per cent applies in the income range $36,001 to $50,000; and
increase the top rate step to incomes above $50,000, so that the top marginal rate of 47 per cent applies only to incomes above $50,000.

Because these changes are effective from 1 January 1991 they will form the rate scale for the 1991-92 and subsequent financial years. The Bill will declare composite rates to apply on assessment in respect of income for the 1990-91 year of income as follows:

Parts of taxable income   exceeding but not exceeding Proposed rate $ $ %
5,250 17,650 21.0
17,650 20,600 25.0
20,600 20,700 30.0
20,700 35,000 38.5
35,000 36,000 42.5
36,000 50,000 46.5
50,000 - 47.0

This Bill will also amend the Income Tax Rates Act 1986 to give effect to a 1990-91 Budget announcement to apply the 29 per cent rate of tax on the first $20,700 of taxable income of a non-resident, and apply to taxable incomes of non- residents exceeding $20,700 the proposed new rate scale for residents, as applicable.

These changes are effective also from 1 January 1991 and as a consequence will first apply for the 1991-92 and subsequent financial years. The Bill will declare composite rates for non-residents to apply on assessment in respect of income for the 1990-91 year of income as follows:

Parts of taxable income   exceeding but not exceeding Proposed rate $ $ %
0 20,600 29.0
20,600 20,700 34.0
20,700 35,000 38.5
35,000 36,000 42.5
36,000 50,000 46.5
50,000 - 47.0

Concessional Rebates (Clauses 3 and 4 and Schedules 1 and 2)

The Bill will give effect to the 1990-91 Budget announcement to reduce the level of the rebate of tax, allowable under section 159P of the Income Tax Assessment Act 1936 for payments of net medical expenses exceeding $1,000, from 29 per cent to 21 per cent, for 1991-92 and subsequent income years. The level of the rebate for the 1990-91 income year will be 25 per cent.

Provisional Tax (Clauses 6 to 14 and Schedule 3)

The Bill will amend the Income Tax Assessment Act 1936 to incorporate the method of calculating provisional tax for 1990-91 and subsequent income years as a standing measure.

Provisional tax for the 1990-91 year of income is to be calculated by applying 1990-91 rates of tax and Medicare levy to 1989-90 taxable incomes, increased by the provisional tax uplift factor for 1990-91 of 10 per cent (1990-91 Budget announcement).

For subsequent income years, the Bill proposes that the uplift factor may be adjusted by regulation, but not to a percentage exceeding 12 per cent. Where no regulation setting an uplift factor is declared in 1991-92 or a later year, the factor for the relevant year will be 10 per cent.

Subject to certain adjustments outlined below, rebates and credits allowed in 1989-90 will be taken into account as appropriate in the calculation of 1990-91 provisional tax.

Rebates will be adjusted as follows :

(a)
the level of 1989-90 franking rebates will be uplifted by 10 per cent;
(b)
concessional rebates allowed in 1989-90 assessments will be adjusted to reflect the increase in the levels of those rebates in 1990-91; and
(c)
any zone rebate, rebate for a Defence Force member serving overseas, or rebate for civilians serving with the United Nations that was allowed in 1989-90 assessments will be adjusted by an amount equal to 20 per cent of any additional amount of concessional rebates to which a taxpayer may be entitled in 1990-91 by virtue of paragraph (b).

Credits allowed in 1989-90 assessments for foreign taxes will be uplifted by 10 per cent.

Subject to the level of the uplift factor, the same basis of calculating provisional tax would be used in future years under the standing measure. Of course, amendment of the standing measure would be made, as necessary, to allow for any particular change relevant to the provisional tax calculation for a future year.

Certain consequential amendments are proposed in the legislation dealing with arrangements to avoid provisional tax, to allow for the operation of an uplift factor.

Finally, the Bill proposes that provisional tax will be payable by a taxpayer in respect of a year of income, where the assessable income of the preceding year consists only of salary or wages and two conditions are met:

(a)
the taxpayer has tax payable in respect of the preceding year of $3,000 or more; and
(b)
the tax instalments deducted from the salary or wages of the preceding year are less by $3,000 or more than the tax that would have been assessed on that income, if it had been the only income derived during the year.

Where the two conditions are met in respect of a taxpayer, the existing method of calculation of the provisional tax payable where the assessable income includes salary or wages will be changed. The change will be made whether the assessable income of the preceding income year consists wholly, or partly, of salary or wages, to take account of the shortfall in the tax instalment deductions made from the salary or wages in that preceding year.

The change to the situation in which a taxpayer is liable to pay provisional tax, and the method of calculation, will apply in respect of provisional tax payable for the 1990-91 and subsequent income years.

INCOME TAX AMENDMENT BILL 1990

This Bill will amend the Income Tax Act 1986 to formally impose income tax payable for the 1990-91 financial year and the subsequent year, at the rates declared by the Income Tax Rates Act 1986, by:

individuals and trustees generally;
companies, registered organizations, corporate unit trusts and public trading trusts, and certain other trusts; and
trustees of superannuation funds, approved deposit funds and pooled superannuation trusts.

MEDICARE LEVY AMENDMENT BILL 1990

Medicare levy will, by this Bill, be payable on taxable incomes for the 1990-91 financial year and, until the Parliament otherwise provides, the 1991-92 financial year. The amendments to the levy arrangements by the Bill will -

impose Medicare levy in respect of 1990-91 and the subsequent financial year at the rate of 1.25 per cent; and
increase the level of the low income thresholds so that no levy will be payable by :

.
a person whose taxable income does not exceed $11,745; or
.
a married (including de facto) couple where the sum of the couple's taxable incomes does not exceed $19,045, or a sole parent where his or her taxable income does not exceed $19,045; for each dependent child or student maintained by a married couple or sole parent the threshold for payment of the levy is to continue to be increased by $2,100.

A more detailed explanation of the provisions of the Bills is contained in the following notes.


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