Income Tax Regulations (Amendment)

EXPLANATORY STATEMENT

STATUTORY RULES 1986 NO 325

ISSUED BY THE AUTHORITY OF THE TREASURER INCOME TAX REGULATIONS (AMENDMENT)

The purpose of these regulations is to provide for new rates of tax instalment deductions (PAYE deductions) effective for payments of salary or wages received on or after 1 December 1986. The new rates of tax instalment deductions reflect the implementation of the first stage of reform of the personal income tax rate scale announced on 19 September 1985 in the Statement on Reform of the Australian Taxation System which, in accordance with the 1986-87 Budget, is to apply with effect from 1 December 1986. The level of the deductions also reflects the 1986-87 Budget announcement to increase, from 1 December 1986, the basic rate of Medicare levy from 1 per cent to 1.25 per cent and to raise the taxable income thresholds below which certain taxpayers will not pay the levy.

For resident taxpayers the changes to the rate scale from 1 December 1986 comprise an increase in the tax-free threshold from $4,595 to $5,100, reductions in marginal rates as follows -

(a) previously $4,595 - $12,500

(b) previously $12,500 - $19,500

____________________

For non-resident taxpayers, the existing rate of 30 per cent on taxable income up to $19,500 is reduced to 29 per cent and the reduced rates shown above apply to taxable income in the relevant ranges above $19,500.

The low income thresholds that operate for the payment of Medicare levy have been increased from $7,526 to $8,030 for a taxpayer without dependants and from $12,504 to $13,370 for a married (including de-facto married) couple or sole parent. The threshold is increased by $1,660 (previously $1,530) for each dependent child or student maintained by a married couple or sole parent.

Notes on each of the amending regulations are set out below:

Commencement

By Regulation 1 the amending regulations are to come into operation on 1 December 1986.

Principal Regulations

Regulation 2 facilitates references to the Income Tax Regulations which, in the amending regulations, are referred to as the “Principal Regulations”.

Interpretation

Regulation 3 amends regulation 54A of Subdivision A of Division 2 of Part VI of the Principal Regulations that contains the definitions of a number of terms and various interpretative provisions for the purposes of Subdivision A.

Paragraphs (a), (b), (d), (e) and (g) of regulation 3 amend sub-regulation 54A(1) of the Principal. Regulations by inserting some new functions, amending others and substituting new definitions for some of these. They are as follows -

“declare” means declare in a Medicare levy variation declaration referred to in paragraph 54A(2)(b) of the Principal Regulations. The term is defined for use in the definitions of “shading out point” and “weekly family income threshold” (see notes below);

“dependent child” means, in relation to an employee, a child of the employee who is a resident of Australia, and is under 16 years of age or, if a student, is aged 16 years or older and under 25 years of age. The child must also be a dependant of the employee for the purposes of Part VIIB of the Income Tax Assessment Act 1936 (the Act). Under Part VIIB of the Act - the provisions that determine a taxpayer’s liability for Medicare levy - a child (as defined in sub-section 6(1) of the Act) under 16 years of age is a dependant of another person if that other person contributes to the maintenance of the child. A child aged 16 years or older but under 25 years of age (being a student) is a dependant of another person if that other person contributes to the maintenance of the child and that person would have been entitled under section 159J of the Act, to a rebate for the child but for the termination of such rebates with effect from the 1976-77 income year. Under Part VIIB a person is taken to have contributed to the maintenance of another person during any period those persons reside together unless

the contrary is established to the satisfaction of the Commissioner. Part VIIB also states that where the parents of a child live apart from one another and the child would otherwise be taken to be a dependant of each parent for the purpose of Part VIIB, the child is to be taken to be the dependant of the parent to whom family allowance under the Social Security Act 1947 in respect of the child is paid. The terms “dependent child” and “dependent spouse” (see notes below) are defined for the purposes of determining the appropriate Medicare levy adjustment amount (see notes on regulations 5 and 6) - paragraph (b):

“dependent spouse”, is defined by reference to the meaning of the term “dependant” in Part VIIB of the Act (see notes on “dependent child” above). The term means, in relation to an employee, a person who being a resident of Australia is the spouse, including a de-facto spouse, of the employee where the employee contributes to the maintenance of that person and is notionally entitled to a rebate under section 159J in respect of the person;

“prescribed non-resident” in relation to a period within a year of income, means a person who at all times during the period is a non-resident, but not including a person to whom, at any time during the year of income, an Australian repatriation or social security pension or benefit (other than unemployment or sickness benefits), that is taxable in Australia, is payable. Where, during a particular period within the year of income, a person is a

prescribed non-resident, that person may not claim the general exemption (i.e., not receive the benefit of the tax-free threshold). A person who gives to his or her employer a declaration to the effect that he or she is a prescribed non-resident (paragraphs 54A(2)(a) and 54 DAD(3)(c)) will have tax instalment deductions made without the benefit of the general exemption and without Medicare levy, in accordance with regulation 54DA - paragraph (d);

“shading out point” means the amount in whole dollars calculated in accordance with the formula -

20A

18.75    ,

where A is the employee’s “weekly family income threshold” amount (see the following notes on the meaning of that term). The term is defined for the purposes of calculating the Medicare levy adjustment amount, if any, under regulations 54B or 54BA (see notes on regulations 5 or 6, respectively). In effect, the shading out point in relation to an employee is the maximum amount the employee may earn in a week or part of a week before full Medicare levy or, in the case of a prescribed person, half levy, is incorporated in the employee’s weekly tax instalment deduction amount - paragraph (e):

“weekly family income threshold” means, in relation to an employee who has declared (see earlier notes for the meaning of “declare”) that he or she has a dependent spouse or one or more dependent children (see earlier notes for the meaning of “dependent child” and “dependent

spouse”) the amount, rounded to the nearest cent, calculated in accordance with the formula -

______A_______

52.896532

where A is the family income threshold in relation the employee. The family income threshold is determined by reference to section 8 of the Medicare Levy Act 1986 - for example, an employee who has a dependent spouse and 2 dependent children will have a family income threshold of $16,690 (i.e., $13,370 plus $1,660 for each child), and a sole parent with one dependent child will have a family income threshold of $15,030 (i.e., $13,370 plus $1,660 for the child). The term “weekly family income threshold” is the weekly equivalent of the family income threshold that may be used to determine a taxpayer’s liability to Medicare levy when an assessment for the year of income is made. In effect, an employee’s “weekly family income threshold” amount is the maximum amount the employee who declares a dependant for Medicare levy purposes may earn in a week or part of a week before having an amount of Medicare levy included in his or her weekly tax instalment deduction - paragraph (g).

Paragraph (c) of regulation 3 omits the amount “$85.99” from the definition of “general exemption” in sub-regulation 54A(1) and substitutes the amount “$93.99”. This reflects the increase in the tax-free threshold from $4,595 to $5,100.

The term is defined for the purposes of regulation 54DAC which stipulates that an employee who wishes to have the general exemption taken into account for the purposes of determining the

prescribed rate of deductions to be made may give his or her employer a declaration to that effect. Where the general exemption is claimed in a declaration no tax instalment deductions will be made from the first $93.99 of weekly salary or wages. By sub-regulation 54DAC(3), an employee who is a “prescribed non-resident” may not claim the general exemption for tax instalment purposes.

Paragraph (f) of regulation 3 omits the definition of “specified rebate value” from sub-regulation 54A(1). The term was used in regulation 54C and 54CA, but following amendments to those regulations the term is no longer used and is therefore not needed.

Paragraph (h) of regulation 3 omits sub-regulations (1AA) and (1A) of the Principal Regulations and substitutes a new sub-regulation (1A).

New sub-regulation (1A) incorporates existing sub-regulation (1AA) into paragraph (a) and maintains the same operation of that sub-regulation. The existing sub-regulation (1A) is omitted because its operation is now achieved by the new definitions of “dependent spouse” and “dependent child”. Paragraph (b) of new sub-regulation (1A) states that, for the purposes of Subdivision A, the relevant amount of earnings of an employee in respect of a week or part of a week is the number of whole dollars in the aggregate of the employee’s weekly earnings (other than certain termination payments subject to regulation 54DAAA) plus the amount of $0.99.

An employee’s “relevant amount of earnings” is an integral component (component B) of the formula used in new regulation 54AB for the purposes of determining the basic tax instalment amount in relation to an employee for a week or part

of a week (see notes on regulation 4). The expression is also used in amended regulations 54B and 54BA (see notes on regulations 5 and 6, respectively).

Income tax instalment amounts

Regulation 4 inserts a new regulation - regulation 54AB - in Subdivision A. New regulation 54AB provides for the calculation of PAYE tax instalment deduction amounts by the use of a formula. This formula (except for a minor adjustment) has been in use for a number of years to calculate the weekly tax instalment amounts shown in Tables A. B and D of the now repealed Third Schedule. Those tables set out the prescribed rate of deductions for an employee in the relevant circumstances and formed the basis of the instalment Schedules issued by the Commissioner of Taxation to employers and the general public. As a consequence of the insertion of regulation 54AB, the Third Schedule in its present form is no longer needed and is replaced by a new Third Schedule containing Tables itemising the components for the formula used in regulation 54AB. The prescribed rate of deductions for an employee will now be determined by application of the components in a Table set out in the new Third Schedule having regard to his or her circumstances. The instalment schedules issued by the Commissioner will be compiled using the formula.

The values of the components to be used in the formula in regulation 54AB give effect to the changes from 1 December 1986 to the personal income tax rate scale and Medicare levy. Where an employee is entitled to have his or her tax instalment amount reduced, e.g., where the employee is entitled a to a Medicare levy adjustment or to a rebate for a dependant, the amount calculated by reference to new regulation 54AB forms the basis from which any relevant adjustments may be made to determine the actual deduction to be made from the employee’s weekly earnings.

By sub-regulation (1) of regulation 54AB a reference to a table in the regulation is a reference to a table in the new Third Schedule. As explained earlier in these notes the previous Third Schedule has been repealed and a new Third Schedule substituted. The new Third Schedule comprises 5 tables that are to be used in the calculation of income tax instalment amounts. Each table is made up of 4 columns -

Each of the 5 tables has a separate use depending on the circumstances that apply to an employee. Briefly, the circumstances that determine the use of each table are as follows:

Sub-regulation (2) of regulation 54AB is a drafting measure relevant to the use of the formula as set out in sub-regulation (3). Where the relevant amount of earnings of an employee falls within a particular range shown in column 2 of a table that is relevant for that employee, the item number in column 1 shown against that range of earnings is appropriate for the purposes of identifying the factor in column 3 and the amount in column 4 that are to be used in the formula.

By sub-regulation (3) the tax instalment amount in relation to an employee for a week or part of a week is to be calculated by using the formula AB-C, where -

A is the factor specified in column 3 of the table relevant to the employee;

B is the relevant amount of earnings of the employee; and

C is the amount specified in column 4 of the table relevant to the employee.

The table to be used for an employee is determined as follows:-

Table 1 - where paragraph 54B(1)(c) applies;

Table 2 - where paragraph 54BA(1)(c) applies;

Table 3 - where paragraph 54BA(1)(d) applies;

Table 4 - where regulation 54D applies; and

Table 5 - where regulation 54DA applies.

Sub-regulation (4) operates to round the amount calculated using the formula to the nearest 5 cents. Where the formula results in an amount ending in exactly 2.5 cents or 7.5 cents, the amount is rounded to the next lower multiple of 5 cents. The rounding is done directly, i.e., the product of “A” and “B” is not rounded before the result of “AB-C” is calculated.

Rate of deductions - employee claiming general exemption only and employee, not being a prescribed person, claiming general exemption and Medicare levy variation

Regulation 5 amends regulation 54B of the Principal Regulations. Regulation 54B operates to determine the rate of deductions to be made from an employee’s weekly earnings where -

• the employee claims the general exemption only, including an employee who may also be a prescribed person but who has not furnished a Medicare levy variation declaration in which the employee claims exemption from the levy (paragraph 54B(1)(c)); or

• the employee, not being a prescribed person, claims the general exemption and furnishes a Medicare levy variation declaration claiming exemption in whole or in part from the levy because he or she has a dependant (paragraph 54B(1)(d)).

By paragraph (a) of regulation 5, paragraphs 54B(c) and (d) of Regulation 54B were omitted and substituted by new paragraphs (1)(c) and (1)(d). The operation of new paragraphs (c) and (d) have the same effect as the omitted paragraphs (c) and (d), respectively, as described above. However, the method of operation differs in that the new paragraphs determine the prescribed rate of deductions by first calculating the tax instalment amount using new regulation 54AB (see notes on regulation 4) and, where a Medicare levy variation declaration has been furnished (i.e. where paragraph (d) applies), reducing the income tax instalment amount by the Medicare levy adjustment amount, if any (see following notes on new sub-regulations 54B(2) and (3)).

New paragraph (1)(c) of regulation 54B applies where new paragraph (1)(d) does not apply, i.e., where the employee has not furnished a Medicare levy variation declaration under regulation 54DACA, or where the employee has furnished a variation declaration the employee’s relevant amount of earnings is less than $151 or is equal to or greater than the shading out point (see earlier notes on this expression) in relation to the employee. When new paragraph (1)(c) applies, the tax instalment amount is calculated using the formula AB-C in new sub-regulation 54AB(3), and the components for the formula relevant to paragraph 54B(1)(c), as set out in Table 1 of the Third Schedule. For example, the tax instalment amount for an employee whose relevant amount of earnings is $300.99 is calculated using the formula AB-C, where -

A is .3077  (Table 1, item 5, column 3)

B is $300.99 (Table 1, item 5, column 2)

C is $35.0738 (Table 1, item 5, column 4)

i.e., (.3077x$300.99) - $35.0738 = $57.540823

Income Tax instalment amount (rounded to the nearest 5 cents - sub-regulation 54AB(4)) = $57.55

By new paragraph (1)(d) of regulation 54B, when an employee, not being a prescribed person, furnishes a Medicare levy declaration form to his or her employer under regulation 54DACA and the relevant amount of earnings of the employee is within the Medicare levy shading-in range for the employee, that is, not less than $151 but less than the employee’s shading out point, the tax instalment amount is the amount calculated in accordance with paragraph (1)(c) reduced by the Medicare levy adjustment amount. The shading out point is calculated in accordance with the definition of that expression in sub-regulation 54A(1) (see earlier notes on paragraph (e) of regulation 3). For example, the shading out point for an employee with a dependent spouse and 2 dependent children is -

New sub-regulations (2) and (3) of regulation 54B set out the basis for the calculation of the Medicare levy adjustment amount referred to in paragraph 54B(1)(d). Sub-regulation (2), which is subject to the rounding-off provisions of sub-regulation (3), operates for 3 different ranges of relevant amounts of earnings. In each case, the Medicare levy adjustment amount (before being rounded-off) is calculated in accordance with formulae specified in paragraphs (2)(a), (b) and (c) in which -

A is the relevant amount of earnings of the employee in respect of a week or part of a week; and

B is the weekly family income threshold in relation to the employee (see earlier notes on paragraph (g) of regulation 3).

A Medicare levy adjustment amount is calculated in accordance with sub-regulation (2) as follows -

Relevant amount of earnings of the employee Formula

Paragraphs (2)(a) and (2)(b) operate to remove from the amount of the tax instalment deductions calculated for sub-paragraph 54B(1)(d)(iii) the amount of Medicare levy already included in the instalment deductions by the operation of the formula in regulation 54AB, because the level of the weekly earnings is below the Medicare levy threshold (i.e. the weekly family income threshold). Paragraph (2)(c) operates to shade-in the levy when the weekly earnings of the employee are just above the level of the weekly family income threshold.

By sub-regulation (3) of regulation 54B an amount calculated in accordance with sub-regulation (2) is to be rounded to the nearest 5 cents. Where an amount ends in exactly 2.5 cents or 7.5 cents, the amount is to be rounded to the next higher multiple of 5 cents.

Rate of deductions - employee, being prescribed person, claiming general exemption and Medicare levy variation

Regulation 6 repeals existing regulation 54BA of the Principal Regulations and substitutes a new regulation 54BA. Sub-regulation (1) of new regulation 54BA performs essentially

the same function as the repealed regulation 54BA, that is, it prescribes the tax instalment amount for an employee who is a prescribed person (that is, a person exempt from Medicare levy) and who -

• claims the general exemption (paragraph (a)); and

• furnishes a Medicare levy variation declaration to his or her employer under regulation 54DACA in which the employee declares -

.. that he or she is exempt from Medicare levy by virtue of being a prescribed person with no dependants or with dependants who are also prescribed persons, or

.. that he or she has a dependant who is not a prescribed person and the employee is entitled to full or partial relief from the levy - paragraph (b).

Paragraph (c) of new sub-regulation 54BA(1) applies where paragraphs (d) or (e) do not apply, that is, where the employee has no dependants for Medicare levy purposes or has one or more dependants, each of whom is also a prescribed person. Where paragraph (c) applies, the tax instalment amount is calculated using the formula AB-C in new sub-regulation 54AB(3), and the components for the formula relevant to paragraph 54BA(1)(c) as set out in Table 2 of the Third Schedule. For example, the tax instalment amount for an employee, being a prescribed person where paragraph 54BA(1)(c) applies and where relevant amount of earnings is $300.99, is calculated using the formula AB-C, where -

A is .295 (Table 2, item 3, column 3)

B is $300.99 (Table 2, item 3, column 2)

C is $35.09 (Table 2, item 3, column 4)

i.e., (.295 x $300.99) - $35.09 = $53.70205

Income tax instalment amount = $53.70

(rounded to nearest 5 cents - sub-regulation 54AB(3).

Paragraphs (d) and (e) of sub-regulation 54BA(1) apply where an employee has a dependent spouse who is not a prescribed person or one or more dependent children who are not prescribed persons. By paragraph (d), where the employee’s relevant amount of earnings is less than $253 or is equal to or greater than the shading out point in relation to the employee, the tax instalment amount is calculated by using the formula AB-C and the values shown in Table 3 of the new Third Schedule. By the operation of the formula specified no Medicare levy is included in the tax instalment amount for earnings less than $253 and where the relevant amount of earnings exceeds the employee’s shading out point, levy at half the 1.25 per cent rate is included.

Where paragraph (e) applies, that is, where the employee’s relevant amount of earnings is within the range where Medicare levy is shaded-in, the tax instalment amount is the amount calculated as if paragraph (d) applied, reduced by the Medicare levy adjustment amount. That is, by the operation of the formula specified in regulation 54AB, Medicare levy is included in the tax instalment deductions at the relevant level of earnings and it is necessary to make a reduction to shade-in the levy.

New sub-regulations (2) and (3) of regulation 54BA set out the basis for the calculation of the Medicare levy adjustment amount (the reduction) referred to in paragraph 54BA(1)(e) in much the same way as the Medicare levy adjustment amount is calculated in accordance with new sub-regulations 54B(2) and (3) (see earlier notes for an explanation of the operation of those sub-regulations). The formulae in paragraphs (a), (b) and (c) of sub-regulation (2) allow for the operation of sections 8 and 9 of the Medicare Levy Act 1986 that provide for levy to shade-in at one half of the 20 per cent rate at which levy shades-in for an employee who is not a prescribed person.

Rate of deductions - employee, not being a prescribed person, etc., claiming a rebate in respect of a dependant

Regulation 7 amends regulation 54C of the Principal Regulations. Regulation 54C prescribes the rate of deductions to be made from an employee’s weekly earnings where the employee claims a concessional rebate in respect of a dependant and, but for that fact, the provisions of regulation 54B would apply to the employee. Briefly, the amendments to regulation 54C maintain the effect of the existing regulation and substitute a method for the calculation of the weekly deduction amounts previously available from Tables B. C and CA of the Third Schedule that has now been repealed. The regulation will reduce the tax instalment deductions otherwise applicable to an employee by an amount that is the weekly equivalent of the rebates of tax to which the employee will be entitled (refer definition of “total rebate value” in sub-regulation 54A(1)).

Paragraph (a) is a drafting measure that will ensure that the tax instalment amount calculated by reference to new regulation 54B is appropriate for the purposes of calculating the prescribed rate of deductions under amended regulation 54C.

Paragraphs (b) and (c) omit the existing paragraphs (c) and (d) of regulation 54C and substitute new paragraphs (c) and (d). The effect of the new paragraphs is that the prescribed rate of deductions to be made from weekly earnings where regulation 54C applies to the employee are-

• the tax instalment amount calculated in accordance with regulation 54B as if that regulation applied to the employee (paragraph (c)), reduced by -

• the amount (to the nearest 5 cents) calculated by multiplying 1.9 cents by the total rebate value specified in the employee’s declaration referred to

in paragraph 54A(2)(a), i.e., the Income Tax Instalment Declaration (paragraph (d)).

Rate of deductions - employee, being a prescribed person, claiming a rebate in respect of a dependant

Regulation 8 amends regulation 54CA of the Principal Regulations. Regulation 54CA prescribes the rate of deductions to be made from an employee’s weekly earnings where an employee who is a prescribed person claims a rebate in respect of a dependant and, but for that fact, the provisions of regulation 54BA would apply to the employee.

The amendments to regulation 54CA by paragraphs (a) and (b) are identical and to the same effect as the amendments to regulation 54C by paragraphs (a) and (b) of regulation 7 (see earlier notes on regulation 7).

By paragraph (c), paragraphs (a), (b) and (c) of regulation 54CA are omitted and substituted by new paragraphs (a) and (b). The effect of the new paragraphs is very similar to the effect of new paragraphs 54C(c) and (d) (see earlier notes on regulation 7). That is, the prescribed rate of deductions to be made from an employee’s weekly earnings where regulation 54CA applies to the employee is -

• the tax instalment amount calculated in accordance with regulation 54BA, as if that regulation applied to the employee (paragraph (a)) reduced by -

• the amount (to the nearest 5 cents) calculated by multiplying 1.9 cents by the total rebate value specified in the employee’s declaration referred to in paragraph 54A(2)(a), i.e., the Income Tax Instalment Declaration (paragraph (b))

Rate of deductions - employee who has not furnished a declaration

Regulation 9 amends regulation 54D of the Principal Regulations that operates to prescribe the rate of deductions to be made from an employee’s weekly earnings where the employee, not being a prescribed non-resident, does not claim the general exemption. The existing rate of deductions under regulation 54D is determined as if the employee will derive at least $12,500 income from another source during the year of income. Accordingly, the rate of deductions reflects the marginal rates of tax for income in the ranges above $12,500, and Medicare levy that apply up to 1 December 1986.

By regulation 9, paragraphs (a) and (b) of regulation 54D are omitted and substituted by references to the calculation of the tax instalment amount in accordance with new regulation 54AB. From 1 December 1986, the tax instalment amount of an employee who does not claim the general exemption will be calculated on the basis that $12,600 will be derived by the employee from another source during the year of income.

Rate of deductions - employee who is a prescribed non-resident

Regulation 10 amends regulation 54DA of the Principal Regulations that operates to prescribe the rate of deductions to the made from an employee’s weekly earnings where the employee is a prescribed non-resident (see notes on regulation 3 for the new definition of “prescribed non-resident”) The existing rate of deductions, which does not include Medicare levy, is based on the income tax rate scale for non-residents that is to apply up to 1 December 1986.

By regulation 10, paragraphs (a) to (d) of regulation 54DA are omitted and substituted by references to the calculation of the tax instalment amount in accordance with new regulation 54AB.

Rate of deductions - employee in receipt of retirement amounts

Regulation 11 amends regulation 54DAAA of the Principal Regulations which prescribes a rate of deductions to be made in respect of certain retirement amounts included in an employee’s weekly earnings. The retirement amounts subject to the special rate - currently 31 cents in the dollar - are those specified in the Act as -

• amounts paid to an employee pursuant to an agreement, etc., for the employee to return to work (paragraph 26(eb) of the Act);

• unused annual leave paid after 15 August 1978 (section 26AC of the Act); and

• any assessable retirement amounts, other than eligible termination payments (see later notes on regulation 15), included within the meaning of “salary or wages” sub-section 221A(1) of the Act).

By regulation 11, the rate of deductions under regulation 54DAAA is increased from 31 per cent to 31.25 cents in the dollar in consequence of the increase from 1 December 1986 in the rate of Medicare levy from 1 per cent to 1.25 per cent.

Furnishing of declaration

Regulation 12 amends regulation 54DAC of the Principal Regulations which allows certain employees to furnish declarations to their employers for the purposes of determining the appropriate amount to be deducted from their earnings for the purposes of section 221C of the Act.

Paragraph (a) of regulation 12 is a drafting measure that omits paragraph (e) from existing sub-regulation 54DAC(1) and substitutes a new paragraph (e). New paragraph (e) specifies that an employee who wishes to have his or her status as a

prescribed non-resident taken into account, i.e., to have regulation 54DA apply for the purposes of determining a rate of deductions, may furnish a declaration to that effect to his or her employer.

Paragraph (b) of regulation 12 is a further drafting measure that omits the reference to a prescribed non-resident from sub-regulation 54DAC(4). Amended sub-regulation 54DAC(4) states that an employee shall not furnish a declaration claiming a concessional rebate or zone rebate in respect of a dependant for the purposes of determining a rate of deductions from the employee’s earnings, unless the employee is a resident.

Furnishing of Medicare levy variation declaration

Regulation 13 amends regulation 54DACA of the Principal Regulations that operates so that an employee who is a prescribed person may furnish a Medicare levy variation declaration to his or her employer to the effect -

• that the employee is entitled to full relief from the levy; or

• if the employee has a dependant who is not a prescribed person - that the employee is entitled to full or partial relief from the levy.

The amendment by regulation 13 is a drafting measure consequential on the insertion in sub-regulation 54A(1) of definitions of “dependent child” and “dependent spouse”.

Commissioner’s certificate

Regulation 14 amends regulation 54DAJ of the Principal Regulations that operates where an employee furnishes a declaration under Subdivision A to the Commissioner. Where that occurs, under regulation 54DAJ the Commissioner may issue the employee with a certificate specifying certain matters relevant

to the determination of the prescribed rate of deductions from the employee’s earnings. The employee may then, under regulation 54DAK, lodge that certificate with his or her employer.

The amendment to sub-paragraph (a)(i) of regulation 54DAJ by regulation 14 is a drafting measure that omits the reference to regulation 54DA and substitutes a reference to the employee’s status as a prescribed non-resident.

Rate of deductions

Regulation 15 amends regulation 54DAP of Subdivision AAA of Division 2 Part VI of the Principal Regulations. Subdivision AAA deals with deductions from eligible termination payments and regulation 54DAP operates to prescribe the rates of deductions to be made from eligible termination payments included in an employee’s earnings. Under regulation 54DAP, the existing rates of deductions are -

• 16 cents in the dollar (i.e., 15 per cent tax plus 1 per cent Medicare levy) in respect of the first $55,000 of an eligible termination payment made to an employee over 55 years of age;

• 31 cents in the dollar (i.e., 30 per cent tax plus 1 per cent Medicare levy) in respect of any other eligible termination payment or part thereof.

In accordance with the increase from 1 December 1986 in the rate of Medicare levy from 1 per cent to 1.25 per cent, regulation 16 omits the references to “16 cents” and “31 cents” in sub-regulation 54DAP(1) and substitutes, where appropriate, references to “16.25 cents” and “31.25 cents”.

Third Schedule

Regulation 16 repeals the Third Schedule to the Principal Regulations and substitutes a new Third Schedule. The repealed Third Schedule contains Tables A. B. C, CA, D, E, and EA

that are used for the purposes of determining the appropriate amount to be deducted from an employee’s earnings for the purposes of section 221C of the Act. The new Third Schedule contains Tables 1 to 5 that have the same purpose as the Tables in the repealed Schedule, that is, to set the prescribed rate of deductions for an employee, but will operate in conjunction with the formula provided in new regulation 54AB. An explanation of the operation of the Tables in the new Third Schedule is provided in the notes on new regulation 54AB (refer earlier notes on regulation 4).