House of Representatives

Tax Laws Amendment (2012 Measures No. 3) Bill 2012

Income Tax (Seasonal Labour Mobility Program Withholding Tax) Bill 2012

Income Tax (Seasonal Labour Mobility Program Withholding Tax) Act 2012

Tax Laws Amendment (Income Tax Rates) Bill 2012

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Aligning the non-resident tax rates

Outline of chapter

6.1 The Tax Laws Amendment (Income Tax Rates) Bill 2012 amends the Income Tax Rates Act 1986 (Rates Act) to better align the personal income tax rates for non-residents more closely with those applying to resident taxpayers.

Context of amendments

6.2 Clause 1 of Part II of Schedule 7 of the Rates Act currently requires that taxpayers who are non-residents for tax purposes in Australia pay tax on their ordinary taxable income according to the following schedule of rates and thresholds:

Table 6.1
Tax rates for non-resident taxpayers
Item For the part of the ordinary taxable income of the taxpayer that: The rate is:
1 does not exceed $37,000 29%
2 exceeds $37,000 but does not exceed $80,000 30%
3 exceeds $80,000 but does not exceed $180,000 37%
4 exceeds $180,000 45%

6.3 The tax rates for non-residents are currently aligned with the tax rates and thresholds for resident taxpayers, which are given in Clause 1 of Part I of Schedule 7 of the Rates Act, from the second marginal tax rate of 30 per cent and above.

6.4 The Clean Energy (Income Tax Rates Amendments) Act 2011 amended the personal income tax rates and thresholds for resident taxpayers as part of the Government's Clean Energy Future Plan, which included raising the statutory tax-free threshold and increasing the second marginal tax rate for residents (item 2 in Table 6.1) to 32.5 per cent from 1 July 2012, and again to 33 per cent from 1 July 2015.

Summary of new law

6.5 The amendments contained in this Bill will ensure that the marginal tax rates for resident and non-resident taxpayers continue to align from 1 July 2012 by merging the first two personal marginal tax rate thresholds for non-residents into a single threshold, and aligning the rate for this new threshold to the second marginal tax rate for residents. This is shown in Table 6.2:

Table 6.2
Tax rates for non-resident taxpayers
The rate is:
Item For the part of the ordinary taxable income of the taxpayer that: 2011-12 2012-13 2015-16
1 does not exceed $37,000 29.0% 32.5 % 33.0 %
2 exceeds $37,000 but does not exceed $80,000 30.0% 32.5 % 33.0 %
3 exceeds $80,000 but does not exceed $180,000 37.0% 37.0% 37.0%
4 exceeds $180,000 45.0% 45.0% 45.0%

Comparison of key features of new law and current law

New law Current law

The first two personal marginal tax rate thresholds for non-residents are merged into a single threshold.

·
From 1 July 2012, non-residents are taxed at the second marginal rate for residents - that is, 32.5 per cent on the part of their ordinary taxable income that does not exceed $80,000, increasing to 33 per cent from 1 July 2015.

Ordinary taxable income that exceeds this threshold is taxed according to the same rates and thresholds that resident taxpayers face.

Non-residents are taxed at 29 per cent on the part of their ordinary taxable that does not exceed $37,000.
From the second marginal rate and threshold and above, ordinary taxable income for non-residents is taxed according to the same rates and thresholds that resident taxpayers face.

Detailed explanation of new law

6.6 The Bill inserts a definition for 'second resident personal tax rate' into subsection 3(1) of the Rates Act, where the definition directly references the second marginal tax rate in the schedule of rates and thresholds that apply to resident taxpayers. [Item 1]

6.7 The Bill uses this definition in Clause 1 of Part II of Schedule 7 of the Rates Act in order to explicitly align the first rate for non-residents with the second rate for residents. [Item 6]

6.8 The practical effect of this amendment is shown in Table 6.2.

6.9 The Bill amends subsection 15(2) and subsection 15(4) of the Rates Act so that the income tax rates for taxpayers who are non-resident minors are consistent with the amendments to the non-resident rates in Clause 1 of Part II of Schedule 7 of the Rates Act. [Items 2 to 5]

6.10 The practical effect of these amendments will be:

·
that where the taxable income of a non-resident minor does not exceed $416, the amount of tax payable in respect of that income shall not exceed:

-
32.5 per cent of that eligible taxable income in the 2012-13, 2013-14 and 2014-15 income years; and
-
33 per cent of that eligible taxable income in the 2015-16 and later income years; and

·
that where the taxable income of a non-resident minor exceeds $416 but does not exceed $732, the amount of tax payable in respect of that income shall not exceed:

-
the sum of 32.5 per cent of $416 and 66 per cent of the amount by which that eligible taxable income exceeds $416 in the 2012-13, 2013-14 and 2014-15 income years; and
-
the sum of 33 per cent of $416 and 66 per cent of the amount by which that eligible taxable income exceeds $416 in the 2015-16 and later income years.

6.11 The Bill amends the note in Clause 1A of Part II of Schedule 7 of the Rates Act to clarify that for the 2011-12 income year, 'Pacific Seasonal Workers' will be taxed at 15 per cent on that part of their ordinary taxable income that does not exceed $37,000, rather than at 29 per cent as for all other non-resident taxpayers. [Item 7]

Application and transitional provisions

6.12 The amendments apply to assessments for the 2012-13 income year and later income years. [Item 8]


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