Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon. Phillip Lynch, M.P.)
The chief purpose of this memorandum is to explain legislation that will impose a health insurance levy on the taxable income of Australian residents. Choice is provided by provisions under which the levy will not apply to people who pay a premium to Medibank, or who have appropriate insurance cover with a registered health benefits organization.
A subsidiary purpose of the legislation is to withdraw the concessional rebate now available for contributions to a hospital or medical benefits fund.
The first Bill - the Health Insurance Levy Assessment Bill 1976 - will amend the Income Tax Assessment Act to provide for the payment, in appropriate circumstances, of the health insurance levy and for its collection in conjunction with income tax. The Bill provides exemptions from the levy for low income earners. It also grants exemptions to taxpayers who, in respect of themselves and their dependants, if any, pay an appropriate premium to Medibank or have appropriate insurance cover with a registered health benefits organization. Relief is also provided for repatriation beneficiaries and defence force personnel.
The second Bill - the Health Insurance Levy Bill 1976 - declares the basic rate of levy. As the revised arrangements are to apply from 1 October 1976, the basic rate to be applied to 1976-77 taxable income will be 1.875 per cent, that is, three-fourths of the proposed full-year rate of 2.5 per cent.
The third Bill - the Income Tax (International Agreements) Amendment Bill (No. 2) 1976 - contains provisions to ensure that, under double taxation relief arrangements, foreign tax cannot be credited against levy so as to reduce the amount of levy payable.
MAIN FEATURES OF THE HEALTH INSURANCE LEVY
The health insurance levy will apply to taxable income of the 1976-77 and subsequent years of income. For the 1976-77 year, however, the rate of levy will be three-fourths of the proposed full year rate of 2.5 per cent.
Main features of the levy arrangements are:-
- The levy will apply to individuals who are resident in Australia for income tax purposes, but not to residents of external territories.
- It will apply to trust income to which a resident minor is presently entitled and to trust income to which no beneficiary is presently entitled.
- The basic rate is to be 1.875 per cent of the taxable income of the individual or trustee for 1976-77 and 2.5 per cent of the taxable income for subsequent years.
- Provisions authorizing excess concessional rebates of income tax to be allowed against the levy will result in no levy being payable by a person, without a dependent spouse, who has a taxable income of $2,604 or less, and $4,299 or less if the person has a dependent spouse.
- These fundamental rules are to be qualified by particular measures for groups of people whose hospital and medical costs are covered by other arrangements. In this category:
- a person will be exempt from levy if the person and his or her dependants, if any, are covered by a premium paid to Medibank;
- exemption will also apply to people if they and their dependants, if any, are covered by appropriate insurance with a registered medical or hospital benefits organization;
- coverage of a family in either way will confer exemption on each member of the family who has a taxable income;
- people entitled under repatriation arrangements to full free medical treatment for themselves and who have no dependants (other than dependants who are also so entitled) will be exempt from the levy;
- a repatriation beneficiary who is entitled under repatriation arrangements to full free medical treatment, but who has dependants who are not so entitled and are not insured, will pay levy at one-half of the rate otherwise payable;
- relief corresponding with that for repatriation beneficiaries is to be granted to members of the defence forces;
- where a person is entitled to relief from levy in one of these ways for part only of the year of income, an appropriate part of the full year relief will be granted;
- for the 1976-77 year qualification for relief will be measured by circumstances existing in the 9 months period from 1 October 1976 to 30 June 1977.
- Health insurance levy will be collected in conjunction with, and in the same way as, income tax, with provision being made for exclusion of the levy from the provisional tax of, and from the PAYE deductions from salaries and wages of, those people who are entitled to exemption in one of the ways noted above.
- The levy paid by a person will not be an allowable deduction or rebate for taxation purposes. Nor will a rebate be allowed for:
- contributions to Medibank or to a private insurance fund entitling a person to relief from the levy,
- other payments for health insurance.
- People who are to be treated as dependants of a person for these purposes are those residents of Australia to whose maintenance the person contributes and who are -
- the spouse of the person;
- a child of the person under 16 years of age; or
- with some qualification, a full-time student child of the person aged 16 but less than 25.
More detailed explanations of each clause of the Bills are provided below.
Notes on Clauses
Clause 1: Short title and citation.
This clause provides for the short title and citation of the Amending Act and of the Income Tax Assessment Act which it amends. The Amending Act inserts in the Principal Act a new Part to provide for the payment of health insurance levy.
Clause 2: Commencement.
Section 5(1A) of the Acts Interpretation Act 1901-1973 provides that, unless the contrary intention appears, every Act shall come into operation on the twenty-eighth day after the day on which it receives the Royal Assent. By this clause the amendments will come into operation on the day of Royal Assent. This will allow the carrying out of administrative and other arrangements necessary to bring the levy into effect from 1 October 1976.
Clause 3: Health insurance levy.
Clause 3 inserts in the Principal Act a new Part - Part VIIB - dealing with health insurance levy. The sections in the new Part are sections 251R to 251ZJ.
Section 251R : Interpretation.
Sub-section (1) of the new section contains a number of definitions used to facilitate drafting:
- is defined to mean the place of residence or business of a person last known to the issuer of a levy relief certificate. Under the later provisions of the Bill, a person's name and address must be shown on such certificates.
- "Health insurance levy"
- or "levy" are defined to mean the health insurance levy provided for by the new legislation.
- "Levy relief certificate"
- refers to the certificate for which provision is made by the new sections nominated in the definition. These are certificates which are to be issued by the Health Insurance Commission (Medibank), a registered medical or hospital benefits organization, the Repatriation Commission or the defence authorities for production with taxpayers' returns of income, as evidence of entitlement to relief from levy.
- "Medibank contributor"
- is defined to have the same meaning as in the provisions being inserted by another Bill in the Health Insurance Act. Under those provisions, a person is a "medibank contributor" if an appropriate premium in respect of the person has been paid to Medibank. The method of securing exemption from the levy through payment of a premium to Medibank is discussed in more detail in later notes.
- "Privately insured person"
- takes the meaning that it has in amendments being made to the Health Insurance Act. The bearing of those amendments on the levy arrangements is the subject of separate explanation, but the broad meaning of "privately insured person" is that it refers to an Australian resident person who is covered by an appropriate hospital and medical benefits contribution to a registered fund or funds in respect of the person and his or her dependants, if any.
- "Registered organization"
- is to mean a hospital or medical benefits organization registered under the National Health Act. That Act is also the subject of another amendment.
- "Repatriation Acts"
- refers to the various Repatriation Acts under which a person may be entitled to full free medical treatment.
Sub-section (2) of section 251R sets out the circumstances in which, for purposes of the health insurance levy arrangements, a person is to be taken to be a dependant of a taxpayer. A feature of these arrangements is that a taxpayer who has a dependant will be given relief from the levy only if each of his or her dependants is appropriately insured against hospital and medical costs or is otherwise covered, e.g., under repatriation arrangements.
A person will be a dependant of a taxpayer if an Australian resident to whose maintenance the taxpayer contributes, and the spouse of the taxpayer, a child under 16 or, subject to sub-section (3), a full-time student child 16 years of age or over but less than 25 years. Under section 6 of the Principal Act, which will apply in the interpretation of section 251R, a child of the taxpayer includes an adopted child, a step-child or an ex-nuptial child.
Sub-section (3) qualifies the earlier rule under which a student child aged 16 to 25 may be taken to be a dependant of a taxpayer. It will have the effect that such a child will not be taken to be a dependant of the taxpayer for levy purposes if, although the taxpayer contributes to the maintenance of the child, the taxpayer would not have been entitled to a taxation rebate for the child had the child rebate been retained. (See explanatory memorandum dealing with the Income Tax Assessment Amendment Bill (No. 2) 1976.) In practical terms, a taxpayer who contributes to the maintenance of a student child who has a separate net income in excess of $1,074 will not be taken to have that child as a dependant.
Sub-section (4) of section 251R picks up a concept now expressed in section 159J(5) of the Principal Act. It sets out, as a prima facie rule, that where the taxpayer and one of the persons mentioned in sub-section (2) are residing together, the taxpayer is to be regarded as contributing to the maintenance of that person.
Sub-section (5) is designed to enable the general provisions of the income tax law governing the determination of liability to income tax, and providing for its assessment and collection (including collection through PAYE and provisional tax arrangements), to apply for health insurance levy purposes. With stated exceptions, references in the Principal Act to income tax or tax are to be read as including the levy. The stated exceptions have the purpose of ensuring that the income tax provisions that are mentioned operate in the same way as now, i.e., unchanged by the existence of the proposed levy.
Sub-section (6) has a similar purpose to that of sub-section (5). Under the proposed section 251U there is to be a rebate that will confer freedom from the levy for people with relatively low levels of income. Provisions in the Principal Act referring to rebates are not to be affected by the special levy rebate.
Sub-section (7) of section 251R is related to the proposal that the revised health insurance arrangements are to apply from 1 October 1976. The term "prescribed person" that it refers to is defined in section 251V and refers to a person who, by reason of private insurance or other arrangements, is to be free from levy. The determination of whether a person is a prescribed person is to be made in relation to the year of income concerned and, as the new arrangements are to apply from 1 October 1976, sub-section (7) specifies that for 1976-77 this determination is to be on the basis of the 9 months period from 1 October 1976.
Section 251S : Health insurance levy.
This is the basic section providing for the payment of levy. Levy will first be payable for the financial year 1976-77, that is, on the income of the 1976-77 and subsequent years of income.
Sub-section (1) sets out three circumstances in which a person may be liable to the levy.
Paragraph (a) is the main provision. It applies to an individual who at any time during the year of income is a resident of Australia for income tax purposes. Subject to other provisions, the levy is to be payable on the individual's taxable income as determined for income tax purposes. A person is, basically, to be subject to levy if he or she was a resident of Australia for any part of the year. However, section 251V (1)(d) will effectively relieve a person from levy that is attributable to the part of the year for which the person was not a resident.
The reference to sub-section (2) of section 7A concerns people who are residents of Norfolk Island, Cocos (Keeling) Islands and Christmas Island. These people are not to be treated as residents of Australia for purposes of the levy and will thus be exempt from it.
Paragraph (b) of sub-section (a) relates to beneficiaries who are presently entitled to trust income but who are under a legal disability, e.g., infancy. The Principal Act, in section 98, provides for the trustee to be assessed on the beneficiary's share of trust income in these circumstances. By reason of paragraph (b), the trustee will be liable to pay health insurance levy in an assessment under section 98 if the beneficiary would, having regard to all the proposed levy arrangements, be liable to pay the levy if he or she were personally assessed on the income.
Paragraph (c) relates to assessments in which the trustee is called upon to pay tax in respect of trust income to which no beneficiary is presently entitled. These assessments may be raised under either section 99 or section 99A of the Principal Act, and the income concerned is normally destined to be paid to individuals who are residents of Australia. Paragraph (c) requires that health insurance levy be payable on this income if the trustee would be liable to pay income tax on that income. As a trustee who is assessed under section 99 is not liable to pay tax unless the income included in the assessment is in excess of $416, a trustee will not be liable to pay levy unless the income exceeds that amount.
Sub-section (2) makes it clear that any levy payable by a person is in addition to any income tax payable.
Section 251T : Levy not payable by prescribed persons or by certain trustees.
This section has the important function of conferring an exemption from the levy on a person who, for the whole of the year of income (in 1976-77 the whole of the period of 9 months from 1 October 1976) has appropriate private insurance, or is otherwise entitled to relief conferred by section 251V.
Section 251V refers to a person who is entitled to levy relief in one of those ways as a "prescribed person".
Paragraph (a) of section 251T achieves the purpose, of exempting "prescribed persons", in relation to assessments against the "prescribed person" concerned while paragraph (c) has a corresponding function where the assessment in respect of a person under a legal disability is made against a trustee who is to be assessed in respect of the income of that person.
Paragraph (b) alters the effect of section 251S(1)(c) in relation to trustees of certain trusts for persons in Norfolk Island, Cocos (Keeling) Islands and Christmas Island. The trustees of these trusts, that qualify as "Territory Trusts" for purposes of provisions that give exemption from Australian tax for foreign source income, will thus be freed from health insurance levy. As noted elsewhere, residents of the territories mentioned are not to be liable to pay the levy.
Section 251U : Excess tax rebates to be allowed against levy.
The broad purpose of this section is to confer exemption from the levy on people with relatively low levels of income. In association with the income tax rules proposed for application in 1976-77, the section will grant exemption to a person without a dependent spouse where taxable income is $2,604 or less, and to a person with a fully dependent spouse where taxable income is $4,299 or less. The section achieves these effects by allowing excess concessional rebates of income tax to be applied against liability to levy.
Sub-section (1) is the main provision. It specifies that, where the sum of the concessional rebates available to an individual, or a trustee assessable under section 98 of the Principal Act, exceeds the amount of income tax payable before allowance of any other rebate or credit, the person will be entitled to a rebate of levy of the excess amount.
Under income tax proposals for 1976-77 that are the subject of separate legislation, a taxpayer who has a fully dependent spouse will be entitled to a general rebate of $610 and a spouse rebate of $500. If the taxpayer's taxable income is $4,698 the income tax ordinarily payable will fully absorb these rebates and levy will be payable at full rates. However, the further below $4,698 that the taxpayer's taxable income is, the greater the amount of unused concessional rebate. At a taxable income of $4,299, for example, the excess rebates will be sufficient to absorb the levy fully and thus provide exemption from it.
In the case of a person without a dependent spouse, the allowance of the "excess" amount of the general rebate of $610 will result in no levy being payable on a taxable income of $2,604 or less.
These results are achieved for 1976-77 by the reference in sub-section (1) to the application against levy of three-fourths of the excess rebates. In that year, of course, the rate of levy proposed is three-fourths of the full-year rate.
Sub-section (2) applies in the special case of receipt of a share of partnership income over which the recipient does not have, or is deemed not to have, the real and effective control and disposal. Consistent with provisions in the Principal Act relating to income tax, sub-section (2) will entitle a taxpayer in this special case to a further levy rebate to absorb any unused concessional rebates.
By sub-section (3) the rebate allowable under section 251U cannot exceed the amount of levy otherwise payable.
Section 251V : Prescribed persons.
The purpose of this section is to identify the classes of persons who, if the relevant tests are met, will be entitled to freedom from the levy by reason of payment for insurance to Medibank or to a registered health benefits fund or by reason of coverage under repatriation or defence force conditions of service arrangements. For this purpose it ascribes a meaning to the expression "prescribed person".
Sub-section (1) sets out, subject to sub-section (2), four situations in which a person may be a "prescribed person" entitled to relief from the levy.
Under paragraph (a) a person is a "prescribed person" for a particular period - either the whole of the income year or a part of the income year - if the person was a "privately insured person" or a "medibank contributor" for that period.
By reason of the definition in section 251R and relevant provisions being inserted in the Health Insurance Act, a person will be a "privately insured person" if he or she is a contributor to a medical benefits fund and a hospital benefits fund conducted by a registered organization or organisations. A person will, however, only be so regarded if he or she is a contributor for benefits in accordance with an appropriate table.
The term "medibank contributor" arises from proposed amendments to the Health Insurance Act. Under those amendments a person may apply to the Health Insurance Commission to become a medibank contributor, either alone or in respect of dependants also. Where such an application is approved, the person will pay contributions to the Commission and will be entitled to the benefits that Medibank provides. The effect of becoming a medibank contributor is thus, for those who choose to avail themselves of it, to establish a ceiling level of payment for health insurance. A person who chooses to make this payment will be free from the levy that would otherwise be payable on his or her taxable income.
Where an insurance payment is made to either a registered organization or to Medibank covering the dependants of a person, each of those persons is to be regarded as a "privately insured person" or a "medibank contributor", as the case may be. Accordingly, a family cover taken out by a father for his family will provide exemption for his wife and other dependants if she or they are also taxpayers.
Paragraph (b) treats as a "prescribed person" someone who is entitled to full free medical treatment as a member of the defence forces or as a relative of, or a person otherwise associated with, a member of the forces.
Paragraph (c) similarly treats as a "prescribed person" a person entitled under the repatriation legislation to full free medical treatment.
Paragraph (d) covers the situation of a person who takes up residence in Australia during an income year, or who ceases to be an Australian resident during the course of a year. For the period of the year that the person is not an Australian resident, he or she will be regarded as a "prescribed person".
Sub-section (2) of section 251V has the effect that a person will not be regarded as a "prescribed person" entitled to relief from levy unless, for the particular period concerned, all of the person's dependants, if any, are also "prescribed persons" by reason of sub-section (1).
Sub-section (3) has the purpose of providing relief, from one-half of the levy that would otherwise be payable, to a repatriation beneficiary or a serviceman or woman who has dependants not themselves entitled under repatriation or defence force arrangements to full free medical treatment. Where such a person has taken out insurance cover, either through payment of a premium to Medibank or through a contribution to a private fund, for all the dependants concerned, levy will not be payable for the period for which that cover exists.
Sub-section (3) achieves these objectives by specifying that if, but for the sub-section, a repatriation beneficiary or serviceman or woman would not be regarded as a "prescribed person" and, but for the requirement in sub-section (2), that each dependant be a "prescribed person" (e.g., privately insured), the person would be a "prescribed person", the person is to be taken to be such a person for one-half of the period concerned. Clause 6(1)(b) of the Health Insurance Levy Bill will then apply, with the consequence that the rate of levy for the period will be one-half of the rate otherwise payable.
Section 251W : Evidence to be furnished to Commissioner.
The broad purpose of this section is to require that before a person is in his or her assessment allowed relief from the levy as a privately insured person, a medibank contributor, a serviceman or woman or a repatriation beneficiary, a "levy relief certificate" issued by the body or authority concerned must be produced to the Commissioner of Taxation.
Sub-section (1) is to this general effect. Later sections - sections 251X to 251ZA - provide for the issue of certificates. It is envisaged that these certificates will be issued to the people concerned towards the end of the income year in order that the certificates can be lodged with annual returns of income. Sub-section (1) thus provides that a taxpayer is not to be treated as having been a "prescribed person" entitled to relief from levy unless the necessary evidence in the form of a levy relief certificate is furnished to the Commissioner.
Sub-section (2) deals with the case where a levy relief certificate that has been issued is subsequently stolen, lost or destroyed. Upon his being satisfied as to the particulars in the certificate, the Commissioner is to apply sub-section (1) as if the certificate were furnished to him.
Sub-section (3) is another provision that qualifies sub-section (1). If it happened that a levy relief certificate that ought to have been issued to a taxpayer is not so issued, and the Commissioner is satisfied as to the coverage about which a certificate would have provided evidence, the Commissioner is likewise to apply sub-section (1) as if a certificate were furnished to him.
Sub-section (4) applies in relation to the issue of a levy relief certificate for a person entitled to relief on the ground that he or she is a serviceman or woman or a repatriation beneficiary. It provides for the issue of a levy relief certificate that states that the person is likely to be a "prescribed person" on one or other of these grounds. Where a certificate is so issued the Commissioner is empowered, unless he has contrary evidence, to treat the certificate as establishing that the person was in fact entitled to free treatment under defence force or repatriation arrangements.
Sub-section (5) deals with incorrect or incomplete levy relief certificates. If the Commissioner thinks a certificate is deficient in either of these ways and he is satisfied as to the correct particulars, he may treat the certificate as having been correctly completed, but if he is not so satisfied he is to treat the certificate as not having been furnished.
Sub-section (6) will allow the Commissioner to disregard a document that he suspects is not an authentic levy relief certificate, at least until he is satisfied as to its authenticity.
Sub-section (7) requires the Commissioner to retain, for such period as he thinks fit, a document that is produced to him as a levy relief certificate.
Section 251X : Issue of levy relief certificates by registered organizations.
This section governs the issue of levy relief certificates by organizations registered as medical benefits organizations or hospital benefits organizations under relevant provisions of the National Health Act.
Sub-section (1) identifies the classes of health benefits in respect of which an organization may issue a certificate. These are, by reason of paragraph (a), the standard medical benefits table and, by reason of paragraph (b), the standard hospital benefits table. The usual situation might be that a person insuring with a registered organization will insure with the one organization for both hospital and medical benefits, and a levy relief certificate will be issued accordingly. However, should a person insure for hospital benefits with one organization and for medical benefits with another, the certificate issued by each will be a levy relief certificate. A person will, of course, only be treated as a "prescribed person" entitled to relief from levy if he has a levy relief certificate or levy relief certificates in respect of both hospital and medical benefits.
Sub-section (2) states that, for purposes of section 251X, a person is to be regarded as being entitled at a particular time to the relevant class of health benefits either personally or in relation to someone else if, in the event that services or treatment were required, benefits of that class would have been payable to the person in respect of the services or treatment.
As a preliminary to the explanation of sub-section (3), it is necessary to observe that it is envisaged, under proposed more general arrangements, that if all contributions due up to a particular point of time are paid, the organization will hold the payer covered against hospital or medical costs incurred during the following two months. Against this background, sub-section (3) provides that at some time in the period from 1 May to 15 June a registered health benefits fund is to issue a levy relief certificate to every person who during the year was or will be entitled to a relevant class of health benefits as a contributor to the fund. This levy relief certificate will be lodged with the person's return of income.
Sub-section (4) sets out what details are to be shown on a levy relief certificate issued by a registered organization. These are the name and address of the contributor, the period for which the person was entitled to benefits and the period for which he or she was entitled as a single, or a family, contributor.
Sub-section (5) is designed for cases in which a family contribution taken out by one member covers other members of the family who are in receipt of taxable income. As the other members in that case would be entitled to relief from the levy, but need to be able to produce, with their annual returns, levy relief certificates demonstrating that they have the appropriate coverage, sub-section (5) provides for the person concerned to apply to the organization for an additional certificate. Where this application is made the organization is, within 14 days, to issue to the applicant a certificate in accordance with the next sub-section, sub-section (6).
Sub-section (6) sets out the details to be shown on a levy relief certificate issued to a member of a family who is covered by an insurance contribution made by another member of the family, for example, where a husband pays a contribution that also covers a working wife. The details to be shown on a certificate issued under sub-section (6) are in line with those to be set out in a certificate issued under sub-section (4).
Sub-section (7) provides for a penalty to be imposed on a registered organization that fails to comply with provisions requiring the issue of levy relief certificates.
Section 251Y : Issue of levy relief certificates by Health Insurance Commission.
This section contains provisions - that parallel those in section 251X in relation to insurance with registered organizations - for the issue of levy relief certificates by the Health Insurance Commission to people who have paid premiums to Medibank, and have thus become medibank contributors, and to people who are medibank contributors by reason of their coverage under a medibank contribution made by another member of the family.
Section 251Z : Issue of levy relief certificates by Repatriation Commission.
This section is also akin to section 251X and sets out rules, corresponding with those in that section, for the issue by the Repatriation Commission of levy relief certificates to people who are entitled under repatriation arrangements to full free medical treatment.
Section 251ZA : Issue of levy relief certificates by chief of staff.
This section is in line with the preceding three sections and governs the issue of levy relief certificates to servicemen or women who are entitled under defence force conditions of service arrangements to full free medical treatment. Here too the rules about the issue of levy relief certificates are along the same lines as those contained in section 251X for the issue of certificates by registered hospital and medical benefits funds.
Section 251ZB : Miscellaneous provisions relating to levy relief certificates.
Sub-section (1) reflects the proposal that the revised health insurance arrangements are to apply as from 1 October 1976. It specifies that a levy relief certificate is not required to be issued in respect of a period before that date.
Sub-section (2) deals with situations where a levy relief certificate has been issued covering a part of an income year and, subsequently, another certificate is issued to the person concerned. In that event, the second certificate need not relate to the period covered by the first certificate.
Sub-section (3) provides that a levy relief certificate under any of sections 251X to 251ZA is to be in a form approved by the Commissioner of Taxation, who is empowered to vary the information to be shown on a certificate where, in the circumstances, that appears necessary.
Section 251ZC : Misleading levy relief certificates.
The purpose of this section is to provide a sanction against the issue by registered organizations of incorrect levy relief certificates which, when found to be incorrect, lead to the inconvenience and cost of requiring that assessments be amended. The section provides that where a levy relief certificate that later proves to be incorrect has been reflected in an assessment, and that assessment is subsequently amended to reflect the correct situation, the organization may be liable to pay to the Commonwealth an amount of $20.
Sub-section (1) sets out the conditions in which the $20 may become payable. These are, broadly, that an assessment has been made on the basis of incorrect particulars in a levy relief certificate, the Commissioner has amended the assessment on becoming aware of the respects in which the certificate was incorrect and has served notice on the organization concerned setting out the circumstances of the matter. The notice may, in these circumstances, require the organization to pay to the Commissioner an amount of $20. Where this happens the organization is, subject to other provisions, to be liable to pay the amount to the Commissioner.
Sub-section (2) allows the Commissioner to include on a document notifying a registered organization of its liability under sub-section (1), details of more than one case of an incorrect levy relief certificate.
Under sub-section (3) an amount payable by a registered organization under sub-section (1) that remains unpaid after the day by which it was required to be paid will attract an additional payment at the rate of 10 per cent per annum.
Sub-section (4) empowers the Commissioner, where the circumstances warrant that course, to remit all or any of the amount of $20 payable under sub-section (1), and all or any of the additional amount for late payment payable under sub-section (3).
Sub-sections (5) and (6) authorise the Commissioner to sue for recovery of amounts payable under section 251ZC, and for this purpose provide that a certificate of the Commissioner containing relevant particulars is to be prima facie evidence of the matters stated in the certificate.
Section 251ZD : Offences.
This section lists in seven categories offences in relation to the health insurance levy provisions and, in particular, those relating to levy relief certificates. Offences listed are:-
- knowingly or recklessly making a false statement in a levy relief certificate;
- fraudulently altering a levy relief certificate;
- furnishing to the Commissioner a certificate that has been altered without due authority;
- without lawful excuse, being in possession of a colourable imitation of a levy relief certificate;
- falsely pretending to the Commissioner of Taxation to be a person named in a levy relief certificate;
- furnishing to the Commissioner a document known to be an incorrect certificate or not a certificate at all;
- making a false declaration under the regulations, e.g., a false declaration for PAYE purposes to an employer that the person is privately insured.
The maximum penalty in each instance is a fine of $1,000 or imprisonment for six months.
Section 251ZE : Joinder of charges under this Part.
This section is designed to facilitate prosecution action where a registered organization or person commits a number of similar offences against the levy relief certificate provisions. The section is modelled on provisions now contained in the Principal Act relating to the PAYE deduction system.
The section allows more than one charge to be included in the same complaint, and provides for the hearing of the charges at the same time, unless the Court orders otherwise.
Section 251ZF : Prosecutions.
Under this section a prosecution for an offence against the levy relief certificate provisions may be commenced at any time.
Section 251ZG : Notification of health insurance levy on notices of assessment.
The broad purpose of this section is to provide a means of notifying people that part of their liability as shown on a taxation notice of assessment is in respect of health insurance levy. This notification will, of course, occur only where a person is not exempt from levy, e.g., through payment of an insurance premium to Medibank or a registered health benefits organization. The section provides that notices of assessment are to specify the amount of any health insurance levy included in the assessment.
Section 251ZH : Calculation of provisional tax on estimated income.
This section, which should be read in conjunction with clause 6 of the Bill, deals with the inclusion of health insurance levy in provisional tax.
The broad approach of both provisions is that, so far as reasonably practicable, the levy should be included in the provisional tax liability of taxpayers only where, on assessment of income of the year for which provisional tax is levied, they will be liable to pay the levy.
Section 251ZH concerns people who exercise the rights available to them under section 221YDA of the Principal Act to have their provisional tax for a year based on their estimated taxable income for the year, rather than on taxable income of the preceding income year. The section authorises the Commissioner in these cases of "self assessment" to include or not include levy in provisional tax, having regard to the person's likely status as a "prescribed person" entitled to relief from levy.
Section 251ZJ : Deduction not allowable in respect of levy.
The purpose of this section is to make it clear that a person is not entitled in arriving at the amount of his or her taxable income to a deduction for health insurance levy, and is not entitled to a concessional rebate in respect of the levy.
Clause 4: Life insurance premiums etc.
Clause 5: Payments to medical and hospital benefits funds.
These two clauses are inter-related. Their chief purpose is to ensure that a payment to Medibank, or to a registered organization, that qualifies a person for exemption from the health insurance levy will, along with other payments for health insurance, not be the subject of a concessional tax rebate.
Subject to the general rules governing the allowance of rebates for concessional expenditure, section 159S of the Principal Act authorises a rebate (at the rate of 40 per cent) for payments made by a taxpayer to a medical or hospital benefits fund for the personal benefit of the taxpayer or his spouse or child.
Proposed section 251ZJ will ensure that a concessional rebate is not allowed under any provisions for an amount paid as health insurance levy. Consistent with that, it is proposed that a concessional rebate should not be allowed for a contribution paid to Medibank or to a hospital or medical benefits fund where that contribution will attract exemption from the levy.
It is further proposed that in no circumstances will any payment for health insurance be rebatable as a concessional expenditure item. Accordingly, clause 5 repeals section 159S of the Principal Act.
Clear achievement of the objectives outlined above also requires that amendments be made to section 159R of the Principal Act. That section provides that amounts paid for life insurance, superannuation, etc. are, within an overall limit of $1,200, to be the subject of a concessional rebate.
As the various payments allowable as rebates under section 159R are expressed to include payments for insurance against sickness or accident to a taxpayer or his spouse or child as well as payments to a friendly society, it is necessary to ensure that the objectives mentioned are not frustrated by the amounts in question being allowed as rebatable items under section 159R.
Accordingly, clause 4 after omitting the reference to the section proposed to be repealed (section 159S) inserts into section 159R an additional provision, sub-section (1A). By reason of sub-section (1A), an amount paid to a medical or hospital benefits fund will not be rebatable, nor will any other payments to the extent, if any, that they are attributable to insurance in respect of medical expenses that qualify for rebate under section 159P of the Principal Act.
By clause 7 of the Bill, the repeal of section 159S and the consequent amendments to section 159R will have effect in relation to any amount paid on or after 1 October 1976, and to any payment made before that date that is of a kind that attracts exemption from the levy.
Clause 6: Provisional levy for financial year 1976-77.
This clause, which relates to provisional tax liability for 1976-77, is designed to authorize an increase, in appropriate cases, in the amount of that tax to incorporate a component representing health insurance levy.
Provisional tax, which applies to business and property income, is a companion scheme to the PAYE system applying to salaries and wages. It is designed to enable the collection of tax in the year in which the income to be taxed is derived. Clause 6 will permit the collection in 1976-77, by way of provisional tax, of an amount representing levy for 1976-77.
Sub-clause (1), which is qualified by sub-clause (2), contains the basic provisions designed to achieve the purpose mentioned. It deals, in paragraph (a), with the usual case in which the 1976-77 provisional tax liability of a taxpayer is to be based on his taxable income of 1975-76. In this case, the provisional levy component of 1976-77 provisional tax will be arrived at by adding to the provisional tax otherwise payable the amount that would have been payable as health insurance levy for 1975-76 if the health insurance levy rules to be applied in 1976-77 had been in force for that earlier year.
The question of whether a person will be liable to pay levy in 1976-77 will, of course, depend on whether the person is covered by arrangements that carry exemption from liability to the levy, e.g., through payment of a premium to Medibank. Sub-clause (2) qualifies paragraph (a) with this circumstance in mind. Paragraph (b) of sub-clause (1) deals with the unusual case in which the income on which provisional tax to be notified in a notice of assessment is based is an amount other than the taxable income for 1975-76. It has in such a case an operation corresponding with that of paragraph (a).
Sub-clause (2) is designed to ensure that, so far as is reasonably practicable, the inclusion of a health insurance levy component in 1976-77 provisional tax will be confined to those cases in which the person will, at the year's end, be liable to pay levy. Against the background that sub-clause (1) has provided for the inclusion of the levy in 1976-77 provisional tax, sub-clause (2) empowers the Commissioner to refrain from including the levy component if, from the information that he has or obtains, it appears that the taxpayer will be a "prescribed person" entitled to relief from the levy for 1976-77.
Clause 7: Application.
By sub-clause (1) the amendments providing for the imposition of a health insurance levy are to apply to assessments for the 1976-77 and subsequent years of income.
Sub-clause (2) deals with the withdrawal of the rebate for health insurance contributions, and has been explained in the notes dealing with clauses 4 and 5.
This Bill declares the rate of health insurance levy.
Clauses 1 to 4.
These are formal clauses usual in a measure of this kind.
Clause 5: Imposition of health insurance levy.
Clause 5 formally imposes a health insurance levy at the rates applicable under the Bill, in those situations where, under the Health Insurance Levy Assessment Bill explained earlier, that levy is payable.
Clause 6: Rate of levy.
This clause fixes the rate of health insurance levy for 1976-77. The basic rate is to be 1.875 per cent of the taxable income for that year.
Sub-clause (1) will apply in relation to individual taxpayers. Under paragraph (a), if an individual was at no time in the year (in 1976-77 to be taken as the 9 months period from 1 October 1976) a "prescribed person" entitled to relief from the levy, the rate of tax will be the full amount of 1.875 per cent. (See proposed section 251V of the Income Tax Assessment Act for the meaning of "prescribed person".)
Paragraph (b) relates to cases in which a person does not for part of the income year 1976-77 qualify as a "prescribed person" entitled to relief from the levy. In that case, the rate of levy is to be the same proportion of the rate of 1.875 per cent as the period of non-qualification bears to the number of weeks for which the levy will operate for that year, i.e., 39.
Sub-section (2) declares, in a corresponding way to sub-section (1), the rates of levy payable by a trustee of a trust estate assessable under section 98 of the Income Tax Assessment Act.
Sub-section (3) declares for 1976-77 a rate of 1.875 per cent on income assessable to a trustee under section 99 or section 99A of the Income Tax Assessment Act. Sub-section (3) is qualified by sub-section (4).
Under the provision being inserted in the Income Tax Assessment Act creating a liability to health insurance levy (section 251S), the levy will not be payable in an assessment under section 99 where the trustee is not liable to pay tax on that income. This occurs where the income is $416 or less. Against this background, sub-section (4) "shades-in" the amount of levy where the income assessable under section 99 is marginally in excess of the levy-free amount of $416. The amount of levy is not to exceed 7.5 per cent of the excess of the income over $416.
Clause 7: Financial years for which levy is payable.
By sub-clause (1) the health insurance levy is payable for the 1976-77 financial year upon taxable income of that year.
Sub-clause (2) provides, as an interim measure, that until the Parliament formally otherwise declares, the levy declared by the Bill is also to apply for the 1977-78 year. A provision of this kind is needed for cases where it is necessary, early in the financial year, to make an assessment in respect of income of that year, e.g., where a person is leaving Australia.
Because the provisions of the Bill in its application for 1976-77 are constructed on the basis that the levy is notionally to apply for only 9 months of 1976-77, sub-clause (3) of clause 7 provides that, in the interim operation of sub-clause (2) in 1977-78, relevant percentages and figures in the Bill are to be read as increased to the appropriate full year percentage or figure.
This Bill will make two amendments to the Income Tax (International Agreements) Act 1953-1976.
The amendments are consequential on the introduction of the proposed health insurance levy. They are necessary because the nature of the levy is such that it would not be appropriate to treat it as an income tax to which the Act, and the double taxation agreements to which it applies, relate.
The substantive provisions of the Bill are contained in clauses 3 and 4. They relate to double taxation relief arrangements under which an Australian resident who derives income from foreign sources is entitled to credit the foreign tax on that income against the liability to Australian tax on it. By excluding the health insurance levy from the definition of Australian tax contained in section 3 of the Income Tax (International Agreements) Act, clause 3 will ensure that foreign tax cannot be credited against the levy.
Clause 4 is a subsidiary provision that amends section 15 of the Principal Act, which provides rules that limit the credit for foreign tax to the amount of the Australian tax on the income concerned. Consistent with the amendment being made by clause 3, clause 4 excludes the health insurance levy from income tax for the purposes of section 15.