Increase in Medicare levy to affect other tax rates

By now, most of you will be aware of the government’s decision to increase the Medicare levy by 0.5% to fund Australia’s DisabilityCare program. From July 1, 2014, the Medicare levy will increase from 1.5% to 2% of taxable income. What many people may not realise however is that the Medicare levy increase will cause a number of other tax rates to increase by 0.5% as well. These include taxation rates involving issues as diverse as fringe benefits tax, employee share schemes and even first home saver accounts.

A summary of the key tax rates that are linked and will be affected by the increase in the Medicare levy are included in the table set out below.

Status of legislation

Following the Federal Budget, the Medicare Levy Amendment (DisabilityCare Australia) Bill 2013to increase the Medicare levy and other accompanying bills to amend other linked tax rates were introduced into the House of Representatives on May 15, 2013. These passed the House of Representatives and the Senate on May 15 and 16 respectively and became law on May 28, 2013 after receiving Royal Assent.

 

Area of tax law Current rate New rate Date of effect
Fringe Benefits Tax 46.5% 47%[1] April 1, 2014 and later tax years
Superannuation

– Excess concessional contributions tax

– Excess non-concessional contributions tax

– Excess untaxed roll-over amounts tax

 

31.5%

46.5%

46.5%

 

32%

47%

47%

 

2014-15 financial year and later

2014-15 financial year and later

Excess untaxed roll-over amounts paid on or after July 1, 2014

Withholding for Tax File Number (TFN) or Australian Business Number (ABN) not quoted[2] 46.5% 47% Applies to payments made on or after July 1, 2014
Trusts

– Family Trust Distributions Tax

– Trustee Beneficiary Non-disclosure Tax

 

46.5%

46.5%

 

47%

47%

 

Applies to tax payable on notices given by the Commissioner of Taxation on or after July 1, 2014

2014�15 income year and later income years

Employee Share Schemes (ESS) – TFN/ABN Withholding Tax 46.5% 47% Applies to ‘ESS interests’ provided on or after 1 July 2014
First Home Saver Accounts (FHSA) – FHSA Misuse Tax 46.5% 47% Applies to payments from a FHSA made on or after 1 July 2014
1: Note that gross-up rates for FBT purposes will also change due the Medicare levy increase.
The Type 1 and Type 2 gross-up rates will be 2.0802 and 1.8868 respectively.

2: The tax rates for withholding where a TFN or ABN have not been quoted have been automatically revised to 47% to reflect an increase in the Medicare levy – no amending legislation was required.  An example of such TFN withholding is where a taxpayer fails to provide their TFN details to a bank where interest income is being derived.