Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TAX LAWS AMENDMENT (PERSONAL INCOME TAX REDUCTION)
BILL 2008
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 Reducing personal income tax ...................................... 5
Index ..................................................................................................... 13
Glossary
The following abbreviation is used throughout this explanatory
memorandum.
Abbreviation Definition
ITAA 1936 Income Tax Assessment Act 1936
1
General outline and financial impact
Reducing personal income tax
This Bill amends the Income Tax Rates Act 1986 to increase the threshold
at which the 30 per cent marginal tax rate begins to apply and to decrease
the 40 per cent marginal tax rate to 38 per cent (from 1 July 2009) and to
37 per cent (from 1 July 2010).
This Bill also amends the Income Tax Assessment Act 1936
(ITAA 1936) to increase the maximum amount of low income tax offset.
In addition, this Bill amends the Medicare Levy Act 1986 to increase the
income threshold at which the Medicare levy becomes payable for
taxpayers who are eligible for the senior Australians tax offset.
Date of effect: Increases in the 30 per cent threshold will apply to
assessments for the 2008-09, 2009-10, 2010-11 and later income years.
Reduction of the 40 per cent marginal tax rate will apply to assessments
for the 2009-10 income year and the 2010-11 and later income years.
Amendments to the low income tax offset and consequential amendments
to the Medicare levy for senior Australians will apply to assessments for
the 2008-09 income year, the 2009-10 income year and the 2010-11 and
later income years.
Proposal announced: This measure was announced as an election
commitment, in A Tax Plan For Australia's Future, on 19 October 2007.
Financial impact: This measure will have these revenue implications:
2007-08 2008-09 2009-10 2010-11
$7.110b $9.790b $13.930b
Compliance cost impact: Nil.
3
1 Chapter 1
Reducing personal income tax
Outline of chapter
.1 This Bill amends the Income Tax Rates Act 1986 to increase
the threshold at which the 30 per cent marginal tax rate begins to apply
and to decrease the 40 per cent marginal tax rate to 38 per cent (from
1 July 2009) and to 37 per cent (from 1 July 2010).
.2 This Bill also amends the Income Tax Assessment Act 1936
(ITAA 1936) to increase the maximum amount of low income tax offset.
.3 In addition, this Bill amends the Medicare Levy Act 1986 to increase
the income threshold at which the Medicare levy becomes payable for
taxpayers who are eligible for the senior Australians tax offset.
Context of amendments
.4 These amendments give effect to the personal income tax cuts
promised in the election commitment A Tax Plan For Australia's Future
released on 19 October 2007.
.5 The tax cuts are designed to maximise individual incentive and
enhance workforce participation.
Summary of new law
.6 Amendments to the Income Tax Rates Act 1986 raise the 30 per cent
threshold for residents and non-residents:
2 from $30,001 to $34,001 from 1 July 2008;
3 to $35,001 from 1 July 2009; and
4 to $37,001 from 1 July 2010.
.1 Amendments to the Income Tax Rates Act 1986 also reduce the
second highest marginal tax rate for residents and non-residents:
5
5 from 40 per cent to 38 per cent from 1 July 2009; and
6 to 37 per cent from 1 July 2010.
.1 Amendments to the ITAA 1936 provide for an increase in the low
income tax offset:
7 from $750 to $1,200 for the 2008-09 income year;
8 to $1,350 for the 2009-10 income year; and
9 to $1,500 for the 2010-11 and later income years.
.1 Amendments to the Medicare Levy Act 1986 raise the income
threshold at which taxpayers who are eligible for the senior Australians
tax offset become liable to pay the Medicare levy.
Comparison of key features of new law and current law
.2 The key changes to the current law include increases to the threshold
where the 30 per cent marginal tax rate begins to apply for the 2008-09,
2009-10 and 2010-11 income years; and reductions in the second highest
marginal tax rate for the 2009-10 and 2010-11 income years.
.3 From 1 July 2008:
10 the lower limit of the 30 per cent threshold will rise from
$30,001 to $34,001; and
11 the low income tax offset will increase from $750 to $1,200.
The low income tax offset will continue to phase out from
$30,000 at a rate of 4 cents in the dollar for every dollar of
income over $30,000.
.1 From 1 July 2009:
12 the lower limit of the 30 per cent threshold will rise from
$34,001 to $35,001;
13 the low income tax offset will increase from $1,200 to
$1,350; and
14 the 40 per cent tax rate will be reduced to 38 per cent.
.1 From 1 July 2010:
15 the lower limit of the 30 per cent threshold will rise from
$35,001 to $37,001;
16 the low income tax offset will increase from $1,350 to
$1,500; and
17 the 38 per cent tax rate will be reduced to 37 per cent.
.1 As a consequence of the increases in the low income tax offset, the
income level above which senior Australians (eligible for the senior
Australians tax offset) begin to pay tax will increase. This will mean that
eligible senior Australians will have no tax liability until their income
reaches:
18 $28,867 for singles and $24,680 for each member of a
couple in the 2008-09 income year;
19 $29,867 for singles and $25,680 for each member of a
couple in the 2009-10 income year; and
20 $30,685 for singles and $26,680 for each member of a
couple in the 2010-11 income year.
.1 The Medicare levy threshold amount for individuals eligible for the
senior Australians tax offset will increase:
21 from 1 July 2008 from $25,867 to $28,867;
22 from 1 July 2009 from $28,867 to $29,867; and
23 from 1 July 2010 from $29,867 to $30,685.
.1 The Medicare levy phase-in limit for individuals eligible for the
senior Australians tax offset will also increase:
24 from 1 July 2008 from $30,431 to $33,961;
25 from 1 July 2009 from $33,961 to $35,137; and
26 from 1 July 2010 from $35,137 to $36,100.
.1 The Medicare levy threshold amount for certain couples eligible for
the senior Australians tax offset, where the threshold for single senior
Australians is not sufficient to ensure that they incur no Medicare levy
liability until they incur an income tax liability, will increase:
27 from 1 July 2008 from $37,950 to $42,000;
7
28 from 1 July 2009 from $42,000 to $43,500; and
29 from 1 July 2010 from $43,500 to $44,500.
.1 The Medicare levy phase-in limit, that applies to certain couples
eligible for the senior Australians tax offset, will also increase:
30 from 1 July 2008 from $44,647 to $49,412;
31 from 1 July 2009 from $49,412 to $51,177; and
32 from 1 July 2010 from $51,177 to $52,353.
.1 The consequential amendments to Schedules 8 and 10 of the Income
Tax Rates Act 1986 result from increases in the threshold where the
30 per cent marginal tax rate begins to apply.
Detailed explanation of new law
Australian resident taxpayers
.2 Items 3, 13 and 23, with effect from 1 July 2008, 1 July 2009 and 1
July 2010 respectively, replace the table in clause 1 of Part I of Schedule 7
to the Income Tax Rates Act 1986, which sets out the rate of tax on the
taxable income of a resident taxpayer. [Schedule 1, items 3, 13 and 23]
.3 Table 1.1 sets out the rates and thresholds currently legislated for
resident taxpayers and the new tax thresholds that will apply to
assessments for the 2008-09 income year, the 2009-10 income year and
the 2010-11 income year and later years.
Table 1.1: Rates of income tax for residents
Tax thresholds for Tax Current tax thresholds from 1 July 2008 Tax
2007-08 rate (Income range) rate
(Income range) (%) (%)
$0$6,000 0 $0$6,000 0
$6,001$30,000 15 $6,001$30,000 15
$30,001$75,000 30 $30,001$80,000 30
$75,001$150,000 40 $80,001$180,000 40
$150,001+ 45 $180,001+ 45
New tax thresholds Tax New tax thresholds Tax New tax thresholds Tax
from 1 July 2008 rate from 1 July 2009 rate from 1 July 2010 rate
(Income range) (%) (Income range) (%) (Income range) (%)
$0$6,000 0 $0$6,000 0 $0$6,000 0
$6,001$34,000 15 $6,001$35,000 15 $6,001$37,000 15
$34,001$80,000 30 $35,001$80,000 30 $37,001$80,000 30
$80,001$180,000 40 $80,001$180,000 38 $80,001$180,000 37
$180,001+ 45 $180,001+ 45 $180,001+ 45
Non-resident taxpayers
.1 The new income tax thresholds also apply to non-resident taxpayers.
.2 Items 4, 14 and 24, with effect from 1 July 2008, 1 July 2009 and 1
July 2010 respectively, replace the table in clause 1 of Part II of Schedule
7 to the Income Tax Rates Act 1986, which sets out the rate of tax on the
taxable income of a non-resident taxpayer. [Schedule 1, items 4, 14 and 24]
.3 Table 1.2 sets out the rates and thresholds currently legislated for
non-resident taxpayers and the proposed tax thresholds that will apply to
assessments for the 2008-09 income year, the 2009-10 income year and
the 2010-11 income year and later years.
9
Table 1.2: Rates of income tax for non-residents
Tax thresholds for Tax Current tax thresholds from 1 July 2008 Tax
2007-08 rate (Income range) rate
(Income range) (%) (%)
$0$30,000 29 $0$30,000 29
$30,001$75,000 30 $30,001$80,000 30
$75,001$150,000 40 $80,001$180,000 40
$150,001+ 45 $180,000+ 45
New tax thresholds Tax New tax thresholds Tax New tax thresholds Tax
from 1 July 2008 rate from 1 July 2009 rate from 1 July 2010 rate
(Income range) (%) (Income range) (%) (Income range) (%)
$0$34,000 29 $0$35,000 29 $0$37,000 29
$34,001$80,000 30 $35,001$80,000 30 $37,001$80,000 30
$80,001$180,000 40 $80,001$180,000 38 $80,001$180,000 37
$180,001+ 45 $180,001+ 45 $180,001+ 45
Increase in the low income tax offset
.1 Increases in the maximum amount of low income tax offset are
phased in.
.2 For the 2008-09 income year, taxpayers are entitled to the low income
tax offset if their taxable income is less than $60,000 [Schedule 1, item 1,
subsection 159N(1) of the ITAA 1936]. The maximum amount of the tax offset
will increase from $750 to $1,200 per year [Schedule 1, item 2, subsection
159N(2) of the ITAA 1936].
.3 For the 2009-10 income year, taxpayers will be entitled to the low
income tax offset if their taxable income is less than $63,750 [Schedule 1,
item 11, subsection 159N(1) of the ITAA 1936]. The maximum amount of the tax
offset will increase to $1,350 per year [Schedule 1, item 12, subsection 159N(2)
of the ITAA 1936].
.4 From 1 July 2010, taxpayers will be entitled to the low income tax
offset if their taxable income is less than $67,500 [Schedule 1, item 21,
subsection 159N(1) of the ITAA 1936]. The maximum amount of the tax offset
will increase to $1,500 per year [Schedule 1, item 22, subsection 159N(2) of the
ITAA 1936].
.5 The low income tax offset will still phase out at a rate of four cents for
each dollar over $30,000.
Increase in the Medicare levy thresholds for senior Australians
.6 As a result of the phased-in increases in the low income tax offset
from $750 to $1,500 by the 2010-11 income year, the income level above
which Australians eligible for the senior Australians tax offset begin to
pay tax will increase.
.7 This means that eligible single, senior Australians will have no tax
liability until their income reaches $28,867 for the 2008-09 income year,
$29,867 for the 2009-10 income year and $30,685 for the 2010-11 income
year.
.8 Eligible senior Australians who are members of a couple will have no
tax liability until their income reaches $24,680 in the 2008-09 income
year, $25,680 in the 2009-10 income year and $26,680 in the 2010-11
income year.
.9 To ensure that senior Australians do not pay the Medicare levy until
they are liable to pay income tax, the Medicare levy threshold for single
seniors increases accordingly from $25,867 to $28,867 for the 2008-09
income year, to $29,867 for the 2009-10 income year and to $30,685 for
the 2010-11 income year. [Schedule 1, items 8, 18 and 28, subsection 3(1) of the
Medicare Levy Act 1986]
.10 The phase-in limit, below which a single taxpayer eligible for the
senior Australians tax offset pays less than the full Medicare levy rate, is
raised to $33,961 from 1 July 2008, to $35,137 from 1 July 2009 and to
$36,100 from 1 July 2010. [Schedule 1, items 7, 17 and 27, subsection 3(1) of the
Medicare Levy Act 1986]
.11 Senior couples for whom the threshold for single senior Australians is
not sufficient to ensure that they incur no Medicare levy liability until they
incur an income tax liability (eg, because one partner earns significantly
more than the other) are able to access a senior family threshold. From 1
July 2008, the new senior family threshold is raised to $42,000 to ensure
that seniors in a couple do not incur a Medicare levy liability until they
incur an income tax liability. From 1 July 2009, the senior family
threshold will be $43,500 and from 1 July 2010, the senior family
threshold will be $44,500. [Schedule 1, items 9, 19 and 29, subsection 8(7) of the
Medicare Levy Act 1986]
Application and transitional provisions
.12 Item 10 provides for the changes to the personal income tax
thresholds, the low income tax offset, and the Medicare levy threshold
11
amount and phase-in limit for senior Australians, to apply to assessments
for the 2008-09 income year.
.13 Item 20 provides for the changes to the personal income tax rates and
thresholds, the low income tax offset, and the Medicare levy threshold
amount and phase-in limit for senior Australians, to apply to assessments
for the 2009-10 income year.
.14 Item 30 provides for the changes to the personal income tax rates and
thresholds, the low income tax offset, and the Medicare levy threshold
amount and phase-in limit for senior Australians, to apply to assessments
for the 2010-11 income year and later income years.
Consequential amendments
.15 Consequential amendments are required to Schedules 8 and 10 of the
Income Tax Rates Act 1986 to reflect the increases in the threshold where
the 30 per cent marginal tax rate begins to apply. [Schedule 1, items 5, 6, 15,
16, 25 and 26]
Index
Schedule 1: Amendments
Bill reference Paragraph number
Item 1, subsection 159N(1) of the ITAA 1936 1.26
Item 2, subsection 159N(2) of the ITAA 1936 1.26
Items 3, 13 and 23 1.20
Items 4, 14 and 24 1.23
Items 5, 6, 15, 16, 25 and 26 1.39
Items 7, 17 and 27, subsection 3(1) of the Medicare Levy Act 1986 1.34
Items 8, 18 and 28, subsection 3(1) of the Medicare Levy Act 1986 1.33
Items 9, 19 and 29, subsection 8(7) of the Medicare Levy Act 1986 1.35
Item 11, subsection 159N(1) of the ITAA 1936 1.27
Item 12, subsection 159N(2) of the ITAA 1936 1.27
Item 21, subsection 159N(1) of the ITAA 1936 1.28
Item 22, subsection 159N(2) of the ITAA 1936 1.28
13
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