EXPLANATORY STATEMENT
STATUTORY RULES 1983 NO. 319
ISSUED BY THE AUTHORITY OF THE TREASURER
INCOME TAX REGULATIONS (AMENDMENT)
The purpose of these regulations is to implement changed pay-as-you-earn (PAYE) arrangements from 1 February 1984 to give effect to the legislation introducing the Medicare levy from that date. That legislation, contained in the Income Tax Laws Amendment (Medicare Levy) Act 1983 - which amended the Income Tax Assessment Act 1936 - and the Medicare Levy Act 1983, imposes a Medicare levy at the general rate of one per cent of taxable income on persons who are, for income tax purposes, residents of Australia.
Introductory note
The amending regulations incorporate new schedules of tax instalments reflecting the existing rates of income tax deductions and incorporating a component for Medicare levy. The existing schedules will continue to apply (as “no-levy” schedules) where an employee is entitled to exemption from the levy because he or she is a “prescribed person” - broadly, a returned veteran, a war widow, a Defence Force member or a holder on a non-income tested basis of one of three specified types of health care entitlement cards. Where a person in one of these prescribed categories has dependants who are not themselves prescribed persons, the person is to pay levy at, in effect, half the normal rate in accordance with a new “half-levy” schedule. An employee wishing to have the no-levy or half-levy schedule applied will be able to furnish a Medicare levy variation declaration to his employer for that purpose.
For the 1983-84 income year reflecting the fact that the levy will apply only for the five months of that income year commencing on 1 February 1984, the levy will be calculated in end-of-year assessments at the rate of 0.416 per cent of the
1983-84 taxable income. However, the rate reflected in PAYE schedules effective from 1 February 1984 will be the general levy rate of one per cent that is to apply in a full year. Notes on individual regulations follow.
Regulation 1 provides for the amending regulations to come into operation on 1 February 1984.
Regulation 2 contains provisions designed to facilitate the introduction of new arrangements whereby the amount to be deducted from an employee’s salary or wages depends on whether a Medicare levy variation declaration has been lodged. Such a declaration may, for practical reasons, have effect for the purpose of the new arrangements although lodged with an employer before the date of commencement of the amending regulations on 1 February 1984.
Regulation 3 repeals regulation 8A of the existing regulations. The regulation to be repealed relieved prescribed classes of persons from the former health insurance levy which applied prior to 1 November 1978.
Regulation 4 amends regulation 54A which defines certain terms used in the tax instalment deduction provisions of the regulations. Paragraph (a) of regulation 4 inserts a definition of an additional term.
“Prescribed person” is to mean a person who is a prescribed person for the purposes of the Medicare levy provisions of the Income Tax Assessment Act. The definition is relevant to new sub-regulation 54DACA(1), which entitles certain employees to furnish a Medicare levy variation declaration. Broadly speaking, a prescribed person is someone who is a veteran, a war widow, a Defence Force member or the holder of one of a specified type of health care entitlement card issued on a non-income tested basis.
Paragraph (b) of regulation 4 amends regulation 54A by inserting new sub-regulation 54A(1A) and replacing existing sub-regulation (2). New sub-regulation 54A(1A) inserts a definition of “dependant” for medicare levy purposes. The existing definition of “dependant” in the Regulations does not wholly correspond with the meaning of “dependant” for the purposes of the levy. This amendment ensures that an employee will be able to take into account as dependants for Medicare levy purposes those categories of persons referred to in sub-section 251R(3) of the Income Tax Assessment Act, i.e., a spouse (including a de facto spouse), a child of the employee under 16 years and a student child of the employee under 25 to whose maintenance the employee contributes. New sub-regulation (2) indicates that references throughout Subdivision A of Division 2 of Part VI of the Income Tax Regulations to a declaration under the Subdivision is, unless the contrary intention appears, to be read as a reference to an income tax instalment declaration and also to a Medicare levy variation declaration.
Paragraphs (c) and (d) of regulation 4 amend sub-regulations 54A(4)(b) and 54A(5)(b) respectively to make formal drafting changes consequent on amendments made to other regulations. The amendments effect no changes of substance.
Regulation 5 amends regulation 54B. In its amended form, regulation 54B will prescribe the rates of PAYE tax instalment deductions to be made from the salaries or wages of employees who claim only the general exemption on the first $4595 of taxable income, i.e., they have not claimed a rebate for dependants in an income tax instalment declaration.
Paragraph (a) of regulation 5 amends the opening words of regulation 54B to make clear that the rates of instalment deductions specified in regulation 5 apply only to an employee who is not a “prescribed person” (see the notes on regulation 4(a)) and who claims only the general exemption, or who is a prescribed person but has not chosen to claim full or partial levy relief.
Paragraph 5(b) omits paragraphs (a) and (b) in existing regulation 54B and substitutes (c) and (d).
By sub-paragraph (c)(i) which applies where an employee does not furnish a Medicare levy variation declaration, the amount to be deducted if the salary or wages are less than $751 weekly is to be ascertained from sub-column (i) of Column 3 of new Table B of the Third Schedule, i.e., the new table reflecting both income tax and Medicare levy.
Sub-paragraph (c) (ii) specifies the amount to be deducted in the absence of a levy variation declaration where the weekly salary or wages are $751 or more but less than $1,346 while sub-paragraph (c)(iii) sets the amount to be deducted where the weekly salary or wages are $1,346 or more.
By sub-paragraph (d)(i) of new regulation 54B which applies where a Medicare levy variation declaration is lodged, the amount to be deducted where a spouse is the only dependant disclosed on the variation declaration is the amount which would have been ascertained under sub-paragraphs (c)(i) to (iii) if the employee had not lodged that declaration, as reduced by an amount ascertained from Column 2 of new Table C of the Third Schedule. Where up to 5 children or student children are nominated as dependants on an employee’s Medicare levy variation declaration, sub-paragraph (d)(ii) of new regulation 54B similarly sets the basis for reducing the amount of the instalment which would otherwise be required by the operation of sub-paragraphs (c)(i) to (iii) if a declaration had not been lodged. That amount is to be reduced by reference to the appropriate sub-column of Column 3 of new Table C of the Third Schedule. Sub-paragraph (d)(iii) of new regulation 54B deals with cases where 6 or more children or student children are disclosed as dependants on the Medicare levy variation declaration. The reduction is determined by reference to new Table CA of the Third Schedule.
Regulation 6 inserts a new regulation, regulation 54BA, to prescribe the rates of PAYE deductions to be made from the salaries and wages of employees who are “prescribed persons” (as defined) and who submit both an income tax instalment declaration claiming the general exemption from income tax and a Medicare levy variation declaration to their employers. By these declarations an employee may claim full or partial relief from levy or may notify a relevant change in the employee’s circumstances, such as a change in the number or relevant circumstances of his dependants (see the notes to regulation 13).
Paragraph 54BA(a) deals with cases where persons are not liable for Medicare levy because they are prescribed persons without dependants or whose dependants are themselves prescribed persons. Paragraph (b) covers “half-levy” cases, i.e., those where a prescribed person is required to pay levy, but at a reduced rate, because he or she has dependants who are not themselves prescribed persons, while paragraph (c) applies where employees who, as prescribed persons with dependants, are half-levy cases entitled to the further benefit of a family income threshold so as to reduce or eliminate the amount of levy that would otherwise be payable.
Sub-paragraph (a)(i) specifies the rate at which tax instalments are to be deducted from weekly earnings of less than $751 in cases to which paragraph (a) applies. The rate is determined by reference to Column 2 (the “no-levy” column) of new Table D of the Third Schedule. Where the weekly earnings are $751 or more, the amount of the deduction is specified by sub-paragraph (a)(ii).
By sub-paragraph (b)(i), where the weekly earnings in a “half-levy” case are less than $751, the rate of instalment deductions specified is obtained by reference to sub-column (i) of Column 3 of new Table D of the Third Schedule. Where the
weekly earnings are $751 or more but less than $1,346, sub-paragraph (b)(ii) specifies the rate of instalment deduction while sub-paragraph (b)(iii) sets the rate where the weekly income is $1,346 or more.
Where a “half-levy” employee who has not claimed a rebate for dependants on an income tax instalment declaration desires those dependants to be taken into account in determining his or her Medicare levy threshold, paragraph 54BA(c) permits an appropriate reduction in the tax instalment deduction which would otherwise obtain.
The PAYE instalments applicable in cases to which sub-paragraphs (c)(i) and (c)(ii) apply are to be determined by reference to new Tables E and EA respectively in the Third Schedule.
Regulation 7 amends regulation 54C. In its amended form, regulation 54C will prescribe the rates of PAYE deductions for employees who are not prescribed persons but who have furnished an income tax instalment declaration claiming both the general exemption and a zone rebate or rebate for dependants. The amended regulation also applies to prescribed persons who have chosen not to claim full or partial levy relief.
Paragraph 54C(c) as amended applies where no Medicare levy variation declaration has been furnished and paragraph (d) applies where such a declaration has been furnished.
Sub-paragraph (c)(i) sets the amount of tax instalment deduction where weekly earnings are less than $751 by reference to the standard rebate value sub-columns in new Table B to the Third Schedule. The standard rebate values are $780 (for a sole parent), $830 (for a taxpayer with a dependent spouse but no dependent children) and $1030 (where there is a dependent spouse
and at least one dependent child or student). Where the rebate value entitlements are less than these standard values, sub-paragraph (c)(ii) provides a formula by which the correct rate of instalment deduction may be obtained. Sub-paragraphs (c)(iii) and (c)(iv) set the amounts of instalment deduction where the weekly earnings are, respectively, between $750 and $1346 or are more than $1345.
Sub-paragraphs 54C(d)(i) to (iii) apply to reduce the prescribed instalment deduction where dependants are included on the Medicare levy variation declaration. Where a spouse is the only dependant sub-paragraph (d)(i) directs reference to Column 2 of new Table C of the Third Schedule. Where up to 5 children are disclosed Column 3 of that table applies (sub-paragraph (d)(ii)) and where there are 6 or more children, new Table CA of the Third Schedule applies (sub-paragraph (d)(iii)).
Regulation 8 inserts new regulation 54CA which prescribes the PAYE deduction rates for employees who are prescribed persons and who have claimed a dependant rebate on their income tax instalment declaration and who have lodged a Medicare levy variation declaration.
Paragraph 54CA(a) applies where a levy variation declaration claims full relief from the levy, paragraph (b) where it is lodged by a “half-levy” employee and paragraph (c) where a “half-levy” employee also claims for one or more dependent children or students on the Medicare levy variation declaration.
Sub-paragraphs (a)(i) and (ii) set the amount of instalment deduction where the weekly earnings are, respectively, less than $751 or $751 or more. In the former case reference is first to be made to the no-levy column in new Table D of the Third Schedule. The amount indicated there is then reduced on account of rebate entitlement for dependants by applying the formula set out in sub-paragraph (a)(i).
In the case of a “half-levy” employee, paragraph (b) of regulation 54CA specifies new Table D of the Third Schedule as the appropriate table for weekly earnings of less than $751 (sub-paragraphs (b)(i) and (ii)). For higher levels of weekly earnings sub-paragraphs (iii) and (iv) prescribe the appropriate deduction rates.
For paragraph (c) cases, sub-paragraphs (c)(i) and (ii) direct reference to the relevant reduction tables contained in new Tables E and EA respectively of the Third Schedule.
Regulation 9 amends regulation 54D in two ways. The first change, effected by paragraph (a), is a formal drafting measure consequent on other amendments.
Paragraph (b) omits existing paragraph 54D(b) and substitutes new paragraphs (b) and (c). Regulation 54D prescribe the rate of tax instalment deductions to be made from weekly earnings where an employee does not furnish an income tax instalment declaration. As amended, the regulation will prescribe a rate of PAYE deduction which includes Medicare levy at the full rate and an income tax instalment calculated without reference to the general exemption for the first $4595 of taxable income.
Where weekly earnings are below $751 the rate is determined by reference to Column 2 of Table A or B (the full levy tables as appropriate (regulation 54D(a)). New paragraph (b) prescribes the rate for weekly earnings between $750 and $1181 and paragraph (c) for earnings of $1181 or more.
Regulation 10 makes a consequential amendment to regulation 54DA which prescribes the rate of tax instalment deductions to be made from the weekly earnings of employees who are prescribed non-residents. Because the Medicare levy is payable only by Australian residents the PAYE rates for nonresidents do not incorporate any levy component. The amendment
will make regulation 54DA self-contained so as to provide directly within the regulation rates of PAYE deductions reflecting the standard rates of income tax applicable at various levels of weekly earnings rather than as previously, doing so by reference to Table A or Table B. This change is made necessary by the fact that, with effect from 1 February 1984, those tables will incorporate a levy component.
Regulation 11 amends regulation 54DAA to make two formal drafting changes. Paragraph (a) ensures that a reference to a declaration in regulation 54DAA, is a reference only to an income tax instalment declaration and not also to a Medicare levy variation declaration. Paragraph (b) is a formal drafting change consequential on the insertion of regulations 54BA and 54CA by these amending regulations.
Regulation 12 increases the standard rate of tax instalment deductions to be made from payments described in regulation 54DAAA from 30 cents to 31 cents. The increased rate reflects the general one per cent Medicare levy.
Regulation 13 inserts new regulations 54DACA and 54DACB. New regulation 54DACA permits eligible employees to furnish a Medicare levy variation declaration to their employers so that tax instalments deducted from their pay will not include a component for the levy or will include a reduced levy component. These are employees who fall into the no-levy or half-levy categories or who are entitled to the benefit of a family income threshold. If an employee has more than one employer he or she may furnish such a claim only to whichever of his or her employers to whom an income tax instalment declaration has been furnished.
Paragraph (1)(a) of new regulation 54DACA permits employees who are prescribed persons to lodge a Medicare levy variation declaration with their employer claiming full relief from the levy. Employees who are prescribed persons but who
have one or more dependants who are not also prescribed persons and are, therefore, entitled to full or partial relief from the levy will lodge a Medicare levy variation declaration under paragraph (1)(b). In the latter case the employee will typically be a “half-levy” payer. However, the amount of family income and the number of dependants may combine to entitle the person to full relief - if the family income is below the applicable family income threshold - or where the family income is within the applicable shading-in range, to a reduction in levy instalments.
Sub-regulation (2) of regulation 54DACA enables an employee who is not a prescribed person to lodge a Medicare levy variation declaration claiming the benefit of the family income threshold.
Sub-regulation 54DACA(3) permits employees to lodge another Medicare levy variation declaration notifying changed circumstances relevant to the employee’s levy liability. For example, the birth of another child may give an employee a levy threshold exceeding his taxable income in which case no levy would be payable. Other instances could include a case where a dependant of a Repatriation pensioner also becomes a prescribed person, or where the employee marries.
Sub-regulation 54DACA(4) requires a Medicare levy variation declaration to be in accordance with a form provided by the Commissioner of Taxation, to be signed by the employee and to be dated on the day on which it is made. The form that is proposed to be provided by the Commissioner for this purpose makes provision for insertion of details of an employee’s dependants and the basis upon which full or partial relief is claimed.
Consistent with comparable situations where declarations are made under the income tax law, a person who in making a declaration about the truth of the contents of the form makes a false declaration, e.g., a false declaration that he or she is wholly exempt from the levy, is by paragraph 221V(g) of the Income Tax Assessment Act liable on conviction to a fine of up to $1,000 or imprisonment of up to six months.
Sub-regulation 5ADACA(5) makes clear that the Commissioner may provide a form of declaration that combines the income tax instalment declaration and the Medicare levy variation declaration in a single form.
New regulation 54DACB in appropriate circumstances allows a member of the Defence Force to be treated as having furnished a Medicare levy variation declaration under regulation 54DACA(1)(b) in advance of his having actually done so. This is a practical measure which recognises the position that members of the Defence Force who have dependants are exempt from one-half of the levy and are wholly exempt if they have no dependants. This provision is designed to avoid the need for lodgement of Medicare levy variation declarations by Defence personnel who are seeking relief from no more than one-half of the levy.
Regulation 14 is a formal drafting provision that ensures that a reference to a declaration in regulation 54DAD is a reference only to an income tax instalment declaration and not also to a Medicare levy variation declaration.
Regulation 15 extends the operation of regulation 54DAG which previously specified only the date on which income tax instalment declarations lodged by employees commence or cease to have effect. The various amendments to regulation 54DAG will ensure that the regulation will apply in a corresponding way in relation to Medicare levy variation declarations.
Regulation 16 amends regulation 54DAJ. That regulation is concerned with the contents of a certificate which the Commissioner may issue to an employee where an income tax instalment declaration is lodged with the Commissioner pursuant to regulation 54DAH. Its scope is now widened by restating in sub-regulation (a) the contents of a certificate which the Commissioner may issue to an employee upon receiving an income tax instalment declaration and newly specifying in sub-regulation (b) the contents of a certificate which the Commissioner may issue to an employee where the employee has lodged a Medicare levy variation declaration with the Commissioner pursuant to regulation 54DAH.
Regulation 17 amends sub-regulation 54DAK(1), which sets out the effects of the lodgement with an employer of a certificate issued by the Commissioner under regulation 54DAJ. The employer is required to give effect to the certificate as if it was a declaration lodged by the employee. The first amendment is a formal drafting change consequential on the insertion of regulations 54BA and 54CA by these amending regulations. Secondly, sub-regulation 54DAK(1), as amended, will require an employer to give effect to a certificate that specifies that a Medicare levy variation declaration has been furnished to the Commissioner in the same way as if a Medicare levy variation declaration had been furnished to the employer.
Regulation 18 amends regulation 54DAL to make purely formal drafting changes consequential on amendments made to regulation 54DAJ.
Regulation 19 amends regulation 54DAM. That regulation requires an employee who has lodged an income tax instalment declaration form with his or her employer or the Commissioner, and who ceases to be entitled to a rebate claimed in the
declaration, to direct his or her employer to disregard the declaration or furnish a fresh declaration to the employer, or to return to the Commissioner the certificate issued under regulation 54DAJ, as the case may be, within a specified time.
New sub-regulation 54DAM(3) deals with changes in circumstances after a Medicare levy variation declaration has been lodged by an employee with his employer or the Commissioner. Where an employee who has lodged a declaration on the basis that he is entitled to full or partial relief from the levy and later ceases to be so entitled, the employee is required by regulation 54DAM(3) -
• if the exemption claim was furnished to an employer - to direct the employer within 14 days to disregard the declaration (paragraph (a)); or
• if the exemption claim was furnished to the Commissioner - to return to the Commissioner within 14 days any certificate issued under regulation 54DAJ (paragraph (b)).
An employee who contravenes these requirements will be liable on conviction to a fine of up to $40 pursuant to sub-regulation 65(2).
Regulation 20 repeals the existing Third Schedule, which consists of PAYE Tables A, B, C and D and substitutes a new Third Schedule containing Tables A, B, C, CA, D, E and EA. Tables A and B contain scales of instalment deductions that reflect income tax and Medicare levy at full rates. Table D incorporates a “no-levy” column and “half-levy” columns for use where employees are, respectively, prescribed persons or prescribed persons with dependants who are not themselves prescribed persons. Tables C,
CA, E and EA provide for reductions, in appropriate cases as already described, in the amount of levy payable under Tables A, B or D.
Table A 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.
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.
Table C prescribes the reduction to be made from the weekly rates of tax instalment deductions prescribed in Table B. It will apply where an employee who receives salary or wages in respect of a week or part of a week of not less than $126 but less than $331 has furnished -
(a) an income tax instalment declaration; and
(b) a Medicare levy variation declaration disclosing up to 5 dependent children or student children and that the employee is entitled to the benefit of the family income threshold.
Table CA caters for cases where Table C would otherwise apply, but the Medicare levy variation declaration discloses 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 $85 but less than $751 and has furnished -
(a) an income tax instalment declaration; and
(b) a Medicare levy variation declaration claiming that he is -
• 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 thus a “half-levy” case).
Table E is the half-levy reduction equivalent to Table C. It will be 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 $210 but less than $331 has furnished a Medicare levy variation declaration disclosing up to 5 dependent children or student children and that the employee is entitled to the benefit of the family income threshold.
Table EA caters for cases where Table E would otherwise apply, but the Medicare levy variation declaration discloses 6 or more dependent children (or dependent student children).