Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)General Outline and Financial Impact
Medicare levy surcharge
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- Makes consequential amendments to the Income Tax Assessment Act 1936 to impose the Medicare levy surcharge on certain prescribed persons with dependants.
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- Makes a minor technical amendment.
Date of effect: The Medicare levy surcharge is to commence on 1 July 1997. The minor technical amendment is to apply from 1 July 1994.
Proposal announced: 1996-97 Budget, 20 August 1996.
Financial impact: The combined financial impact of this Bill along with the Medicare Levy Amendment Bill (No. 2) 1996, in relation to the Medicare levy surcharge, will be an estimated additional revenue of $60 million in 1998-99 and $75 million in 1999-00.
Compliance cost impact: Taxpayers who do not have private patient hospital insurance will need to understand the new taxation rules in order for them to calculate their liability for the surcharge. Those who do have insurance will need to keep a record of their coverage and to provide information in tax returns.
The surcharge is to be payable on assessment along with other tax liabilities. The cost of paying this debt can be minimised by electing to use the electronic fund transfers facility in tax returns or, for salary or wage earners, by choosing for extra tax instalments to be deducted throughout the year.
Where extra instalments are involved the employers will incur compliance costs through having to keep extra records, make calculations and modify payroll systems.
Health funds will have to deal with increased enquiries but these should result in increased business. They may also incur costs associated with the provision of information to the Commissioner of Taxation to enable the checking of information provided in tax returns.
Private health insurance rebate
Inserts a new subdivision 61-G in the proposed Income Tax Assessment Act 1996 to provide an income tax offset for taxpayers on lower incomes who take out private health insurance and makes supporting amendments to the Income Tax Assessment Act 1936 .
The tax offset is complementary to benefits available under the Private Health Insurance Incentives Bill 1996 in the form of reduced premiums for private health insurance.
Date of effect: 1 July 1997 for assessments for the 1997-98 income year and subsequent income years.
Proposal announced: Foreshadowed by the Government during the 1996 election and details announced in the 1996-97 Budget.
Financial impact: A cost to revenue of $113 million in 1998-99 and $114 million in 1999-00.
Compliance cost impact: To determine their entitlement to incentives for private health insurance, taxpayers will need to understand the new taxation and health rules relating to incentive eligibility. Taxpayers will need to collect information and make calculations to determine their eligibility and whether to claim the incentive through the health or taxation system.
Eligible taxpayers will need to keep records relating to their private health insurance coverage.
Explanation of the incentive for private health insurance and the accompanying rules will be contained in Taxpack.
It is expected health funds will experience increased enquiries from the public as a result of the incentives. They may also incur costs relating to the provision of information to the Commissioner of Taxation for the purpose of checking the validity of information provided by taxpayers in tax returns.
At first it is not expected that data concerning persons who have private health insurance will be sought from all health funds. Rather, it is expected that the Commissioner will adopt a sampling approach as a means of assessing the degree of taxpayer compliance. The need for more comprehensive collection of data from funds will depend on the outcome of the initial risk assessment.
Medical expenses rebate
Amends the income tax law to raise the threshold above which the medical expenses rebate applies.
Date of effect: Applies for the income year 1996-97 and subsequent income years.
Proposal announced: 1996-97 Budget, 20 August 1996.
Financial impact: This measure is expected to raise $45 million in 1997-98, $45 million in 1998-99 and $50 million in 1999-2000. In the Budget papers the expected financial impact was forecast at $26 million in 1997-98, $23 million in 1998-99 and $24 million in 1999-2000. The increased costings reflect information unavailable at the time of the Budget.
Compliance cost impact: There will be no additional compliance costs in regard to this measure as taxpayers will not be required to keep additional records. To qualify for the rebate taxpayers will have to keep records of medical expenses as they do under the existing law.