Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon. Phillip Lynch, M.P.)
The purpose of this memorandum is to explain the main features of three income tax Bills.
The first Bill - the Income Tax Assessment Amendment Bill (No. 2) 1976 will effect changes to provisions of the Income Tax Assessment Act relating to the taxation of pensions and concessional rebates and will provide for automatic indexation of the amounts of certain concessional rebates in future years.
The proposals in the Bill are outlined below.
- At present pensions paid to persons below age pension age are exempt from tax while those paid to persons of pensionable age (men who are aged 65 or over and women who are aged 60 or over) are, with some exceptions (e.g., war pensions) subject to tax. This Bill will withdraw the exemption of certain pensions paid to persons below age pension age, and also for payments by way of unemployment and sickness benefits. The pensions which will become subject to tax, irrespective of the age of the person to whom they are paid are:
- Widows' Pensions
- Supporting Mothers' Benefits
- Service pensions, other than those equivalent to invalid pensions.
- As part of a package of measures designed to achieve a better system of family assistance this Bill will withdraw entitlement to concessional rebates for children and students. Another part of the package substantially increases Child Endowment payments. Although entitlement to rebates for children and students will be withdrawn the Bill provides for retention of the part of the zone allowances for residents of isolated areas, servicement serving in certain areas overseas and persons serving with United Nations forces, that is related to the rebates now allowed for such dependants.
- The Bill also provides that where entitlement to other concessional rebates depends on entitlement to rebates for maintenance of such dependants, the latter rebates will be "notionally" maintained for that purpose. Other concessional rebates in this class are those available to a sole parent, for a housekeeper and for medical and education expenses.
- The Bill will also increase the amounts of a number of concessional rebates as one of the steps in implementing the indexation of personal income tax. In some cases, the increase in the amounts of rebates will be greater than that resulting from indexation. This applies to the rebate for a spouse, a daughter-housekeeper, a housekeeper and to a sole parent.
- The Bill provides that specified concessional rebates are to be automatically increased in future years broadly in line with increases in the Consumer Price Index but excluding increases attributable to indirect tax increases. The increase in rebatable amounts for 1976-77 resulting from indexation is 13 per centum. Although there will no longer be entitlement to rebates for children and students, the amounts of the rebates previously allowable for these dependants are being indexed for the purpose of the amounts included in zone rebates on account of such dependants and for the purpose of establishing entitlement to other rebates which now depend on entitlement to rebates for such dependants - see notes on Concessional Rebates above.
- The Bill will set out the basis for calculation of provisional tax for 1976-77. Since this will be based on income of the 1975-76 income year, the provisional tax will be calculated at the rates that applied for that year and not at the indexed rates that will apply to 1976-77 incomes to compensate for the inflationary increase in income. The provisional tax will, however, reflect the proposed increases in concessional rebates for dependants, housekeeper and sole parent, and the withdrawal of rebates for children and students.
The second Bill - Income Tax (Rates) Bill 1976 - declares the rates of income tax payable by individuals and trustees for the financial year 1976-77 and subsequent financial years. It is designed as a standing measure but the rates it declares will apply in a financial year only where an Act imposing tax for that year so provides. The provisions of the third Bill will provide the authority for those rates to apply in the 1976-77 year.
The main features of the second Bill are:
- The Bill retains the progressive rates scale of seven steps and the same marginal tax rates that were applicable for the 1975-76 financial year but the income ranges to which each marginal rate applied for that year have been adjusted for indexation by a 13 per centum increase. This reflects the increase in the average level of the Consumer Price Index for the 12 months ended 31 March 1976 over its average level in the preceding year, as reduced by the effects of indirect taxes. These adjustments to the income ranges will mean that the same average rate of tax will be payable by many taxpayers in 1976-77 as was payable in 1975-76, despite the fact that their taxable incomes have increased.
- The Bill contains provisions which will, from year to year, automatically adjust the general rates declared in it. The adjustment will be made by reference to upward movements in the Consumer Price Index. This automatic adjustment will apply for the 1977-78 financial year and subsequent financial years.
The third Bill - the Income Tax (Individuals) Bill 1976 - will impose tax in respect of income derived during the 1976-77 income year by individuals and trustees at the rates declared in the second Bill.
As indicated above, the general rates of tax declared by that Bill vary from those applicable for the 1975-76 year by reason of an indexation factor having been taken into account in determining the income ranges that apply for each marginal rate of tax. The minimum marginal rate of 20 per centum which applies for 1975-76 to the first $2,000 of taxable income will apply for 1976-77 to the first $2,260 of taxable income. There is a corresponding widening of income ranges higher up the tax scale. The maximum marginal rate of 65 cents will apply for 1976-77 to the excess of taxable income over $28,250 rather than to the excess over $25,000 as in 1975-76.