House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. P.J. Keating, M.P.)

MAIN FEATURES

The main features of these Bills are as follows:

INCOME TAX ASSESSMENT AMENDMENT BILL 1989

Twice-monthly payment of tax instalment deductions (Clauses 3 to 5)

The Bill will give effect to the Government's 1989-90 Budget proposal to require certain employers (called "early remitters") to pay to the Commissioner of Taxation by the twenty-first day of a month the income tax which they deduct ("tax instalment deductions") from payments of salary or wages to their employees in the first 14 days of the month. Deductions from payments of salary or wages in the balance of the month are to be paid to the Commissioner no later than the seventh day of the next month.

The proposal will first apply to employers who made tax instalment deductions in excess of $5 million in relation to the financial year ended 30 June 1989. These employers will be required to remit the deductions on a twice-monthly basis, commencing with a payment by 21 December 1989 of the deductions made in the period 1-14 December 1989. Deductions in the balance of that month will be payable no later than 7 January 1990.

Employers who are members of a wholly-owned group of companies will also be required to pay the deductions to the Commissioner on this twice-monthly basis if the aggregate annual remittances of tax instalment deductions in relation to the financial year ended 30 June 1989 of all the companies in the group exceed $5 million.

Employers who, or companies in a wholly-owned group which, first make tax instalment deductions in excess of $5 million in the year ending 30 June 1990, or a later year, will also be required to remit on the above twice-monthly basis, commencing in the September following the end of the relevant financial year.

An employer who becomes liable to make twice-monthly remittances at any time will be required to continue remitting on that basis unless the Commissioner determines otherwise. Where there is an arrangement for the purpose of avoiding or defeating the proposed requirements, the Commissioner would be authorised to determine that an employer is to pay the tax instalment deductions on the twice-monthly basis.

Instalments of provisional tax (Clauses 7, 8, 10 and 11)

The Bill will implement the two Budget proposals announced on 15 August 1989 to alter the operation of the quarterly instalment system of paying provisional tax.

First, with effect for provisional tax payable in the 1989-90 and subsequent income years, the Bill will raise the threshold for general exemption from the system from $5,000 to $8,000. As a result a taxpayer will not be required to pay quarterly instalments of provisional tax in respect of the 1989-90 year of income where his or her provisional tax in respect of the 1988-89 year was $8,000 or less.

Secondly, where income tax payable for an income year is less than the provisional tax credit available in respect of that year, the Bill will operate so that, with effect from the day of Royal Assent, the excess provisional tax credit will not be offset against any quarterly instalment of provisional tax in respect of the following income year which has been notified but is not yet due for payment.

Provisional tax for 1989-90 year (Clauses 6 and 9)

Provisional tax for the 1989-90 year of income is to be calculated by applying 1989-90 rates of tax and Medicare levy to 1988-89 taxable incomes increased by an uplift factor of 10 per cent. Subject to certain adjustments outlined below, rebates and credits allowed in 1988-89 will be taken into account as appropriate in the calculation of 1989-90 provisional tax.

Rebates will be adjusted as follows:

(a)

the level of 1988-89 franking rebates will be adjusted to account for the reduction in the company tax rate, before being uplifted by 10 per cent;

(b)

concessional rebates allowed in 1988-89 assessments will be adjusted to reflect the increase in the levels of those rebates in 1989-90; and

(c)

any zone rebate, a rebate for a Defence Force member serving overseas, or a rebate for civilians serving with the United Nations that was allowed in 1988-89 assessments will be adjusted by an amount equal to 20 per cent of any additional amounts of concessional rebates to which a taxpayer may be entitled in 1989-90 by virtue of paragraph (b).

Also, credits allowed in 1988-89 assessments for foreign taxes will be uplifted by 10 per cent.

Finally, certain consequential amendments are proposed in the legislation dealing with arrangements to avoid provisional tax, to allow for the reduced uplift factor of 10 per cent.

INCOME TAX AMENDMENT BILL (No.2) 1989

This Bill will amend the Income Tax Act 1986 to formally impose tax payable for the 1989-90 financial year and the subsequent year, at the rates of tax declared by the Income Tax Rates Act 1986.

MEDICARE LEVY AMENDMENT BILL 1989

Medicare levy will, by this Bill, be payable on taxable incomes for the 1989-90 financial year and, until the Parliament otherwise provides, the 1990-91 financial year. The amendments to the levy arrangements contained in the Bill will -

•

impose the Medicare levy in respect of 1989-90 and the subsequent financial year at the rate of 1.25 per cent; and

•

increase the level of the low income thresholds so that no levy will be payable by :

• .

a person whose taxable income does not exceed $10,330; or

• .

a married (including de facto) couple where the sum of the couple's taxable incomes does not exceed $17,400, or by a sole parent where his or her taxable income does not exceed $17,400; for each dependent child or student maintained by a married couple or sole parent the threshold for payment of the levy is to continue to be increased by $2,100.

A more detailed explanation of the provisions of these Bills is contained in the following notes.