Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX REGULATIONS (AMENDMENT) 1998 NO. 129

STATUTORY RULES 1998 NO. 129

Issued by authority of the Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax Regulations (Amendment)

Section 266 of the Income Tax Assessment Act 1936 (the Act) provides that the GovernorGeneral may make regulations for the purposes of the Act.

Purpose of the regulations

The purpose of the regulations is to:

*       ensure that the recently amended Medicare levy low income thresholds are reflected in the level of tax instalments (TIDs) that are deducted from employees' salary or wages; and

*       insert a note providing a link between the Income Tax Regulations (the Principal Regulations) and the new Income Tax Assessment Regulations in respect of the rates to be used for the purposes of calculating car expenses on a cents per kilometre basis.

Background

i) Tax Instalment Deductions

Subsection 221C(1) of the Act authorises the making of regulations to prescribe rates of deductions to be made by employers from the salary or wages of employees. The object is to enable collection of income tax and Medicare levy from employees by instalments under the Pay-As-You-Earn system. Division 2 of Part 7 of the Principal Regulations sets out the method of calculation for the correct amount of TIDs.

The regulations prescribe the rates at which TIDs are to be deducted from weekly salary or wages paid to an employee on or after 1 July 1998. They give effect to the changes to the low income thresholds contained in the Medicare Levy Amendment Act (No. 1) 1998, as outlined in the following table.

Category of taxpayer       Low income threshold Shading-out range Upper threshold

       (figure for 96-97) (inclusive) (figure for 96-97)

Individual taxpayer       $13,389 ($13,127) $13,390 - $14,474 $14,474 ($14,346)

Married taxpayer* with       $22,594 ($22,152) $22,595 - $24,425 $24,425 ($24,209)

no** dependants

includes a taxpayer who is entitled to a sole parent child/housekeeper or housekeeper rebate; the low income threshold increases by $2100 for each dependent child or student.

The thresholds stated in the Medicare Levy Act 1986 are annual figures whereas the Principal Regulations provide for the determination of TIDs in respect of weekly salary or wages. The figures contained in the Principal Regulations are basically the weekly equivalents of the annual figures.

The new figures inserted into regulations 72 and 73 are the weekly equivalents of the new annual thresholds applicable from 1 July 1998 (regulations 3 and 4). Corresponding amendments to reflect the new low income thresholds are also required to Tables 1 and 3 in Schedule 3 of the Principal Regulations (regulation 6).

ii) "Cents Per Kilometre" Rates

For the 1996-97 and earlier income years, Schedule 2A of the Act prescribes the methods used to calculate car expense deductions. The "cents per kilometre" method applies different rates depending on the engine capacity of the car. These rates are prescribed by regulation 147 and Schedule 6 of the Principal Regulations.

For the 1997-98 and later income years, Division 28 of the Income Tax Assessment Act 1997 outlines the methods to be used by taxpayers for calculating the amount of deduction they can claim for car expenses. The rates to be used for the "cents per kilometre" method are prescribed in the Income Tax Assessment Regulations.

Regulation 5 inserts a note linking the Principal Regulation containing the "cents per kilometre" rates with the new Income Tax Assessment Regulation.

The amendments commence on 1 July 1998.