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Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. Josh Frydenberg MP)

Chapter 14 Medicare levy and Medicare levy surcharge low-income thresholds

Outline of chapter

14.1 Schedule 14 to this Bill amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 to increase:

the Medicare levy low-income thresholds for individuals and families (along with the dependent child/student component of the family threshold) in line with movements in the CPI;
the Medicare levy low-income thresholds for individuals and families eligible for Seniors and Pensioners Tax Offset (along with the dependent child/student component of the family threshold), in line with movements in the CPI; and
the Medicare levy surcharge low-income threshold in line with movements in the CPI.

Context of amendments

Medicare levy low-income thresholds

14.2 The Medicare Levy Act 1986 provides that no Medicare levy is payable by low-income individuals and families where their taxable income or combined family taxable income does not exceed the stated threshold amounts.

14.3 The Medicare levy phases in at a rate of 10 cents in the dollar where the taxable income or combined family taxable income exceeds the threshold amounts (section 7 of the Medicare Levy Act 1986).

Medicare levy surcharge low-income threshold

14.4 A surcharge of between one and one and a half per cent applies on taxable income in certain cases where taxpayers do not have appropriate private patient hospital cover (sections 8B and 8G of the Medicare Levy Act 1986). The surcharge also applies to reportable fringe benefits in certain cases where taxpayers do not have appropriate private hospital cover (sections 12 to 16 of the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999).

14.5 A family member who otherwise would be liable for the surcharge is not required to pay the surcharge where the total of that person's income for surcharge purposes does not exceed the individual low-income threshold amount. Unlike the Medicare levy, there is no phase-in of the surcharge above the threshold amount.

Summary of new law

14.6 Schedule 14 to this Bill amends:

subsections 3(1) and 8(5) to 8(7) of the Medicare Levy Act 1986 to increase the threshold amounts and phase-in limits for individuals, families and individual taxpayers and families eligible for the Seniors and Pensioners Tax Offset;
paragraphs 8D(3)(c) and 8G(2)(c), and subparagraphs 8D(4)(a)(ii) and 8G(3)(a)(ii), of the Medicare Levy Act 1986 to raise the threshold below which a family member is not required to pay the surcharge on taxable income; and
paragraphs 15(1)(c) and 16(2)(c) of the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 to raise the threshold below which a family member is not required to pay the surcharge on reportable fringe benefits.

Comparison of key features of new law and current law

New law Current law
Medicare levy low-income thresholds
The individual income threshold for the 2019-20 income year is $22,801. The individual income threshold for the 2018-19 income year is $22,398.
The family income threshold for the 2019-20 income year is $38,474. The family income threshold for the 2018-19 income year is $37,794.
The income threshold for individual taxpayers eligible for the Seniors and Pensioners Tax Offset for the 2019-20 income year is $36,056. The income threshold for individual taxpayers eligible for the Seniors and Pensioners Tax Offset for the 2018-19 income year is $35,418.
The income threshold for families eligible for the Seniors and Pensioners Tax Offset for the 2019-20 income year is $50,191. The income threshold for families eligible for the Seniors and Pensioners Tax Offset for the 2018-19 income year is $49,304.
The child-student component of the income threshold for families (whether eligible for Seniors and Pensioners Tax Offset or not) for the 2019-20 income year is $3,533. The child-student component of the income threshold for families (whether eligible for Seniors and Pensioners Tax Offset or not) for the 2018-19 income year is $3,471.
Phase-in limit
The individual phase-in limit for the 2019-20 income year is $28,501. The individual phase-in limit for the 2018-19 income year is $27,997.
The phase-in limit for individual taxpayers eligible for the Seniors and Pensioners Tax Offset for the 2019-20 income year is $45,069. The phase-in limit for individual taxpayers eligible for the Seniors and Pensioners Tax Offset for the 2018-19 income year is $44,272.
The phase-in limit for families for the 2019-20 income year is $48,092. The phase-in limit for families for the 2018-19 income year is $47,242.
The phase-in limit for families eligible for the Seniors and Pensioners Tax Offset for the 2019-20 income year is $62,739. The phase-in limit for families eligible for the Seniors and Pensioners Tax Offset for the 2018-19 income year is $61,630.
The child-student component of the phase-in limit for families (whether eligible for Seniors and Pensioners Tax Offset or not) for the 2019-20 income year is $4,416. The child-student component of the phase-in limit for families (whether eligible for Seniors and Pensioners Tax Offset or not) for the 2018-19 income year is $4,338.

Detailed explanation of new law

14.7 Schedule 14 to this Bill increases the low-income threshold for individuals and families (including the dependent child-student component of the family threshold) in line with annual movements in the CPI.

14.8 Section 7 of the Medicare Levy Act 1986 states that no 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 Medicare Levy Act 1986.

14.9 The individual threshold amount (specified in paragraph (c) of the definition of the threshold amount in subsection 3(1) of the Medicare Levy Act 1986) increases from $22,398 to $22,801. [Schedule 1, item 5, paragraph (c) of the definition of 'threshold amount' in subsection 3(1) of the Medicare Levy Act 1986]

14.10 The level of the family income threshold referred to in subsections 8(5) to 8(7) of the Medicare Levy Act 1986 increases from $37,794 to $38,474. For each dependent child or student, the family income threshold increases by a further $3,533 instead of the previous amount of $3,471. [Schedule 1, items 6, 7 and 8, the definition of 'family income threshold' in subsections 8(5), (6) and (7) of the Medicare Levy Act 1986]

14.11 Schedule 14 to the Bill also increases the threshold amount for individual taxpayers eligible for the Seniors and Pensioners Tax Offset for the 2019-20 income year. The increase ensures that these people do not have a Medicare levy liability if they are not liable for income tax.

14.12 The threshold amount for individual taxpayers eligible for the Seniors and Pensioners Tax Offset (specified in paragraph (a) of the definition of the threshold amount in subsection 3(1) of the Medicare Levy Act 1986) increases from $35,418 to $36,056. [Schedule 1, item 4, paragraph (a) of the definition of 'threshold amount' in subsection 3(1) of the Medicare Levy Act 1986]

14.13 The threshold amount for families eligible for the Seniors and Pensioners Tax Offset increases from $49,304 to $50,191. For each dependent child or student, the income threshold increases by a further $3,533 instead of the previous figure of $3,471. [Schedule 1, item 9, subsection 8(7) of the Medicare Levy Act 1986]

Phase-in limits

14.14 Section 7 of the Medicare Levy Act 1986 also provides that the Medicare levy applies at a reduced rate to taxpayers with taxable incomes above the threshold amount but not more than the phase-in limit specified in subsection 3(1). The rate of Medicare levy payable in these circumstances is limited to 10 per cent of the excess over the threshold amount that is relevant to the particular person.

14.15 The phase-in limit for individuals (specified in paragraph (c) of the definition of phase-in limit in subsection 3(1) of the Medicare Levy Act 1986) increases from $27,997 to $28,501. [Schedule 1, item 3, paragraph (c) of the definition of 'phase-in limit' in subsection 3(1) of the Medicare Levy Act 1986]

14.16 The phase-in limit for individual taxpayers eligible for Seniors and Pensioners Tax Offset (specified in paragraph (a) of the definition of 'phase-in limit' in subsection 3(1) of the Medicare Levy Act 1986) increases from $44,272 to $45,069. [Schedule 1, item 2, paragraph (a) of the definition of 'phase-in limit' in subsection 3(1) of the Medicare Levy Act 1986]

14.17 There is no phase-in limit for families in the Medicare Levy Act 1986 as the limit changes with the number of dependants. Instead, subsection 8(2) of the Medicare Levy Act 1986 contains a formula that limits the levy payable by persons with families to 10 per cent of the amount of family income that exceeds their family income threshold.

14.18 The increased threshold amounts and phase-in ranges for the 2019-20 income year are as shown in Table 1.1.

Table 1.1 : 2019-20 Medicare levy low-income threshold amounts and phasing-in ranges

Category of taxpayer No levy payable in 2019-20 if taxable income or family income does not exceed (figure for 2018-19) Reduced levy in 2019-20 (if taxable income or family income is within range (inclusive)) Ordinary rate of levy payable in 2019-20 where taxable income or family income is equal to or exceeds (figure for 2018-19)
Individual taxpayer $22,801 ($22,398) $22,802-$28,501 $28,502 ($27,998)
Individual taxpayers eligible for the Seniors and Pensioners Tax Offset $36,056 ($35,418) $36,057-$45,069 $45,070 ($44,273)
Families eligible for the Seniors and Pensioners Tax Offset $50,191 ($49,304) $50,192-$62,739 $62,740 ($61,631)
Families with the following number of children and/or students (family income) (family income) (family income)
0 $38,474 ($37,794) $38,475-$48,092 $48,093 ($47,243)
1 $42,007 ($41,265) $42,008-$52,508 $52,509 ($51,582)
2 $45,540 ($44,736) $45,541-$56,924 $56,925 ($55,921)
3 $49,073 ($48,207) $49,074-$61,340 $61,341 ($60,259)
4 $52,606 ($51,678) $52,607-$65,756 $65,757 ($64,598)
5 $56,139 ($55,149) $56,140-$70,172 $70,173 ($68,937)

Medicate levy surcharge low-income threshold

14.19 References to the individual low-income threshold amount of $22,398 in the Medicare levy surcharge provisions (in sections 8D and 8G of the Medicare Levy Act 1986) in respect of the surcharge payable on taxable income for a person who is married (or both married and a beneficiary of a trust) are also increased to $22,801. [Schedule 1, items 10 to 13, paragraphs 8D(3)(c) and 8G(2)(c) and subparagraphs 8D(4)(a)(ii) and 8G(3)(a)(ii) of the Medicare Levy Act 1986]

14.20 References to the individual low-income threshold amount of $22,398 in the Medicare levy surcharge provisions (in sections 15 and 16 of the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999) in respect of the surcharge on reportable fringe benefits are also increased to $22,801. [Schedule 1, item 1, paragraphs 15(1)(c) and 16(2)(c) of the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999]

Application and transitional provisions

14.21 Schedule 14 to this Bill commences on the day after this Bill receives Royal Assent. [Clause 2 to the Bill]

14.22 The amendments in Schedule 14 to this Bill applies to assessments for the 2019-20 income year and later income years. [Schedule 14, item 14 to the Bill]

14.23 The amendments apply retrospectively from the start of the 2019-20 income year. However, they are beneficial to all affected taxpayers as they retrospectively reduce or remove liability for Medicare levy and the surcharge that would otherwise apply to affected taxpayers.


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