Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2010-2011
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
Tax Laws amendment (temporary flood RECONSTRUCTION levy) bill 2011
income tax rates amendment (temporary flood RECONSTRUCTION levy) bill 2011
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary 1
General outline and financial impact 3
Chapter 1 Introduction of the Temporary Flood Reconstruction Levy 5
Index 11
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
|Abbreviation |Definition |
|Commissioner |Commissioner of Taxation |
|IT(TP) Act 1997 |Income Tax (Transitional |
| |Provisions) Act 1997 |
|ITAA 1997 |Income Tax Assessment Act |
| |1997 |
|ITRA 1986 |Income Tax Rates Act 1986 |
General outline and financial impact
Introduction of the Temporary Flood Reconstruction Levy
The Tax Laws Amendment (Temporary Flood Reconstruction Levy)
Bill 2011 and the Income Tax Rates Amendment (Temporary Flood
Reconstruction Levy) Bill 2011 amend the Income Tax Assessment
Act 1997 (ITAA 1997), the Income Tax Rates Act 1986 (ITRA 1986) and
the Income Tax (Transitional Provisions) Act 1997 (IT(TP) Act 1997)
to introduce a one-year progressive flood reconstruction levy in
the form of additional income tax on Australian resident and
foreign resident individuals in the 2011-12 financial year. These
changes will ensure that those with a greater capacity to pay make
a larger contribution to the rebuilding of disaster affected
regions of Australia through revenue raised by the levy.
Date of effect: The levy is payable for the 2011-12 financial
year.
Proposal announced: This measure was announced by the
Prime Minister in Media Release, Rebuilding after the floods of
27 January 2011.
Financial impact: This measure will have these revenue
implications:
|2010-11 |2011-12 |2012-13 |2013-14 |2014-15 |
|Nil |$1,560m |$235m |Nil |Nil |
Compliance cost impact: This measure is expected to result in a
very minor overall compliance impact, comprising a very minor
increase in compliance costs for some individuals and employers
with pay as you go withholding obligations with respect to the 2011-
12 financial year.
Introduction of the Temporary Flood Reconstruction Levy
Outline of chapter
1. The Tax Laws Amendment (Temporary Flood Reconstruction Levy) Bill
2011 and the Income Tax Rates Amendment (Temporary Flood
Reconstruction Levy) Bill 2011, amend the Income Tax Assessment
Act 1997 (ITAA 1997), the Income Tax Rates Act 1986 (ITRA 1986) and
the Income Tax (Transitional Provisions) Act 1997 (IT(TP) Act 1997)
to implement a one-year progressive flood reconstruction levy
(levy) in the form of additional income tax in the 2011-12
financial year only.
2. The amount of levy payable is at the rate of 0.5 per cent where the
taxpayer has a taxable income of between $50,001 and $100,000, and
1.0 per cent where the taxpayer has a taxable income in excess of
$100,000. No levy is payable where the taxpayer has a taxable
income of $50,000 or less or where they fall into an exemption
category.
Context of amendments
Income tax rates and thresholds and tax liability
3. The income tax rates and thresholds determine the rates that are
applied to an individual's taxable income.
4. The income tax liability of an individual is determined by the
application of the income tax rates and thresholds to an
individual's taxable income, which is usually reduced by any
available tax offsets (see subsection 4-10(3) of the ITAA 1997).
5. A progressive tax liability occurs when an individual's rate of tax
liability increases when their income increases.
Reconstruction funding
6. Significant damage has been caused by natural disasters in
Australia.
7. Applying an additional income tax will raise revenue to provide
funding toward the reconstruction cost.
Summary of new law
8. The effect of these Bills is to introduce an additional income tax
in the form of a one-year progressive levy to taxable income in the
2011-12 financial year only.
. Individuals with a taxable income of $50,000 or less in
the 2011-12 financial year will not pay the levy.
. Individuals with a taxable income between $50,001 and
$100,000 will pay a 0.5 per cent levy on that part of
taxable income above $50,000 in the 2011-12 financial year
only.
. Individuals with a taxable income of $100,001 or more will
pay a 0.5 per cent levy on that part of their taxable
income between $50,001 and $100,000 and a 1.0 per cent
levy on that part of their taxable income above $100,000
in the 2011-12 financial year only.
9. Individuals who are in a class specified in a legislative
instrument made by the Minister for the purpose of the levy will be
exempt from the levy.
10. In making the instrument, the Minister can only list a class of
individuals as exempt if they were affected by a natural disaster
in Australia in the 2010-11 and 2011-12 financial years.
11. A legislative instrument provides the flexibility to act quickly in
providing tax relief to individuals who have been adversely
affected by the ad hoc and unpredictable natural disasters that
occur in Australia.
12. The Minister may include in the instrument a class of individuals
such as recipients of an Australian Government Disaster Relief
Payment.
13. When a trustee has income that is taxed as if the income was of an
individual, they will be liable for the levy. This will ensure
that trustees who pay tax in substitute of an individual will bear
the same level of taxation as if the individual paid tax
themselves.
14. The levy cannot be reduced by non-refundable tax offsets. That is,
the taxpayer's income tax liability for the 2011-12 financial year
is calculated as the taxpayer's basic income tax liability on
taxable income less their tax offsets, to which the levy liability
is then added.
15. Where a taxpayer has a tax liability (as a result of the levy) and
is also entitled to credits, which may include an entitlement to a
refund of excess refundable tax offset and pay as you go withheld
amounts, the Commissioner of Taxation (Commissioner) will apply the
taxpayer's credit entitlement against the levy liability under
Division 3 of Part IIB of the Taxation Administration Act 1953.
16. For those taxpayers whose employer withholds tax throughout the
year according to Australian Taxation Office withholding schedules,
new withholding schedules will be issued by the Commissioner to
take account of the levy throughout the year.
17. Upon enactment of these Bills, the Commissioner will generally be
able to take account of the levy in determining the pay as you go
instalment amounts.
Comparison of key features of new law and current law
|New Law |Current law |
|For that part of the |No equivalent. |
|taxable income of the | |
|taxpayer that: | |
|exceeds $50,000 but | |
|does not exceed | |
|$100,000 the levy rate| |
|is 0.5 per cent; | |
|exceeds $100,000 the | |
|rate is 1.0 per cent. | |
Detailed explanation of new law
18. These Bills introduce an additional income tax in the form of a one-
year progressive levy.
19. The levy will be payable by individuals on their taxable income in
the 2011-12 financial year only. [Schedule 1, item 3, paragraph 4-
10(1)(a), Tax Laws Amendment (Temporary Flood Reconstruction Levy)
Bill 2011]
20. The levy is worked out on the taxpayer's income for the 2011-12
financial year at the rate shown at section 12B of the ITRA 1986.
[Schedule 1, item 3, subsection 4-10(4), Tax Laws Amendment
(Temporary Flood Reconstruction Levy) Bill 2011]
21. Individuals with a taxable income of $50,000 or less in the 2011-12
financial year will not be liable for the levy. [Schedule 1, item
3, paragraph 4-10(1)(b), Tax Laws Amendment (Temporary Flood
Reconstruction Levy) Bill 2011]
22. Individuals with a taxable income between $50,001 and $100,000 will
pay a 0.5 per cent levy on that part of taxable income above
$50,000 in the 2011-12 financial year only. [Schedule 1, item 1,
Income Tax Rates Amendment (Temporary Flood Reconstruction Levy)
Bill 2011]
23. Individuals with a taxable income of $100,001 or more will pay a
0.5 per cent levy on that part of taxable income between $50,001
and $100,000 and a 1.0 per cent levy on that part of their taxable
income above $100,000 in the 2011-12 financial year only.
[Schedule 1, item 1, Income Tax Rates Amendment (Temporary Flood
Reconstruction Levy) Bill 2011]
24. A number of individuals who have an income above $50,000 will be
exempt for the levy. For the individuals to be exempt they must be
in a class specified by the Minister in a legislative instrument
for the purpose of the levy. [Schedule 1, item 3, subsection 4-
10(2), Tax Laws Amendment (Temporary Flood Reconstruction Levy)
Bill 2011]
25. In making the instrument, the Minister can only list a class of
individuals as exempt if they were affected by a natural disaster
in Australia in the 2010-11 and 2011-12 financial years. [Schedule
1, item 3, subsection 4-10(3), Tax Laws Amendment (Temporary Flood
Reconstruction Levy) Bill 2011]
26. In calculating an individual's tax liability the levy is not
included in the taxpayer's basic income tax liability for the
purposes of applying any tax offsets against the levy. [Schedule
1, item 3, subsection 4-10(5), Tax Laws Amendment (Temporary Flood
Reconstruction Levy) Bill 2011]
27. The methodology that should be applied to work out the taxpayer's
basic income tax liability is set out in subsection 4-10(3) of the
ITAA 1997. The levy liability is not included in the taxpayer's
basic income tax liability and the levy liability must be
calculated in addition to the amount of basic income tax liability
set out in subsection 4-10(3) of the ITAA 1997. [Schedule 1,
item 3, subsection 4-10(6), Tax Laws Amendment (Temporary Flood
Reconstruction Levy) Bill 2011]
28. In working out the tax liability of an individual under section 4-
10 of the ITAA 1997 taxpayers are reminded by a note that they may
have to pay the levy in addition to the tax liability they
calculated under that section. [Schedule 1, items 1 and 2, Tax
Laws Amendment (Temporary Flood Reconstruction Levy) Bill 2011]
Administration
29. As the levy is additional income tax it will be administered and
collected as part of the existing tax framework.
Consequential amendments
30. For the purposes of the foreign income tax offset rules
(section 770-75 of the ITAA 1997) the levy is to be disregarded in
determining the foreign income tax offset limit for the 2011-12
financial year. [Schedule 1, item 3, subsection 4-10(7), Tax Laws
Amendment (Temporary Flood Reconstruction Levy) Bill 2011]
Application and transitional provisions
31. These amendments apply to the 2011-12 financial year only.
32. These amendments will be repealed on 1 July 2016. [Schedule 2,
items 1 to 3, Tax Laws Amendment (Temporary Flood Reconstruction
Levy) Bill 2011 and Schedule 2, item 1, Income Tax Rates Amendment
(Temporary Flood Reconstruction Levy) Bill 2011]
Index
Schedule 1: Main amendments
|Bill reference |Paragraph |
| |number |
|Item 1, Income Tax Rates Amendment |1.22, 1.23 |
|(Temporary Flood Reconstruction Levy) Bill | |
|2011 | |
|Items 1 and 2, Tax Laws Amendment (Temporary|1.28 |
|Flood Reconstruction Levy) Bill 2011 | |
|Item 3, paragraph 4-10(1)(a), Tax Laws |1.19 |
|Amendment (Temporary Flood Reconstruction | |
|Levy) Bill 2011 | |
|Item 3, paragraph 4-10(1)(b), Tax Laws |1.21 |
|Amendment (Temporary Flood Reconstruction | |
|Levy) Bill 2011 | |
|Item 3, subsection 4-10(2), Tax Laws |1.24 |
|Amendment (Temporary Flood Reconstruction | |
|Levy) Bill 2011 | |
|Item 3, subsection 4-10(3), Tax Laws |1.25 |
|Amendment (Temporary Flood Reconstruction | |
|Levy) Bill 2011 | |
|Item 3, subsection 4-10(4), Tax Laws |1.20 |
|Amendment (Temporary Flood Reconstruction | |
|Levy) Bill 2011 | |
|Item 3, subsection 4-10(5), Tax Laws |1.26 |
|Amendment (Temporary Flood Reconstruction | |
|Levy) Bill 2011 | |
|Item 3, subsection 4-10(7), Tax Laws |1.30 |
|Amendment (Temporary Flood Reconstruction | |
|Levy) Bill 2011 | |
Schedule 2: Sunsetting
|Bill reference |Paragraph |
| |number |
|Item 1, Income Tax Rates Amendment |1.32 |
|(Temporary Flood Reconstruction Levy) Bill | |
|2011 | |
|Items 1 to 3, Tax Laws Amendment (Temporary |1.32 |
|Flood Reconstruction Levy) Bill 2011 | |