EXPLANATORY STATEMENT
STATUTORY RULES 1985 NO. 274
ISSUED BY THE AUTHORITY OF THE TREASURER INCOME TAX REGULATIONS (AMENDMENT)
These regulations provide for new tax instalment deductions from salary or wages received on or after 1 November 1985 to give effect to the announcement in the 1985-86 Budget to remove the upper limit on the amount of Medicare levy payable in a year of income, to increase the low income thresholds below which no levy is payable, and to amend the no exemption scale (the second job schedule) to reflect the higher average earnings received by an employee from his or her principal source of employment.
For this purpose the regulations repeal the Third Schedule to the Income Tax Regulations and prescribe a new schedule and make certain amendments to Subdivision A of Division 2 of Part VI of the Regulations.
The amending regulations also give effect to the Government’s tax reform measure to increase - from 10 per cent to 15 per cent - the basic rate of deduction from prescribed payments for the purposes of Division 3A of Part VI of the Income Tax Assessment Act applying from 1 July 1986.
The changes to the rates of tax instalment deductions for residents to apply from 1 November 1985 reflect the removal of the ceiling on the amount of Medicare levy payable by way of instalments on income derived for the 1985-86 and subsequent years of income. In 1984-85 the amount of levy payable by an individual or married couple was restricted on assessment to $733.32.
The new scales of tax instalments also reflect the increase in the low income thresholds below which no Medicare levy will be payable by an individual, a married couple or a sole
parent in 1985-86 and the appropriate rate of shading-in of the levy above the thresholds. For 1985-86, individuals with taxable incomes of $7,526 or less, and married couples or sole parents with family incomes of $12,504 or less will be exempt from the levy. The income thresholds for married couples and sole parents will increase by a further $1,530 for each dependent child or student.
In addition, a new no exemption scale applies to employees receiving earnings from a second job. The change in the rate of tax instalments affects employees whose second job income is $134 per week or more ($7,000 per annum).
Notes on each of the amending regulations are set out below:
Tax instalment deductions from salary or wages
(Regulations 1, 3 and 4)
Sub-regulation 1(2) provides for amending regulations 3 and 4 dealing with the tax instalments to be deducted from salary or wages to come into operation on 1 November 1985.
Regulation 3 repeals the Third Schedule to the Income Tax Regulations - the Schedule that specifies the rates of deductions to be made from salary or wages less than $751 per week - and inserts a new Third Schedule to apply on and from 1 November 1985. The Tables in the Third Schedule reflect the increase in the low income thresholds below which no Medicare levy is payable by an individual, married couple or a sole parent and the shading in of the levy above the thresholds. In addition, Tables A and B set out the rate of tax instalment deductions for employees with second job income.
Table A of the new Schedule prescribes the weekly rates of tax instalment deductions to be made from the salary or wages of an employee -
(a) who receives salary or wages in respect of a week or part of a week of less than $73; and
(b) who has furnished neither an income tax instalment declaration nor a Medicare levy variation declaration.
This Table applies to employees with second job income. In the level of income to which the Table applies there is no change in the rates of tax instalment deductions.
Table B prescribes the weekly rates of tax instalment deductions to be made from the salary or wages of an employee -
(a) who receives salary or wages in respect of a week or part of a week of not less than $73 but less than $751; and
(b) who has furnished neither an income tax instalment declaration nor a Medicare levy variation declaration; or
(c) who has furnished an income tax instalment declaration claiming only the general exemption or claiming a rebate for dependants or as a sole parent, but has not furnished a Medicare levy variation declaration.
Column 2 of Table B applies where the employee has not furnished a declaration claiming the general exemption - usually an employee in a second job. The tax instalment deductions are increased for salary or wages of $134 per week or more.
The only decrease in tax instalments in Column 3 from the tax scale previously in operation is in the salary or wage range of $134 to $148 per week. This accounts for the increase in the low income Medicare levy threshold for individuals and the shading in of the threshold. No Medicare levy is payable on weekly salary or wages of $141 or less, when the tax instalment deductions are determined under Column 3.
Sub-column (i) of Column 3 of the Table applies where the employee has claimed only the general exemption. In such a case, no tax instalment deductions are required to be made where the salary or wages in respect of a week or part of a week are less than $86.
Sub-columns (ii), (iii) and (iv) of Column 3 of Table B prescribe the rates of instalment deductions to be made where an employee has claimed a rebate value of $780 (the maximum rebate allowable to a sole parent), $830 (the maximum rebate allowable in respect of a spouse, daughter-housekeeper or housekeeper where there are no dependent children) or $1,030 (the maximum rebate allowable in respect of a spouse, daughter-housekeeper or housekeeper where there is a dependent child or student).
Where the total value of the rebates claimed in the declaration furnished by the employee is not an amount within sub-columns (ii), (iii) or (iv) of Column 3, the instalments to be deducted are to be ascertained under the formula laid down in sub-paragraph (c)(ii) of regulation 54C. In broad terms, this requires the instalment deduction shown in sub-column (i) of Column 3 to be reduced by an amount ascertained by multiplying. 1.9 cents by the rebate value claimed in the employee’s declaration.
Table C specifies the reduction to be made from the weekly rates of tax instalment deductions prescribed in Table B. It applies where an employee who receives salary or wages in respect of a week or part of a week of not less than $142 but less than $381 has furnished both -
(a) an income tax instalment declaration; and
(b) a Medicare levy variation declaration taking account of up to 5 dependent children or student children and that the employee is entitled to the benefit of the family income threshold.
The changes to this Table reflect the higher Medicare levy exemption threshold for married couples and sole parents and for families with dependent children, and the associated shading-out arrangements.
Table CA caters for cases where Table C would otherwise apply, but the Medicare levy variation declaration is for 6 or more dependent children (or dependent student children).
Table D prescribes the weekly rates of tax instalment deductions to be made from the salary or wages of an employee who receives salary or wages in respect of a week or part of a week of not less than $86 but less than $751 and who has furnished -
(a) an income tax instalment declaration; and
(b) a Medicare levy variation declaration as -
• a prescribed person (and thus a “no-levy” case); or
• a prescribed person having at least one dependant who is not a prescribed person (and who is thus a “half-levy” case).
The higher Medicare levy exemption thresholds which apply to a prescribed person who has at least one dependant who is not a prescribed person are reflected in Column 3 of Table D.
Table E is the half-levy reduction equivalent to Table C. It is used where an employee to whom Table D would otherwise apply receives salary or wages in respect of a week or part of a week of not less than $236 but less than $381 and has furnished a Medicare levy variation declaration for up to 5 dependent children or student children and claiming the benefit of the family income threshold.
Table EA caters for cases where Table E would otherwise apply, but the Medicare levy variation declaration is for 6 or more dependent children (or dependent student children).
Regulation 4 and the table to which it relates makes a number of amendments to regulations 54B, 54BA, 54C, 54CA and 54D that reflect the removal of the upper limit on the amount of Medicare levy payable and specify the tax instalments to be deducted where the weekly salary or wages is $751 or more. Previously, Medicare levy was not deducted from weekly salary or wages in excess of $1,442; or weekly salary or wages in excess of $1,276 from a second job. Those limits have now been removed.
Deductions from prescribed payments (Regulations 1 and 2)
Sub-regulation 1(1) declares that regulation 2 shall come into operation on 1 July 1986.
Regulation 2 amends sub-regulation 54ZED(1) of the Income Tax Regulations to increase from 10 per cent to 15 per cent the rate of deduction that, unless the recipient of the payment is the holder of a deduction exemption certificate or a deduction variation certificate, is to apply in respect of all prescribed payments made on or after 1 July 1986.
Division 3A of Part VI of the Income Tax Assessment Act provides for the collection of tax by deduction at source from certain payments (prescribed payments) for work and services not subject to tax instalment deductions under the pay-as-you-earn system. The collection scheme, known as the prescribed payments system, applies generally in the building and construction, architectural, consultant engineering, surveying and other technical building services, joinery and cabinet making, road transport, motor vehicle repair and cleaning industries.