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House of Representatives

Taxation (Deficit Reduction) Bill (No. 3) 1993

Explanatory Memorandum

(Circulated by the authority of the Treasurerthe Hon John Dawkins, M.P.)

GENERAL OUTLINE AND FINANCIAL IMPACT

Personal Tax Cuts

·
Amends the Income Tax Rates Act 1986 to declare the rates of tax payable by both residents and non residents for the 1993-94 and subsequent income years.

Date of effect: When Royal Assent has been received for the accompanying package of Sales Tax (Deficit Reduction) Bills and Taxation (Deficit Reduction) Bill (No.1) 1993.

Proposal announced: 17 August 1993 (1993-94 Budget), and 30 August 1993

Financial Cost:

93-94 94-95 95-96 96-97
$1,5550m $2,900m $3,120m $3,450m

Rebate for low-income taxpayers

·
Provides for a rebate of up to $150 to low-income taxpayers whose taxable income is less than $24,450.

Date of effect: Assessments for 1993-94 and subsequent years of income

Proposal announced: 17 August (1993-94 Budget), and 30 August 1993

Financial Cost

93-94 94-95 95-96 96-97
- $530m $515m $500m

CHAPTER ONE Personal Tax Rate Cuts

Summary of amendments

1.1 Purpose of amendment: To bring forward the 1994-95 tax cuts and to defer the tax cuts which were to apply from 1 January 1996.

1.2 Date of Effect: When Royal Assent has been received for the accompanying package of Sales Tax (Deficit Reduction) Bills and Taxation (Deficit Reduction) Bill (No.1) 1993 [Subclauses 2(2) and 2(4)].

Background to the legislation

1.3 In the 1993 Budget, it was announced that the rates of tax scheduled to commence on 1 July 1994 would be brought forward to 1 November 1993. On 30 August 1993, the Government announced that the payment of the tax cuts will be delayed from 1 November to 15 November 1993. Further, the tax rates scheduled to commence on 1 January 1996 would be deferred.

1.4 The current and proposed future personal income tax scales for residents will be as shown in the Table below -

1.5 Current and Future Income Tax Rate Scales for Residents )

Current Future Parts of Taxable Income($pa) Marginal Rate % Parts of Taxable Income($pa) Marginal Rate (%)
0-5400 0 0-5400 0
5400-20700 20 5400-20700 20
20700-36000 38 20700-38000 34
36000-50000 46 38000-50000 43
Over 50000 47 Over 50000 47

1.6 The rates of tax for non-residents will be as shown in the above table with the exception that a tax rate of 29% applies to taxable income in the range $0 to $20,700.

1.7 Because the 1994-95 tax cuts are being brought forward the Bill will also declare composite rates to apply, for both residents and non-residents, in respect of taxable income for the 1993-94 year of income. The composite rates for residents, based on the current and future rates shown in the above table and assuming a 15 November 1993 'changover', will be as follows -

1.8 Composite Income Tax Rate Scales for 1993-94

Parts of Taxable Income($pa) Marginal Rate (%)  
0- 5400 0
5400-20700 20
20700-36000 35.5
36000-38000 38.5
38000-50000 44.125
Over 50000 47

1.9 The rates of tax for non-residents for the 1993-94 income year will be as shown in the above table with the exception that a tax rate of 29% will apply to taxable income in the range $0 to $20,700.

Explanation of the Amendments

1.10 The Bill will amend the Income Tax Rates Act 1986 to bring forward the 1994-95 personal tax cuts. The amendments will also defer the tax cuts which were to commence on 1 January 1996. The reductions in personal income tax rates affect the marginal rates of personal income tax that now apply in the income range of $20,700 to $50,000.

1.11 The Bill will declare the rates of personal income tax which will apply, to both residents and non-residents, for assessments in respect of:

·
the 1993-94 year of income [Clause 5] ;
·
the 1994-95 and subsequent years of income [Clause 6] .

1.12 In addition, the Bill will declare the rates of tax to apply to a future prescribed year of income (after 1994-95) and years of income after that prescribed year [Subclause 2(3) and Clause 7].<2hp2>

1.13 The amendments will also repeal the Tax Legislation Amendment Act 1992 which was enacted last year to declare the rates of tax to apply for the 1994-95 and subsequent years of income [Clauses 8 and 9].

CHAPTER TWO Low-Income Rebate

Summary of amendments

2.1 Purpose of the amendments: To amend the Income Tax Assessment Act 1936 to provide a rebate of up to $150 to taxpayers whose taxable income is below $24,450 [Clause 11] . The full rebate entitlement will be available to taxpayers whose taxable income does not exceed $20,700. The rebate reduces at the rate of 4 cents for each $1 of taxable income above $20,700.

2.2 Date of Effect: Assessments for the 1993-94 and later years of income.

Background to the legislation

2.3 In the 1993-94 Budget, it was announced that there would be a rebate on assessment, in the 1993-94 and later years of income, for taxpayers whose taxable income is below $23,200. On 30 August 1993, the Government announced that the rebate would be increased to $150. The $50 increase in the rebate will result in the upper taxable income threshold being increased from $23,200 to $24,450.

Taxpayers with a taxable income of up to $20,700 will be entitled to a $150 rebate. Taxpayers with taxable incomes between $20,700 and $24,450 will have the $150 rebate reduced at the rate of 4 cents for each $1 of taxable income in excess of $20,700. There will be no entitlement to the rebate where taxable income is $24,450 or greater.

Explanation of the amendments

2.4 The Bill will introduce new section 159N into the Income Tax Assessment Act 1936 to give effect to the rebate for low-income taxpayers which was announced in the 1993 Budget. Taxpayers whose taxable income on assessment is below $24,450 will be entitled to the rebate on assessment in the 1993-94 and later income years [Clauses 12 and 13].

2.5 Taxpayers with a taxable incomes of up to $20,700 will be entitled to a rebate of $150 on assessment. The rebate will be reduced at the rate of 4 cents for each dollar of taxable income in excess of $20,700 [New subsection 159N(2)] .

Example

2.6 A taxpayer with taxable income of $22,000 for the 1993-94 year of income will be entitled to a low-income rebate, calculated on assessment as follows:

(a)
Rebate before reduction: $150
(b)
Reduction in rebate [(22,000-20,700) x .04]: $ 52
(c)
Rebate entitlement on assessment for 1993-94 [(a)-(b)]: $ 98


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