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This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer and Copyright Details
A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Bill 1998
Date Introduced: 2 December 1998
House: House of Representatives
Commencement: Commences on the day on which the A New Tax System (Fringe Benefits Reporting) Act 1998 receives Royal Assent.
From the 1999-2000 year of income, employers will be required to identify on group certificates the grossed-up taxable value of certain employee fringe benefits under measures proposed in the A New Tax System (Fringe Benefits Reporting) Bill 1998.(1) This value will be included in the income tests used to impose the Medicare levy surcharge for employees without private patient hospital insurance. This Bill proposes to impose a Medicare levy surcharge (MLS) on persons whose taxable income and reportable fringe benefits exceeds certain thresholds. The MLS to be imposed by this Bill is 1% of the reportable fringe benefits component. The Medicare Levy Act 1986 will continue to impose the MLS of 1% on the taxable income component.
Implementing the A New Tax System
This Bill is one of a package of 17 Bills(2) that was introduced into the House of Representatives in December 1998, to give effect to Government's proposals on 13 August 1998 for a new tax system, which included the introduction of a GST. The outlines of Government's proposals were contained in the policy document Tax Reform: not a new tax, a new tax system: The Howard Government's Plan for a New Tax System,(3) which will be referred to as the A New Tax System (ANTS) in this Digest. The ANTS and further details of the proposals were contained in Fact Sheets, all of which were available at the time of writing in the Government's Tax Reform Website: http://www.taxreform.gov.au
Proposed section 1-3 of the A New Tax System (Goods and Services Tax) Bill 1998 (the GST Bill) provides that the Commonwealth will introduce further legislation to give effect to the Agreement on Principles for the Reform of Commonwealth-State Financial Relations endorsed at the Special Premiers' Conference in Canberra on 13 November 1998. In the Second Reading Speech on the GST Bill, the Treasurer stated that the Government proposes to enact the whole package by the end of this financial year and that when the package is enacted, Australia will have a new tax system from 1 July 2000.(4) The Prime Minister also stated in Parliament that further tranches of legislation will be introduced early in 1999 to implement the new tax system.(5)
Proposal to include fringe benefits in income tests for surcharges and levies in the A New Tax System
ANTS foreshadowed major reforms of the taxation of fringe benefits, including a system of reporting certain fringe benefits that could be attributed to each employee for the purpose of imposing certain surcharges and levies. The outlines of these reform measures are set out in the companion Digest on the - A New Tax System (Fringe Benefits Reporting) Bill 1998.
The proposal which is relevant to this Bill was stated in ANTS as follows.
Improving income tests for surcharges and government benefits by requiring employers, from the 1999-00 FBT year of income, to identify on group certificates the grossed-up taxable value of an employee's fringe benefits that are part of their remuneration package or award, where the value of the benefits exceed $1000:
This Bill implements the proposal to impose the MLS on fringe benefits attributed to employees.
In an attempt to stabilise the level of coverage of private health insurance in Australia, the Government announced in the 1996-97 Budget a two-pronged strategy which offered means-tested subsidies for people with private health insurance and a penalty through the MLS for higher income people without private health insurance. The penalty element of the strategy was contained in the Medicare Levy Amendment Act (No. 1) 1997.(7)
The thrust of this Bill and the thresholds for liability to the MLS follow closely the provisions of the Medicare Levy Amendment Act 1996(8) which amended the Medicare Levy Act 1983 (the MLA). The requirements of an insurance policy that provides private patient hospital cover to avoid liability are also similar to the provisions in the Medicare Levy Amendment Act 1996. The amendments to the MLA impose a 1% MLS on taxable income from the year 1997-98.
This Bill imposes a 1% MLS on reportable fringe benefits totals of employees for the 1999-2000 year of income and later years of income (proposed section 10).
This section of the Digest covers the main provisions only and the reader is referred to the Explanatory Memorandum for details and the useful examples it contains.
When does an insurance policy provide private patient hospital cover?
Proposed section 4 provides that a policy will provide private patient hospital cover if it is an applicable benefits arrangement under section 5A of the National Health Act 1953. This will be satisfied if there is an arrangement between a registered organisation conducting a health benefits fund and a person contributing to the health fund, where there is cover (wholly or partly) for liabilities for:
in respect of which a Medicare benefit is payable.
What is the family surcharge threshold?
The family surcharge threshold is $100,000 for a person for a year of income under proposed subsection 6(1), where the person has less than 2 dependents.
Where the person has two or more dependents the threshold amount is calculated in accordance with the following formula in proposed subsection 6(2).
$100,000 + ($1,500 x (Number of dependants who are children - 1))
The term dependent is defined in proposed section 5 and follows the definition for Medicare levy purposes. Basically, a person is dependent of another if that person is resident in Australia and is either a spouse or a child of the person contributing to their maintenance.
When are people treated as married?
Proposed section 7 defines when people are treated as married.
De fact couples are treated as married under proposed subsection 7(1). The proposed test is that:
New widows and widowers are treated as married until the end of an year of income under proposed subsection 7(3), where:
Persons living separately and apart are not taken to be married under proposed subsection 7(2).
Proposed sections 8, 13 and 14 modify the definition of prescribed person in Part VIIB of the ITAA 1936. The main categories of prescribed persons under Part VIIB are defence personnel, persons entitled under veterans' entitlement legislation, blind pensioners and sickness beneficiaries. Prescribed persons are entitled to a full or partial exemption from the Medicare levy. The Explanatory Memorandum explains the modifications of the definition of prescribed person for the purposes of proposed sections 8, 13,and 14.(9)
What is the amount of surcharge for a single person without dependents?
Proposed section 12 (Single person without dependants) provides that a surcharge of 1% is payable on the person's reportable fringe benefits total if the person:
What is the amount of surcharge for a single person with dependents and who is not married?
Proposed section 13 (Single person with dependants who is not married) provides that a surcharge of 1% is payable on the person's reportable fringe benefits total if the person:
What is the amount of surcharge for married person?
Proposed Division 4 sets out the basis for the imposition of the MLS on a married person.
It applies if the person :
The family surcharge threshold test is applied to a married person under proposed paragraph 15(b) with the taxable income and reportable fringe benefits total of the spouse being included in the calculations under subparagraphs 15(b)(iii) and (iv). Where this combined total exceeds the relevant family surcharge threshold, and the sum of the person's taxable income and reportable fringe benefits total for the year of income is more than $13,389 (proposed paragraph 15(c), the surcharge is payable.
The amount of the surcharge is 1% of that person's reportable fringe benefits total.
Where each spouse has reportable fringe benefits totals and where the requirements of proposed section 15 are satisfied, each spouse will be liable to the surcharge at 1% of the reportable fringe benefits total.
The reader is referred to the Concluding Comments on the companion Digest to the A New Tax System (Fringe Benefits Reporting) Bill 1998.
The first 16 of these Bills were introduced on 2 December 1998 and the 17th Bill was introduced on 10 December 1998.
Bernard Pulle
25 January 1999
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.
ISSN 1328-8091
© Commonwealth of Australia 1999
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Published by the Department of the Parliamentary Library, 1999.